SEBI Act 1992 with particular

emphasis on role of SEBI

By Manisha Patawari
 About SEBI
• The Securities and Exchange Board of India (SEBI) is the regulator of the securities and
commodity market in India owned by the Government of India.
• It was established on 12 April 1988 and given Statutory Powers on 30 January 1992
through the SEBI Act, 1992.
• SEBI has its headquarters at the business district of Bandra Kurla Complex in Mumbai
and has Northern, Eastern, Southern and western Regional Offices in New Delhi, Kolkata,
Chennai, and Ahmedabad respectively.
• It has opened local offices at Jaipur and Bangalore and has also opened offices at
Guwahati, Bhubaneshwar, Patna, Kochi and Chandigarh in Financial Year 2013–2014.
• Ajay Tyagi was appointed chairman on 10 February 2017, replacing U K Sinha,[3] and
took charge of the chairman office on 1 March 2017. In February 2020,wha term as
chairman of SEBI was extended by another six months. (further extention till Feb 2022)
 Establishment of the Securities and Exchange
Board of India (SEBI, sec. 3)
(1)The Central Government may, by notification, appoint, there shall be established, for the
purposes of this Act, a Board by the name of the Securities and Exchange Board of India.
(2) The Board shall be a body corporate and therefore will have perpetual succession and a
common seal. Further the act also give power to the board to acquire, hold and dispose of
property, both movable and immovable, and to contract, and shall, by the said name, sue or be
sued.
(3) The head office of the Board shall be at Bombay.
(4) The Board may establish offices at other places in India.
 Management of the Board ( sec. 4)
(1) The Board shall consist of the following members, namely:—
(a) a Chairman (appointed by Central Government);
(b) two members- the officials of the Ministry of Finance and MCA(nominated by Central
Government)
(c) one member from amongst the officials of the Reserve Bank (nominated by RBI);
(d) five other members of whom at least three shall be the whole-time members, to be appointed by
the Central Government.
(2) The general superintendence, direction and management of the affairs of the Board shall vest in a
Board of members.
(3) the Chairman shall also have powers of general superintendence.
(5) The Chairman and the other members referred to in clauses (a) and (d) shall be persons of ability,
integrity and standing who have shown capacity in dealing with problems relating to securities
market or have special knowledge or experience of law, finance, economics, accountancy,
administration or in any other discipline which, in the opinion of the Central Government, shall be
useful to the Board
 Removal of member from office (sec. 6)
The Central Government shall remove a member from office if he—
• is, or at any time has been, adjudicated as insolvent;
• is of unsound mind and stands so declared by a competent court;
• has been convicted of an offence which, in the opinion of the Central Government, involves a
moral turpitude;
• has, in the opinion of the Central Government, so abused his position as to render his continuation
in office detrimental to the public interest
• No member shall be removed under this clause unless he has been given a reasonable opportunity
of being heard in the matter.
 Meetings (sec. 7)

