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FUNCTIONING OF SEBI:
ENTIRE GAMUT


Corporate Governance Project






KASHISH KHURANA
A3221511010
B.B.A. LL.B. (H.)
9TH SEMESTER

ACKNOWLEDGEMENT


It is with profound respect and gratitude that I have immense
pleasure in recording my sincere thanks to my respectful guide,
advisor and teacher Mr. Ajay Kant Chaturvedi our Corporate
Governance Professor.
I am thankful to my parents, teachers and all my friends who
have given me necessary support and motivation since starting
of the study and till the completion of the project report

TABLE OF CONTENTS
ACKNOWLEDGEMENT

INTRODUCTION

SEBI'S ORIGIN AND ITS CURRENT HIERARCHY

FUNCTIONS OF SEBI

1. PROTECTIVE FUNCTIONS:
2. DEVELOPMENTAL FUNCTIONS:
3. REGULATORY FUNCTIONS:

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OBJECTIVES OF SEBI

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ROLE OF SEBI IN CORPORATE GOVERNANCE

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GOVERNANCE
ORIGINS
FUNCTIONS

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WHY SEBI ACT IS DIFFERENT FROM OTHER ACT?

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INTRODUCTION
For a growing and dynamic economy like India, capital markets play an important
role in not just attracting domestic and foreign investment but also mirror the state of
affairs in our country. In order to present the Indian dream most favourably among
investors, it is important that our capital markets have a strong and non-manipulative
infrastructure and to ensure this, India has its capital market regulator, the Securities
and Exchange Board of India SEBI.
With changing times and while facing newer challenges, SEBI has always taken
responsibility for everything that is right or wrong in Indias capital markets. Even
now, when SEBI finds itself surrounded by the din of chit funds siphoning off crores
of rupees from gullible investors and a need for tightening insider trading norms; the
Indian government has happily obliged to SEBIs demand for more powers.
Accordingly the government has promulgated Securities Laws (Amendment) Second
Ordinance, 2013 that would amend the SEBI Act, the Securities Contracts
(Regulation) Act and the Depositories Act. With these amendments, SEBI 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 SEBI 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.1


1 http://newsonair.com/SEBI-A-CREDBLE-AND-EFFECTIVE-REGULATOR.asp(Visited on
20/10/2015)
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http://newsonair.com/SEBI-A-CREDBLE-AND-EFFECTIVE-REGULATOR.asp(visited on

SEBI'S ORIGIN AND ITS CURRENT HIERARCHY


The idea of setting up a regulator was first proposed by former Prime Minister, Late
Mr. Rajiv Gandhi who was also the Finance Minister in 1987. In his budget speech
for 1987-88, Mr. Gandhi had said For a healthy growth of capital markets, investors
rights must be fully protected. Trading malpractices must be prevented. Government
has decided to set up a separate board for the regulation and orderly functioning of
stock exchanges and the securities industry. Thus, a notification was issued and
SEBI was constituted on 12th April 1988 as an interim administrative body under the
Finance Ministry. However, it was four years later; on 4th April 1992 that a
notification awarding statutory powers to SEBI was finally issued.2
SEBI is a quasi-legislative, quasi-judicial and quasi-executive body. It can draft
regulations, conduct inquiries, pass rulings and impose penalties. All decisions taken
by SEBI are collectively taken by its Board that consists of a Chairman and eight
other members. The current Chairman of SEBI is Mr. Upendra Kumar Sinha.
Moreover, SEBI 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 SEBIs
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
SATs decision or order can appeal to the Supreme Court.3

http://newsonair.com/SEBI-A-CREDBLE-AND-EFFECTIVE-REGULATOR.asp(visited on
20/10/2015)
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http://universalteacher.com/1/functions-of-sebi(visited on 20/10/2015)

FUNCTIONS OF SEBI

Functions of SEBI are given under chapter-4 section-11 of the SEBI Act, 1992 Which
States as11. (1) Subject to the provisions of this Act, 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 such other
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.

(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 organizations in the securities
market;
(ia) calling for information and record from any bank or any other authority or board
or corporation established or constituted by or under any Central, State or Provincial
Act in respect of any transaction in securities which is under investigation or inquiry
by the Board;]
(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;
(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) Without prejudice to the provisions contained in sub-section (2), 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 (not being intermediaries
referred to in section 12) 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.
(3) Notwithstanding anything contained in any other law for the time being in force
while exercising the powers under clause (i) or clause (ia) of sub-section (2) or subsection (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.
(4) Without prejudice to the provisions contained in sub-sections (1), (2), (2A) and
(3) and section 11B, 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 recognized stock exchange;

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(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
organization 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:
Provided that the Board may, without prejudice to the provisions contained in subsection (2) or sub-section (2A), take any of the measures specified in clause (d) or
clause (e) or clause (f), in respect of any listed public company or a public
company (not being intermediaries referred to in section 12) which intends to get
its securities listed on any recognized 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:

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Provided further that the Board shall, either before or after passing such orders, give
an opportunity of hearing to such intermediaries or persons concerned.4
These Functions Can Also Be Divided Into 3 Categories: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:
These functions are performed by SEBI to protect the interest of investor and provide
safety of investment.
As protective functions SEBI performs following functions:
(i) It Checks Price Rigging:
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

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http://www.sebi.gov.in/acts/act15ac.html(visited on 20/10/2015)

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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.

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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.

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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.

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Role of SEBI in Corporate Governance


Established in 1992, the Securities Exchange Board of India is essential to corporate
governance of India's securities market, as it serves as the central body that ensures
investors

are

protected

and

the

securities

market

is

regulated.

Governance

Corporate governance is the manner in which companies or market systems operate,


including the rules, regulations, policies and standards for accountability,
transparency and general corporate integrity.
Origins

SEBI was formed after the Indian Parliament passed the Securities and Exchange
Board of India Act, 1992 in response to the Financial Services Assessment
Programme, a program developed by the World Bank and International Monetary
Fund that observes and reports on global financial systems. The Indian government
wanted to establish a strong financial atmosphere and securities market with a
regulator promoting the latest in corporate governance standards.
Functions

SEBI sets governance standards in which the securities market must operate,
protecting the rights of issuers and investors. SEBI has power to investigate
circumstances where the market or its players have been harmed and can enforce
governance standards with directives. An appeal process in place ensures
accountability and transparency. SEBI may terminate from the securities list any
company that does not comply with its governance standards and regulations.5

http://www.ehow.com/facts_7609058_role-sebi-corporate-governance.html(visited on 20/10/2015)

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Why SEBI Act is Different From other Act?


The SEBI Act, 1992 gives SEBI power to draft regulations in order to regulate the
market and discharge its functions and duties. While the objectives are provided in the
SEBI Act, 1992, the implementation details are left to the regulator. The securities
market is regulated more through regulations than through the SEBI Act, 1992.
This is in marked contrast to other statutes in India, which provides for the regulatory
framework in the parent Act. For example, the Income-Tax Act is a complete selfsufficient code, and the income tax authorities are required to implement the Act as
against notifying the regulatory framework. They are not expected to notify the
regulatory framework and be policy decision-makers. The government notifies not
only the Act but also the rules. Similarly, the Parliament notifies the Indian
Companies Act, 1956, and the government notifies the rules thereunder.
In the case of SEBI, Parliament has delegated its powers of drafting the regulatory
framework to SEBI. Besides the parent Act, SEBI also has powers under the
provisions of the Securities Contract (Regulation) Act, 1956, (referred as the SCR
Act) to notify the framework to regulate stock exchanges, and transactions on the
stock exchanges, as well as the depositories under the provisions of the Depositories
Act, 1996.

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