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Amity Law School

Penalty as to SEBI act, 1992.
Investment & Competition Law

Submitted To: Mr. Rahul Mishra Lect., Amity Law School, Jaipur

Submitted By: Tanmay Tiwari B.A. LLB.(h), 8th Sem

out of them at least 3 shall be wholetime members. In April. Controller of Capital Issues was the regulatory authority before SEBI came into existence. i. the SEBI was given additional statutory power by the Government of India through an amendment to the Securities and Exchange Board of India Act 1992. Penalties under Security Exchange Board of India Act. The SEBI is managed by its members. 1998 the SEBI was constituted as the regulator of capital markets in India under a resolution of the Government of India. which constitute the market:    the issuers of securities the investors the market intermediaries.Introduction The Securities and Exchange Board of India (frequently abbreviated SEBI) is the regulator for the securities market in India. Initially SEBI was a non-statutory body without any statutory power. . it derived authority from the Capital Issues (Control) Act. It drafts regulations in its legislative capacity. SEBI is having its Headquarter at the business district of in Mumbai. d) The remaining 5 members are nominated by Union Government of India. quasi-judicial and quasiexecutive. Officers from Union Finance Ministry. However in the year of 1995. SEBI has three functions rolled into one body: quasi-legislative.e. SEBI has to be responsive to the needs of three groups. 1992. 1947. It was established on 12 April 1992 through the SEBI Act. 1992 are as follows: . b) Two members. there is an appeal process to create accountability. which consists of following: a) The chairman who is nominated by Union Government of India. Though this makes it very powerful. it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. c) One member from The Reserve Bank of India.

On reference. fails to maintain the same.(15A) If any person. etc.] SECURITIES APPELLATE TRIBUNAL.Penalty for failure to furnish information. adjudication and enquiry officer issued repeated notice to appellant to appear before him but in vain . was started .Subsequently. etc.Pursuant to an order of chairman. appellant failed to respond summons .Penalty for failure to furnish information.(a) to furnish any document. whichever is less. Securities & Exchange Board of India • Section 15A .However. (b) to file any return or furnish any information. return or report to the Board. fails to furnish the same. SEBI. he shall be liable to [a penalty of one lakh rupees for each day during which such failure continues or one crore rupees. 1 crore on appellant . . summons were issued to appellant to appear before investigating officer along with certain specific information . (c) to maintain books of accounts or records. selling or dealing in shares of ‘S’ Ltd. whichever is less]. return. return. MUMBAI Mukesh Malhotra v. he shall be liable to [a penalty of one lakh rupees for each day during which such failure continues or one crore rupees. books or other documents within the time specified therefor in the regulations. fails to file return or furnish the same within the time specified therefor in the regulations. investigation into case of buying.Resultantly adjudication and enquiry officer passed an ex parte order under section 15A(a) imposing a penalty of Rs. whichever is less]. who is required under this Act or any rules or regulations made thereunder. he shall be liable to [a penalty of one lakh rupees for each day during which such failure continues or one crore rupees.

further. yes Penalty for failure by any person to enter into agreement with clients (15B). If any person.Held. he shall be liable to [a penalty of one lakh rupees for each day during which such failure continues or one crore rupees.• Whether since time given to appellant to respond to summons was extremely short and same was true about notice of only 4 days given to him by adjudicating officer in adjudication proceedings.] . whichever is less.Held. fails to enter into such agreement. impugned order was liable to be set aside on that ground alone . who is registered as an intermediary and is required under this Act or any rules or regulations made thereunder to enter into an agreement with his client.Whether. yes . argument about appellant being a brother of somebody as a justification for imposition of extreme penalty was totally unacceptable .

as it was a clear case of mismanagement and appellants were bound to attend grievances of shareholders within a stipulated time schedule . MUMBAI Dharnendra Industries Ltd. which had not been attended to. [If any listed company or any person who is registered as an intermediary. SEBI debarred them from securities market for five years Whether since matter involved public interest and appellants’ annual reports for year 2002-03 admitted that there were 121 complaints. SEBI was justified in passing impugned order. such company or intermediary shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees.For failure to redress investors’ grievances – Appellants companies having failed to redress investors’ grievances.Penalty .Penalty for failure to redress investors' grievances (15C). fails to redress such grievances within the time specified by the Board. yes . Securities and Exchange Board of India • • • Section 15C SEBI Act. whichever is less SECURITIES APPELLATE TRIBUNAL.Held. 1992 . to redress the grievances of investors. after having been called upon by the Board in writing. v.

