PROJECT

ON

INVESTMENT LAW

SEBI( SECURITIES AND EXCHANGE BOARD OF INDIA) ROLE, POWERS AND

FUNCTIONS

SUBMITTED TO:

Ms. SAYEEDA SALEHA FATMA

ASST. PROFESSOR

AMITY UNIVERSITY, NOIDA (UP)

SUBMITTED BY:

SNEHA SINGH

FOURTH YEAR, 8th SEMESTER

B.A. LL.B (H)

AMITY LAW SCHOOL, CENTRE - II, NOIDA (UP)

Table of Contents
1. SEBI(SECURITIES EXCHANGE BOARD OF INDIA)
 HISTORY

 ESTABLISHMENT AND COMPOSITION

 PURPOSE, ROLES AND FUNCTIONS

OBJECTIVES AND POWERS

2. CHANGES INTRODUCED BY SEBI IN CAPITAL MARKET

3. SAT

 ESTABLISHMENT
 COMPOSITION
 APPEAL TO SAT
 APPEAL AGAINST THE ORDER OF THE SAT
 POWERS AND FUNCTIONS

4. BIBLIOGRAPHY
 ACKNOWLEDGEMENT

At the very outset, I Sneha Singh would like to thank all those who were the ‘guiding lights’
behind this project. First of all I would like to take this opportunity with esteem privilege to
express our heartfelt thanks and gratitude to our course teacher MS. SAYEEDA SALEHA
FATMA(Asst. Professor, Amity Law School, Centre-II Noida) for giving me the opportunity
to choose this project topic which is both in accordance with my interests and of large
importance. Subsequently, I would like to thank my university for allowing me to avail the
computer lab, internet facilities, and the library without which this project would have been in
a distant realm.
SEBI (Securities and Exchange Board of India)
Securities Exchange Board of India (SEBI) was set up in 1988 to regulate the functions of
securities market. SEBI promotes orderly and healthy development in the stock market but
initially SEBI was not able to exercise complete control over the stock market transactions. It
was left as a watch dog to observe the activities but was found ineffective in regulating and
controlling them. As a result in May 1992, SEBI was granted legal status. SEBI is a body
corporate having a separate legal existence and perpetual succession.
It is important that our capital markets have a strong and non-manipulative infrastructure. To
ensure this, India has its capital market regulator, the Securities and Exchange Board of India
– SEBI.

History of SEBI
SEBI was constituted on 12th April 1988 as an interim administrative body under the Finance
Ministry. Four years later, on 4th April 1992 a notification awarding statutory powers to
SEBI was issued (Securities and Exchange Board of India Act, 1992). Securities and
Exchange Board of India, in its short journey of 25 years has made a remarkable impression
on investors as well as capital markets.
Reasons for Establishment of SEBI
With the growth in the dealings of stock markets, lot of malpractices also started in stock
markets such as price rigging, ‘unofficial premium on new issue, and delay in delivery of
shares, violation of rules and regulations of stock exchange and listing requirements. Due to
these malpractices the customers started losing confidence and faith in the stock exchange. So
government of India decided to set up an agency or regulatory body known as Securities
Exchange Board of India (SEBI).

Composition of SEBI

All decisions taken by Securities and Exchange Board of India are collectively taken by its
Board that consists of a Chairman and eight other members. Moreover, Securities and
Exchange Board of India appoints various committees, whenever required to look into the
pressing issues of that time. Further, a Securities Appellate Tribunal – SAT has been
constituted to protect the interest of entities that feel aggrieved by any of SEBI’s decision.
SAT, consisting of a Presiding Officer and two other Members, has the same powers as
vested in a civil court. Further, if any person feels aggrieved by SAT’s decision or order can
appeal to the Supreme Court.

Purpose and Role of SEBI

SEBI was set up with the main purpose of keeping a check on malpractices and protect the
interest of investors. It was set up to meet the needs of three groups.

1. Issuers:
For issuers it provides a market place in which they can raise finance fairly and easily.

2. Investors:
For investors it provides protection and supply of accurate and correct information.

3. Intermediaries:
For intermediaries it provides a competitive professional market.

Objectives of SEBI
The overall objectives of SEBI are to protect the interest of investors and to promote the
development of stock exchange and to regulate the activities of stock market. The objectives
of SEBI are:

1. To regulate the activities of stock exchange.

2. To protect the rights of investors and ensuring safety to their investment.

3. To prevent fraudulent and malpractices by having balance between self regulation of

business and its statutory regulations.

4. To regulate and develop a code of conduct for intermediaries such as brokers,

underwriters, etc.