(1) The Board shall meet at least once every quarter and two member constitute quorum. (Securities
and exchange board of India (Procedure for Board Meetings) Regulations, 2001).
(2) The Chairman or, if for any reason, he is unable to attend a meeting of the Board, any other
member chosen by the members present from amongst themselves at the meeting shall preside at the
meeting. (Securities and exchange board of India (Procedure for Board Meetings) Regulations,
2001 suggests that secretary can preside the meeting).
(3) All questions which come up before any meeting of the Board shall be decided by a majority
votes of the members present and voting, and, in the event of an equality of votes, the Chairman, or
in his absence, the person presiding, shall have a second or casting vote.
 Code of conflict of Interest
• Code of conflict of interest for the members of the board has been framed to ensure public
confidence in the ability of members to discharge their responsibilities.
• According to the general principles of the code it is duty of all the members to ensure that any
conflict of interest on one behalf does not affect the decision of the board.
• Any WTM is not allowed to hold any office of profit or involve in any activity that entails receipt
of salary or any professional fee.
• Members shall disclose his shareholding as well as the share holdings of his family members
within 15 days of assumption of office. Further a member shall disclose the shareholding every
year within 15 days of closing of the financial year.
• Section 7A also talks about the fact that if there is any member who have any conflicting interest in
any matter then he shall not attend any discussion and deliberation of the board in that matter.
• Members also need to disclose any post, other employment or fiduciary position by him in last five
years, he also need to disclose about any honorary position hold by him.
 Vacancies, etc., not to invalidate proceedings of
Board (sec.8)
No act or proceeding of the Board shall be invalid merely by reason of—
(a) any vacancy in, or any defect in the constitution of, the Board; or
(b) any defect in the appointment of a person acting as a member of the Board; or
(c) any irregularity in the procedure of the Board not affecting the merits of the case.
 Functions of the Board
sec 11 (1) it shall be the duty of the Board to protect the interests of investors in securities and to
promote the development of, and to regulate the securities market, by such measures as it thinks fit.
(2) Without prejudice to the generality of the foregoing provisions, the measures referred to therein
may provide for—
(a) regulating the business in stock exchanges and any other securities markets;
(b) registering and regulating the working of stock brokers, sub-brokers, share transfer agents,
bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters,
portfolio managers, investment advisers and sub-intermediaries who may be associated with
securities markets in any manner;
[(ba) registering and regulating the working of the depositories,[participants], custodians of
securities, foreign institutional investors, credit rating agencies and such other intermediaries as the
Board may, by notification, specify in this behalf;]
cont..
(c) registering and regulating the working of venture capital funds and collective investment
schemes, including mutual funds;
(d) promoting and regulating self-regulatory organisations;
(e) prohibiting fraudulent and unfair trade practices relating to securities markets;
(f) promoting investors‘ education and training of intermediaries of securities markets;
(g) prohibiting insider trading in securities;
(h) regulating substantial acquisition of shares and take over of companies;
(i) calling for information from, undertaking inspection, conducting inquiries and audits of the stock
exchanges, mutual funds, other persons associated with the securities market, intermediaries and
self-regulatory organisations in the securities market;
cont..
(ia) calling for information and records from any person including any bank or any other authority or
board or corporation established or constituted by or under any Central or State Act which, in the
opinion of the Board, shall be relevant to any investigation or inquiry by the Board in respect of any
transaction in securities;]
[(ib) calling for information from, or furnishing information to, other authorities, whether in India or
outside India, having functions similar to those of the Board, in the matters relating to the prevention
or detection of violations in respect of securities laws, subject to the provisions of other laws for the
time being in force in this regard:
• Provided that the Board, for the purpose of furnishing any information to any authority outside
India, may enter into an arrangement or agreement or understanding with such authority with the
prior approval of the Central Government;]
(j) performing such functions and exercising such powers under the provisions of the Securities
Contracts (Regulation) Act, 1956 (42 of 1956), as may be delegated to it by the Central Government
cont...
• (k) levying fees or other charges for carrying out the purposes of this section;
• (l) conducting research for the above purposes;
• (la) calling from or furnishing to any such agencies, as may be specified by the Board, such
information as may be considered necessary by it for the efficient discharge of its functions;]
• (m) performing such other functions as may be prescribed.
(2A) The Board may take measures to undertake inspection of any book, or register, or other
document or record of any listed public company or a public company which intends to get its
securities listed on any recognised stock exchange where the Board has reasonable grounds to believe
that such company has been indulging in insider trading or fraudulent and unfair trade practices
relating to securities market.
 Penalties
• If any person, who is required under this Act or any rules or regulations made thereunder,— to furnish any
document, return or report to the Board, fails to furnish the same or who furnishes or files false, incorrect
or incomplete information, return, report, books or other documents he shall be liable to a penalty which
shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during
which such failure continues subject to a maximum of one crore rupees](sec. 15A)