] (c) registered with the Board as a collective investment scheme. including mutual funds.] (e) registered as a collective investment scheme. fails to make an application for listing of its schemes as provided for in the regulations governing such listing. he shall be liable to [a penalty of one lakh rupees for each day during which such failure continues or one crore rupees .Penalty for certain defaults in case of mutual funds (15D). without obtaining such certificate of registration. fails to comply with the terms and conditions of certificate of registration. including mutual funds. fails to refund the application monies paid by the investors within the period specified in the regulations.] (d) registered as a collective investment scheme including mutual funds fails to despatch unit certificates of any scheme in the manner provided in the regulation governing such despatch. whichever is less. he shall be liable to [a penalty of one lakh rupees for each day during which he sponsors or carries on any such collective investment scheme including mutual funds. fails to invest money collected by such collective investment schemes in the manner or within the period specified in the regulations. including mutual funds. he shall be liable to [a penalty of one lakh rupees for each day during which such failure continues or one crore rupees. he shall be liable to pay [a penalty of one lakh rupees for each day during which such failure continues or one crore rupees. whichever is less. whichever is less. including mutual funds.] (f) registered as a collective investment scheme. If any person.] (b) registered with the Board as a collective investment scheme. sponsors or carries on any collective investment scheme. whichever is less. he shall be liable to [a penalty of one lakh rupees for each day during which such failure continues or one crore rupees. who is (a) required under this Act or any rules or regulations made thereunder to obtain a certificate of registration from the Board for sponsoring or carrying on any collective investment scheme. for sponsoring or carrying on any investment scheme. whichever is less. including mutual funds. he shall be liable to [a penalty of one lakh rupees for each day . or one crore rupees. including mutual funds.

whichever is less. Where any asset management company of a mutual fund registered under this Act. Penalty for failure to observe rules and regulations by an asset management company (15E).during which such failure continues or one crore rupees. whichever is less. fails to comply with any of the regulations providing for restrictions on the activities of the asset management companies.] . such asset management company shall be liable to [a penalty of one lakh rupees for each day during which such failure continues or one crore rupees.

2002.e. 12 (vi) (w.f. .f. for “a penalty not exceeding five lakh rupees for each such failure”.] (c) charges an amount of brokerage which is in excess of the brokerage specified in the regulations. . 12 (iv) (w. 12 (iii) (w. 12 (v) (w.Substituted by the SEBI (Amendment) Act . 2002. for “a penalty not exceeding five lakh rupees for each such failure”. 2002 . whichever is higher. who is registered as a stock broker under this Act.e.f.e. Substituted by the SEBI (Amendment) Act. for “a penalty not exceeding one thousand rupees for each day during which such failure continues”. 2002 . 29-10-2002). Substituted by the SEBI (Amendment) Act. 29-10-2002). 29-10-2002). Substituted by the SEBI (Amendment) Act. S. he shall be liable to a penalty not exceeding five times the amount for which the contract note was required to be issued by that broker. S. Substituted by the SEBI (Amendment) Act. S.e. he shall be liable to [a penalty of one lakh rupees for each day during which such failure continues or one crore rupees.f. 12 (ii) (w. for “a penalty not exceeding five thousand rupees for each day during which such failure continues”. S.f. 29-10-2002). 29-10-2002). whichever is less. S.f. 2002. S. 13 (w. (a) fails to issue contract notes in the form and in the manner specified by the stock exchange of which such broker is a member. 29-10-2002). 2002 . whichever is higher”. Substituted by the SEBI (Amendment) Act .e. he shall be liable to[a penalty of one lakh rupees] or five times the amount of brokerage charged in excess of the specified brokerage. for “a penalty not exceeding five thousand rupees for each day during which such failure continues or five lakh rupees.Penalty for failure in case of stock brokers (15F) If any person. for “a penalty not exceeding ten thousand rupees for each day during which such failure continues or ten lakh rupees. whichever is higher”. (b) fails to deliver any security or fails to make payment of the amount due to the investor in the manner within the period specified in the regulations.e.

either on his own behalf or on behalf of any other person. MUMBAI S.Penalty for insider trading (15G). which was not known to general public but to appellants as employees of company They. Ramesh and S. Securities and Exchange Board of India • • Section 15G SEBI Act. being company secretary and executive director of a company.Penalty . later on. with or without his request for such information except as required in the ordinary course of business or under any law.Appellants admitted that they had made a mistake and were willing to pay back profit earned by sale of shares Whether any violation of provision relating to inside trading will make a person guilty of being an inside trader .Whether however. tendered said shares in open offer announced by acquirer at higher price. (iii) or counsels. 1992 . deals in securities of a body corporate listed on any stock exchange on the basis of any unpublished price sensitive information. Padmalata Asis Bhaumik v.SEBI held appellants guilty of misconduct of insider trading and imposed penalty . yes . thereby making an unlawful gain . (i) SECURITIES APPELLATE TRIBUNAL. shall be liable to a penalty [of twenty-five crore rupees or three times the amount of profits made out of insider trading. had bought shares of that company on behalf of their family members on basis of unpublished price sensitive information. (ii) or communicates any unpublished price. read with reg 3 of the SEBI (Prohibition of Insider Trading) Regulations. whichever is higher. or procures for any other person to deal in any securities of any body corporate on the basis of unpublished price-sensitive information.Held.sensitive information to any person.For insider trading Appellants. 1992. If any insider who. taking into • • .

