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Role Of SEBI As A Regulator

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Role Of SEBI As A Regulator

shape Introduction

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.

Consequent to Government Notification No.DL-33004/99 dated 27th May 2014, 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 No.DL- (N)/04/0007/2003-15 dated 23rd March 2015, 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.


shape SAT

SAT consists of:

  • A Presiding Officer

  • Two other members


APPOINTMENT

1. Presiding Officer

  • The Presiding officer of SAT shall be appointed by the Central Government in consultation with the Chief Justice of India or his nominee.


2. Members

  • The two members of SAT shall be appointed by the Central Government.


QUALIFICATIONS

Presiding Officer

  • A sitting or retired judge of the supreme court or

  • A sitting or retired Chief Justice of the High Court or

  • A sitting or retired Judge of a High court, who has completed at least 7 years of service as a Judge in a High Court.


Members:

  • He is a person of ability, integrity, and standing and

  • He has shown capacity in dealing with problems relating to securities market and has qualification and experience of corporate law, Securities laws, Finance, economics or accountancy.


Tenure:

1. PRESIDING OFFICER

a. Earlier of the two

  • 5 years at a time or re appointment or

  • 68 years


2. Members

b. Earlier of the two

  • 5 years at a time or re appointment or

  • 62 years


POWERS OF SAT:

The SAT shall have, for the purpose of discharging their functions under this Act, the same powers as are vested in a civil court under the code of civil procedure 1908 while trying a suit, in respect of the following matters namely

  • Summoning and enforcing the attendance of any person and examine him on oath

  • Requiring the discovery and production of documents

  • Receiving evidence on affidavits

  • Issuing commissions for the examination of witnesses or documents

  • Reviewing its decisions

  • Dismissing an application for default or deciding it exparte

  • Setting aside any order or dismissal of any applicable for default or any order passed by it exparte

  • Any other matter which may be prescribed


Appeal to SAT

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.


TIMELIMIT

  • 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.

  • The SAT may entertain an appeal after the expiry of the said period of 45 days if it is satisfied that there was sufficient cause for not filing it within that period.

  • The appeal shall be made in 3 copies, with additional copies for each additional Appeal shall be signed by the authorized person.

  • On receipt of the appeal, the SAT may, after giving the parties to the appeal an opportunity of being heard, pass such order thereon as it thinks fit, confirming, modifying or setting aside the order appealed against and such appeal shall be disposed within 6 months from the date of receipt of the appeal.


HOW TO APPEAR BEFORE SAT:

  • Appearance before SAT may be either in person or through authorized person being a Chartered Accountant, Company Secretary, Cost Accountant or Legal Practitioner.


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 filled within 60 days from the date of receiving a copy of the decision or order of the 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 days.


CIVIL COURT NOT TO HAVE JURISDICTION

  • No civil court shall have jurisdiction to entertain any suit or proceedings in respect of any matter which an Adjudicating Officer appointed under this act or an SAT constituted under this act is empowered by or under this act to determine and

  • No injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this act.


PROCEDURE AND POWERS OF SECURITIES APPELLATE TRIBUNAL.

(1). The Securities Appellate Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice and, subject to the other provisions of this Act and of any rules, the Securities Appellate Tribunal shall have powers to regulate their own procedure including the places at which they shall have their sittings.

(2) The Securities Appellate Tribunal shall have, for the purpose of discharging their functions under this Act, 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 :—

    a. summoning and enforcing the attendance of any person and examining him on oath

    b. requiring the discovery and production of documents

    c. receiving evidence on affidavits

    d. issuing commissions for the examination of witnesses or documents

    e. reviewing its decisions

    f. dismissing an application for default or deciding it ex parte

    g. setting aside any order of dismissal of any application for default or any order passed by it ex parte

    h. any other matter which may be prescribed.


(3) Every proceeding before the Securities Appellate Tribunal shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228, and for the purposes of section 196 of the Indian Penal Code (45 of 1860) and the Securities Appellate Tribunal shall be deemed to be a civil court for all the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974).

OVERVIEW

What have we understood?

The Securities and Exchange Board of India (SEBI) is responsible for protecting the interests of investors in
securities and to promote the development of, and to regulate the securities market and for all other connected matters. To protect and be responsive to the needs of three groups of people (issuer of securities, investors and market intermediaries), SEBI has been invested with three necessary functions rolled-in to enable it to carry out its mandate:

  • Quasi-legislative function = drafts regulations

  • Quasi-judicial = passes rulings and judgments prosecute and judge directly certain violations

  • Quasi-executive = investigation and enforcement actions.


Since these powers make SEBI a very powerful body, an appeal process has been created to ensure accountability. For the quasi-judicial functions, there is a Securities Appellate Tribunal, which is a three-member tribunal. A second appeal lies directly to the Supreme Court.

