Securities Exchange Board of India (SEBI) was established in 1988 to regulate the functions of securities market. SEBI promotes orderly development in the stock market. SEBI was set up with the main idea to keep a check on malpractices and protect the interest of investors. 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
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).
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.
The SEBI performs functions to meet its objectives. To meet these objectives SEBI has three important functions like protective functions, developmental functions and regulatory functions.
Section 11 of SEBI Act deals with functions of the Board.
Section 11 (1) provides that 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.
Section 11 (2) empowers SEBI to take the following measures for the purpose of due performance of its duties under the Act:-
- regulating the business in stock exchanges and any other securities markets;
- 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;
- 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;
- registering and regulating the working of 1[venture capital funds and collective investment schemes, including mutual funds;
- promoting and regulating self-regulatory organisations;
- prohibiting fraudulent and unfair trade practices relating to securities markets;
- promoting investors’ education and training of intermediaries of securities markets;
- prohibiting insider trading in securities;
- regulating substantial acquisition of shares and take over of companies;
- 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;
- 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;
- 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:
- performing such functions and exercising such powers under the provisions of the Securities Contracts (Regulation) Act, 1956 as may be delegated to it by the Central Government;
- levying fees or other charges for carrying out the purposes of this section;
- conducting research for the above purposes;
- 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;
- performing such other functions as may be prescribed.
- The Board may take measurement to undertake inspection of any book, or register, or other document of any public listed company, or a public company which intends to get its securities listed on any recognized stock exchange where the Board has reasonable grounds to belief that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market.
Section 18 provides that the Board shall furnish to the Central Government at such time and in such form and manner as may be prescribed or as the Central Government may direct, such returns and statements and such particulars in regard to any proposed or existing programme for the promotion and development of the securities market, as the Central Government may, from time to time, require. The Board shall, within ninety days after the end of each financial year, submit to the Central Government a report in such form, as may be prescribed, giving a true and full account of its activities, policy and programmes during the previous financial year. A copy of the report received shall be laid, as soon as may be after it is received, before each House of Parliament.
In SEBI v. Shivam Investment (2005), It was held that under Section 11 SEBI can take measures to protect the interest of investors and to regulate the securities market, inter alia by regulating and registering the working of stock brokers, sub-brokers etc. who may be associated with the securities market in any manner.
In KSL and Industries Ltd. V. SEBI , 2003 48 SCL SAT, it was held that SEBI under Section 11 B is empowered to issue directions inter alia to any person associated with the securities market. The expression “any person associated with securities market” would cover not only an individual but also a company. SEBI would have jurisdiction over any company which was associated with security market as it would have over many individuals who was associated with the securities market. If a company associated with securities market commits any breach of the SEBI Act, rules and regulations of SEBI then SEBI would be empowered to take such measures and pass such directions as are appropriate against the such company.
In Sahara India Real Estate Corporation Ltd. V. SEBI [ Civil Appeal No. (9813) of 2011], Sahara group companies floated an issue of OFCDs and started collecting subscriptions form investors with effect form 25th April 2008 up to 13th April 2011. During this period, the company had a total collection of over Rs. 17,656 crore. The amount was collected form about 30 million investors without complying with the requirements applicable to the public offerings of securities. SEBI while taking cognizance of the matter passed an order dated 23rd June, 2011 thereby directing the companies to refund the money so collected to the investors and also restrained the promoters of the companies from accessing the securities market till further orders. Sahara then preferred an appeal before SAT against the order of SEBI and after hearing the SAT confirmed and maintained the order of the SEBI by an order dated 18 October 2011. Subsequently Sahara filed an appeal before the Supreme Court of India against the SAT order. The issue before Supreme Court was that whether SEBI has the power to investigate and adjudicate in this matter as per Section 11, 11 A, 11 B of SEBI Act and under Section 55 A of the Companies Act or is it the Ministry of Corporate Affairs which has the jurisdiction under Section 55 A (c) of the Companies Act was one of many issues raised in the case.
The Supreme Court held that the SEBI Act is a special legislation bestowing SEBI with special powers to investigate and adjudicate to protect the interests of the investors. It has special powers which are not derogatory to any other provisions existing in any other law and are analogous to such other law and should be read harmoniously with such other provisions and there is no conflict of jurisdiction between the Ministry of Corporate Affairs and the SEBI in the matters where interests of the investors are at stake. It further stated that as per the legislative intent and the statement of objectives for the enactment of SEBI Act and the insertion of Section 55 A in the Companies Act, for matters relating to issue and transfer of securities and non-payment of dividend, SEBI has the power to administration in the case of listed public companies and in the case of those public companies which intend to get their securities listed on a recognized stock exchange in India. Therefore, the Court held that SEBI does have power to investigate and adjudicate in this matter.
In conclusion we can say that SEBI’s main role and function is to keep a check on malpractices and protect the interest of investors.
Q.:- Critically examine the role and functions of SEBI in the changing scenario in India.