SECURITIES LAW -CIA 1

CASE REVIEW ON THE ROLE OF SEBI IN REGULATING CAPITAL MARKETS IN

INDIA

SUBMITTED TO:

Dr. Fancy Pallissery

SUBMITTED BY:

SIMRAN GUPTA (19213232)

 PREFACE

This project would deal with a summary of five case laws on power/function/duties of
securities and exchange board of India act 1992.

1. P.G.F LIMITED& ANOTHER V UNION OF INDIA [2013] INSC 312

2. SECURITY AND EXCHANGE BOARD OF INDIA V GAURAV
VARSHNEY 2016 SCC SC 706
3. ARUN KUMAR AGARWAL V UNION OF INDIA [2014] 3 S.C.R. 861
4. KOSHA INVESTMENTS LTD V. SECURITIES AND EXCHANGE
BOARD OF INDIA 2015 (9) SCALE 820
5. PREMIUM GLOBAL INDUSTRIES V SEBI 2015 SCC SC 1288.
 P.G.F LIMITED& ANOTHER V UNION OF INDIA [2013] INSC 312

FACTS

PGF Limited's business activity, sale and development of agricultural land, as well as its joint
venture schemes, were all collective investment schemes, and that PGF Limited had failed to
comply with the statutory requirements as set forth in the Regulations, directed PGF Limited not
to collect any money from investors or to launch any joint venture schemes.

ISSUE

Whether PGF Limited's other business activities, such as the sale of agricultural land and the sale
and development of agricultural land, do not fall within the category of collective investment
schemes as defined by Section 2(ba) read with Section 11AA of the Securities and Exchange
Board of India Act.

LEGAL PROVISION

Section 11AA(2) of the Securities and Exchange Board of India Act was intended to protect
investors' interests whenever promoters announced a scheme or arrangement by conducting a
thorough investigation of the scheme or arrangement before registering it with SEBI, and then
monitoring the scheme or arrangement to ensure proper statutory control over such promoters -
By no stretch of the imagination, the factors that influenced Parliament to enact Section 11AA of
the Act could be said to have been motivated by a desire to affect any specific type of corporate
activity. Section 11AA of the Act could be held to have been enacted with the intent of affecting
any particular category of business activity,

DECISION

Section 11AA of the Act was a valid provision, free of flaws, because it did not intrude into
specific activities of agricultural land sale and development

Therefore, a conspectus examination of the scheme of development of land purchased by

customers at the request of PGF Limited and promised development under agreement revealed
that there was wholesale uncertainty in transactions to the detriment of investor . PGF Limited,
under the guise of selling and developing agricultural land and its multiples, offered to develop
land by planting plants, trees, and so on, and thus customers were assured of a high amount of
appreciation. PGF Limited's scheme was nothing more than a return to be acquired by customers
after making a purchase of land based on development assured by PGF Limited, who parted with
their money in the fond hope that promise would be fulfilled after successful development of bits
of land purchased by them .Thus, Section 11AA of the SEBI Act was constitutionally valid .
The appeal was denied.
 SECURITY AND EXCHANGE BOARD OF INDIA V GAURAV VARSHNEY

2016 SCC SC 706

FACTS

The Securities Law (Amendment) Act of 1995 made it necessary to register a Collected
investment scheme in accordance with the rules. However, the regulations went into force on
the 15th of October, 1999, whilst on 25.1.1995, an amendment was made. Despite the fact that
the amendment .When the requirements are finalized, existing collective investment schemes
will be able to register. It was silent on the question of Collective schemes investment once it
went into effect. But not before the regulations. a Collective Investment Scheme was created
.However, prior to the regulations.

ISSUE

whether the respondents violated section 12(1B) of the SEBI Act, which prohibited the
sponsoring or carrying on of a collective investment initiative without first getting registration
from the 'Board,and if a criminal prosecution against them could be maintained. The 'Board' filed
an appeal against the High Court's ruling, which invalidated criminal charges against the
respondents.

LEGAL PROVISION

Section 12 (l B) of SEBI Act, 1992 casts a prohibition to sponsor or cause to be sponsor, carry
on or caused to be carried on any Collective investment schemes without obtaining registration
from SEBI. Section 11 AA (2) of SEBI Act, 1992 defines the term collective investment scheme

DECISION

The Supreme Court has accelerated action against Collective investment schemes that are in
violation of regulatory regulations, stating that a statute under section 12(1B) cannot be seen as
conditional legislation subject to the formulation of rules. It also served as a message to the
complainant that they must be cautious before making their allegations and that they cannot
change their minds.
Nonetheless, the Supreme Court's decision is significant in that it reaffirms the applicability of
the amendment under section 12(1B), which, once declared, makes a prohibition on certain
activities mandatory and restricts the circumstances in which a deviation from the statute is pIt
has offered clarity and precision in the matter. The registration procedures were put in place to
act as a safety shield for the collective investment scheme's investors. Though the Varshneys'
irregularities cannot be overlooked, the board's decision to treat the scheme as a proviso has
made all the difference in determining who receives the judgment permitted due to the lack of
rules.
 ARUN KUMAR AGARWAL V UNION OF INDIA [2014] 3 S.C.R. 861

FACTS

The petitioner filed a writ petition under article 32 of the constitution in the public interest,
challenging the appointment of as Chairman of the Securities and Exchange Board of India
(SEBI) on the grounds that Chairman failed to meet one of the eligibility conditions set out in
sub-section (5) of section 4 of the Securities and Exchange Board of India Act, 1992 (SEBI
Act), as well as the qualification set out in Government communication which is required by the
chairman should be a person of high integrity.

