SEBI Act 1992

SEBI Act 1992 (Part 1)

Definition: The SEBI Act of 1992 was enacted to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market.
Key Features: The act provides for the establishment of a Board to regulate the securities market, register and regulate intermediaries, and prohibit fraudulent and unfair trade practices.

Key Concepts

Powers and Functions of SEBI: SEBI has the power to regulate the business in stock exchanges, register and regulate intermediaries, promote investors' education, and prohibit insider trading.
Penalties and Adjudication: SEBI can impose penalties and initiate adjudication proceedings against intermediaries who default on various grounds, such as failure to furnish information or failure to enter into an agreement with clients.
Prohibition of Manipulative and Deceptive Devices: SEBI prohibits manipulative and deceptive devices, including insider trading, and has the power to take measures to prevent such practices.

Salient Features of SEBI Act, 1992

Regulation of Securities Market: SEBI regulates the securities market, including stock exchanges, intermediaries, and collective investment schemes.
Registration and Regulation of Intermediaries: SEBI registers and regulates intermediaries, such as stockbrokers, sub-brokers, and merchant bankers.
Prohibition of Fraudulent and Unfair Trade Practices: SEBI prohibits fraudulent and unfair trade practices, including insider trading and manipulative practices.

Penalties Applicable

Section 15A: Penalty for failure to furnish information, return, etc. (minimum penalty: ₹1 lakh, maximum penalty: ₹1 crore)
Section 15B: Penalty for failure to enter into an agreement with clients (minimum penalty: ₹1 lakh, maximum penalty: ₹1 crore)
Section 15C: Penalty for failure to redress investors' grievances (minimum penalty: ₹1 lakh, maximum penalty: ₹1 crore)
Section 15D: Penalty for certain defaults in case of mutual funds (minimum penalty: ₹1 lakh, maximum penalty: ₹1 crore)
Section 15E: Penalty for failure to observe rules and regulations by an asset management company (minimum penalty: ₹1 lakh, maximum penalty: ₹1 crore)
Section 15EA: Penalty for default in case of alternative investment funds (minimum penalty: ₹1 lakh, maximum penalty: ₹1 crore or three times the amount of gains made)

SEBI Act 1992 (Part 2)

Investment Funds: Investment funds, infrastructure investment trusts, and real estate investment trusts are subject to regulations and penalties for non-compliance.
Penalties for Non-Compliance: Various sections of the SEBI Act (15EB, 15F, 15G, 15H, 15HA, 15HAA, 15HB) outline penalties for default in case of investment advisers, research analysts, stockbrokers, insider trading, non-disclosure of acquisition of shares and takeovers, fraudulent and unfair trade practices, alteration or destruction of records, and contravention of SEBI provisions.
Key Penalties:
- Section 15EB: Penalty for default in case of investment adviser or research analyst, with a fine of not less than one lakh rupees, which may extend to one lakh rupees for each day during which such failure continues.
- Section 15F: Penalty for default in case of stockbrokers, with a fine of not less than one lakh rupees, which may extend to one lakh rupees for each day during which such failure continues.
- Section 15G: Penalty for insider trading, with a fine of not less than ten lakh rupees, which may extend to twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher.
- Section 15H: Penalty for non-disclosure of acquisition of shares and takeovers, with a fine of not less than ten lakh rupees, which may extend to twenty-five crore rupees or three times the amount of profits made out of such failure, whichever is higher.
- Section 15HA: Penalty for fraudulent and unfair trade practices, with a fine of not less than five lakh rupees, which may extend to twenty-five crore rupees or three times the amount of profits made out of such practices, whichever is higher.
- Section 15HAA: Penalty for alteration or destruction of records, with a fine of not less than one lakh rupees, which may extend to ten crore rupees or three times the amount of profits made out of such act, whichever is higher.
- Section 15HB: Penalty for contravention of SEBI provisions, with a fine of not less than one lakh rupees, which may extend to one crore rupees.

Appellate Tribunal

Securities Appellate Tribunal (SAT): The SAT is not bound by the procedure laid down by the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice.
Powers of SAT: The SAT has the same powers as a civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect of matters such as summoning and enforcing attendance, requiring discovery and production of documents, receiving evidence on affidavits, and issuing commissions for examination of witnesses or documents.
Appeal to SAT: Any person aggrieved by an order of the SEBI, an adjudicating officer, or the Insurance Regulatory and Development Authority (IRDA) or the Pension Fund Regulatory and Development Authority (PFRDA) may prefer an appeal to the SAT.
Key Provisions:
- Section 15T: Appeal to the SAT, which states that any person aggrieved by an order of the SEBI or other regulatory bodies may prefer an appeal to the SAT.
- Section 15U: The SAT is not bound by the procedure laid down by the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice.

SEBI Act 1992 (Part 3)

Appeal to SAT: An appeal can be filed before the Securities Appellate Tribunal (SAT) within a period of 45 days from the date of receipt of the order made by SEBI or the Adjudicating Officer, along with the prescribed fee.
Appeal Procedure: The appeal filed before SAT shall be dealt with as expeditiously as possible, and an endeavour shall be made to dispose of the appeal finally within six months from the date of receipt of the appeal.
Appeal to Supreme Court: Any person aggrieved by any decision or order of the SAT may file an appeal to the Supreme Court within 60 days from the date of communication of the decision or order of the SAT, on any question of law arising out of such order.

Registration of Intermediaries

Certificate of Registration: Section 12 of the SEBI Act vests SEBI with the power to issue a certificate of registration, without which no intermediary can buy, sell, or deal in securities.
Intermediaries: Intermediaries include stockbrokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers, and other intermediaries associated with the securities market.
Compliance: These intermediaries must comply with certain provisions in regulations while applying for a certificate of registration.

Prohibition of Manipulative and Deceptive Devices

Section 12A: No person shall directly or indirectly use or employ any manipulative or deceptive device in connection with the issue, purchase, or sale of securities.
Prohibited Activities: Prohibited activities include:
- Using manipulative or deceptive devices
- Employing devices to defraud
- Engaging in acts that operate as fraud or deceit
- Insider trading
- Dealing in securities with non-public information
- Acquiring control of a company in contravention of regulations

Review Questions

The functions of SEBI under the SEBI Act, 1992, include regulating the business in stock exchanges, promoting and regulating self-regulatory organisations, regulating substantial acquisition of shares and take-over of companies, and prohibiting insider trading in securities.
SEBI can prohibit any company from issuing a prospectus, offer document, or advertisement soliciting money from the public for the issue of securities.
An intermediary may be liable to pay a penalty if it fails to file any return or furnish any information, books, or other documents within the specified time, or maintain books of account or records.
Any intermediary can appeal to SAT if it has been aggrieved by any order passed by SEBI.