[(iii) make a public offer by sending letter of offer to the shareholders of the concerned company. 29-10-2002). Substituted by the SEBI (Amendment) Act. or Substituted by the SEBI (Amendment) Act. penalty was to be reduced . 16 (a) (w. fails to. 1992.f. Securities & Exchange Board of India • Section 15H SEBI Act. for “not exceeding five lakh rupees”. who is required under this Act or any rules or regulations made thereunder. whichever is higher.e. S. 29-10-2002).e.e. Substituted by the SEBI (Amendment) Act. If any person. 2002. 14 (i) (w. for “a penalty not exceeding five thousand rupees”.] he shall be liable to a penalty [ twenty-five crore rupees or three times the amount of profits made out of such failure. 1997 . 2002.(i) (ii) (iii) disclose the aggregate of his shareholding in the body corporate before he acquires any shares of that body corporate. or make a public announcement to acquire shares at a minimum price. MUMBAI VLS Finance Ltd.e. make payment of consideration to the shareholders who sold their shares pursuant to letter of offer.account said financial position of both parties.f.] (iv) SECURITIES APPELLATE TRIBUNAL. for “a penalty not exceeding five thousand rupees for each day during which such failure continues”.f. read with Reg 10 of the SEBI (SAST) Reg. yes Penalty for non-disclosure of acquisition of shares and take-overs (15H). 2002. their admission and their offer to pay back profit. Inserted by the SEBI (Amendment) Act. 2002. 14(ii) (w. S.Held. 29-10-2002). v. S. S.f.29-10-2002). which they had earned by sale of said shares. 15 (w.

Later. read with reg 3(1)(c) of the SEBI (SAST) Reg. yes Whether. SEBI must pass a workable order to maintain ability of company to make effective payment . 5 lakhs . it was appellant who was deemed to be a member of ‘T’ Ltd.Whether in light of that position.) Ltd.Held. voting rights vested with appellant and question whether he exercised those rights himself or through ‘K’ and ‘B’ through power of attorney did not alter situation with respect to acquisition in any manner whatsoever . there was nothing objectionable in impugned order and same was to be upheld . therefore.Penalty . taking a practical view of matter and fact that appellant had incurred heavy loss.Whether since it was appellant whose name was entered as beneficial owner in register of members of company and..company admitted mistake of having acquired 21. for purpose of attending and voting on its behalf at all general meetings of ‘T’ Ltd. which.For non-disclosure of acquisition of shares and takeovers Appellant. therefore. yes • • SECURITIES APPELLATE TRIBUNAL. with effect from date of transfer of shares. yes . because of failure of appellant to make public announcement of acquisition of shares of ‘T’ Ltd.Appellant made an application to SEBI seeking for exemption from provisions of Regulations of 1997. if such disclosure is bona fide.Held.Whether however.50.000 . yes . Securities and Exchange Board of India • When a person comes forward and makes clean breast of violation of regulation. transfer of shares in name of appellant for realizing its lawful dues amounted to acquisition as defined in 1997 Regulations Held. in matters of strict liability. parties entered into a fresh MOU whereby shares pledged were transferred in name of pledgee-appellant but those shares continued to be held as collateral securities and pledgee signed a power of attorney in favour of ‘K’ and ‘B’ of ‘T’ Ltd. in turn. yes . 1997 .It had incurred heavy losses and had not met its liability .. MUMBAI Diamond Projects (P. acquirer had right to sell shares pledged to realize its dues . SEBI should pass a workable order so that it can be implemented Section 15H SEBI Act..Held. yes • • .• In terms of a pledge document appellant advanced certain amount to ‘T’ Ltd.SEBI imposed penalty of Rs.96 per cent equity shares of target company without informing SEBI but denied having any intention to cheat public .Whether. .Whether acquisition of shares in target company by appellant without disclosing it to respondent amounted to violation of regulation 3(1)(c) . under section 41(3) of the Companies Act. v. Adjudicating and Enquiry Officer imposed penalty under section 15H(ii) .Held. 1992.Held. which was rejected – Thereafter. deposited certain shares with appellant by way of collateral securities As per agreement. 1. penalty imposed should be reduced to Rs.

shall be liable to a penalty which may extend to one crore rupees. . he shall be liable to a penalty of twenty-five crore rupees or three times the amount of profits made out of such practices. If any person indulges in fraudulent and unfair trade practices relating to securities. Penalty for contravention where no separate penalty has been provided(15HB). whichever is higher. Whoever fails to comply with any provision of this Act.Penalty for fraudulent and unfair trade practices (15HA). the rules or the regulations made or directions issued by the Board thereunder for which no separate penalty has been provided.

. From section 15A to Section 15HB of the SEBI act penalties are mentioned. Not only penalties but also on whom they are to be imposed on. Similarly section 11A gives power on issues relating to security.Conclusion Chapter VI A of The Security and Exchange Board of India Act. 11C to investigate and 11D to cease and desist the proceedings. 11B to issue directions. when to be imposed. Section 11of the act provides boards the power to impose such penalties on the offenders. 1992 speaks about ‘penalties and adjudication’ of the board.

References     www. .R.indiankanoon.in www.gov.sebi.org/wiki/Securities_and_Exchange_Board_of_India Law of Investment and Securities by S.wikipedia. Myneni.org http://en.