Securities and Exchange Board of India Act, 1992

Securities and Exchange Board of India Act, 1992 (Part 1)

• Definition: The SEBI Act, 1992 was enacted to protect the interests of investors in securities and to promote the development and regulation of the securities market.
• Details: The Act provides for the establishment of a Board to regulate the securities market and to matters connected therewith or incidental thereto.

Key Concept 1: Salient Features of SEBI Act, 1992

• Powers and Functions of SEBI: The SEBI Act performs the following functions:
  • Regulating the business in stock exchanges and other securities markets
  • Registering and regulating the working of intermediaries such as stockbrokers, sub-brokers, and merchant bankers
  • Promoting and regulating self-regulatory organisations
  • Prohibiting fraudulent and unfair trade practices relating to securities markets
  • Promoting investors’ education and training of intermediaries of securities markets
  • Prohibiting insider trading in securities
  • Regulating substantial acquisition of shares and take-over of companies
• SEBI's Powers: SEBI has the same powers as a civil court under the Code of Civil Procedure, including:
  • The discovery and production of books of account and other documents
  • Summoning and enforcing the attendance of persons and examining them on oath
  • Inspection of any books, registers, and other documents of any person

Key Concept 2: Penalties and Adjudication

• Penalties: The SEBI Act empowers SEBI to impose penalties and initiate adjudication proceedings against intermediaries who default on various grounds, including:
  • Failure to furnish information, return, etc.
  • Failure to enter into an agreement with clients
  • Failure to redress investors’ grievances
  • Failure to comply with regulations and rules
• Adjudication Proceedings: SEBI can initiate adjudication proceedings against intermediaries who default on the above grounds, and the penalties can range from one lakh rupees to one crore rupees.
• Specific Penalties: The Act prescribes specific penalties for various defaults, including:
  • Section 15A: Penalty for failure to furnish information, return, etc.
  • Section 15B: Penalty for failure to enter into an agreement with clients
  • Section 15C: Penalty for failure to redress investors’ grievances
  • Section 15D: Penalty for certain defaults in case of mutual funds
  • Section 15E: Penalty for failure to observe rules and regulations by an asset management company (AMC)

Securities and Exchange Board of India Act, 1992 (Part 2)

• Introduction to SEBI Act: The SEBI Act, 1992 is a crucial legislation that regulates the securities market in India. It provides the framework for the functioning of the Securities and Exchange Board of India (SEBI), the primary regulator of the securities market.
• Penalties under SEBI Act: The SEBI Act prescribes penalties for various offenses, including:
  • Section 15EB: Penalty for default in case of investment adviser and research analyst, with a minimum penalty of one lakh rupees and a maximum penalty of one crore rupees.
  • Section 15F: Penalty for default in case of stockbrokers, with a minimum penalty of one lakh rupees and a maximum penalty of one crore rupees.
  • Section 15G: Penalty for insider trading, with a minimum penalty of ten lakh rupees and a maximum penalty of 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 minimum penalty of ten lakh rupees and a maximum penalty of 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 minimum penalty of five lakh rupees and a maximum penalty of twenty-five crore rupees or three times the amount of profits made out of such practices, whichever is higher.
  • Section 15HAA: Penalty for alteration, destruction, etc., of records and failure to protect electronic database of Board, with a minimum penalty of one lakh rupees and a maximum penalty of ten crore rupees or three times the amount of profits made out of such act, whichever is higher.
  • Section 15HB: Penalty for contravention where no separate penalty has been provided, with a minimum penalty of one lakh rupees and a maximum penalty of one crore rupees.
• Appellate Tribunal: The Securities Appellate Tribunal (SAT) is a judicial body that hears appeals against orders of the SEBI, adjudicating officers, IRDA, and PFRDA. The SAT has the power to regulate its own procedure and has the same powers as a civil court under the Code of Civil Procedure, 1908.
• Jurisdiction and Authority of SAT: The SAT has jurisdiction to hear appeals against orders of the SEBI, adjudicating officers, IRDA, and PFRDA. It is guided by the principles of natural justice and has the power to summon and enforce the attendance of any person, require the discovery and production of documents, receive evidence on affidavits, and issue commissions for the examination of witnesses or documents.
• Procedure for Filing Appeals: An appeal to the SAT must be filed within 45 days from the date of receipt of the order, in a specified form. The SAT is deemed to be a judicial proceeding within the meaning of the Indian Penal Code and a civil court for all purposes under the SEBI Act.

Securities and Exchange Board of India Act, 1992 (Part 3)

• Appeal to Supreme Court: Any person aggrieved by any decision or order of the Securities Appellate Tribunal (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 to him on any question of law arising out of such order.
• Registration of Intermediaries:
  • Definition: No stockbroker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser, or such other intermediary who may be associated with the securities market shall buy, sell, or deal in securities without a certificate of registration from SEBI.
  • Details: The application for registration and the payment of such fees shall be in accordance with the provisions of the regulations. SEBI may however by order, suspend or cancel a certificate of registration as under the provisions in the regulations after giving the person concerned a reasonable opportunity of presenting his/her case.
• Prohibition of Manipulative and Deceptive Devices, Insider Trading etc.:
  • Prohibition: No person shall directly or indirectly use or employ, in connection with the issue, purchase, or sale of any securities, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or any rules made thereunder.
  • Insider Trading: No person shall engage in insider trading or deal in securities while in possession of material or non-public information or communicate such material or non-public information to any other person, in a manner which is in contravention of the provisions of this Act or rules/regulations made hereunder.
• Compliance: The designated compliance officer in each intermediary should ensure that the intermediary is functioning in compliance with the provisions of the various regulations of the SEBI Act. Non-compliance with the rules and regulations laid down by SEBI will attract a penalty either monetary or suspension.