The first SAT was formed in 1995, through a notification issued by the Central Government and therefore, is a statutory a 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,


Exercise jurisdiction, powers and authority conferred on the Tribunal by or under this Act or any other law for the time being in force.

The Tribunal is a three-member body composed of a Presiding Officer and two other members who are to be nominated via a notification by the Central Government. The Union Government also reserves the right to notify as many SAT’s as is needed.

  • The Securities Appellate Tribunal has only one bench that sits at Mumbai and has jurisdiction over all of India.

  • The Securities Appellate Tribunal is not be bound by the procedure laid down by the Code of Civil


Procedure, 1908, but is be guided by the principles of natural justice and, subject to the other provisions of Depositories Act, 1996.

  • The Securities Appellate Tribunal has powers to regulate its own procedure including the places at which it shall have its sittings.


Every proceeding before the Securities Appellate Tribunal is deemed to be a judicial proceeding and the tribunal has all the powers of a Civil Court.


shape CASES

NOTABLE CASES

Sahara-SEBI case:

In early February this year, SAT disposed off an appeal by the Sahara group saying that the matter was already pending before the Supreme Court. Two Sahara Group firms have been accused of raising money without regulatory approvals by the SEBI. The appeal related to the case involving two Sahara group firms raising money without regulatory approvals. The legal battle with market regulator SEBI is continuing in the Supreme Court over the refund of over Rs 20,000 crore to investors.

Reliance Industries-SEBI

An insider trading case is being heard by the SAT for the past seven years.

The Spice Telecom IPO case:

The Tribunal barred one Dipti Kirit Parekh from accessing the capital market for two years for cornering shares issued in the initial public offer (IPO) of Spice Communications back in 2007.

The Securities and Exchange Board of India was established on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.

The economy of India is based on sound financial system that helps in accelerating production, capital, and economic growth. The main objective of every financial system of the modern economy is to accumulate savings and to develop savings habit among the people. It also helps the savings to allocate into productive usages such as trade and commerce. The optimum and efficient use and allocation of the savings help in the economic growth of the country. Investment is the indicator of the economic level of the country and it is imperative to protect the interest of the investors.

The Primary function of the Securities and Exchange Board of India under the SEBI Act, 1992 is the protection of the investors’ interest and the healthy development of Indian financial markets.
It is a very difficult task for the regulators to prevent the scams, regulating and monitoring each and every segment of the financial markets.

One of the activities in the hand of the regulator is the collection and distribution of money to the investors. SEBI had issued new guidelines for the protection of the investors through the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines.

The securities market is an organized capital market. The securities market is divided into a primary market and secondary market. The origin of the stock market in India started at the end of the eighteenth century. Initially, long-term negotiable securities were issued. An important event in the development of the stock market in India was the formation of the native share and stockbrokers ‘ association at Bombay in 1875, which was the precursor of the present Bombay Stock Exchange. Subsequently, several associations/exchanges in Ahmedabad (1894), Calcutta (1908), and Madras (1937) were formed.

Stock exchange means a body of individuals, whether incorporated or not, constituted for the purpose of regulating or controlling the business of buying, selling or dealing of securities. The securities include shares, bonds, debentures, government securities, and rights.

The Bombay Stock Exchange (BSE) and the National Stock Exchange of India Ltd (NSE) are the two primary exchanges in India. In addition, there are 22 Regional Stock Exchanges.

A regulatory body is essentially needed to regulate and monitor the activities of stock exchanges. To fulfill the need, the Securities and Exchange Board of India (SEBI) was established by the Government of India in 1988 through an executive resolution. And subsequently, it was upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board of India Act on 30th January 1992.

SEBI has four different departments namely; primary department, issue management, and intermediaries department, secondary department and institutional investment department. On 26th January 1995, the government promulgated an ordinance amending the SEBI act, 1992, and the Securities Contracts (Regulation) Act, 1956. Prior to SEBI, the capital markets were regulated by the Capital Issues (Control) Act of 1947. However, it did not have any statutory powers at that time and its role was limited to the collection of investor-related information from various market participants, advising the government on issues related to stock markets and regulation of a few
market entities.

After the establishment of SEBI, the government gave statutory powers in 1992 through the Securities and Exchange Board of India (SEBI) Act. The next major amendment to the SEBI act was made in 2002. So SEBI has
powers to seek information and records from banks and many other authorities, and also for inspection of the books of accounts of listed companies.

The statutory powers of SEBI include protecting the interests of investors in securities, to promote the development of the securities market, to regulate the securities market and for matters connected to which. Moreover, SEBI has powers to control speculation activities, insider trading, takeovers and other substantial share acquisitions.

