Law 308 Min

Chanderprabhu Jain College of Higher Studies
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An ISO 9001:2008 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi)
Class :BALLB SEVENTH SEMESTER
Paper Code :LLB 308
Subject :Investment and Competition law
Unit 1 Investment and Securities Law
a. Evolution of Securities and Investment Laws
The two exclusive legislations that governed the securities market till early 1992
were the Capital Issues (Control) Act, 1947 (CICA) and the Securities Contracts
(Regulation) Act, 1956 (SCRA). The CICA had its origin during the war in 1943
when the objective was to channel resources to support the war effort. Control of
capital issues was introduced through the Defence of India Rules in May 1943
under the Defence of India Act, 1939. The control was retained after the war with
some modifications as means of controlling the raising of capital by companies and
to ensure that national resources were channeled into proper lines, i.e., for
desirable purposes to serve goals and priorities of the government, and to protect
the interests of investors. The relevant provisions in the Defence of India Rules
were replaced by the Capital Issues (Continuance of Control) Act in April 1947.
This Act was made permanent in 1956 and enacted as the Capital Issues (Control)
Act, 1947. Under the Act, the Controller of Capital Issues was set up which
granted approval for issue of securities and also determined the amount, type and
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price of the issue. This Act was, however, repealed in 1992 as a part of
liberalization process to allow the companies to approach the market directly
provided they issue securities in compliance with prescribed guidelines relating to
disclosure and investor protection.
Though the stock exchanges were in operation, there was no legislation for their
regulation till the Bombay Securities Contracts Control Act was enacted in 1925.
This was, however, deficient in many respects. Under the constitution which came
into force on January 26, 1950, stock exchanges and forward markets came under
the exclusive authority of the Central Government. The Government appointed the
A. D. Gorwala Committee in 1951 to formulate a legislation for the regulation of
the stock exchanges and of contracts in securities. Following the recommendations
of the Committee, the SCRA was enacted in 1956 to provide for direct and indirect
control of virtually all aspects of securities trading and the running of stock
exchanges and to prevent undesirable transactions in securities. It has undergone
several modifications since its enactment and even today an amendment is
awaiting approval of the Parliament. It gives Central Government regulatory
jurisdiction over (a) stock exchanges through a process of recognition and
continued supervision, (b) contracts in securities, and (c) listing of securities on
stock exchanges. As a condition of recognition, a stock exchange complies with
conditions prescribed by Central Government. Organised trading activity in
securities is permitted on recognised stock exchanges.
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The authorities have been quite sensitive to requirements of the development of

securities market, so much so that the last decade (1992-2003) witnessed nine
special legislative interventions, including two new enactments, namely the
Securities and Exchange Board of India (SEBI) Act, 1992 and the Depositories
Act, 1996. The SCRA, the SEBI Act and the Depositories Act were amended six,
five and three times respectively during the same period. The developmental need
was so urgent at times, that the last decade witnessed five ordinances relating to
securities laws. Besides, a number of other legislations (the Income Tax Act, the
Companies Act, the Indian Stamps Act, the Bankers’ Book Evidence Act, the
Benami Transactions (Prohibition) Act etc.) having bearing on securities markets
have been amended in the recent past to complement amendments in securities
laws.
The legal reforms began with the enactment of the SEBI Act, 1992, which
established SEBI with statutory responsibilities to (i) protect the interest of
investors in securities, (ii) promote the development of the securities market, and
(iii) regulate the securities market. This was followed by repeal of the Capital
Issues (Control) Act, 1947 in 1992 which paved way for market determined
allocation of resources. Then followed the Securities Laws (Amendment) Act in
1995, which extended SEBI’s jurisdiction over corporate in the issuance of capital
and transfer of securities, in addition to all intermediaries and persons associated
with securities market. It empowered SEBI to appoint adjudicating officers to
adjudicate wide range of violations and impose monetary penalties and provided
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for establishment of Securities Appellate Tribunals (SATs) to hear appeals against

the orders of the adjudicating officers. Then followed the Depositories Act in 1996
to provide for the establishment of depositories in securities with the objective of
ensuring free transferability of securities with speed, accuracy and security. It
made securities of public limited companies freely transferable subject to certain
exceptions; dematerialised the securities in the depository mode; and provided for
maintenance of ownership records in a book entry form. The Depositories Related
Laws (Amendment) Act, 1997 amended various legislations to facilitate
dematerialization of securities. The Securities Laws (Amendment) Act, 1999 was
enacted to provide a legal framework for trading of derivatives of securities and
units of CIS. The Securities Laws (Second Amendment) Act, 1999 was enacted to
empower SAT to deal with appeals against orders of SEBI under the Depositories
Act and the SEBI Act, and against refusal of stock exchanges to list securities
under the SCRA. The next intervention is the SEBI (Amendment) Act, 2002 which
enhanced powers of SEBI substantially in respect of inspection, investigation and
enforcement. The latest and the ninth legislative intervention namely the Securities
Laws (Amendment) Bill, 2003 introduced in the monsoon session of the
Parliament to amend the SCRA to provide for demutualization of stock exchanges
is awaiting approval. The approval to this bill is a matter of time as it is a money
bill. This paper explains the provisions in these nine legislative interventions in a
historical perspective.
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b. Concept of Securities and Kind of Securities
Securities are investments traded on a secondary market. The most well-known

examples include stocks and bonds. Securities allow you to own the underlying
asset without taking possession.
For this reason, securities are readily traded. That means they’re liquid. They are
easy to price, and so are excellent indicators of the underlying value of the assets.
Traders must be licensed to buy and sell securities to assure they are trained to
follow the laws set by the Securities and Exchange Commission. The invention of
securities created the colossal success of the financial markets.
There Are Three Types of Securities
1. Equity securities are shares of a corporation. You can buy stocks of a company
through a broker. You can also purchase shares of a mutual fund that selects
the stocks for you. The secondary market for equity derivatives is the stock market.
It includes the New York Stock Exchange, the NASDAQ, and BATS.
An initial public offering is when companies sell stock for the first time.
Investment banks, like Goldman Sachs or Morgan Stanley, sell these directly to
qualified buyers. IPOs are an expensive investment option. Thes companies sell
them in bulk quantities. Once they hit the stock market, their price typically goes
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up. But you can't cash in until a certain amount of time has passed. By then, the
stock price might have fallen below the initial offering.
2. Debt securities are loans, called bonds, made to a company or a country. You
can buy bonds from a broker. You can also purchase mutual funds of selected
bonds.
Rating companies evaluate how likely it is the bond will be repaid. These firms
include Standard & Poor's, Moody's, and Fitch's. To ensure a successful bond sale,
borrowers must pay higher interest rates if their rating is below AAA. If the scores
are very low, they are known as junk bonds. Despite their risk, investors buy junk
bonds because they offer the highest interest rates.
Corporate bonds are loans to a company. If the bonds are to a country, they are
known as sovereign debt. The U.S. government issues Treasury bonds. Because
these are the safest bonds, Treasury yields are the benchmark for all other interest
rates. In April 2011, when Standard & Poor's cut its outlook on the U.S.
debt, the Dow dropped 200 points. That's how significant Treasury bond rates are
to the U.S. economy.
3. Derivative securities are based upon the value of underlying stocks, bonds or
other assets. They allow traders to get a higher return than buying the asset
itself. Stock options allow you to trade in stocks without buying them upfront. For
a small fee, you can purchase a call option to buy the stock at a specific date at a
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certain price. If the stock price goes up, you exercise your option and buy the stock
at your lower negotiated price. You can either hold onto it or immediately resell it
for the higher actual price.
A put option gives you the right to sell the stock at on a certain date at an agreed-
upon price. If the stock price is lower that day, you buy it and make a profit by
selling it at the agreed-upon, higher price. If the stock price is higher, you don't
exercise the option. It only cost you the fee for the option.
Futures contracts are derivatives based on commodities. The most common are oil,
currencies, and agricultural products. Like options, you pay a small fee, called a
margin. It gives you the right to buy or sell the commodities for an agreed-upon
price in the future. Futures are more dangerous than options because you must
exercise them. You are entering into an actual contract that you have to fulfill.
Asset-backed securities are derivatives whose values are based on the returns from
bundles of underlying assets, usually bonds. The most well-known are mortgage-
backed securities, which helped create the subprime mortgage crisis. Less familiar
is asset-backed commercial paper. It is a bundle of corporate loans backed by
assets such as commercial real estate or autos. Collateralized debt obligations take
these securities and divide them into tranches, or slices, with similar risk.
Auction-rate securities were derivatives whose values were determined by weekly

auctions of corporate bonds. They no longer exist. Investors thought the returns
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were as safe as the underlying bonds. The securities' returns were set according to
weekly or monthly auctions run by broker-dealers. It was a shallow market,
meaning not many investors participated. That made the securities riskier than the
bonds themselves. The auction-rate securities market froze in 2008. That left many
investors holding the bag.
C. Regulatory Framework to Govern Securities in India
The Securities Contracts (Regulation) Act, 1956 Act was enacted in order to
prevent undesirable transactions in securities and to regulate the working of stock
exchanges in the country. The provision of the Act came into force with effect
from 20th February, 1957 .
Definitions: Stock exchange [Section 2(j)]

a. anybody of individuals, whether incorporated or not, constituted before
corporatization and demutualization under sections 4A and 4B, or
b. a body corporate incorporated under the Companies Act, 1956 whether
under a scheme of corporatization and demutualization or otherwise for the
purpose of assisting, regulating or controlling the business of buying, selling
or dealing in securities.
Recognized Stock Exchange [Section 2(f)] means a stock exchange which is for
the time being recognized by the Central Government under Section 4 of the Act.
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Corporatization [Section 2(aa)] means the succession of a recognized stock

exchange, being a body of individuals or a society registered under the Societies
Registration Act, 1860 (21 of 1860), by another stock exchange, being a company
incorporated for the purpose of assisting, regulating or controlling the business of
buying, selling or dealing in securities carried on by such individuals or society.
Demutualisation [Section 2(ab)] means the segregation of ownership and

management from the trading rights of the members of a recognised stock
exchange in accordance with a scheme approved by the Securities and Exchange
Board of India (SEBI).
The main parts of the Act are as follows and the powers of Central
Government with regard to this Act are exercisable by SEBI:
(A) Recognised Stock Exchanges (B) Penalties Brief description of important
sections of the Act: (A) Recognised Stock Exchanges
i. Application for recognition of stock exchanges (Section 3)
3(1): Every stock exchange which desirous of being recognized for the purposes of
this Act, may make an application in the prescribed manner to the Central
Government (the powers of Central Government with regard to this Act are
exercisable by SEBI)
3(2) : Every such application shall contain required particulars and be accompanied
by a copy of the bye-laws of the stock exchange for the regulation and control of
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contracts and also a copy of the rules relating in general to the constitution of the
stock exchange
ii. Grant of recognition to stock exchanges (Section 4)
4(1): If the Central Government is satisfied, after making such inquiry as may be
necessary may grant recognition to the stock exchange subject to some conditions.
iii. Corporatisation and demutualisation of stock exchanges (Section 4A)