Functions of SEBI (Securities and Exchange Board of India)

The Preamble of the Securities and Exchange Board of India describes the basic functions of
the Securities and Exchange Board of India as “…to protect the interests of investors in
securities and to promote the development of, and to regulate the securities market and for
matters connected therewith or incidental thereto”.
Securities and Exchange Board of India is a quasi-legislative, quasi-judicial and quasi-
executive body. It can draft regulations, conduct inquiries, pass rulings and impose
penalties.
Government has promulgated Securities Laws (Amendment) Second Ordinance, 2013
that would amend the Securities and Exchange Board of India Act, the Securities
Contracts (Regulation) Act and the Depositories Act. With these amendments, Securities
and Exchange Board of India will be able to regulate any money pooling scheme
worth Rs. 100 crore or more and attach assets in cases of non-compliance. The SEBI
Chairman would have the authority to order “search and seizure operations”. The
amended law would also allow Securities and Exchange Board of India to seek
information, such as telephone call data records, from any persons or entities in respect
to any securities transaction being investigated by it. The law would further allow setting
up of special courts to speed up SEBI related cases.
The SEBI performs functions to meet its objectives. To meet three
objectives SEBI has three important functions. These are:

i. Protective functions

ii. Developmental functions

iii. Regulatory functions.

1. Protective Functions:
As protective functions SEBI performs following functions:
(i) It Checks Price Rigging: These functions are performed by SEBI to protect the
interest of investor and provide safety of investment.

Price rigging refers to manipulating the prices of securities with the main objective of
inflating or depressing the market price of securities. SEBI prohibits such practice
because this can defraud and cheat the investors.

(ii) It Prohibits Insider trading:

Insider is any person connected with the company such as directors, promoters etc.
These insiders have sensitive information which affects the prices of the securities.
This information is not available to people at large but the insiders get this privileged
information by working inside the company and if they use this information to make
profit, then it is known as insider trading, e.g., the directors of a company may know
that company will issue Bonus shares to its shareholders at the end of year and they
purchase shares from market to make profit with bonus issue. This is known as insider
trading. SEBI keeps a strict check when insiders are buying securities of the company
and takes strict action on insider trading.

(iii) SEBI prohibits fraudulent and Unfair Trade Practices:

SEBI does not allow the companies to make misleading statements which are likely to
induce the sale or purchase of securities by any other person.

(iv) SEBI undertakes steps to educate investors so that they are able to evaluate the
securities of various companies and select the most profitable securities.
(v) SEBI promotes fair practices and code of conduct in security market by taking
following steps:
(a) SEBI has issued guidelines to protect the interest of debenture holders wherein
companies cannot change terms in midterm.

(b) SEBI is empowered to investigate cases of insider trading and has provisions for
stiff fine and imprisonment.

(c) SEBI has stopped the practice of making preferential allotment of shares unrelated
to market prices.

2. Developmental Functions:
These functions are performed by the SEBI to promote and develop activities in stock
exchange and increase the business in stock exchange. 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 flexible and
adoptable approach in following way:

(a) SEBI has permitted internet trading through registered stock brokers.
 (b) SEBI has made underwriting optional to reduce the cost of issue.

(c) Even initial public offer of primary market is permitted through 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.

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

POWERS OF SEBI

1. Powers relating to stock exchanges & intermediaries

SEBI has wide powers regarding the stock exchanges and intermediaries dealing in securities.
It can ask information from the stock exchanges and intermediaries regarding their business
transactions for inspection or scrutiny and other purpose.

2. Power to impose monetary penalties

SEBI has been empowered to impose monetary penalties on capital market intermediaries
and other participants for a range of violations. It can even impose suspension of their
registration for a short period.

3. Power to initiate actions in functions assigned

SEBI has a power to initiate actions in regard to functions assigned. For example, it can issue
guidelines to different intermediaries or can introduce specific rules for the protection of
interests of investors.

4. Power to regulate insider trading

SEBI has power to regulate insider trading or can regulate the functions of merchant bankers.

5. Powers under Securities Contracts Act

For effective regulation of stock exchange, the Ministry of Finance issued a Notification on
13 September, 1994 delegating several of its powers under the Securities Contracts
(Regulations) Act to SEBI.

SEBI is also empowered by the Finance Ministry to nominate three members on the
Governing Body of every stock exchange.

6. Power to regulate business of stock exchanges

SEBI is also empowered to regulate the business of stock exchanges, intermediaries

associated with the securities market as well as mutual funds, fraudulent and unfair trade
practices relating to securities and regulation of acquisition of shares and takeovers of
companies.