• to file any return or furnish any information, books or other documents within the time specified therefore
in the regulations, fails to file return or furnish the same within the time specified therefore in the
regulations or who furnishes or files false, incorrect or incomplete information, return, report, books or
other documents he shall be liable to penalty which shall not be less than one lakh rupees but which may
extend to one lakh rupees for each day during which such failure continues subject to a maximum of one
crore rupees to maintain books of account or records, fails to maintain the same, he shall be liable to a
penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day
during which such failure continues subject to a maximum of one crore rupees]
•
 Cases where Board has power of civil court
(3) While exercising the powers under [clause (i) or clause (ia) of sub-section (2) or sub- section
(2A)], the Board shall have the same powers as are vested in a civil court under the Code of Civil
Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely :—
• (i) the discovery and production of books of account and other documents, at such place and such
time as may be specified by the Board;
• (ii) summoning and enforcing the attendance of persons and examining them on oath;
• (iii) inspection of any books, registers and other documents of any person referred to in section 12,
at any place
• [(iv) inspection of any book, or register, or other document or record of the company referred to in
sub-section (2A);
• (v) issuing commissions for the examination of witnesses or documents.
 Types of order that can be passed by the Board
The Board may, by an order, for reasons to be recorded in writing, in the interests of investors or securities market,
take any of the following measures, either pending investigation or inquiry or on completion of such investigation
or inquiry, namely:—
• (a) suspend the trading of any security in a recognised stock exchange;
• (b) restrain persons from accessing the securities market and prohibit any person associated with securities
market to buy, sell or deal in securities;
• (c) suspend any office-bearer of any stock exchange or self-regulatory organisation from holding such position;
• (d) impound and retain the proceeds or securities in respect of any transaction which is under investigation;
• (e) attach, after passing of an order on an application made for approval by the Judicial Magistrate of the first
class having jurisdiction, for a period not exceeding one month, one or more bank account or accounts of any
intermediary or any person associated with the securities market in any manner involved in violation of any of
the provisions of this Act, or the rules or the regulations made thereunder :
• Provided that only the bank account or accounts or any transaction entered therein, so far as it relates to the
proceeds actually involved in violation of any of the provisions of this Act, or the rules or the regulations made
thereunder shall be allowed to be attached;
• (f) direct any intermediary or any person associated with the securities market in any manner not to dispose of or
alienate an asset forming part of any transaction which is under investigation
 Important Case Laws on power and functions
Karvy stockbroking Ltd. v. SEBI (2007):- In this case SAT has discussed about the powers and
function of SEBI under section 11, 11B and 12 of the SEBI Act, 1992. SAT stated that the primary
function and duty of the SEBI is to protect the interest of the investor in the securities market.
Therefore the duty performed under section 11 and 11B are the soul of the the Act. These two section
are the very reason of its existence of the Board.
SEBI v. Shivam Investment And Ensour Software Ltd.(2005):- It was held that u/sec.11, SEBI can
take measures to protect the interest of the investor and to regulate the market, interalia, by regulating
and registering the working stock brokers, sub brokers, etc. who may be associated with securities
market in any manner.
Chanchal Jain v. SEBI(2009):- While rejecting the petitioner’s argument that u/sec. 11(2)(b) of the
SEBI Act, 1992 the distributors of the mutual funds cannot be regulated as they are not registered
with SEBI, the High Court of Delhi held that section 11(2)(b) SEBI has the power to regulate
intermediaries, it relates to both registration and regulation and therefore SEBI has the power to
regulate the distributor even if they are not registered.
cont..
Karnavati Fincap Ltd. v. SEBI (1996):- The issue which presented itself before the Gujarat High Court was
whether investors who have purchased shares listed on a recognized stock exchange can be included within
the meaning of the expression “other persons associated with the securities market” in Section 11(2) (i) of the
SEBI Act and that the said expression is not limited to persons listed in Section 11(2). The petitioners before
the Hon’ble High Court had dealt in the scrip of Mr. Madanlal B. Purohit listed on the BSE. They argued that
purely on the basis of the fact that they had executed transactions with respect to shares listed on the BSE,
SEBI did not have the right to summon the petitioners or institute an enquiry against them or call for any
information from them. It was also contended that an in-depth reading of Section 11(2) (i) read with Sections
11 B and 12 of the SEBI Act leads to the conclusion that SEBI could regulate only stock exchanges, mutual
funds, other persons associated with the securities market and intermediaries and self- regulatory
organizations in the securities market. However, the Hon’ble High Court held that the buyer of shares would
fall within the purview of the class enumerated in clause (i) as a person associated with the securities market.
It was also held that the PFUTP Regulations of 1995 categorically provided for an investigation to be
conducted into the affairs of any person dealing in the securities market.
 Board to regulate or prohibit issue of prospectus,
and other similar documents (sec.11A)
1) Without prejudice to the provisions of the Companies Act, 1956 (1 of 1956), the Board may, for
the protection of investors,—
(a) specify, by regulations—
• (i) the matters relating to issue of capital, transfer of securities and other matters incidental thereto;
and
• (ii) the manner in which such matters shall be disclosed by the companies;
(b) by general or special orders—
• (i) prohibit any company from issuing prospectus, any offer document, or advertisement soliciting
money from the public for the issue of securities;
• (ii) specify the conditions subject to which the prospectus, such offer document or advertisement, if
not prohibited, may be issued.
(2) Without prejudice to section 21 of the Securities Contracts (Regulation) Act, 1956, the Board may
specify the requirements for listing and transfer of securities and other matters incidental thereto.
Case laws related to Collective Investment scheme
1. Osian’s Connoisseur of Art (P.) Ltd. v. SEBI:- Once the scheme or arrangement satisfy the
four condition stated in sec. 11AA(2) then the scheme or arrangement would be covered
under CIS and provisions of the Act and CIS REgulation will apply.
2. PACL Ltd. v. SEBI:- SAT observed that where a person carries on a business under a
bonafide believe that the business is not covered under CIS scheme and hence does not seek
registration, then such person on being found to carrying on CIS may be permitted to seek
registration under CIS Regulation. However if a person in guise of real estate business is
found to be carrying CIS which is sham and detrimental to the interest of the investor then
permitting him to seek registration or wind up under CIS regulation would unjust and
prejudicial to the interest of investor
3. Sandeep Badriprasad Aggarwal v. SEBI:- Question was asked in a PIL as to whether SEBI
can take action against jeweller who are running a scheme where the consumer makes
monthly installment for 11 months and after the end of 11 month the are eligible to take gold
ornament of that value. The court observed that petitioner was unable to place any legal
provisions under which this scheme can fall under CIS or it is prohibited. Therefore court
dismissed the PIL.
 Power to issue directions(sec.11B)
If after making or causing to be made an enquiry, the Board is satisfied that it is necessary,—
(i) in the interest of investors, or orderly development of securities market; or
(ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being
conducted in a manner detrimental to the interest of investors or securities market; or
(iii) to secure the proper management of any such intermediary or person,
• it may issue such directions,—
(a) to any person or class of persons referred to in section 12, or associated with the securities market;
or
(b) to any company in respect of matters specified in section 11A, as may be appropriate in the
interests of investors in securities and the securities market.
 Power to investigate (sec.11C)
(1) Grounds for Investigation
– Section 11C of the Act provides that where the SEBI has reasonable ground to believe that:
• the transactions in securities are being dealt with in a manner detrimental to the investors or the
securities market; or
• any intermediary or any person associated with the securities market has violated any of the
provisions of this Act or the rules or the regulations made or directions issued by SEBI thereunder;
• it may, at any time by order in writing, direct any person specified in the order to investigate the
affairs of such intermediary or persons associated with the securities market and to report thereon
to the SEBI.
cont...
(2) Duty of officers to produce Accounts and Records
• – It is the duty of every manager, managing director, officer and other employee of the company
and
• every intermediary or every person associated with the securities market to preserve and to produce
to the Investigating Authority or any person authorised by it in this behalf, all the books, registers,
other documents and record of, or relating to, the company or, as the case may be, of or relating to,
the intermediary or such person, which are in their custody or power.
 Powers of Investigating Authority
– The Investigating Authority may require any intermediary or any person associated with securities
market in any manner to furnish such information to, or produce such books, or registers, or other
documents, or record before it or any person authorized by it in this behalf as it may consider
necessary if the furnishing of such information or the production of such books, or registers, or other
documents, or record is relevant or necessary for the purposes of its investigation.
• The Investigating Authority may keep in its custody any books, registers, other documents and
record produced for six months and thereafter shall return the same to any intermediary or any
person associated with securities market by whom or on whose behalf the books, registers, other
documents and record are produced.
 Cease and desist proceedings(sec.11D)
If the Board finds, after causing an inquiry to be made, that any person has violated, or is likely to
violate, any provisions of this Act, or any rules or regulations made thereunder, it may pass an order
requiring such person to cease and desist from committing or causing such violation:
• Provided that the Board shall not pass such order in respect of any listed public company or a
public company (other than the intermediaries specified under section 12) which intends to get its
securities listed on any recognised stock exchange unless the Board has reasonable grounds to
believe that such company has indulged in insider trading or market manipulation.
Registration of Intermediaries(sec.12)