On and from the appointed date, all recognised stock exchanges (if not
corporatised and demutualised before the appointed date) shall be corporatised and
demutualised in accordance with the provisions contained in section 4B.
iv. Procedure for corporatisation and demutualisation (Section 4B)
4B(1): All recognised stock exchanges referred to in section 4A shall, within such
time as may be specified by the SEBI, submit a scheme for corporatisation and
demutualisation for its approval
4B(2): On receipt of the scheme, the SEBI after making such enquiry as may be
necessary and if it is satisfied that it may approve the scheme with or without
modification.
Appointed date” means the date which the SEBI may, by notification in the
Official Gazette, appoint and different appointed dates may be appointed for
different recognised stock exchanges.
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v. Power of Central Government to call for periodical returns or direct inquiries

to be made (Section 6)
Every recognised stock exchange shall furnish to SEBI periodical returns relating
to its affairs as may be prescribed. Every recognised stock exchange and every
member thereof shall preserve such books of accounts and other documents for
period of not exceeding five years.
vi. Annual reports to be furnished to Central Government by stock

exchanges (Section 7)
Every recognised stock exchange shall furnish the Central Government a copy of
the annual report.
vii. Power of recognised stock exchanges to make bye-laws (Section 9)
9(1) Any recognised stock exchange may, subject to the previous approval of the
SEBI, make bye-laws for the regulation and control of contracts.
viii. Power of SEBI to make or amend bye-laws of recognised stock

exchanges (Section 10)
10(1) The SEBI may either on a request from the governing body of a recognised
stock exchange or on its own motion make bye-laws for all or any of the matters
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specified in section 9 or amend any bye-laws made by such stock exchange under
that section.
ix. Power to suspend business of recognised stock exchanges (Section 12)
The Central Government is empowered to suspend the business of recognised

stock exchange on an emergency situation by giving notification in the Official
Gazette stating the reasons therein, for a period of not exceeding seven days and
subject to such conditions as may be specified in the notification. However, in the
interest of the trade or the public the said period can be extended from time to
time, provided that no such period of suspension can be extended, unless the
governing body of the recognised stock exchange has been given an opportunity of
being heard in the matter.
x. Conditions for listing (Section 21)
Where securities are listed on the application of any person in any recognised stock
exchange, such person shall comply with the conditions of the listing agreement
with that stock exchange.
xi. Delisting of securities (Section 21A)
21A(1): A recognised stock exchange may delist the securities, after recording the
reasons therefor, on any of the ground or grounds as may be prescribed under this
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Act, provided that the securities of a company shall not be delisted unless the
company concerned has been given a reasonable opportunity of being heard.
21A(2): A listed company or an aggrieved investor may file an appeal before the
Securities Appellate Tribunal (SAT) against the decision of the recognised stock
exchange within fifteen days from the date of the decision of the recognised stock
exchange, provided that SAT may, if it is satisfied that the company was
prevented by sufficient cause from filing the appeal within the said period, allow it
to be filed within a further period not exceeding one month.
 The Securities and Exchange Board(SEBI)
The Securities and Exchange Board of India is the regulatory body for dealing with
all matters related to the development and regulation of securities market in India.
It was established on 12th of April in 1988. It is headquartered in Mumbai. SEBI
was declared a constitutional body in 1992. At present, Ajay Tyagi is the
Chairperson of SEBI.
Organizational Structure of SEBI

SEBI is managed by the six members-one chairman (nominated by the chairman),
two members from office of central ministries, one from RBI, and remaining to
members are nominated by the central government.
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Powers:-
For the discharge of its functions efficiently, SEBI has been vested with the
following powers:
1. to approve by−laws of Securities exchanges.

2. to require the Securities exchange to amend their by−laws.
3. inspect the books of accounts and call for periodical returns from recognized
Securities exchanges.
4. inspect the books of accounts of financial intermediaries.
5. compel certain companies to list their shares in one or more Securities
exchanges.
6. registration broke
Functions of SEBI:-
We can classify the functions of SEBI into three categories:-
1. Protective functions
2. Developmental functions
3. Regulatory functions
1.Protective Functions:
As the name suggests, the main focus of this function of SEBI is to protect the
interest of investor and security of their investment
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As protective functions SEBI performs following functions:

(i) SEBI checks Price Rigging:
Price Rigging means some people manipulate the prices of securities for inflation
or depressing the market price of securities. SEBI prohibits such practice to avoid
fraud and cheating which can happen to any investor.
(ii) SEBI prohibits Insider trading:
Any person which is connected with a company such as directors, promoters,

workers etc is called Insiders. Due to working in the company they have sensitive
information which affects the prices of the securities. Such information is not
available to people at large but Insider gets this key full knowledge by working in
such company. Insider can use this information for their personal benefits or make
a profit from it, such process is known as Insider Trading.
For Example - Managers or Directors of a company may know that company will
issue Bonus shares to its shareholders at a particular time and they purchase shares
from market to make a profit with bonus issue prices.
SEBI always restricts these types of practices when Insiders are buying securities
of the company and take strict action to avoid this in future.
(iii) SEBI prohibits fraudulent and Unfair Trade Practices:
SEBI always restricts the companies which make misleading statements which are
likely to induce the sale or purchase of securities by any other person.
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(iv) SEBI sometimes educate the investors so that become able to evaluate the
securities and always invest in profitable securities.
(v) SEBI issues guidelines to protect the interest of debenture holders.
(vi) SEBI is empowered to investigate cases of insider trading and has provision
for stiff fine and imprisonment.
(vii) SEBI has stopped the practice of allotment of preferential shares unrelated to
market
(vii) SEBI has stopped the practice of making a preferential allotment of shares
unrelated to market prices.
2. Developmental Functions:
Under developmental categories following functions are performed by SEBI:
(i) SEBI promotes training of intermediaries of the securities market.
(ii) SEBI tries to promote activities of stock exchange by adopting a flexible and
adaptable approach in following way:
(a) SEBI has permitted internet trading through registered stock brokers.
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(b) SEBI has made underwriting optional to reduce the cost of issue.
(c) An Even initial public offer of primary market is permitted through the stock
exchange.
3. Regulatory Functions:
These functions are performed by SEBI to regulate the business in stock exchange.
To regulate the activities of stock exchange following functions are performed:
(i) SEBI has framed rules and regulations and a code of conduct to regulate the
intermediaries such as merchant bankers, brokers, underwriters, etc.
(ii) These intermediaries have been brought under the regulatory purview and
private placement has been made more restrictive.
(iii) SEBI registers and regulates the working of stock brokers, sub-brokers, share
transfer agents, trustees, merchant bankers and all those who are associated with
stock exchange in any manner.
(iv) SEBI registers and regulates the working of mutual funds etc.
(v) SEBI regulates takeover of the companies.
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(vi) SEBI conducts inquiries and audit of stock exchanges.
Other Functions
1. Registering and regulating the working of stock brokers, sub-brokers, share
transfer agents, bankers to issue, trustees of the trust deed, registrars to an
issue, merchant bankers, underwriters, portfolio managers, investment
adviser and such other intermediaries who may be associated with securities
markets in any manner.
2. SEBI also perform the function of registering and regulating the working
of depositories, custodians of securities. Foreign Institutional Investors, credit
rating agencies etc.
3. Registering and regulating the working of Venture Capital Funds and

collective investments schemes including mutual funds.
4. Promoting and regulating self - regulatory organizations.
5. Calling for information form, undertaking inspection, conducting inquiries

and audits of the stock exchange, mutual funds and intermediaries and self -
regulatory organizations in the securities market.
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6. Calling for information and record from any bank or any other authority
or boars or corporation established or constituted by or under any Central,
State or Provincial Act in respect of any transaction in securities which are
under investigation or inquiry by the Board.
7. Conduct research on any matter described if any.
8. Calling information from any agency, institution, banks etc.
Delisting of Securities
As stated above delisting of securities means removal of the securities of a listed

company from the stock exchange. It may happen either when the company does not
comply with the guidelines of the stock exchange, or that the company has not
witnessed trading for years, or that it voluntary wants to get delisted or in case of
merger or acquisition of a company with/by some other company.
So, broadly it can be classified under two head

