SECURITIES AND INDVESTMENT LAW

A PROJECT ON
“A RESERCH ON ACCOUNTABILITY OF FOREIGN
INSTITUTE INVESTORS”

SUBMITTED TO: MS. RUTH VAIPHEI

SUBMITTED BY
RAUNAK SINHA
BBA LLB (HONS.)
5th YEAR
ENROLLMENT NO.- 1505C00098

SUBMISSION DATE: _______________________

SIGNATURE OF STUDENT: _________________
SIGNATURE OF FACULTY: _________________

ICFAI LAW SCHOOL

THE ICFAI UNIVERSITY, DEHRADUN
 TABLE OF CONTENT

1. ACKNOWLEDGEMENT
2. OBJECT AND METHODOLOGY
3. INTRODUCTION
4. OBLIGATION AND RESPONSIBILITY OF FOREIGN INSTITUTE INVESTORS
5. CODE OF CONDUCT FOR FIIs
6. CONCLUSION
7. BIBLIOGRAPHY

1. ACKNOWLEDGEMENT
Foremost I would like to express my sincere gratitude to my professor Ms. Ruth Vaiphei for
his unreserved, friendly and continuous support. My genuine thanks also go to my friends,
for his invaluable advice and guidance throughout my study.

2. OBJECT AND METHODOLOGY

The present research work on the topic of “A RESERCH ON ACCOUNTABILITY OF
FOREIGN INSTITUTE INVESTORS” is both explorative and analytical. Published works by
eminent authors are also consulted during the research.

Since, the present topic was purely academic it was inevitable and inherently mandatory that
only secondary sources be made use of. Therefore, I have made use of journal articles, leading
books and of course the source of knowledge for students: Internet.

RAUNAK SINHA

E.no. – 1505C00098

3. INTRODUCTION
Indian stock market has grown steadily over the years alluring domestic investors and foreign
investors as a hotspot of investment. The major part of investment in Indian stock market is
attributed to institutional investors among whom foreign investors are prominent in the post-
liberalisation period. This chapter gives a brief sketch on conceptual and functional framework
of FIIs and their benefits.

The Preamble of the Securities and Exchange Board of India describes the basic functions of the
Securities and Exchange Board of India as "To protect the interests of investors in securities and
to promote the development of, and to regulate the securities market and for matters connected
there with or incidental there to".

SEBI has to be responsive to the needs of three groups, which constitute the market:

 issuers of securities

 investors

 market intermediaries

SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and quasi-
executive. It drafts regulations in its legislative capacity, it conducts investigation and
enforcement action in its executive function and it passes rulings and orders in its judicial
capacity. Though this makes it very powerful, there is an appeal process to create accountability.
There is a Securities Appellate Tribunal which is a three-member tribunal and is currently headed
by Justice Tarun Agarwala, former Chief Justice of the Meghalaya High Court. 1 A second appeal
lies directly to the Supreme Court. SEBI has taken a very proactive role in streamlining
disclosure requirements to international standards.2

4. OBLIGATION AND RESPONSIBILITY OF FOREIGN INSTITUTE

INVESTORS

1
Justice Tarun Agarwala appointed Securities Appellate Tribunal presiding officer - Business Standard.
wap.business-standard.com visited on 13/09/18
2
"Cyril Shroff Managing Partner Mumbai & National Capital Market head Amarchand". http://barandbench.com
visited on 13/09/2019
[Appointment of domestic custodian3]4

(1) A Foreign Institutional Investor or a global custodian acting on behalf of the Foreign
Institutional Investor, shall enter into an agreement with a domestic custodian to act as custodian
of securities for the Foreign Institutional Investor.

(2) The Foreign Institutional Investor shall ensure that the domestic custodian takes steps for –

(a) monitoring of investments of the Foreign Institutional Investor in India;

(b) reporting to the Board on a daily basis the transactions entered into by the Foreign
Institutional Investor;

(c) preservation for five years of records relating to his activities as a Foreign Institutional
Investor; and

(d) furnishing such information to the Board as may be called for by the Board with regard to the
activities of the Foreign Institutional Investor and as may be relevant for the purpose of this
regulation.

(3) A Foreign Institutional Investor may appoint more than one domestic custodian with prior
approval of the Board, but only one custodian may be appointed for a single sub-account of a
Foreign Institutional Investor.

Appointment of designated bank5

3
A custodian is a financial institution that holds customers' securities for safekeeping in order to minimize the risk of
their theft or loss. A custodian holds securities and other assets in electronic or physical form. Since they are
responsible for the safety of assets and securities that may be worth hundreds of millions or even billions of dollars,
custodians generally tend to be large and reputable firms. A custodian is sometimes referred to as a "custodian
bank."
4
Section 16 of Securities and exchange board of India (Foreign Institutional Investors )Regulation, 1995
5
Section 17 of Securities and exchange board of India (Foreign Institutional Investors )Regulation, 1995
17. A Foreign Institutional Investor shall appoint a branch of a bank approved by the Reserve
Bank of India for opening of foreign currency denominated accounts and special non-resident
rupee accounts.

6
Investment Advice in publicly accessible media (Section 17A)

(1) A Foreign Institutional Investor or any of his employees shall not render directly or indirectly
any investment advice about any security in the publicly accessible media, whether real-time or
non real-time, unless a disclosure of his interest including long or short position in the said
security has been made, while rendering such advice.

(2) In case, an employee of the Foreign Institutional Investor is rendering such advice, he shall
also disclose the interest of his dependent family members and the employer including their long
or short position in the said security, while rendering such advice.]