• Section 12(1) of the Act provides that the following intermediaries are required to obtain a
registration certificate from the SEBI to buy, sell or deal in securities:
• Stock-Broker-
• – Portfolio Manager
• – Sub-Broker-
• -– Investment Adviser
• – Share Transfer Agent
• -–Depository Participant
• -– Banker to an issue
• -–Custodian of Securities
• -– Trustee of Trust Deed-
• -– Foreign institutional Investor
• – Registrar to an Issue
• -– Credit Rating Agency
• -– Merchant Banker-–
• – Such other intermediary
• Underwriter-
 Prohibition of manipulative and deceptive devices,
insider trading etc.(sec. 12A)
• Section 12A of the Act provides that a person shall not directly or indirectly:
(a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to
be listed on a recognized stock exchange, any manipulative or deceptive device,
(b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities
which are listed or proposed to be listed on a recognized stock exchange;
(c) engage in any act, practice, course of business which operates or would operate as fraud or deceit
upon any person, in connection with the issue, dealing in securities which are listed or proposed to be
listed on a recognized stock exchange, in contravention of the provisions of this Act or the rules or the
regulations made thereunder;
(d) engage in insider trading;
(e) deal in securities while in possession of material or non-public information or communicate such
material or non-public information to any other person,
(f) acquire control of any company or securities more than the percentage of equity share capital of a
company whose securities are listed or proposed to be listed on a recognized stock exchange in
contravention of the regulations made under this Act.
 Penalty for fraudulent and unfair trade practices