1. Compulsory delisting.
2. Voluntary delisting.
Compulsory delisting refers to permanent removal of securities of a listed company

from a stock exchange as a penalizing measure at the behest of the stock exchange
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for not making submissions/comply with various requirements set out in the Listing
agreement within the time frames prescribed. In voluntary delisting, a listed company
decides on its own to permanently remove its securities from a stock exchange. This
happens mainly due to merger or amalgamation of one company with the other or due
to the non-performance of the shares on the particular exchange in the market.
A stock exchange may compulsorily delist the shares of a listed company under
certain circumstances like:
• non-compliance with the Listing Agreement. for a minimum period of six months.
• failure to maintain the minimum trading level of shares on the exchange.
• promoters' Directors' track record especially with regard to insider trading,
manipulation of share prices, unfair market practices (e.g. returning of share transfer
documents under objection on frivolous grounds with a view to creating scarcity of
floating stock, in the market causing unjust aberrations in the share prices, auctions,
close-out, etc. (Depending upon the trading position of directors or the firms).
• The company has become sick and unable to meet current debt obligations or to
adequately finance operations, or has not paid interest on debentures for the last 2-3
years, or has become defunct, or there are no employees, or liquidator appointed, etc
Where the securities of the company are delisted by an exchange under this method,
the promoter of the company shall be liable to compensate the security-holders of the
company by paying them the fair value of the securities held by them and acquiring
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their securities, subject to their option to remain security-holders with the company.
In such a case there is no provision for an exit route for the shareholders except that
the stock exchanges would allow trading in the securities under the permitted
category for a period of one year after delisting.
Companies may upon request get voluntarily delisted from any stock exchange other
than the regional stock exchange, following the delisting guidelines. In such cases,
the companies are required to obtain prior approval of the holders of the securities
sought to be delisted, by a special resolution at a General Meeting of the company.
The shareholders will be provided with an exit opportunity by the promoters or those
who are in the control of the management.
Companies can get delisted from all stock exchanges following the substantial
acquisition of shares. The regulation state that if the public shareholding slides to 10
per cent or less of the voting capital of the company, the acquirer making the offer,
has the option to buy the outstanding shares from the remaining shareholders at the
same offer price.
An exit price mechanism called the book-building method is used by the delisted
companies to derive to the price at which the share will be brought into and that
which will be paid to the shareholders. However, an exit opportunity need not be
given in cases where securities continue to be listed in a stock exchange having
nation wide trading terminals.
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Under the existing SEBI takeover code, an acquirer is required to make an offer to
buy securities at the same offer price. However, here the exit price is based on the
average of the preceding 26-week high and low prices.
The acquirer is required to allow a further period of 6 months for any of the
remaining shareholders to tender securities at the same price. The stock exchange
monitors the possibility of any price manipulation and keeps under special watch
securities for which announcement for delisting has been made.
This mechanism however is not seen as beneficial in depressed Indian market
conditions as the price arrived through this principle may not adequately compensate
the shareholder for the permanent loss of investment opportunity, especially in a
company whose shares are regarded as value investment.
The SEBI (Delisting of Securities) Guidelines- 2003 is the regulating Act framing
the guidelines and the procedure for delisting of securities. Under this the
prescribed procedure is:
1. The decision on delisting should be taken by shareholders though a special
resolution in case of voluntary delisting & though a panel to be constituted by the
exchange comprising the following in case of compulsory delisting:
• Two directors/ officers of the exchange (one director to be a public representative).
• One representative of the investors.
• One representative from the Central government (Department of Company Affairs)
/ regional director/ Registrar of Companies.
• Executive Director/ secretary of the Exchange.
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2. Due notice of delisting and intimation to the company as well as other Stock
Exchanges where the company’s securities are listed to be given.
3. Notice of termination of the Listing Agreement to be given.
4. Making an application to the exchange in the form specified, annexing a copy of
the special resolution passed by the shareholders in case of voluntary delisting.
5. Public announcement to be made in this regard with all due information.
Dematerialisation of shares
In order to mitigate the risks associated with share trading in paper
format, dematerialisation concept was introduced in Indian Financial
Market. Dematerialisation or Demat in short is the process through investor’s
physical share certificate gets converted to electronic format which is maintained in
an account with the Depository Participant.
India adopted the demat System successfully and there are plans to facilitate trading
of almost all financial assets in demat format in future. Through this article, we will
try to understand the demat process and its benefits from common investor’s
perspective.
Dematerialisation is the process of converting physical shares into electronic format.

An investor who wants to dematerialise his shares needs to open a demat account
with Depository Participant. Investor surrenders his physical shares and in turn gets
electronic shares in his demat account.
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Storage of Dematerialised Shares - Depository

Depository is the body which is responsible for storing and maintaining investor's
securities in demat or electronic format. In India there are two depositories i.e. NSDL
and CDSL.
Who a Depository Participant?

Depository Participant (DP) is the market intermediary through which investors can
avail the depository services. Depository Participant provides financial services and
includes organizations like banks, brokers, custodians and financial institutions.
Advantages of Demat
Dealing in demat format is beneficial for investors, brokers and companies alike. It
reduces the risk of holding shares in physical format from investor’s perspective. It’s
beneficial for brokers as it reduces the risk of delayed settlement and enhances profit
because of increased participation.
From share issuing company’s perspective, issuance in demat format reduces the cost
of new issue as papers are not involved. Efficiency and timeliness of the issue is also
maintained while companies deal in demat format.There are a lot of other benefits,
but let’s focus on benefits with respect to common investor and the same are listed
below.
 Demat format reduces the risk of bad deliveries

Time and money is saved as you are not dealing in paper now. You need not
go to the notary, broker for taking delivery or submitting the share certificate
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Liquidity is very high in case of demat format as whole process in

automated.
 All the benefits of corporate action like bonus, stock split, rights etc are
managed through the depository leading to elimination of transit losses
Interest on loan against demat shares are less as compared to physical shares
Investors save stamp duty while transferring shares in demat format.
 One needs to pay less brokerage in case of demat shares.
Demat Conversion
Most of the trading in shares are done in demat format now a day, but there are few
investors who still hold shares in paper format. You cannot deal in paper shares
now, so you need to dematerialise them first. In order to dematerialise
physical/paper shares, investors need to fill Demat Request Form (DRF), and
submit the same along with physical shares. DRF is available with the DP and you
simply need to raise a request for demat conversion with the DP.Their
representative will come and get the DRF form signed. So the complete process of
dematerialisation involves:Investor surrenders the physical certificates for
dematerialisation to the DP along with DRF.DP updates the account of the investor
and shares are allocated in investor demat holding.
 The Depositories Act – 1996
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The Depositories Act, 1996 provides for regulation of depositories in securities

and for matters connected thereto. The Act which initially came into force as an
ordinance viz. The Depositories Ordinance, 1995, was designed to provide a legal
framework for establishment of depositories to record ownership details in book
entry form.
The Act also made consequential amendments in the Companies Act, 1956; the
Securities and Exchange Board of India Act, 1992; the Indian Stamp Act, 1899; the
Income tax Act, 1961; and the Benami Transactions (Prohibition) Act, 1988.
The Depositories Act, 1996 provides a legal framework for establishment of

depositories to facilitate holding of securities including shares in the demat form
(electronic form) and to effect transfer of securities through book entry.
Unit-II : Bank and securities
a. Role of Bank to Issue Securities
Investment banks serve a number of purposes in the financial and investment

world, including underwriting of new stock issues, handling mergers and
acquisitions, and acting as a financial advisor. Other roles of investment banks
include asset management for large investment funds and personal wealth
management for high-net-worth individuals. Some of the major investment banks
include Goldman Sachs, JPMorgan Chase and Credit Suisse.
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Underwriting New Stock Issues
One of the primary roles of an investment bank is to serve as a sort of intermediary

between corporations and investors through initial public offerings (IPOs).
Investment banks provide underwriting services for new stock issues when a
company decides to go public and seeks equity funding. Underwriting basically
involves the investment bank purchasing an agreed-upon number of shares of the
new stock, which it then resells through a stock exchange.
Part of the investment bank's job is to evaluate the company and determine a
reasonable price at which to offer stock shares. IPOs, especially for larger
companies, commonly involve more than one investment bank. This way, the risk
of underwriting spreads across several banks, reducing the exposure of any single
bank and requiring a relatively lower financial commitment to the IPO. Investment
banks also act as underwriters for corporate bond issues.
Financial Advisory Roles
Investment bankers act in several different advisory capacities for their clients. In
addition to handling IPOs, investment banks offer corporations advice on taking
the company public or on raising capital through alternative means. Investment
banks regularly advise their clients on all aspects of financing.
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Mergers and Acquisitions
Handling mergers and acquisitions is a major function of investment bankers. As

with IPOs, one of the main areas of expertise for an investment bank is its ability to
evaluate the worth of a possible acquisition and arrive at a fair price. An
investment bank can additionally assist in structuring and facilitating the
acquisition to make the deal go as smoothly as possible.
B. Securitization and Reconstruction of Financial Asset an d Enforcement of

Security Interest Act 2002
The full form of SARFAESI Act as we know is Securitisation and Reconstruction

of Financial Assets and Enforcement of Security Interest Act, 2002. Banks utilize
this act as an effective tool for bad loans (NPA) recovery. It is possible where non-
performing assets are backed by securities charged to the Bank by way of
hypothecation or mortgage or assignment.
Upon loan default, banks can seize the securities (except agricultural land) without
intervention of the court.
SARFAESI is effective only for secured loans where bank can enforce the
underlying security eg hypothecation, pledge and mortgages. In such cases, court
intervention is not necessary, unless the security is invalid or fraudulent. However,
if the asset in question is an unsecured asset, the bank would have to move the
court to file civil case against the defaulters.
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The SARFAESI Act, 2002 gives powers of “seize and desist” to banks. Banks can
give a notice in writing to the defaulting borrower requiring it to discharge its
liabilities within 60 days. If the borrower fails to comply with the notice, the Bank
may take recourse to one or more of the following measures:
 Take possession of the security for the loan
 Sale or lease or assign the right over the security
 Manage the same or appoint any person to manage the same