Changes Introduced By SEBI in capital market

1. T+2 trading settlement system.

2. De-materialization of share certificates (1999).
3. Banned entry loads for mutual fund schemes in 2009.
4. The task of giving approvals to FII registrations was handed over to SEBI in 2003. In
order to discourage FII investments made through P-notes, Securities and Exchange
 Board of India has imposed sufficient checks and balances to avoid the flow of black
money into the Indian markets.
5. Strict vigil on usage of IPO issue proceeds, greater disclosure by companies and their
bankers and allotment of a minimum number of shares to retail investors. Keeping with
the times, SEBI has also introduced e-IPO procedure for electronic bidding in public
offers to help investors bid for shares in a cost-effective manner.
6. In 1996-97, Securities and Exchange Board of India directed all exchanges to fix the
daily price band at 10% and a weekly overall limit of 25% to curb undesirable volatility.
To bring about a coordinated trading halt in all equity and derivatives market
nationwide, Securities and Exchange Board of India introduced an index based circuit
breaker system applicable at 10%, 15% and 20% movement either way.
7. Securities and Exchange Board of India has a web-based centralized grievance redress
system called SEBI Complaints Redress System – SCORES for assisting investors to
lodge their complaints in a structured way.
8. NB : International Organisation of Securities Commissions- IOSCO under its
Financial Sector Assessment Program – FSAP acknowledged that the comprehensive
risk management framework prescribed by SEBI is one of the pillars of the Indian
securities settlement system.
9. Securities and Exchange Board of India distinguishes itself from other regulators in
India as it is a financially independent regulator with its own sources of revenue.

Section 15K of SEBI Act, 1992 empowers the Central Government to set up
one or more Tribunals, for the purpose making appeals against the orders
of SEBI and its adjudicating officers. These tribunals will be known as
Securities Appellate Tribunal (SAT). In exercise of the power conferred,
the Central Government has set up one Tribunal at Mumbai

COMPOSITION OF SAT

SAT shall consist of the following:

One Presiding officer

Two other members

Presiding Officer

The Presiding Officer of SAT shall be appointed by the Central Government in consultation
with the Chief Justice of India or his nominee.

The person to be appointed as the Presiding Officer must;

Be a sitting or retired Judge of the Supreme Court ; or

Be a sitting or retired Chief Justice of a High Court ; or

Be a sitting or retired Judge of a High Court, who has completed atleast 7 years of service.

The person so appointed shall hold office, earlier of the two

for a period of 5 years ; or

up to the age of 68 years

Members

The two members of SAT shall be appointed by the Central Government.

The person to be appointed must;

A person of ability, integrity and standing who has shown capacity in dealing with problems
relating to securities market.

Have qualification and experience of Corporate Law, Securities Law, Finance, Economics or
Accountancy.

Person shall hold office, earlier of the two,

For a period of 5 years ; or

Upto age of 62 years.

Appeal to SAT [Sec. 15T]

Who can make appeal?

Any person aggrieved,

By an order of the SEBI ; or

By an order made by an adjudicating office

may prefer an appeal to SAT.

Exceptions: – No appeal shall lie to SAT from an order made with the consent of the parties.

Time Limit: – The appeal to SAT shall be filed within a period of 45 days from the date of
receiving the copy of the order of SEBI or adjudicating officer, as the case may be. However,
SAT may entertain an appeal after the expiry of 45 days, if it is satisfied that there was
sufficient cause for not filing it within that period.

SAT shall send copy of every order made by it to the following person:

SEBI

Concerned Adjudicating Officer

Parities to Appeal.

Appeal against the Orders of SAT [Sec 15Z]

Any person aggrieved by any decision or order of SAT may file an appeal to the Supreme
Court. It may be noted that the appeal can be made only on any Question of Law.

The appeal shall be filed within 60 days from the date of receiving a copy of the decision or
order of SAT. However, the Supreme Court may allow a further period of 60 days for making
an appeal, if it is satisfied that the applicant was prevented by sufficient cause from filing the
appeal within the first 60 days.

Powers of SAT [Sec 15U]

The SAT shall have, for the purpose of discharging their functions under SEBI Act, 1992, the
same powers as are vested in a Civil Court under the CPC, 1908, while trying a suit, in
respect of the following matters, namely:

Summoning and enforcing the attendance of any person and examining him on oath.

Requiring the discovery and production of documents.

Receiving evidence on affidavits.

Issuing commissions for the examination of witness or documents.

Reviewing its decisions.

Dismissing an application for default or deciding it ex parte.

Setting aside any order of dismissal of any application for default or any order passed by it ex
parte

Any other matter which may be prescribed.

 BIBLIOGRAPHY

1. http://www.yourarticlelibrary.com/education/sebi-the-purpose-objective-
and-functions-of-sebi/8762/

2. http://kalyan-city.blogspot.in/2010/11/powers-of-sebi-securities-and-
exchange.html

3. http://taxguru.in/sebi/securities-appellate-tribunal-sat-insight.html