The functions of SEBI are as follows

  • Regulating the business in the stock exchange and any other securities markets.

  • Registering and regulating the working of collective investment schemes, including mutual funds.

  • Prohibiting fraudulent and unfair trade practices relating to securities markets.

  • Promoting investor’s education and training of intermediaries of securities markets.

  • Prohibiting insider trading in securities, with the imposition of monetary penalties, on erring market intermediaries.

  • Regulating substantial acquisition of shares and takeover of companies.

  • Calling for information from carrying out inspection, conducting inquiries and audits of the stock exchanges, intermediaries and self-regulatory organizations in the securities market.


1. SEBI is a watchdog of the stock exchanges of India. SEBI has issued a new set of comprehensive guidelines governing the issue of shares and other financial instruments and has laid down detailed norms for stock- brokers and sub-brokers, merchant bankers, portfolio managers, and mutual funds.

2. With a view to regulating functions of stock exchanges in a country, the government passed the Securities Contracts (Regulation) Act in 1956. The act came into force in 1957.

3. SEBI started functioning as an independent regulator in 1988 when its’ first Chairman S A Dave who picked up six officers from IDBI and began functioning from IDBI’s office itself.

4. The total head-count of SEBI today exceeds more than 600. Recently SEBI completed 25 years in its service and celebrated silver jubilee festival. On the occasion of silver jubilee celebrations, Prime Minister Manmohan Singh stated that SEBI sought greater powers from government to rein in market manipulators and said dealing with errant entities that are financially strong and those collecting money illegally is one of the major challenges before it.

5. SEBI can also make a vital contribution to the revival of the economy and increase the investments towards the development of infrastructure facilities.

6. Till the early 1990s, the Indian secondary market comprised regional stock exchanges with the BSE heading the list. The Indian stock market was plagued with many limitations, such as the following.

  • The uncertainty of execution prices.

  • Uncertain delivery and settlement periods.

  • Front-running, trading ahead of a client based on knowledge of the client order.

  • Lack of transparency.

  • High transaction costs.

  • The absence of risk management.

  • The systemic failure of the entire market and market closures due to scams.

  • Club mentality of brokers.

  • Kerb trading—private off-market deals.


Regulations for Intermediaries:

A broker is a member of a recognized stock exchange, who is permitted to do trades on the floor of the exchange. He is enrolled as a member with the concerned exchange and is registered with SEBI.

A sub-broker is a person who is registered with SEBI as such and is affiliated to a member of a recognized stock exchange.

The SEBI’s regulatory jurisdiction extends over companies listed on stock exchanges and companies intending to get their securities listed on any recognized stock exchange in the issuance of securities and transfer of securities, in addition to all intermediaries and persons associated with the securities market.

SEBI specify the matters to be disclosed and the standards of disclosure required for the protection of investors in respect of issues. It can issue directions to all intermediaries and other persons associated with the securities market with the interest of investors or of orderly development of the securities market. And it can conduct inquiries, audits, and inspection of all concerned and adjudicate offenses under the Act. Totally, it has been given the necessary autonomy and authority to regulate and develop an orderly securities market. All the intermediaries and persons associated with securities market, viz., brokers and sub-brokers, underwriters, merchant
bankers, bankers to the issue, share transfer agents and registrars to the issue, depositories, participants, portfolio managers, debentures trustees, foreign institutional investors, custodians, venture capital funds, mutual funds, collective investments schemes, credit rating agencies, etc., shall be registered with SEBI and shall be governed by the SEBI regulations pertaining to respective market intermediary.

Registration of stockbrokers are concerned a stockbroker applies in the prescribed format for grant of the certificate through the stock exchanges. The stock exchange forwards the application form to SEBI as early as possible not later than thirty days from the date of its receipt. SEBI takes into account for considering the grant of a certificate all matters relating to buying, selling, or dealing in securities and verifies that whether the stockbroker:

    1.Is eligible to be admitted as a member of a stock exchange,

    2. Has the necessary infrastructure like adequate office space, equipment, and manpower to effectively discharge his activities,

    3. Has any past experience in the business of buying, selling or dealing in securities,

    4. Is subjected to disciplinary proceedings under the rules, regulations, and bye-laws of a stock exchange with respect to his business as a stockbroker involving either himself or any of his partners, directors or employees, and

    5. Is a fit and proper person.


After verification of the applications of sub-brokers, the stock exchange certifies and grants a certificate to the sub-broker and sends intimation to the concern stock exchanges. SEBI has the power to suspend the registration of brokers if necessary, due to the problems caused violation of rules and regulations. A broker’s registration number begins with the letters “INB” and that of a sub-broker with the letters “INS”. The maximum brokerage can be charged by a broker is decided by the stock exchanges as per the exchange regulations.