The SARFAESI Act also provides for the establishment of Asset Reconstruction
Companies (ARCs) regulated by RBI to acquire assets from banks and financial
institutions. The Act provides for sale of financial assets by banks and financial
institutions to asset reconstruction companies (ARCs). RBI has issued guidelines to
banks on the process to be followed for sales of financial assets to ARCs.
Background of the act
The previous legislation enacted for recovery of the default loans was Recovery of
Debts due to Banks and Financial institutions Act ,1993. This act was passed after
the recommendations of the Narsimham Committee – were submitted to the
government. This act had created the forums such as Debt Recovery
Tribunals and Debt Recovery Appellate Tribunals for expeditious adjudication
of disputes with regard to ever increasing non-recovered dues. However, there
were several loopholes in the act and these loopholes were mis-used by the
borrowers as well as the lawyers. This led to the government introspect the act and
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this another committee under Mr. Andhyarujina was appointed to examine

banking sector reforms and consideration to changes in the legal system .
This committee recommended to enact a new legislation for the establishment of
securitisation and reconstruction companies and to empower the banks and
financial institutions to take possession of the Non performing assets.
Thus, via the Sarfaesi act, for the first time, the secured creditors were empowered
to recover their dues without the intervention of the court.
However, as soon as the act was passed, its implementation was challenged in the
court and this delayed its coming into force for 2 years. In the Mardia Chemicals
v. Union of India, the Supreme Court upheld the validity of the SARFAESI act
was upheld.
Rights of Borrowers
The above observations make it clear that the SAFAESI act was able to provide the
effective measures to the secured creditors to recover their long standing dues from
the Non performing assets, yet the rights of the borrowers could not be ignored,
and have been duly incorporated in the law.
 The borrowers can at any time before the sale is concluded, remit the dues and
avoid loosing the security.
 In case any unhealthy/illegal act is done by the Authorised Officer, he will be

liable for penal consequences.
 The borrowers will be entitled to get compensation for such acts.
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 For redressing the grievances, the borrowers can approach firstly the DRT and
thereafter the DRAT in appeal. The limitation period is 45 days and 30 days
respectively.
Pre-conditions
The Act stipulates four conditions for enforcing the rights by a creditor.
 The debt is secured
 The debt has been classified as an NPA by the banks
 The outstanding dues are one lakh and above and more than 20% of the principal
loan amount and interest there on.
 The security to be enforced is not an Agricultural land.
Methods of Recovery
According to this act, the registration and regulation of securitization companies or
reconstruction companies is done by RBI. These companies are authorized to raise
funds by issuing security receipts to qualified institutional buyers (QIBs),
empowering banks and Fls to take possession of securities given for financial
assistance and sell or lease the same to take over management in the event of
default.This act makes provisions for two main methods of recovery of the NPAs
as follows:
Securitisation: Securitisation is the process of issuing marketable securities

backed by a pool of existing assets such as auto or home loans. After an asset is
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converted into a marketable security, it is sold. A securitization company or

reconstruction company may raise funds from only the QIB (Qualified Institutional
Buyers) by forming schemes for acquiring financial assets.
Asset Reconstruction: Enacting SARFAESI Act has given birth to the Asset
Reconstruction Companies in India. It can be done by either proper management of
the business of the borrower, or by taking over it or by selling a part or whole of
the business or by rescheduling of payment of debts payable by the borrower
enforcement of security interest in accordance with the provisions of this Act.
Further, the act provides Exemption from the registration of security receipt. This
means that when the securitization company or reconstruction company issues
receipts, the holder of the receipts is entitled to undivided interests in the financial
assets and there is not need of registration unless and otherwise it is compulsory
under the Registration Act 1908.
However, the registration of the security receipt is required in the following cases:
 There is a transfer of receipt
 The security receipt is creating, declaring, assigning, limiting, extinguishing any

right title or interest in a immovable property.
The Sarfaesi act covers any asset, movable or immovable, given as security
whether by way of mortgage, hypothecation or creation of a security interest.
There are some exceptions in the act such as personal belongings. However, only
that property given as security can be proceeded under the provisions of
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SARFAESI Act. If the property of the borrower is his own mortgaged residential
house, it is also NOT exempted from the Sarfaesi act.
Powers of Debt Recovery Tribunal
The debt Recovery Tribunals have been empowered to entertain appeals against
the misuse of powers given to banks. Any person aggrieved, by any order made by
the Debts Recovery Tribunal may go to the Appellate Tribunal within thirty days
from the date of receipt of the order of Debts Recovery Tribunal.
Role of Chief Metropolitan Magistrate or District Magistrate

The Chief Metropolitan Magistrate or District Magistrate has been mandated to
assist secured creditor in taking possession of secured asset. These officers will
make sure that once the creditor has given him in writing that all other formalities
of the act have been done, the CMM or DM will take possession of such asset and
documents relating thereto; and forward such assets and documents to the secured
creditor. Now, here, you have to note that such an act of the CMM or DM can not
be called in question in any court or before any authority.
Role of High Court:
The act allows taking the matter to high courts only in some matters related to the
implementation of the act in Jammu & Kashmir. However, High Courts have been
entertaining writ petitions under article 226 (Power to issue writs) of the
constitution of India.
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Proposed amendments to the Act
The government had approved bill to amend the act. The Enforcement of Security
Interest and Recovery of Debts Laws (Amendment) Bill, 2011, amends two Acts
— Sarfaesi Act 2002, and Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 (DRT Act). Via these amendments:
Banks and asset reconstruction companies (ARCs) will be allowed to convert any
part of the debt of the defaulting company into equity. Such a conversion would
imply that lenders or ARCs would tend to become an equity holder rather than
being a creditor of the company.
 The amendments also allows banks to bid for any immovable property they have
put out for auction themselves, if they do not receive any bids during the auction.
In such a scenario, banks will be able to adjust the debt with the amount paid for
this property. This enables the bank to secure the asset in part fulfillment of the
defaulted loan.
 Banks can then sell this property to a new bidder at a later date to clear off the
debt completely.
However lenders will be able to carry this property on their books only for seven
years, as per the Banking Regulation Act, 1949
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Unit –III:Foreign Investment Laws
The (Foreign Exchange Management Act, 1999 ) (FEMA) is an Act of

the Parliament of India "to consolidate and amend the law relating to foreign
exchange with the objective of facilitating external trade and payments and for
promoting the orderly development and maintenance of foreign exchange market
in India".[1] It was passed in the winter session of Parliament in 1999, replacing
the Foreign Exchange Regulation Act (FERA). This act makes offences related to
foreign exchange civil offenses. It extends to the whole of India.,[2] replacing
FERA, which had become incompatible with the pro- liberalization policies of
the Government of India. It enabled a new foreign exchange management regime
consistent with the emerging framework of the World Trade Organisation (WTO).
It also paved the way for the introduction of the Prevention of Money Laundering
Act, 2002, which came into effect from 1 July 2005.
Unlike other laws where everything is permitted unless specifically prohibited,

under the Foreign Exchange Regulation Act (FERA) of 1973 (predecessor to
FEMA) everything was prohibited unless specifically permitted. Hence the tenor
and tone of the Act was very drastic. It required imprisonment even for minor
offences. Under FERA, a person was presumed guilty unless he proved himself
innocent, whereas under other laws a person is presumed innocent unless he is
proven guilty
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FEMA is a regulatory mechanism that enables the Reserve Bank of India to pass
regulations and the Central Government to pass rules relating to foreign exchange
in tune with the Foreign Trade policy of India.
Foreign Exchange Regulation Act
The Foreign Exchange Regulation Act (FERA) was legislation passed in India in
1973[4] that imposed strict regulations on certain kinds of payments, the dealings
in foreign exchange (forex)and securities and the transactions which had an
indirect impact on the foreign exchange and the import and export of currency. The
bill was formulated with the aim of regulating payments and foreign exchange.
FERA came into force with effect from January 1, 1974.
FERA was introduced at a time when foreign exchange (Forex) reserves of the
country were low, Forex being a scarce commodity. FERA therefore proceeded on
the presumption that all foreign exchange earned by Indian residents rightfully
belonged to the Government of India and had to be collected and surrendered to
the Reserve Bank of India (RBI). FERA primarily prohibited all transactions not
permitted by RBI.
Coca-Cola was India's leading soft drink until 1977 when it left India after a new
government ordered the company to turn over its secret formula for Coca-Cola and
dilute its stake in its Indian unit as required by the Foreign Exchange Regulation
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Act (FERA). In 1993, the company (along with PepsiCo) returned after the
introduction of India's Liberalization policy.
FERA
FERA did not succeed in restricting activities such as the expansion of

Multinational Corporations. The concessions made to FERA in 1991-1993 showed
that FERA was on the verge of becoming redundant. After the amendment of
FERA in 1993, it was decided that the act would become the FEMA. This was
done in order to relax the controls on foreign exchange in India.
FERA was repealed in 1998 by the government of Atal Bihari Vajpayee and
replaced by the Foreign Exchange Management Act, which liberalised foreign
exchange controls and restrictions on foreign investment.
The buying and selling of foreign currency and other debt instruments by
businesses, individuals and governments happens in the foreign exchange market.
Apart from being very competitive, this market is also the largest and most liquid
market in the world as well as in India.It constantly undergoes changes and
innovations, which can either be beneficial to a country or expose them to greater
risks. The management of foreign exchange market becomes necessary in order to
mitigate and avoid the risks. Central banks would work towards an orderly
functioning of the transactions which can also develop their foreign exchange
market. Foreign Exchange Market Whether under FERA or FEMA’s control, the
need for the management of foreign exchange is important. It is necessary to keep
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adequate amount of foreign exchange from Import Substitution to Export

