PROJECT REPORT ON SEBI

What is SEBI?

Securities and exchange board of India is a statutory regulatory body entrusted

with responsibility to regulate the Indian capital markets. It monitors and regulates
the securities market and protects the interests of the investors by enforcing certain
rules and regulations.

SEBI was founded on April 12, 1992, under the SEBI Act, 1992. Headquartered in
Mumbai, India, SEBI has regional offices in New Delhi, Chennai, Kolkata and
Ahmedabad along with other local regional offices across prominent cities in India.

Before SEBI:

Before SEBI came into existence, Controller of Capital Issues was the regulatory
authority; it derived authority from the Capital Issues (Control) Act, 1947. In 1988,
SEBI was constituted as the regulator of capital markets in India. Initially, SEBI
was a non-statutory body without any statutory power. Following the passage of
the SEBI Act by Parliament in 1992, it was given autonomous and statutory
powers.

Why was SEBI formed?

At the end of the 1970s and during 1980s, capital markets were emerging as the
new sensation among the individuals of India. Many malpractices started taking
place such as unofficial self- styled merchant bankers, unofficial private
placements, rigging of prices, non-adherence of provisions of the Companies Act,
violation of rules and regulations of stock exchanges, delay in delivery of shares,
price rigging, etc.

Due to these malpractices, people started losing confidence in the stock market.
The government felt a sudden need to set up an authority to regulate the working
and reduce these malpractices. As a result, the Government came up with the
establishment of SEBI.
Composition of SEBI:

SEBI is run by a board of directors, including a chairman who is elected by the

parliament, two officers from the Ministry of Finance, one member from
the Reserve Bank of India, and five members who are also elected by the
parliament.

Departments of SEBI:

There are many departments in SEBI which control and govern different segments
of market. They are:

Corporation finance department

Human resources department

Department of debt and hybrid securities

Enquiries and adjudication department

General services department

Recovery and refund department and other departments

Role of SEBI:

SEBI acts as the watch dog of capital market participants and its main purpose is to
create such an environment for market enthusiasts that facilitate efficient and
smooth functioning of the market. To make this happen, it ensures that the three
main participants of the financial market are taken care of, i.e. issuers of securities,
investor, and financial intermediaries.

Issuers of securities

These are entities in the corporate field that raise funds from various sources in the
market. SEBI makes sure that they get a healthy and transparent environment for
their needs.
Investor

Investors are the ones who keep the markets active. SEBI is responsible for
maintaining an environment that is free from malpractices to restore the confidence
of general public who invest their hard earned money in the markets.

Financial Intermediaries

These are the people who act as middlemen between the issuers and investors.
They make the financial transactions smooth and safe.

Functions of SEBI:

SEBI primarily has three functions-

Protective Functions

Regulatory Functions

Development Functions

Authority and Power of SEBI

The SEBI has three main powers:

i. Quasi-Judicial: SEBI has the authority to deliver judgments related to fraud and
other unethical practices in terms of the securities market. This helps to ensure
fairness, transparency, and accountability in the securities market.

ii. Quasi-Executive: SEBI is empowered to implement the regulations and

judgments made and to take legal action against the violators. It is also authorized
to inspect Books of accounts and other documents if it comes across any violation
of the regulations.

iii. Quasi-Legislative: SEBI reserves the right to frame rules and regulations to
protect the interests of the investors. Some of its regulations consist of insider
trading regulations, listing obligation, and disclosure requirements. These have
been formulated to keep malpractices at bay.

Despite the powers, the results of SEBI’s functions still have to go through the
Securities Appellate Tribunal and the Supreme Court of India.
SAT:

Securities Appellate Tribunal is a statutory body established under the provisions

of Section 15K of the Securities and Exchange Board of India Act, 1992 to hear
and dispose of appeals against orders passed by the Securities and Exchange Board
of India or by an adjudicating officer under the Act; and to exercise jurisdiction,
powers and authority conferred on the Tribunal by or under this Act or any other
law for the time being in force. SAT hears and disposes of appeals against orders
passed by the Pension Fund Regulatory and Development Authority (PFRDA)
under the PFRDA Act, 2013. Further, in terms of Government Notification, SAT
hears and disposes of appeals against orders passed by the Insurance Regulatory
Development Authority of India (IRDAI) under the Insurance Act, 1938, the
General Insurance Business (Nationalization) Act, 1972 and the Insurance
Regulatory and Development Authority Act, 1999 and the Rules and Regulations
framed thereunder.

Recent amendments:

On 8 October 2020, SEBI has issued another set of amendments to the LODR
through the SEBI (Listing Obligations and Disclosure Requirements) (Third
Amendment) Regulations, 2020. The amendments primarily relate to companies
which have listed their NCDS/ NCRPS on the recognized stock exchange(s).

Additionally, related amendments have been made to the SEBI (Issue and Listing
of Debt Securities) Regulations, 2008 (Debt Listing Regulations) and SEBI
(Debenture Trustees) Regulations, 1993.

Recently sebi also has formed a market advisory committee a standing panel to
recommend appropriate policy for access to securities market data identify
segment wise data perimeters data needs an gaps recommends data privacy and
data access regulations applicable to market data.