The SEBI (Stockbrokers and Sub-brokers), 1992 stipulates that a sub-broker cannot charge from his clients a commission which is more than 1.5% of the value mentioned in the respective purchase or sale note.

The following fees are charged by a broker.

    1. Brokerage fee is charged by member broker.

    2. Penalties arising on specific default on behalf of the client (investor)

    3. Service tax as stipulated.


Control on Insider trading

SEBI also undertakes the important tasks like avoiding insider trading and increase transparency in trading to encourage small investors to invest in equities. Insider means any person who, is or was connected with the company or is deemed to have been connected with the company, and who is reasonably expected to have access to unpublished price sensitive information relating to securities of a company.

The insiders are people such as directors and officers or employees of the company or hold a position involving a professional or business relationship between themselves and the company whether temporary or permanent. Price sensitive information means any information which relates directly or indirectly to a company and which if published is likely to materially affect the price of securities of that company.

The price sensitive information includes periodical financial results of a company, intended declaration of dividends, Issue of securities or buy-back of securities, any major expansion, amalgamation, mergers and takeover plans, disposal of the whole or substantial part of the undertaking and any significant changes in policies, plans or operations of a company.

OVERVIEW

The government of India has established the supreme authority SEBI to monitor and control the proceedings of the capital market in the country. As a regulatory authority of capital markets, SEBI has been undertaking various tasks relating to the issue of shares, undertaking, intermediaries, trading of stocks and other merchant banking activities. And also it monitors the tasks of mutual funds. SEBI has additional powers and functions with reference to civil court procedure 1908 to regulate the capital market. In recent years, most of the small investors have been participating in trading activities of stocks and derivatives through exchanges because the investors believe that the SEBI is a watchdog of the stock exchanges of India and it always protects their interest and investments.


ROLE OF COURTS IN ENFORCING SECURITY REGULATIONS:

No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which an adjudicating officer appointed under this Act or a Securities Appellate Tribunal constituted under this Act is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under the SEBI Act

APPEAL TO SUPREME COURT:

Any person aggrieved by any decision or order of the Securities Appellate Tribunal may file an appeal to the
Supreme Court within sixty days from the date of communication of the decision or order of the Securities Appellate Tribunal to him on any question of law arising out of such order:

  • Provided that the Supreme Court may if it is satisfied that the applicant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.


BAR OF JURISDICTION

No order passed by the Board [or the Adjudicating Officer] under SEBI Act shall be appealable and no civil court shall have jurisdiction in respect of any matter which the Board [or the Adjudicating Officer] is empowered by, or under, this Act to pass any order and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any order passed by the Board [or the Adjudicating Officer] by, or under, SEBI Act.

ESTABLISHMENT OF SPECIAL COURTS

1. The Central Government may, for the purpose of providing a speedy trial of offenses under this Act, by notification, establish or designate as many Special Courts as may be necessary.

2. A Special Court shall consist of a single judge who shall be appointed by the Central Government with the concurrence of the Chief Justice of the High Court within whose jurisdiction the judge to be appointed is working.

3. A person shall not be qualified for appointment as a judge of a Special Court unless he is, immediately before such appointment, holding the office of a Sessions Judge or an Additional Sessions Judge, as the case may be.

OFFENCES TRIABLE BY SPECIAL COURTS

Not withstanding anything contained in the Code of Criminal Procedure, 1973, all offenses under SEBI Act committed prior to the date of commencement of the Securities Laws (Amendment) Act, 2014 or on or after the date of such commencement, shall be taken cognizance of and tried by the Special Court established for the area in which the offense is committed or where there are more Special Courts than one for such area, by such one of them as may be specified in this behalf by the High Court concerned.

APPEAL AND REVISION

1. Save as otherwise provided in this Act, the provisions of the Code of Criminal Procedure, 1973 shall apply to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall
be deemed to be a Court of Session and the person conducting prosecution before a Special Court shall be deemed to be a Public Prosecutor within the meaning of clause (u) of section 2 of the Code of Criminal Procedure, 1973.

2. The person conducting prosecution referred to in sub-section (1) should have been in practice as an advocate for not less than seven years or should have held a post, for a period of not less than seven years, under the Union or a State, requiring special knowledge of the law.

TRANSITIONAL PROVISIONS.

Any offense committed under SEBI Act, which is triable by a Special Court shall, until a Special Court is established, be taken cognizance of and tried by a Court of Session exercising jurisdiction over the area, notwithstanding anything contained in the Code of Criminal Procedure, 1973:

Provided that nothing contained in this section shall affect the powers of the High Court under section 407 of the Code of Criminal Procedure, 1973 to transfer any case or class of cases taken cognizance by a Court of Session under this section.