Promotion.
FEMA served to make transactions for external trade and easier – transactions
involving current account for external trade no longer required RBI’s permission.
The deals in Foreign Exchange were to be ‘managed’ instead of ‘regulated’. The
switch to FEMA shows the change on the part of the government in terms of for
the capital.
Main Features
 Activities such as payments made to any person outside India or receipts from
them, along with the deals in foreign exchange and foreign security is
restricted. It is FEMA that gives the central government the power to impose
the restrictions.
 Without general or specific permission of the MA restricts the transactions
involving foreign exchange or foreign security and payments from outside the
country to India – the transactions should be made only through an authorised
person.
 Deals in foreign exchange under the current account by an authorised person
can be restricted by the Central Government, based on public interest generally.
 Although selling or drawing of foreign exchange is done through an authorized
person, the RBI is empowered by this Act to subject the capital account
transactions to a number of restrictions.
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 Residents of India will be permitted to carry out transactions in foreign

exchange, foreign security or to own or hold immovable property abroad if the
currency, security or property was owned or acquired when he/she was living
outside India, or when it was inherited by him/her from someone living outside
India.
The rapid concentration of hundreds of millions of people in urban areas has

placed an extraordinary strain on the government to meet their citizen’s basic
needs. Many governments are finding that their existing water, sanitation and
energy infrastructures are unable to service their rapidly expanding populations.
Through PPPs the advantages of the private sector – innovation, access to finance,
knowledge of technologies, managerial efficiency, and entrepreneurial spirit are
combined with the social responsibility, environmental awareness and local
knowledge of the public sector in an effort to solve the urban problems.
Plain packaging would standardize the appearance of cigarette packages by

requiring the removal of all brand imagery, including corporate logos and
trademarks. Packages would display a standard background color and
manufacturers would be permitted to print only the brand name in a mandated size,
font and position. Other government-mandated information, such as health
warnings, would remain.
Plain packaging was implemented in Australia in 2012, and in France and the
United Kingdom in 2016, and has been adopted in Ireland (awaiting
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commencement date). Plain packaging is under formal consideration in Norway,

Hungary, Slovenia, Sweden, Finland, Canada, New Zealand, Singapore, Belgium,
and South Africa.
b.The Foreign Trade (Development and Regulation) Act, 1992
The foreign policy of India is governed and regulated by the Foreign Trade
(Development and Regulation) Act, 1992. This Act was established on the 7 th of
August in the year 1992. The Act hasn’t been originated as a separate act to
regulate the foreign policy, but the same came into existence as a replacement to
the Import and Exports (Control) Act, 1947. Today, the entire scenario of exports
and imports in India is regulated and managed by the Foreign Trade (Development
and Regulation) Act, 1992. This act has eliminated all the existing nuances of the
previously introduced act and has given the Government of India some of the most
enormous powers to control it. This act is considered to be a supreme legislation in
accomplishment of the foreign trade taking place in the country. The Act has been
incorporated with a major intention to provide a proper framework as to the
development as well as standardization of the foreign trade by the way of
facilitating imports and enhancing the exports in the country and all the other
matters related to the same.
Under this Act, various powers have been bestowed upon the Central Government.
According to the provisions of this act, the Central Government has all the power
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to make any provisions that are related to foreign trade in order to fulfill the
objectives of the act. This Act also empowers the government to make any
provisions in tandem to the formulations of import as well as export policies
governing throughout the country. The Act further provides for the appointment of
the Director General by the Central Government by notifying this appointment in
the Official Gazette for carrying out all the foreign trade policies as per the
provisions provided.
Salient Features of the Act
Foreign Trade (Development and Regulation) Act, 1992 is believed to be a

breakthrough in the economic development of the country, especially in today’s
world of globalization and industrialization. The entire act has been designed in
such a manner so as to run in consonance with the current trade policies associated
with the foreign countries. Thus, overall, this Act features everything that makes
the economy of the country stronger whenever the regard of foreign trade is taken
into consideration.
C.JOINT VENTURE
India’s economic growth is attracting business houses from across the world. Joint
Venture is a popular method to enter a country whose legal and business
environment is unknown. However, joint ventures face many hurdles – statutory as
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well as relationship centered.Even after two and a half decades of liberalization,

India imposes restrictions on foreign investment in some sectors. Foreign
companies also need to be aware of the corporate structures that they can choose
when working in India. Sometimes a contractual joint venture is a better option
than an equity-based joint venture. The choice of model of joint venture is, of
course, determined by the objectives that the partners have and also whether they
intend their relationship to be long term or short term.
As and when the Indian partner is selected and broad contours of the relationship
underlying the joint venture have been firmed up, it is necessary to create the legal
documents that will bind the parties together. At this stage it is necessary to draft,
negotiate and execute a Shareholders’ Agreement or Joint Venture Agreement.
Surely, it is not easy to freeze the terms of a relationship to a well-drafted
document that will stand the test of time. This Guide gives some key points that are
critical in this regard.
In India till recently, almost all equity based ventures were structured in the form
of a company. However, with the government permitting foreign investment in
Limited Liability Partnership (LLP) Firms, there is significant interest in LLP
firms.
Articles of Association is a most important document that controls the management
and operations of a company. Generally, not sufficient attention is given to drafting
of Articles. We give a brief write-up on the relevance of careful drafting of Articles
in a joint venture company. In case of an LLP, Partnership Agreement determines
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the relationship between partners. We have tried to give some guidance about
drafting of a Partnership Deed for an LLP firm.
Types of Joint Ventures

The two options available for establishing a joint ve
Contractual joint venture
Equity based joint venture
Contractual Joint Venture (CJV)

In a contractual joint venture, a new jointly agreement to work together but there is
no agreement to give birth to an entity owned by the parties who are working
together. The two parties do not share ownership of the business entity but each of
the two parties exercises some elements of control in the joint venture.
A typical example of a contractual joint venture is a franchisee relationship. In
such a relationship the key elements are:
Equity Based
Company
LLP Partnership
Cooperation
a. Two or more parties have a common intention – of running a business venture
b. Each party brings some inputs
c. Both parties exercise some controls on the business venture
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d. The relationship is not a transaction to transaction relationship but has a

Generally speaking, the above four can be called as the distinguishing
characteristics of a Contractual Joint Venture as opposed to a Contractual
Transaction-based relationship.
Foreign companies often resort to contractual joint ventures when they do not wish
to invest in the equity capital of a business in India even though they wish to
exercise controls and want to decide the shape that the venture takes. For example,
a foreign company may have a Technology Collaboration agreement with an
Indian company whereby the foreign company controls all key aspects of running
the business. In such a case the foreign company may like to retain the option of
taking equity at a future date in the Indian company run by its technology. This
will mean that though to begin with the venture is a contractual joint venture, the
parties may convert it into an equity based joint venture at a later date.
Equity Based Joint Venture (EJV)

An equity joint venture agreement is one in which a separate business entity,
jointly owned by two or more parties, is formed in accordance with the agreement
of the parties. The key operative factor in such case is joint ownership by two or
more parties.
The form of business entity may vary – company, partnership firm, trusts, limited
liability partnership firms, venture capital funds etc. From the point of a foreign
company, the most preferable form of business entity is either a company or a
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limited liability partnership firm. We shall discuss this aspect in detail in the next
section.
Generally speaking in an equity based joint venture, the profits and losses of the
jointly owned entity are distributed among the parties according to the ratio of the
capital contributions made by them. However, the division of profits and losses is
not the only characteristic of an equity-based joint venture. The key characteristics
of equity-based joint ventures are as following:
a. There is an agreement to either create a new entity or for one of the parties to
join into ownership of an existing entity
b. Shared Ownership by the parties involved
c. Shared management of the jointly owned entity
d. Shared responsibilities regarding capital investment and other financing
arrangements.
e. Shared profits and losses according to the Agreement.
It is not necessary that all the above five characteristics are fulfilled in every equity
based joint venture. For example, there are often agreements where one of the
parties is investing but has no say in the management of the joint venture (JV)
company.There are also situations where a foreign company may want to exercise
management control even though it is not investing in the JV company. Typically,
if a foreign company is providing technology and other knowledge-based inputs, it
may want to ensure that the JV company is managed as per its directions. In such
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cases the foreign company may retain an option to invest in the JV company at a
future date. Such a structure may also be used by a foreign company to create a
foothold for itself in a sector where Foreign Direct Investment (FDI) is not
allowed.
Transnational corporations (TNC)
Transnational corporations (TNCs) are incorporated or unincorporated enterprises

comprising parent enterprises and their foreign affiliates. A parent enterprise is
defined as an enterprise that controls assets of other entities in countries other than
its home country, usually by owning a certain equity capital stake.
An equity capital stake of 10 per cent or more of the ordinary shares or voting
power for an incorporated enterprise, or its equivalent for an unincorporated
enterprise, is normally considered as a threshold for the control of assets (in some
countries, an equity stake other than that of 10 per cent is still used. In the United
Kingdom, for example, a stake of 20 per cent or more was a threshold until 1997.).
A foreign affiliate is an incorporated or unincorporated enterprise in which an
investor, who is resident in another economy, owns a stake that permits a lasting
interest in the management of that enterprise (an equity stake of 10 per cent for an
incorporated enterprise or its equivalent for an unincorporated enterprise).
United Nations Conference on Trade and Development
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The United Nations Conference on Trade and Development (UNCTAD) was

established in 1964 as a permanent intergovernmental body.
UNCTAD is the part of the United Nations Secretariat dealing with trade,
investment, and development issues. The organization's goals are to: "maximize
the trade, investment and development opportunities of developing countries and
assist them in their efforts to integrate into the world economy on an equitable
basis. UNCTAD was established by the United Nations General Assembly in 1964
and it reports to the UN General Assembly and United Nations Economic and
Social Council.
The primary objective of UNCTAD is to formulate policies relating to all aspects