If any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable
to a penalty which shall not be less than five lakh rupees but which may extend to twenty-five crore
rupees or three times the amount of profits made out of such practices, whichever is higher]. (sec15
HA)
Penalties and Adjudicaton
 Establishment, Jurisdiction, Authority and
Procedure of SAT
• Securities Appellate Tribunal (SAT) is formed as a statutory and autonomous body as per the
provisions of the SEBI Act, 1992 where orders passed by the SEBI are appealed, heard and
resolved or by an adjudicating officer under the Act.
• Composition of Securities Appellate Tribunal: SAT consists of the following: One Presiding
Officer and such number of Judicial and Technical Members as the Central Government may
determine. a Bench may be constituted by the Presiding Officer of the Securities Appellate
Tribunal with two or more Judicial or Technical Members as he may deem fit: Provided that
every Bench constituted shall include at least one Judicial Member and one Technical Member.
 Qualification and Tenure
1. The person so appointed as the presiding Officer should meet with the following requirements: The retired or sitting judge of the
supreme Court/ Chief Justice of the high court/ Judge of the high court, who has completed at least seven years of service as a
judge in a high court.
2. For Judicial Member:- the person is, or has been, a Judge of High Court for at least five years,
(The Presiding Officer and Judicial Members shall be appointed by the Central Government in consultation with the Chief
Justice of India or its nominee)(sec.15MA).
3. Technical Member: Secretary or an Additional Secretary in the Ministry or Department of the Central Government or any
equivalent post in the Central Government or a State Government; or Person of proven ability, integrity and standing having
special knowledge and professional experience, of not less than 15 years, in financial sector including securities market or
pension funds or commodity derivatives or insurance.
(The Technical Members of the Securities Appellate Tribunal shall be appointed by the Central Government on the
recommendation of a Search-cum-Selection Committee)(sec. 15MB).

Tenure: The tenure for Presiding Officer or the Judicial or Technical Member will be five years from the date of appointment and shall
be eligible for re-appointment for another term of maximum five years. However, no presiding officer or the Judicial or Technical
Member shall hold office after he has attained the age of 70 years.
 Powers of SAT (sec. 15U)
The Securities Appellate Tribunal shall have the same powers as vested in a civil court under the code of civil
procedure while trying a suit, with respect of the following matters namely:
1. Enforce and summon the attendance of any person,
2. Require the discovery and production of documents,
3. Receive evidence on affidavits
4. Issue commissions for the examination of the documents or witnesses,
5. Reviewing its own decision,
6. Dismiss an application for default or deciding it ex-parte,
7. Set aside any order or dismissal of any application for default or any other order passed by it ex-parte,
8. Any other matter as and when prescribed.

Right to legal representation. (sec15V)

The appellant may either appear in person or authorise one or more chartered accountants or company
secretaries or cost accountants or legal practitioners or any of its officers to present his or its case before the
Securities Appellate Tribunal.
 Appeal and other matter related to it
1. Any person aggrieved by an order of SEBI made, under this act , or by an order made by an
adjudicating officer under this act, may prefer an appeal to a SAT having jurisdiction in the
matter
2. Every appeal shall be filed within 45 days from the date on which a copy of the order made by
SEBI or the adjudicating officer is received by him and accompanied by such form and fees as
may be prescribed.
3. SAT shall dispose of the appeal within 6 months from the date of receipt of the appeal.
4. Appeal against the order of SAT:- Any person aggrieved by any decision or order of the SAT can
file an appeal to the Supreme Court. The appeal can be filed only on a 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. 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 day
Thankyou!!