Landmark cases:

SEBI vs Sahara:

Initially, there was a floating-issue of Optionally Fully Convertible Debentures

(OFCDs) with Sahara India Real Estate Corporate Limited (SIRECL) and Sahara
Housing Investment Corporation Limited (SHICL) which affected the collective
subscription from 25th April 2008 up to 13th 2011. The company bagged roughly
Rs. 17,656 crore during this period. This whole amount was collected in the name
of ‘Private Placement’ from 30 million investors without fulfilling the requir
ements needed to comply with public offerings of securities. So, as a result, the
Whole Time Member of SEBI passed an order on 23rd June 2011 to refund the
money which was collected from the investors and restrained the companies
promoters including Mr. Subrata Roy from reaching the securities market. Sahara
appealed the orders of the Whole Time Member in front of the Securities Appellate
Tribunal (SAT) and the appeal was dismissed by SAT through an order on 18th
October 2011. In the end, Sahara appealed in front of the Supreme Court against
the SAT order.

Issues

There were many issues raised while the Supreme Court was interpreting the
various provisions of the SEBI Act, the Companies Act, and the Securities
Contract (Regulation) Act, 1956. The issues were:

The first issue was that, whether SEBI has its jurisdiction over this matter under
Section 11, 11A, 11B of SEBI Act and Section 55A of the Companies Act or this
matter comes under the Ministry of Corporate Affairs.

The second issue was that, whether the hybrid Optionally Fully Convertible
Debentures comes under the category of ‘Securities’ as defined in the Companies
Act, SEBI Act, and SCRA to allow SEBI to have jurisdiction to investigate the
case.

The third issue was that the OFCDs subscribed by the people is a private
placement or not. If not then who has jurisdiction over the matter.

The fourth issue was that, whether the provisions given under Section 73 of the
Companies Act is applied over the case or not.

The fifth issue was that, whether the provisions provided under the Public Unlisted
Companies, 2003 will have jurisdiction over this case.

Arguments and Supreme Court Judgments

In this case, the Supreme Court held that SEBI has no jurisdiction to investigate or
adjudicate this matter as the SEBI Act allows SEBI with special powers to protect
the interest of the investors. The powers given to SEBI can not supersede other
regulations provided under different laws which means SEBI must respect the
provisions of other laws and must not conflict with the Ministry of Corporate
Affairs where the interests of investors are at stake. The Supreme Court also laid
down objectives for the enactment of the SEBI Act and inserted Section 55A in the
Companies Act to provide special powers to SEBI in the matters related to the
transfer of securities. So, the Supreme Court advised that SEBI has the jurisdiction
to administer the listed public companies in matters related to the transfer of
securities and also in those public companies where there is intended to obtain the
securities which are listed under the Stock Exchange of India.

The Supreme Court stated that the OFCDs issued by the companies are in the
nature of ‘hybrid’ instruments, so it doesn’t come under ‘security’ within the
definition provided by the Companies Act, SEBI Act, and SCRA. As the definition
of ‘Securities’ provided under Section 2(h) of SCRA contains ‘marketable
security’ rather ‘hybrid instruments’. So, the Court can not question the
marketability of the instrument as it was offered to millions of people and
debentures came under security as described by the provisions of SEBI Act, the
Companies Act, and SCRA.

The Supreme Court described the intentions of the companies was to show OFCDs
as the public placement but they don’t act like that when offered to more than 50
people. Section 67(3) states that any security which is offered and subscribed by
more than 50 persons will be considered as a public offer which gives the
jurisdiction to SEBI and the companies have to comply with all the legal
provisions related to this matter.

Sahara argued that the Companies Act is not applicable as it is applied to only
listed companies and no company can be forced to get listed on the stock
exchange. The Supreme Court rejected this argument and stated that the law is
clear and impartial. The Supreme Court also observed that Section 73(1) of the Act
provides a restriction on every company intending to offer shares and debentures to
the public.
Conclusion

So, SEBI strongly believes that the investors are the soul of the securities market
and they need to protect the interests of investors for the development of the capital
market. SEBI deals with all the policies and regulations of the market. SEBI also
signed a contract with the International Organization of Securities Commission and
allowed its members to maintain a regular check for cross border misconduct in
their respective jurisdictions. This case is considered as the landmark judgment in
India’s Corporate Landscape as it helped in preventing war between MCA and
SEBI.

Recommendations for SEBI :

In the light of recommendations of various committees and criticisms of analysts

of capital market, a number of suggestions can be made to improve SEBI’s
performance in future.

SEBI needs to be vested with more powers; among these mention may be made of
the following important ones:

To monitor effectively the working of stock exchanges.

To insist on companies for the supply of extensive information on a regular basis.

To penalize members of stock exchanges who were found to violate securities

laws.

To debar wrong-does from any activity in the stock market and impose on them
civil penalties and initiate criminal proceedings.

To make rules about the manipulative practices.

To move court for checking insider...

Conclusion:

Critics say SEBI lacks transparency and is insulated from direct public
accountability. The only mechanisms to check its power are a Securities Appellate
Tribunal, which consists of a panel of three judges, and the Supreme Court of
India. Both bodies have occasionally censured SEBI.
Still, SEBI has been aggressive at times in doling out punishment and in issuing
strong reforms. The regulator received praise for its actions following the Satyam
fraud scandal when it hit PwC with a two-year ban. It also established the Financial
Stability Board in 2009, in response to the global financial crisis, giving the board
a broader mandate than its predecessor to promote financial stability. Therefore it
needs a little more transparency and regulates its department functions so that it
can function in a smooth and efficient manner.