Chapter 4: Securities and Exchange Board of India Act, 1992

The Securities and Exchange Board of India Act, 1992 (SEBI Act) is the cornerstone statute governing the Indian securities market. It established SEBI as an autonomous statutory body corporate with perpetual succession and a common seal.

The Preamble of the SEBI Act

The Preamble defines the tripartite statutory mission of SEBI:

1. To protect the interests of investors in securities;
2. To promote the development of the securities market;
3. To regulate the securities market and for matters connected therewith or incidental thereto.

Statutory Composition of the Board (Section 4)

Under Section 4(1) of the Act, the Board consists of nine members appointed to balance technical competence, regulatory coordination, and executive leadership:

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|                           COMPOSITION OF THE SEBI BOARD                           |
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| 1. CHAIRMAN: Person of ability, integrity and standing (Central Govt Appointee)   |
| 2. TWO MEMBERS: Officials from Union Ministry of Finance & Corporate Affairs      |
| 3. ONE MEMBER: Appointed by the Reserve Bank of India (RBI Deputy Governor / ED)  |
| 4. FIVE OTHER MEMBERS: Appointed by Central Govt (at least 3 Whole-Time Members)  |
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The general superintendence, direction, and management of SEBI's affairs vest in the Board, which may exercise all powers and do all acts and things that may be exercised or done by the Board.

Chapter IV of the SEBI Act delineates the primary supervisory and enforcement powers that empower the regulator to govern markets, conduct investigations, and prevent systemic abuse.

Key Sections of Chapter IV

Section 11: Functions of the Board

Empowers SEBI to take any necessary measures to protect investors and regulate the market, including:

• Regulating the business in stock exchanges and other securities markets.
• Registering and regulating the working of market intermediaries (stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees, merchant bankers, underwriters, portfolio managers, investment advisers).
• Registering and regulating Collective Investment Schemes (CIS) and mutual funds.
• Prohibiting fraudulent and unfair trade practices relating to securities markets.
• Prohibiting insider trading in securities.
• Regulating substantial acquisitions of shares and takeovers.
• Levying fees and other charges for carrying out statutory mandates.

Section 11A: Regulation of Disclosures & Prospectuses

Authorizes SEBI to specify disclosure requirements for capital issues, prohibit any company from issuing an offer document or prospectus, and specify conditions for regulatory approval.

Section 11B: Power to Issue Directions & Disgorgement

Allows SEBI to issue binding directions to any intermediary, listed company, or market participant:

• In the interest of investors or orderly development of the market;
• To prevent an intermediary from conducting business in a manner detrimental to investors;
• Disgorgement Mandate (Explanation to Sec 11B): Clarifies that SEBI's power includes directing the disgorgement of an amount equivalent to the wrongful gain made or loss averted through illegal transactions, along with interest.

Section 11C: Comprehensive Investigation Powers

Where SEBI has reasonable grounds to believe that transactions violate securities laws or an intermediary has engaged in misconduct:

• Summons & Oath: The Investigating Authority may summon any person, administer oaths, and compel the production of books, registers, and electronic records.
• Search and Seizure (Section 11C(8)): With prior authorization from a Judicial Magistrate First Class or Metropolitan Magistrate, the Investigating Authority may enter premises, search, and seize relevant books, registers, electronic servers, and communication devices.

Section 11D: Cease and Desist Powers

Enables SEBI to issue interim or permanent cease and desist orders against any person who has violated or is likely to violate any provision of the Act, rules, or regulations.

Chapter VIA of the SEBI Act establishes an objective, civil adjudication framework where specialized Adjudicating Officers (AOs) impose monetary penalties without the delays of criminal court trials.

Statutory Penalty Matrix (Chapter VIA)

Adjudication Principles (Section 15J)

While adjudging the quantum of penalty, the Adjudicating Officer is statutorily required to consider:

1. The amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;
2. The amount of loss caused to an investor or group of investors as a result of the default;
3. The repetitive nature of the default.

Recovery Proceedings (Section 28A)

If any person fails to pay a penalty, fee, or disgorgement amount, the Recovery Officer may draw up a certificate and proceed to recover the amount by:

• Attachment and sale of movable or immovable property;
• Attachment of bank accounts and demat accounts;
• Arrest of the defaulter and detention in civil prison;
• Appointing a receiver for management of movable and immovable properties.

In addition to administrative adjudication and monetary penalties under Chapter VIA, the SEBI Act provides alternative settlement mechanisms and criminal prosecution for egregious violations.

SEBI (Settlement Proceedings) Regulations, 2018

The settlement mechanism (formerly termed "consent orders") allows entities facing enforcement proceedings to resolve civil charges without admitting or denying guilt:

• Application Window: Must generally be filed within 60 days from the receipt of the Show Cause Notice.
• High-Powered Advisory Committee (HPAC): Evaluates the settlement terms, terms of settlement (monetary payment and non-monetary undertakings such as voluntary market exit or disgorgement), and recommends terms to the Internal Committee of SEBI.
• Matters Ineligible for Settlement: Serious systemic violations cannot be settled, including severe market manipulation affecting financial stability, fraudulent schemes causing widespread retail investor harm, insider trading involving key company leadership, or habitual repeat offences.

Criminal Prosecution & Imprisonment (Section 24)

Section 24 provides for criminal prosecution before a Court of Sessions:

• Any person who contravenes or attempts to contravene or abets the contravention of the Act, rules, or regulations is punishable with imprisonment for a term up to ten (10) years, or with a fine up to ₹25 Crores, or with both.
• Failure to pay any penalty imposed by an Adjudicating Officer or failure to comply with directions/orders of SEBI is punishable with imprisonment for not less than one month, extendable to ten years, or fine up to ₹25 Crores, or both.

Vicarious Liability of Companies & Corporate Officers (Section 27)

Where an offence is committed by a company, every person who at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of its business, as well as the company itself, shall be deemed guilty of the offence:

• Exemptions apply only if the individual proves that the contravention was committed without their knowledge or that they exercised all due diligence to prevent such contravention.
• Directors, managers, secretaries, or other officers are personally liable if the offence was committed with their consent, connivance, or is attributable to any neglect on their part.