Securities and Exchange Board of India (SEBI) Act, 1992: A Detailed Compliance Overview
The Securities and Exchange Board of India (SEBI) Act, 1992 serves as the foundational legislative framework for the regulation of the Indian securities market,. Its primary mandate is to protect the interests of investors, promote the development of the securities market, and regulate all related matters,.
Core Powers and Functions of SEBI
The SEBI Act grants the Board extensive powers to oversee the functioning of the financial markets to ensure transparency and fairness. These functions are broadly categorized into regulatory, developmental, and protective measures,,.
Regulatory and Supervisory Measures
SEBI is empowered to take various measures to maintain market integrity, including:
- Regulating Market Business: Overseeing business operations in stock exchanges and any other securities markets.
- Registration of Intermediaries: Registering and regulating the working of various market participants such as stock brokers, sub-brokers, share transfer agents, bankers to an issue, and merchant bankers.
- Oversight of Specific Entities: Registering and regulating the working of depositories, participants, custodians of securities, foreign institutional investors, and credit rating agencies.
- Investment Scheme Regulation: Managing the registration and regulation of Venture Capital Funds (VCFs) and other Collective Investment Schemes (CIS).
- Self-Regulatory Organizations (SROs): Promoting and regulating SROs to foster better industry standards.
Protective and Developmental Functions
- Prohibition of Unfair Practices: Actively prohibiting fraudulent and unfair trade practices relating to the securities markets.
- Investor Education: Promoting investor education and providing training for intermediaries to improve market efficiency.
- Insider Trading Control: Strictly prohibiting insider trading in securities to maintain a level playing field.
- Takeover Regulation: Regulating the substantial acquisition of shares and the takeover of companies.
- Inspection and Audits: Calling for information, undertaking inspections, and conducting inquiries and audits of intermediaries and other persons associated with the market.
- Delegated Powers: Performing functions and exercising powers under the Securities Contracts (Regulation) Act, 1956, as delegated by the Central Government.
Registration Requirements for Intermediaries
Under the SEBI Act, a Certificate of Registration is mandatory for any intermediary wishing to operate in the securities market.
- Mandatory Requirement: No stockbroker, sub-broker, share transfer agent, merchant banker, underwriter, portfolio manager, or investment adviser may buy, sell, or deal in securities without this certificate.
- Compliance with Specific Regulations: Intermediaries must also comply with specialized regulations during their application; for example, a stock broker must apply according to FORM A of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.
- Authority to Issue: SEBI holds the sole power to issue these certificates of registration.
Prohibition of Manipulative and Deceptive Devices
Section 12A of the SEBI Act explicitly outlines prohibited activities to safeguard market participants from fraud and manipulation.
Prohibited Activities under Section 12A
No person shall, directly or indirectly:
- Manipulative Devices: Use or employ any manipulative or deceptive device or contrivance in connection with the issue, purchase, or sale of listed or proposed-to-be-listed securities.
- Fraudulent Schemes: Employ any scheme or artifice to defraud in connection with the dealing of securities.
- Deceptive Practices: Engage in any act or course of business that operates as a fraud or deceit upon any person.
- Insider Trading: Engage in any insider trading activity.
- Non-Public Information: Deal in securities while in possession of material non-public information or communicate such information in contravention of the Act.
- Illegal Acquisition of Control: Acquire control of a company or securities exceeding the specified percentage of equity share capital in contravention of SEBI regulations.
Enforcement, Penalties, and Adjudication
SEBI is equipped with civil and quasi-judicial powers to enforce compliance and penalize defaulters,.
Penalties and Adjudication Proceedings
SEBI can impose penalties and initiate adjudication proceedings against intermediaries for various defaults, including:
- Failure to furnish required information or returns.
- Failure to enter into required agreements with clients.
- Non-compliance with any clauses specified under sub-sections of Section 15.
The Securities Appellate Tribunal (SAT)
The SAT is the designated authority to hear appeals from persons aggrieved by SEBI's orders,.
- Legal Standing: Under Section 15U, the SAT is not bound by the procedure of the Code of Civil Procedure but is guided by the principles of natural justice.
- Powers: It has the same powers as a civil court for specific functions, such as summoning persons and inspecting books.
- Appellate Process: Any person aggrieved by an order of SEBI or an adjudicating officer may appeal to the SAT.
- Limitations: Appeals must be filed within 45 days of receiving the order, and no appeal is allowed if the order was made with the person's consent.
| Feature | Description |
|---|---|
| Established Date | April 12, 1992 |
| Primary Objective | Investor protection and market regulation, |
| Enforcement Power | Civil court powers for inspections and summoning |
| Appellate Body | Securities Appellate Tribunal (SAT), |
Key Takeaways
- SEBI's Dual Role: SEBI acts as both a market regulator and a protector of investor interests,.
- Compulsory Registration: All market intermediaries must hold a valid SEBI registration to operate legally.
- Zero Tolerance for Fraud: Section 12A provides a robust legal barrier against insider trading and manipulative market practices.
- Legal Recourse: The SAT provides a structured mechanism for intermediaries to appeal SEBI's decisions based on natural justice,.
Important Terms
- Insider: A person connected with a company who has access to unpublished price-sensitive information,.
- Adjudication: The legal process of SEBI imposing penalties for regulatory defaults.
- Natural Justice: The legal principle ensuring a fair hearing and unbiased decision-making, which guides SAT proceedings.
- Intermediary: Entities like brokers, merchant bankers, and registrars that facilitate transactions in the securities market.