Maintenance of proper books of accounts, records, etc7

18. (1) Every Foreign Institutional Investor shall keep or maintain, as the case may be, the
following books of accounts, records and documents, namely:-

(a) true and fair accounts relating to remittance of initial corpus for buying, selling and realising
capital gains of investment made from the corpus;

(b) accounts of remittances to India for investments in India and realising capital gains on
investments made from such remittances;

(c) bank statement of accounts;

(d) contract notes relating to purchase and sale of securities; and

(e) communication from and to the domestic custodian regarding investments in securities.

(2) The Foreign Institutional Investor shall intimate to the Board in writing the place where such
books, records and documents will be kept or maintained.
6
Inserted by the SEBI (Investment Advice by Intermediaries) Regulations, 2001 w.e.f. 29.5.2001.
7
Section 18 of Securities and exchange board of India (Foreign Institutional Investors )Regulation, 1995
Preservation of books of accounts, records, etc8

19.Subject to the provisions of any other law, for the time being in force, every Foreign
Institutional Investor shall preserve the books of accounts, records and documents specified in
regulation 18 for a minimum period of five years.

9
[Appointment of Compliance Officer10

(1) Every Foreign Institutional Investor shall appoint a compliance officer who shall be
responsible for monitoring the compliance of the Act, rules and regulations, notifications,
guidelines, instructions etc issued by the Board or the Central Government.

(2) The compliance officer shall immediately and independently report to the Board any non-
compliance observed by him.] Information to the Board. 20. Every Foreign Institutional Investor
shall, as and when required by the Board or the Reserve Bank of India, submit to the Board or
the Reserve Bank of India, as the case may be, any information, record or documents in relation
to his activities as a Foreign Institutional Investor as the Board or as the Reserve Bank of India
may require.

11
20A. Foreign Institutional Investors shall fully disclose information concerning the terms of
and parties to off-shore derivative instruments such as Participatory Notes, Equity Linked Notes
or any other such instruments, by whatever names they are called, entered into by it or its sub-
accounts or affiliates relating to any securities listed or proposed to be listed in any stock
exchange in India, as and when and in such form as the Board may require.]

5. Code of Conduct for FIIs

8
Section 19 of Securities and exchange board of India (Foreign Institutional Investors )Regulation, 1995
9
Inserted by the SEBI (Investment Advice by Intermediaries) Regulations, 2001 w.e.f. 29.5.2001.
10
Section 19A of Securities and exchange board of India (Foreign Institutional Investors )Regulation, 1995
11
Inserted by the SEBI (Foreign Institutional Investors) (Second Amendment) Regulations, 2003 w.e.f. 8.8.2003
The codes of conduct given by SEBI are:

1. A FII and its key personnel are required to observe high standards of integrity, fairness and
professionalism in all dealings in the Indian Securities market with intermediaries, regulatory
and other Government authorities.

2. A FII should at all times render high standards of service, exercise due diligence and
independent professional judgement.

3. A FII should ensure and maintain confidentiality in respect of trades done on its own behalf
and/or on behalf of its sub-accounts/clients.

4. A FII should ensure the following:

a. clear segregation of its own money/securities and sub-accounts money/securities.

b. arms length relationship between its business of fund management/investment and its other
business.

5. A FII should maintain an appropriate level of knowledge and competency and abide by the
provisions of the Act, regulations made there under and the circular and guidelines, which may
be applicable and relevant to the activities carried on by it. Every FII should also comply with
the award of the Ombudsman and decision of SEBI under SEBI (Ombudsman) Regulations
2003.

6. A FII should not make any untrue statement or suppress any material fact in any documents,
reports or information furnished to SEBI.

7. A FII should ensure that good corporate policies and corporate governance are observed by it.

8. A FII should ensure that it does not engage in fraudulent and manipulative transactions in the
securities listed in any stock exchange in India.

9. A FII or any of its directors or managers should not either through its/his own account or
through any associate or family members, relatives or friends indulge in any insider trading.

10. A FII should not be a party to or instrumental for –

a) creation of false market in securities listed or proposed to be listed in any stock exchange in
India;

b) price rigging or manipulation of prices of securities listed or proposed to be listed in any stock
exchange in India;

c) passing of price sensitive information to any person or intermediary in the securities market.

CONCLUSION

FII are the important variable to Indian economy, they directly affect the wealth created Indian
economy. In recent period FII impacted the economy in adverse way. It is observed that FII
affected on Indian stock market & value of rupee against us $. It is more than obvious that the
current global crisis provides a real opportunity to initiate and develop alternative policies, both
internally and domestically. A change in economic paradigm is essential; without it the
international economy will continue to lurch from crisis to crisis and the developing world will
not be able to advance and provide basic needs to citizens. The need for more state intervention
in economies is now recognized everywhere. The concern now is to ensure that such state
involvement is more democratic and more accountable to the people. Therefore obligation and
responsibilities of foreign institutional investors should be strictly followed.

BIBLIOGRAPGY

ARITCLES REFFERED

1. Akyuz, Yilmaz (2008) “The global financial crisis and developing countries”,
2. Chandrasekar, C. P. (2008b) “India’s sub-prime fears” Economic and Political Weekly
 3. Misra Puri (2011) “Indian economy”
4. Madhu Vij (2010) “ International Financial Management”

WEBSITE REFFERED

1. www.rbi.org.in
2. www.fema.org.in
3. www.fipbindia.com/
4. dipp.nic.in/fdi_statistics/india_fdi_index.htm

BOOKS REFFERED

1. Securities and exchange board of India (Foreign Institutional Investors )Regulation, 1995.