of development including trade, aid, transport, finance and technology. The
conference ordinarily meets once in four years; the permanent secretariat is in
Geneva.
One of the principal achievements of UNCTAD (1964) has been to conceive and
implement the Generalised System of Preferences (GSP). It was argued in
UNCTAD that to promote exports of manufactured goods from developing
countries, it would be necessary to offer special tariff concessions to such exports.
Accepting this argument, the developed countries formulated the GSP scheme
under which manufacturers' exports and import of some agricultural goods from
the developing countries enter duty-free or at reduced rates in the developed
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countries. Since imports of such items from other developed countries are subject
to the normal rates of duties, imports of the same items from developing countries
would enjoy a competitive advantage.
The creation of UNCTAD in 1964 was based on concerns of developing countries

over the international market, multi-national corporations, and great disparity
between developed nations and developing nations. The United Nations
Conference on Trade and Development was established to provide a forum where
the developing countries could discuss the problems relating to their economic
development. The organisation grew from the view that existing institutions
like GATT (now replaced by the World Trade Organization, WTO),
the International Monetary Fund (IMF), and World Bank were not properly
organized to handle the particular problems of developing countries. Later, in the
1970s and 1980s, UNCTAD was closely associated with the idea of a New
International Economic Order (NIEO).
The first UNCTAD conference took place in Geneva in 1964, the second in New
Delhi in 1968, the third in Santiago in 1972, fourth in Nairobi in 1976, the fifth
in Manila in 1979, the sixth in Belgrade in 1983, the seventh in Geneva in 1987,
the eighth in Cartagena in 1992, the ninth at Johannesburg (South Africa) in 1996,
the tenth in Bangkok (Thailand) in 2000, the eleventh in São Paulo (Brazil) in
2004, the twelfth in Accra in 2008, the thirteenth in Doha (Qatar) in 2012 and the
fourteenth in Nairobi (Kenya) in 2016.
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Currently, UNCTAD has 194 member states and is headquartered in Geneva,

Switzerland. UNCTAD has 400 staff members and a bi-annual (2010–2011)
regular budget of $138 million in core expenditures and $72 million in extra-
budgetary technical assistance funds. It is a member of the United Nations
Development Group. There are non-governmental organizations participating in
the activities of UNCTAD.
c. FDI AND FII
Definition of Foreign Direct Investment(FDI)
Foreign Direct Investment shortly known as FDI refers to the investment in which
foreign funds are brought into a company based in a different country from the
investor company’s country. In general, the investment is made to gain a long
lasting interest in the investee enterprise. It is termed as a direct investment
because the investor company looks for a substantial amount of management
control or influence over the foreign company.
FDI is the considered as one of the primary means of acquiring external assistance.
The countries where the availability of finance is quite low can get finance from
developed countries having the good financial condition. There are a number of
ways through which a foreign investor can get controlling ownership like by way
of merger or acquisition, by purchasing shares, by participating in a joint venture
or by incorporating a wholly owned subsidiary.
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Types of Foreign Direct Investment
Foreign direct investments are commonly categorized as being horizontal,

vertical or conglomerate. A horizontal direct investment refers to the investor
establishing the same type of business operation in a foreign country as it operates
in its home country, for example, a cell phone provider based in the United States
opening up stores in China. A vertical investment is one in which different but
related business activities from the investor's main business are established or
acquired in a foreign country, such as when a manufacturing company acquires an
interest in a foreign company that supplies parts or raw materials required for the
manufacturing company to make its products.
A conglomerate type of foreign direct investment is one where a company or

individual makes a foreign investment in a business that is unrelated to its existing
business in its home country. Since this type of investment involves entering an
industry the investor has no previous experience in, it often takes the form of
a joint venture with a foreign company already operating in the industry.
Definition of Foreign Institutional Investor (FII)
FII is an abbreviation used for Foreign Institutional Investor, are the investors that
pool their money to invest in the assets of the country situated abroad. It is a tool
for making quick money for the investors. Institutional investors are companies
that invest money in the financial markets in the country based outside the investor
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country. It needs to get itself registered with the securities exchange board of the
respective country for making the investment. It includes banks, mutual funds,
insurance companies, hedge funds, etc.
FII plays a very crucial role in any country’s economy. Market trend moves
upward when any foreign company invests or buys securities, and similarly, it goes
down if it withdraws the investment made by it.
After the above discussion, it is quite clear that the two forms of foreign
investment are completely different. Both have its positive and negative aspects.
However, foreign investment in the form of FDI is considered better than FII
because it does not just bring capital but also amounts to better management,
governance, transfer of technology and creates employment opportunities.
Special Economic Zone
A special economic zone is an area in a country that is subject to unique economic

regulations that differ from other areas in the same country. The SEZ regulations
tend to be conducive to foreign direct investment. Conducting business in an SEZ
typically implies that the company will receive tax incentives and the opportunity
to pay lower tariffs.
Special Economic Zone (SEZ) is a specifically delineated duty-free enclave and

shall be deemed to be foreign territory for the purposes of trade operations and
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duties and tariffs. In order words, SEZ is a geographical region that has economic
laws different from a country's typical economic laws. Usually the goal is to
increase foreign investments. SEZs have been established in several countries,
including China, India, Jordan, Poland, Kazakhstan, Philippines and Russia. North
Korea has also attempted this to a degree.
BREAKING DOWN 'Special Economic Zone - SEZ'
SEZs are zones intended to facilitate rapid economic growth by leveraging tax
incentives to attract foreign dollars and technological advancement. While many
countries have set up SEZs, China has been the most successful in using SEZs to
attract foreign capital. China has even declared an entire province, Hainan, to be
a SEZ.
China pioneered the concept of SEZs by creating four in 1980. The first four SEZs
were all based in southeastern coastal China and included Shenzhen, Zhuhai,
Shantou and Xiamen. China allowed, and continues to allow, these areas to offer
tax incentives to foreign investors and develop their own infrastructure without
approval. The SEZs essentially act as a liberal economic environments that
promote innovation and advancement within China's borders. The SEZs continue
to exist with great success.
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The success of Shenzhen and the other SEZs prompted the Chinese government to
add 14 cities plus Hainan Island to the list of SEZs in 1984. The 14 cities include
Beihai, Dalian, Fuzhou, Guangzhou, Lianyungang, Nantong, Ningbo,
Qinhuangdao, Qingdao, Shanghai, Tianjin, Wenzhou, Yantai, and Zhanjiang. New
SEZs are continually being declared and include border cities, provincial capital
cities, and autonomous regions.
The Benefits of Implementing SEZs
The benefits of operating within a SEZ include tax breaks for business owners and
independence. However, the macroeconomic and socioeconomic benefits for a
country using a SEZ strategy are a subject of debate.
In the case of China, mainstream economists agree that the country's SEZs helped
liberalize the once traditional state. China was able to use the SEZs as a way to
slowly implement national reform that would have been otherwise impossible.
Studies have also found that SEZs elsewhere increase export levels for the
implementing country and other countries that supply it with intermediate
products. However, there is a risk that countries may abuse the system and use it to
retain protectionist barriers in the form of taxes and fees. SEZs also create
excessive bureaucracy that funnels money away from the system.
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Unit- IV-The Competition Law in India
a.Evolution and Development of Competition law in India
In India, the decade of 80s and 90s has been a crucial one, specifically due to the
introduction of new economic policy and opening up of the Indian market to the
world. The New Economic Policy of 1991 which brought about Liberalisation,
Privatisation and Globalisation of the Indian Economy, progressively widened the
space for market forces and reduced the role of Government in business and
various other economic sectors. It was realised that a new competition law was
also called for because the existing Monopolies and Restrictive Trade Practices
Act, 1969 (MRTP Act) had become obsolete in certain respects and that now there
was a need to shift focus from curbing monopolies to promoting competition in the
Indian market. A high-level committee was appointed in 1999 to suggest a modern
competition law in line with international developments to suit the Indian
conditions. The committee recommended the enactment of new competition law,
called the Competition Act, and the establishment of a competition authority, the
Competition Commission of India, along with repealing of the MRTP Act and the
winding up of the MRTP Commission. It also recommended further reforms in
Government policies as the foundation over which the edifice of new competition
policy and law would be built.
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The Competition Act came into existence in January 2003 and the Competition
Commission of India was established in October 2003. The Act states that it shall
be the duty of the Commission to eliminate practices having an adverse effect on
competition, to promote and sustain competition, protect the interests of consumers
and ensure freedom of trade carried on by other participants, in markets in India.
India adopted its first competition law way back in 1969 in the form of Monopolies
and Restrictive Trade Practices Act (MRTP). The Monopolies and Restrictive
Trade Practices Bill was introduced in the Parliament in the year 1967 and the
same was referred to the Joint Select Committee. The MRTP Act, 1969 came into
force, with effect from, 1 June, 1970. However, with the changing nature of
business, market, economy on the whole within and outside India, there was felt a
necessity to replace the obsolete law by the new competition law and hence the
MRTP Act was replaced with the Competition Act of 2002.
The enactment of MRTP Act, 1969 was based on the socio – economic philosophy
enshrined in the Directive Principles of State Policy contained in the Constitution
of India. The MRTP Act, 1969 underwent amendments in 1974, 1980, 1982, 1984,
1986, 1988 and 1991. The amendments introduced in the year 1982 and 1984 were
based on the recommendations of the Sachar Committee, which was constituted by
the Govt. of India under the Chairmanship of Justice Rajinder Sachar in the year
1977.The Sachar Committee pointed out that advertisements and sales promotions
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having become well established modes of modern business techniques,

representations through such advertisements to the consumer should not become
deceptive. The Committee also noted that fictitious bargain was another common
form of deception and many devices were used to lure buyers into believing that
they were getting something for nothing or at a nominal value for their money. The
Committee recommended that an obligation is to be cast on the seller to speak the
truth when he advertises and also to avoid half truth, the purpose being preventing
false or misleading advertisements.
However, as the times changed, the need was felt for a new competition law. With
introduction of new economic policy and opening up of the Indian market to the
world, there was a need to shift focus from curbing monopolies to promoting
competition in the Indian market. As pointed out by the then Finance Minister in
his budget speech in February, 1999–“The MRTP Act has become obsolete in
certain areas in the light of international economic developments relating to
competition laws. We need to shift our focus from curbing monopolies to
promoting competition. The Government has decided to appoint a committee to
examine this range of issues and propose a modern competition law suitable for
our conditions.”
In October 1999, the Government of India constituted a High Level Committee

under the Chairmanship of Mr. SVS Raghavan [‘Raghavan Committee’] to advise
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a modern competition law for the country in line with international developments
and to suggest legislative framework, which may entail a new law or suitable
amendments in the MRTP Act, 1969. The Raghavan Committee presented its
report to the Government in May 2000. The committee inter alia noted: In
conditions of effective competition, rivals have equal opportunities to compete for
business on the basis and quality of their outputs, and resource deployment follows
market success in meeting consumers’ demand at the lowest possible cost.
On the basis of the recommendations of the Raghavan Committee, a draft

competition law was prepared and presented in November 2000 to the Government
and the Competition Bill was introduced in the Parliament, which referred the Bill
to its Standing Committee. After considering the recommendations of the Standing
Committee, the Parliament passed December 2002 the Competition Act, 2002.
Hence, the Monopolies and Restrictive Trade Practices Act, 1969 [MRTP Act] was
repealed and was replaced by the Competition Act, 2002, with effect from 1
September, 2009.
Salient Features of Competition Act, 2002
The Competition Act provides for establishment of a Competition Commission of

