Unit -3 SEBI Act, 1992

Meaning:Securities Exchange Board of India (SEBI) was set up in 1988 to regulate the functions of
securities market. SEBI promotes orderly and healthy development in the stock market but
initially SEBI was not able to exercise complete control over the stock market transactions. 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.
Reasons for Establishment of SEBI:
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).
Purpose and Role of SEBI:
SEBI was set up with the main purpose of keeping a check on malpractices and protect the
interest of investors. It was set up to meet the needs of three groups.
Issuers: For issuers it provides a market place in which they can raise finance fairly and easily.
Investors: For investors it provides protection and supply of accurate and correct information.
Intermediaries: For intermediaries it provides a competitive professional market.
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:
To regulate the activities of stock exchange.
To protect the rights of investors and ensuring safety to their investment.
To prevent fraudulent and malpractices by having balance between self regulation of business
and its statutory regulations.
To regulate and develop a code of conduct for intermediaries such as brokers, underwriters, etc.
Functions of SEBI:
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:
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.
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 trading. SEBI keeps a strict check when insiders
are buying securities of the company and takes strict action on insider trading.
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.
SEBI undertakes steps to educate investors so that they are able to evaluate the securities of
various companies and select the most profitable securities.
SEBI promotes fair practices and code of conduct in security market by taking following steps:
o SEBI has issued guidelines to protect the interest of debenture-holders wherein companies
cannot change terms in midterm.
o SEBI is empowered to investigate cases of insider trading and has provisions for stiff fine and
imprisonment.
o 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:
SEBI promotes training of intermediaries of the securities market.
SEBI tries to promote activities of stock exchange by adopting flexible and adoptable approach
in following way:
o SEBI has permitted internet trading through registered stock brokers.
o SEBI has made underwriting optional to reduce the cost of issue.
o Even initial public offer of primary market is permitted through stock exchange.
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:
SEBI has framed rules and regulations and a code of conduct to regulate the intermediaries such
as merchant bankers, brokers, underwriters, etc.
These intermediaries have been brought under the regulatory purview and private placement has
been made more restrictive.
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.

SEBI registers and regulates the working of mutual funds etc.

SEBI regulates takeover of the companies.
SEBI conducts inquiries and audit of stock exchanges.
The Organisational Structure of SEBI:
1. SEBI is working as a corporate sector.
2. Its activities are divided into five departments. Each department is headed by an executive
director.
3. The head office of SEBI is in Mumbai and it has branch office in Kolkata, Chennai and Delhi.
4. SEBI has formed two advisory committees to deal with primary and secondary markets.
5. These committees consist of market players, investors associations and eminent persons.
Objectives of the two Committees are:
1. To advise SEBI to regulate intermediaries.
2. To advise SEBI on issue of securities in primary market.
3. To advise SEBI on disclosure requirements of companies.
4. To advise for changes in legal framework and to make stock exchange more transparent.
5. To advise on matters related to regulation and development of secondary stock exchange.
These committees can only advise SEBI but they cannot force SEBI to take action on their
advice.

Establishment, Jurisdiction, Authority and Procedure of the Securities Appellate,

Tribunal for SEBI.

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 and is presently headed by Mr. Justice J P Devadhar, a former
judge of the Bombay High Court. A second appeal lies directly to the Supreme Court.
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
ordeSrs 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.

Qualification for appointment as Presiding Officer or Member of the Securities Appellate

Tribunal.
(1) A person shall not be qualified for appointment as the Presiding Officer of the Securities
Appellate Tribunal unless he
(a) is a sitting or retired Judge of the Supreme Court or a sitting or retired Chief Justice of a
High Court; or

(b) is a sitting or retired Judge of a High Court who has completed not less than seven years of
service as a Judge in a High Court.
(1A) The Presiding Officer of the Securities Appellate Tribunal shall be appointed by the Central
Government in consultation with the Chief Justice of India or his nominee.
(2) A person shall not be qualified for appointment as Member of a Securities Appellate Tribunal
unless he is a person of ability, integrity and standing who 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:
Provided that a member of the Board or any person holding a post at senior management level
equivalent to Executive Director in the Board shall not be appointed as Presiding Officer or
Member of a Securities Appellate Tribunal during his service or tenure as such with the Board or
within two years from the date on which he ceases to hold office as such in the Board.
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 :
summoning and enforcing the attendance of any person and examining 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 ex parte ;
setting aside any order of dismissal of any application for default or any order passed by it ex
parte ; and
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).