ISSUE

Whether the writ petition is maintainable Under article 32?

Whether the chairman failed to meet eligibility conditions set out under the sec 4 (5) of SEBI
ACT?

LEGAL ANALYSIS

Section 4(5) of the SEBI Act mandates, among other things, that the Chairman and other
members of SEBI must be "persons of " "who have demonstrated nobility, honesty, and standing
ability to cope with issues connected to the securities market" As a result, a person cannot be
appointed as a Unless he or she is a person of authority, Chairman/Member of SEBI. a high level
of integrity . As a result, the selection and appointment of The Chairman of the Securities and
Exchange Commission of India (SEBI) may face legal action in the Supreme Court in a writ
petition on the basis of Article 32 of the Constitution on the grounds that he does not meet the
legal criteria of a person of great moral character - Securities and Exchange Commission Section
4 of the India Act of 1992 (5)

The features conducted by SEBI under section 11 are such that any failure in the performance
of such functions can disrupt the country's economy. As a result, only people with a high level of
integrity would be qualified to serve as Chairman/Member of the SEBI. The Chairman and other
Members of the SEBI shall be persons of "ability, integrity, and standing who have demonstrated
capacity in dealing with difficulties connected to securities markets," according to Section 4(5)
of the SEBI Act.Therefore, a person cannot be appointed as Chairman/Member of the SEBI
unless he or she has a high level of integrity, according to the law.

Therefore ,the selection and appointment of chairman could be challenged in a writ petition
before this Court under Article 32 of the Indian Constitution on the grounds that he does not
meet the statutory qualifications of a person of high integrity.

DECISION

The supreme court held that Chairman of SEBI with significantly lower remuneration than
Chairman, UTI AMC. It is not uncommon for people of high integrity to make a financial
sacrifice in order to assume a position of honor and service to the country. In any case, we
believe that Mr. Sinha's acceptance of a lower pay as Chairman of SEBI cannot be a fact of itself
lead to the inference that he accepted the position with the intention of misusing his authority as
Chairman, SEBI.

The petition also fails to meet the requirement of absolute good faith, which is essential to
maintain public interest litigation, according to the Apex Court.
 KOSHA INVESTMENTS LTD V. SECURITIES AND EXCHANGE BOARD OF INDIA
2015 (9) SCALE 820

FACTS

In this case Kosha Investments Ltd was accused of violating the SEBI (Prohibition of
Fraudulent and Unfair Trade Practices in the Securities Market) Regulations, 2003. The
current case stems from a SEBI inquiry that spanned the months of June to August 1999, during
which there was an initial upward movement in the price of the scrip and a significant increase in
the volume of trade of Snowcem India Limited (SIL for short). The charge against Kosha
investments ltd is that it bought a large number of SIL shares during the time period in question,
in violation of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.

ISSUES

Whether Appellant could postpone the time for public announcement on acquisition of voting
rights till purchased securities are actually converted under Regulation 14(2) of the
Regulations, 1997?

DECISION

The public notice must be made no later than 4 working days after entering into an agreement for
the acquisition of shares or voting rights or deciding to acquire shares or voting rights in excess
of the relevant proportion, according to the rule. According to a straightforward reading of this
regulation, if a person has exceeded the required percentage of voting rights or has violated or
triggered the Takeover Code by exceeding the respective percentage, the person must make a
public announcement for an open offer within four days of the event. In the case of kosha
investments ltd , it had surpassed the allowed 5% limit on paid up capital on June 29, 1999,
which was used by SEBI to calculate the offer price.
 PREMIUM GLOBAL INDUSTRIES V SEBI 2015 SCC SC 1288

FACTS

Premium Capital Market & Investments Pvt. Ltd. (PCMIL) was incorporated in 1992. PCMIL
applied for membership of National Stock Exchange of India (NSE) in the Capital Markets
Segment. An offer of membership was sent By NSE which was subject to certain conditions.
SEBI issued a Provisional Fee Liability Statement demanding payment of fees. SAT ruled in
favor of SEBI and ordered Appellants to sever themselves from fund-based activities.

ISSUE

Whether the Appellants are entitled to fee continuity?

Whether the transfer of membership to PGSL was compelled by law?

DECISION

The only issue to be resolved is whether or not there is a legal requirement to transfer
membership to PGSL. It is without dispute that SEBI, as a securities market trade regulator, has
the authority to impose registration fees in order to carry out its activities as set forth in Section
11(2) of the SEBI Act, 1992. However, it appears that SEBI has jumped on the opportunity to
collect new registration costs, ignoring the exemptions it has promised. The Appellants'
arguments were deemed to be valid by the Court.

It would be incorrect for this Court to impute otherwise to the compulsion of law under the 1957
Rules, which is geared toward the desired purpose rather than the means. As a result, the Court
reversed the SAT verdict and ordered that the Appellants be awarded the advantage of fee
continuity.