India which will be a quasi judicial body bound by principles of rule of law (i.e.
predictability in reasoning and uniform and consistent application of law) in giving
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decisions and the doctrine of precedents. The CCI has all the powers of a civil
court for gathering evidence.
There are three major elements in the Competition Act
 Anti-competitive Agreements (Section 3)

 Abuse of Dominant Position (Section 4)
 Combinations (Section 5 and 6)
ANTI COMPETITIVE AGREEMENTS
Whenever, there is effort to restrict competition through means such as collusive

agreements to fix prices and outputs they need to be prohibited through legal
devices provided by the competition law.
Horizontal Agreements
 Agreement to limit production and/or supply;

 Agreement to allocate markets;
 Agreement to fix price;
 Bid rigging or collusive bidding;
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b.Anti-competitive Agreements
Anti-competitive Agreements are prohibited under the Competition Act. The

following agreements entered into by enterprise, association or persons are
considered as anti-competitive:
Agreement having appreciable adverse effect on competition(AAEC) – no one

shall enter into any agreement in respect of production, supply, distribution
storage, acquisition or control of goods or provision of services which causes or is
likely to cause appreciable adverse effect on competition within India. Following
factors are to be considered by the Commission to determine whether an agreement
has appreciable adverse effect on competition in India:
 Creation of barriers to new entrants in the market

 Driving existing competitors out of the market
 Foreclosure of competition by hindering entry into the market
 Accrual of benefits to the consumers
 Improvements in production or distribution of goods or provision of
services.
Any agreement entered into, including cartels engaged in identical or similar trade
of goods or provision of services, which:
 Determines purchase or sale prices

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 Limits or controls production, supply, markets, technical development,

investment or provision of services
 Shares the market of source of production or the provision of services by
way of allocation of geographical area of the market, or type of goods or
services, or number of customers in the market or any other similar way
 Results in bid rigging or collusive bidding having AAEC in India.
Agreement at different stages or levels of the production chain in different markets,

in respect of production, supply, distribution, storage, sale or price of, or trade in
goods or provision of services, including:
 Tie-in arrangement
 Exclusive supply agreement
 Exclusive distribution agreement
 Refusal to deal
 Resale price maintenance
If the aforesaid agreement causes an AAEC in India, then such agreements will be
considered as anti-competitive agreements and such agreements are prohibited
under the Act.
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Remedies available against Anti-competitive Agreements
Section 27: Competition Commission of India has the following powers in this
regard:
Passing an interim order during the pendency of inquiry
 Serve a cease and desist notice directing the offending parties to a cartel
to discontinue and not to repeat such agreements in future
 Order the offending parties to modify the agreement
 Impose on each member of the cartel a hefty pecuniary penalty
Vertical Agreements
 Tie-in arrangement;
 Exclusive supply / distribution arrangement;
 Resale price maintenance;
 Refusal to deal. Concerted Actions/practices Exemptions – IPRs,
Copy Rights, Patents etc.(Section 3 of the Act deals with anti-
competitive agreements.)
Predatory Pricing
The “predatory price” under the Act means “the sale of goods or provision of
services, at a price which is below the cost, as may be determined by regulations,
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of production of goods or provision of services, with a view to reduce competition

or eliminate the competitors” [Explanation (b) of Section 4] Predation is
exclusionary behaviour and can be indulged in only by enterprises(s) having
dominant position in the concerned relevant market.
The major elements involved in the determination of predatory behaviour are:
 Establishment of dominant position of the enterprise in the relevant

market
 Pricing below cost for the relevant product in the relevant market by the
dominant enterprise [‘Cost’, for this purpose, has been defined in the
Competition Commission of India (Determination of Cost of Production)
Regulations, 2009 as notified by the Commission.]
 Intention to reduce competition or eliminate competitors This is
traditionally known as the predatory intent test
C.ABUSE OF DOMINANCE
Dominance refers to a position of strength which enables an enterprise to operate

independently of competitive forces or to affect its competitors or consumers or the
market in its favour. Abuse of dominant position impedes fair competition between
firms, exploits consumers in the relevant product / geographic market. Abuse of
dominant position includes:
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 Imposing unfair conditions or price,

 Predatory pricing,
 Limiting production/market or technical development ,
 Creating barriers to entry,
 Applying dissimilar conditions to similar transactions,
 Denying market access, and
 Using dominant position in one market to gain advantages in another
market. (Section 4 of the Act deals with abuse of dominance)
The Act defines dominant position (dominance) in terms of a position of strength
enjoyed by an enterprise, in the relevant market in India, which enables it to: a
operate independently of the competitive forces prevailing in the relevant market;
or an affect its competitors or consumers or the relevant market in its favor.
The relevant market (Section 2(r)) means “the market that may be determined by
the Commission with reference to the relevant product market or the relevant
geographic market or with reference to both the markets”.
Factors that Determine Dominant Position
Section 19(4) of the act mentions the factors that help in determining dominant
position in the market. Dominance has been traditionally defined in terms of
market share of the enterprise or group of enterprises concerned. However, a
number of other factors play a role in determining the influence of an enterprise or
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a group of enterprises in the market. These include: a market share, a the size and
resources of the enterprise; a size and importance of competitors; a economic
power of the enterprise; a vertical integration; a dependence of consumers on the
enterprise; a extent of entry and exit barriers in the market; countervailing buying
power; a market structure and size of the market; source of dominant position viz.
whether obtained due to statute etc.; a social costs and obligations and contribution
of enterprise enjoying dominant position to economic development. The
Commission is also authorized to take into account any other factor which it may
consider relevant for the determination of dominance.
Dominance is not considered bad per se but its abuse is. Abuse is stated to occur
when an enterprise or a group of enterprises uses its dominant position in the
relevant market in an exclusionary or/ and an exploitative manner.
SECTION 4 (2) OF THE ACT SPECIFIES THE FOLLOWING PRACTICES BY A

DOMINANT ENTERPRISES OR GROUP OF ENTERPRISES AS ABUSES
 directly or indirectly imposing unfair or discriminatory condition in

purchase or sale of goods or service;
 directly or indirectly imposing unfair or discriminatory price in purchase
or sale (including predatory price) of goods or service;
 limiting or restricting production of goods or provision of services or
market;
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 limiting or restricting technical or scientific development relating to

goods or services to the prejudice of consumers;
 denying market access in any manner;
 making conclusion of contracts subject to acceptance by other parties of
supplementary obligations which, by their nature or according to
commercial usage, have no connection with the subject of such contracts;
 using its dominant position in one relevant market to enter into, or
protect, other relevant markets.
Abuses as specified in the Act fall into two broad categories:
 Exploitative (excessive or discriminatory pricing) and

 Exclusionary (for example, denial of market access).
d.COMBINATIONS
As per the Competition Act, Combinations include Mergers, Acquisitions, and
Amalgamations. The term combination according to the Act means:
 Section 5(a): Acquisition of control, voting rights or assets;

 Section 5(b): Acquisition of control by a person over an enterprise where
such person has control over another enterprise in similar or identical
business;
 Section 5(c): Mergers and Acquisitions.
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Section 6 provides for regulation of combinations so that they do not have an

adverse effect on competition. As per this section, No enterprise should enter into
any combination that is likely to cause an AAEC. When any enterprise enters into
a combinations and if the value of assets or turnover increases beyond a threshold
declared by the government such enterprise shall give notice to the Commission in
the prescribed form by disclosing the details of the proposed combination and any
such combination shall not come into effect until 210 days have passed from the
date on which the notice has been given to the Commission.
Investigation of Combinations
 The CCI can either by itself or through a Director General conduct an

investigation to determine the proposed combination is likely to cause
appreciable adverse effect on competition within India.
 If the CCI is of the opinion that a combinations is likely to have an
AAEC then it will issue show cause notice to the parties and they have to
respond within 30 days of receipt of the notice.
 After receipt of the reply to show cause notice, the CCI can call for the
report from the Director General.
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 Within 7 days of receipt of reply from the parties or of the recpt of the
report from the Director General, the CCI will direct the parties to
publish the details of the combination to the public.
 CCI can invite affected or likely to be affected parties or members of the
public to file written objections to the combinations.
 CCI can call for additional information from the parties to the
combination within 15 working days of the expiry of the time for filing
objections from the affected parties or the members of the public.
 Additional document s are to be filed by the parties within further 15
days.
 On receipt of the requested information the CCI must deal with the case
within 45 days.
Final decision can be taken by the CCI to accept, reject or modify the combination
within an addition 180 working days. If the CCI does not give its final decision
then the combination is deemed to be approved.
 Broadly, combination includes acquisition of control, shares, voting

rights or assets, acquisition of control by a person over an enterprise
where such person has control over another enterprise engaged in
competing businesses, and mergers and amalgamations between or
amongst enterprises where these exceed the thresholds specified in the
Act in terms of assets or turnover.
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 If a combination causes or is likely to cause an appreciable adverse effect

on competition within the relevant market in India, it is prohibited and
can be scrutinized by the Commission.
 The thresholds for the joint assets/turnover. (Section 5 & 6 of the Act
deals with abuse of dominance.)
HOW TO FILE INFORMATION
 Who can file the information ?
 Any person, consumer or their association or trade association can file

information before the Commission.
 Central Govt. or a State Govt. or a statutory authority can also make a

reference to the Commission for making an inquiry.
 “Person” includes an individual, HUF, firm, company, local authority,

cooperative or any artificial juridical person. What are the issues on which
information can be filed?
 The information can be filed on the issues like anti-competitive agreements

and abuse of dominant position or a combination.
 Class of consumers. The fee –
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 Rupees 5000/- (Five thousand only) in case of individual, or Hindu

undivided family (HUF), or Non Government Organisation (NGO), or
Consumer Association, or Co-operative Society, or Trust, duly registered
under the respective Acts,
 Rupees 20,000/-( twenty thousand only) in case of firms, companies having

turnover in the preceding year upto Rupees one crores, and
 Rupees 50,000/- (fifty thousand only) in case not covered under clause (a) or
(b) above.
f. Development of Competition Laws in USA
The history of United States antitrust law is generally taken to begin with
the Sherman Antitrust Act 1890, although some form of policy to
regulate competition in the market economy has existed throughout the common
law's history. Although "trust" had a technical legal meaning, the word was
commonly used to denote big business, especially a large, growing manufacturing
conglomerate of the sort that suddenly emerged in great numbers in the 1880s and
1890s. The Interstate Commerce Act of 1887 began a shift towards federal rather
than state regulation of big business. [1] It was followed by the Sherman Antitrust
Act of 1890, the Clayton Antitrust Act and the Federal Trade Commission Act of
1914, the Robinson-Patman Act of 1936, and the Celler-Kefauver Act of 1950.
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The Sherman Act is the nation’s oldest antitrust law. Passed in 1890, it makes it
illegal for competitors to make agreements with each other that wouldlimit
competition. So, for example, they can’t agree to set a price for a product—that’d
be price fixing. The Act also makes it illegal for a business to be a monopoly if that
company is cheating or not competing fairly. Corporate executives who conduct
their business that way could wind up paying huge fines—and even go to jail! •
The Clayton Act was passed in 1914. With the Sherman Act in place, and trusts
being broken up, business practices in America were changing. But some
companies discovered merging as a way to control prices and production (instead
of forming trusts, competitors united into a single company. The Clayton Act helps
protect American consumers by stopping mergers or acquisitions that are likely to
stifle competition. • With the Federal Trade Commission (FTC) Act (1914),
Congress created a new federal agency to watch out for unfair business practices—
and gave the Federal Trade Commission the authority to investigate and stop unfair
methods of competition and deceptive practices.
Today, the Federal Trade Commission’s (FTC’s) Bureau of Competition and the
Department of Justice’s Antitrust Division enforce these three core federal antitrust
laws. The agencies talk to each other before opening any investigation to decide
who will investigate the facts and work on any case that might be brought. But
each agency has developed expertise in certain industries. Every state has antitrust
laws, too; they are enforced by each state’s attorney general. There’s an office in
your state capitol that helps consumers or businesses who might be hurt when
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businesses don’t compete fairly. Antitrust laws were not put in place to protect
competing businesses from aggressive competition. Competition is tough, and
sometimes businesses fail. That’s the way it is in competitive markets, and
consumers benefit from the rough and tumble competition among sellers.
Development of Competition Laws in UK
The Fair Trading Act, 1973
This act was passed in England with a view to provide an environment for free
competition. This act basically focused on the restriction of monopoly. There is
monopoly when a person or group of persons to secure the sole exercise of any
known trade throughout the country. However there are certain monopolies
authorized by the statute e.g. Post office with respect to carrying of letters. If there
is an agreement which gives control of trade to an individual or group of
individuals then it creates a monopoly calculated to enhance prices to an
unreasonable extent. It is no monopoly if the control is lawfully obtained by
particular persons on particular places or kinds of articles for which a substitute is
available.
The Competition Act, 1998
The competition Act of 1998 repealed the Fair Trading Act, 1973. This act was
divided into two parts firstly as the Chapter 1 prohibitions and secondly as the
Chapter 2 prohibitions. Chapter 1 prohibitions prohibits the agreements which fix
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prices, control production, share market or sources of supply, apply dissimilar

conditions to equivalent transactions and make the conclusion of contracts subject
to acceptance by other parties of supplementary obligations which by nature of
commercial usage have no connection with the subject of such contracts. All such
agreements are unlawful. Chapter 2 prohibitions: ―Any undertaking which
amounts to the abuse of dominant position is prohibited if it consists in: Imposing
unfair purchase or selling prices, Limiting production, market or technical
development ,Applying dissimilar conditions to equivalent transactions with other
trading parties. Making the conclusion of contracts subject to acceptance by other
parties of supplementary obligations having no connection with the subject of
contracts.
Investigation under this act Director General of fair trading may conduct an
investigation if he has reasonable grounds to believe that Chapter 1 and 2
prohibitions are infringed. However no such power is given to director of CCI. The
concept of privileged communication as provided under Section 30 of the U.K
Competition Act is also not included in the Indian Competition Act. This non
inclusion can affect the right of the undertakings or legal or natural persons who
are undergoing investigation. In India we have sectoral regulators as well as
Competition law enforcement authorities, now it raises a serious concern as to the
fact of handling of affairs of cross sectoral issues. For example undertaking may be
regulated by one agency on a certain aspect and by CCI on the competition aspects.
In such situations businesses are afraid that in such instances there may be
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conflicting directions from different regulators. There are also fear that they need
to comply with double regulations will result in increased business costs. In India
there is no framework for coordination between the sectoral regulations and the
Competition Commission of India. On the other hand in U.K a number of sectoral
regulators have power to apply the Competition Act concurrently with other
legislations. The Competition Act 1998 (Concurrency) Regulations 2000 have
been made for the purpose of coordinating the exercise of the concurrent powers
and the procedures to be followed. For example in U.K they have concurrence
party, where all regulators and the competition authority sit and decide on the best
agency to deal with the case.
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Chanderprabhu Jain College of Higher Studies

Class :BALLB SEVENTH SEMESTER

Paper Code :LLB 308

Subject :Investment and Competition law

Unit 1 Investment and Securities Law

a. Evolution of Securities and Investment Laws

The authorities have been quite sensitive to requirements of the development of

for establishment of Securities Appellate Tribunals (SATs) to hear appeals against

b. Concept of Securities and Kind of Securities

Securities are investments traded on a secondary market. The most well-known

There Are Three Types of Securities

Auction-rate securities were derivatives whose values were determined by weekly

C. Regulatory Framework to Govern Securities in India

Definitions: Stock exchange [Section 2(j)]

Corporatization [Section 2(aa)] means the succession of a recognized stock

Demutualisation [Section 2(ab)] means the segregation of ownership and

ii. Grant of recognition to stock exchanges (Section 4)

iii. Corporatisation and demutualisation of stock exchanges (Section 4A)

v. Power of Central Government to call for periodical returns or direct inquiries

vi. Annual reports to be furnished to Central Government by stock

vii. Power of recognised stock exchanges to make bye-laws (Section 9)

viii. Power of SEBI to make or amend bye-laws of recognised stock

ix. Power to suspend business of recognised stock exchanges (Section 12)

The Central Government is empowered to suspend the business of recognised

x. Conditions for listing (Section 21)

xi. Delisting of securities (Section 21A)

 The Securities and Exchange Board(SEBI)

Organizational Structure of SEBI

1. to approve by−laws of Securities exchanges.

We can classify the functions of SEBI into three categories:-

As protective functions SEBI performs following functions:

(ii) SEBI prohibits Insider trading:

Any person which is connected with a company such as directors, promoters,

(iii) SEBI prohibits fraudulent and Unfair Trade Practices:

(v) SEBI issues guidelines to protect the interest of debenture holders.

Under developmental categories following functions are performed by SEBI:

(i) SEBI promotes training of intermediaries of the securities market.

(v) SEBI regulates takeover of the companies.

(vi) SEBI conducts inquiries and audit of stock exchanges.

3. Registering and regulating the working of Venture Capital Funds and

4. Promoting and regulating self - regulatory organizations.

5. Calling for information form, undertaking inspection, conducting inquiries

7. Conduct research on any matter described if any.

8. Calling information from any agency, institution, banks etc.

As stated above delisting of securities means removal of the securities of a listed

So, broadly it can be classified under two head

Compulsory delisting refers to permanent removal of securities of a listed company

Dematerialisation is the process of converting physical shares into electronic format.

Storage of Dematerialised Shares - Depository

Who a Depository Participant?

 Demat format reduces the risk of bad deliveries

Liquidity is very high in case of demat format as whole process in

 The Depositories Act – 1996

The Depositories Act, 1996 provides for regulation of depositories in securities

The Depositories Act, 1996 provides a legal framework for establishment of

Unit-II : Bank and securities

a. Role of Bank to Issue Securities

Investment banks serve a number of purposes in the financial and investment

Underwriting New Stock Issues

One of the primary roles of an investment bank is to serve as a sort of intermediary

Financial Advisory Roles

Mergers and Acquisitions

Handling mergers and acquisitions is a major function of investment bankers. As