A project report on

SEBI Supervision of
Securities & Financial Markets
to avert Financial Panic

Presented by

Ashutosh Upadhyaya
(02)
Mridul Srivastava (42)
Rohit Bafna (37)
Rajat Sharma (47)

Introduction

Investor protection: Aim and Objective.

Role of Consumer Protection Act

Rule of SICH (Safety, Information, Chose, Heard)

Unwritten Contracts:

Social Contract

Constitutional Duties of State

Competition Aspect:

Cartelization

Price fixing Agreement

MF Scam, US, 2003.

Protective Measures

Exchange System:

Trading of Shares
Flow of Money
Value Creation
Arbitrary power to control trading
Check on misconduct of profession

Technological Advances
DEMAT Form
Records of Transactions
Electronic Registry
Guarantees and Warrantees

FINANCIAL PANIC

A situation when people believe the bank is unable to to

pay to them and attempt to withdraw all their money.

They are events during which bank depositors attempt to

withdraw their deposits, equity holders sell stock and
market participants in general seek to liquefy their assets.

In these cases where the market is volatile and there is

panic amongst investors, SEBI has a role to protect these
investors and to make improvements and amendments in
cases of financial panic

SEBIs ROLE

The objectives of SEBI have been established to be

essentially threefold;

(1) to protect the interest of investors ensuring a steady

flow of savings into the capital market,

(2) to regulate the securities market and ensure fair

practices and

(3) to promote efficient services by brokers, merchant

bankers, and other intermediaries, so that, they become
competitive and professional and the investors money
be safe of any malpractices.

SEBI Legislations to prevent financial

Securities And Exchange
Board Of India Act, 1992
panic
11. Functions of Board
Regulating issue of prospectus, offer document or advertisement
11A.
11AA. Collective investment scheme
Power to issue directions
11B.
Investigation
11C.
Cease and desist proceedings
11D.

SEBI (Disclosure And Investor Protection) Guidelines,

2000

Guidelines have been issued by the SEBI u/s 11 of the SEBI Act, 1992.
Eligibility Norms for Companies Issuing Securities
Promoters Contribution and Lock-In Requirements
Pre-Issue Obligations and Post-Issue Obligations
SEBI (Investor Protection And Education Fund)
Regulations, 2009

Establishment and utilization of Fund and amounts to be credited to the Fund.

Conditions for Aid.
Advisory committee for the fund and its constitution, functions, meetings and
expenses

Investment, maintenance of accounts and audit of accounts.

The Securities Contracts (Regulation) Act, 1956 (42 Of 1956)

Grant of recognition and withdrawal to stock exchanges.

Corporatization and demutualization of stock exchanges.
Power to call for periodical returns or direct inquiries to be made.
Annual reports to be furnished by stock exchanges
Power to issue directions, make rules, bye-laws or suspend business

of recognized

stock exchanges.

Power to regulate/prohibit contracts and licensing dealers in securities in certain areas.

Listing of securities providing conditions for listing and delisting of securities.
Penalties for failure to furnish information, to redress investors grievances, to
segregate securities or moneys of clients, to comply with listing/de-listing conditions,
for excess dematerialization etc.

SEBI (Prohibition Of Insider Trading) Regulations, 2015

Communication or procurement of unpublished price sensitive information.

Trading when in possession of unpublished price sensitive information.
Trading Plans and Disclosures of trading by insiders,
Codes of fair disclosure and conduct

Harshad Mehta Scam

Facts

Harshad Mehta targeted a rise in the Bombay stock exchange in

the year 1992 by trading in shares at a premium across many
segments.

Taking

advantages of the loopholes in the banking system,

Harshad and his associates triggered a securities scam diverting
funds to the tune of Rs 4000 crores from the banks to the banks
to stockbrokers April 1991 to May 1992
Core Issues

Funds of inter-bank transaction drained to the security market

Issuance of fake bank reciepts

Impact

The governments liberalization policies came under severe criticism

after the scam

The liberalization policies were put on hold

SEBI banned postponed sanctioning of private sector mutual funds.
Foreign pension funds and mutual funds became more remote than
ever

Many reformative acts such as Securities Law Amendments Act 1995

are a direct result of the scam
SEBIs role after the scam

Naked short sales were banned in 2001

Imposed volatility margins on net outstanding sale positions of
financial institutions, banks and mutual funds =

Rolling Settlements System made compulsory

Allowed banks to offer collateralized lending through BSE & NSE to
increase liquidity

Sahara Scam
Facts

SIRECL and SHICL issued OFCDs and collected Rs. 17,656 Cr. as subscriptions
from 3 Cr. investors.

SEBI, in 2011 directed the 2 companies to refund the money to the investors.
Sahara violated capital raising norms and Companies Act and didnt conform
to regulatory disclosures and investor protection norms.

Sahara challenged SEBIs jurisdiction. The court dismissed Saharas petition

Sahara ordered to return around Rs. 24,000 Cr with interest to the investors.
Issues

Whether SEBI has the power to investigate and adjudicate in this matter.
Whether the hybrid OFCDs fall within the definition of "Securities" within

the
meaning of Companies Act, SEBI Act and SCRA to fall under SEBIs jurisdiction.

Whether the issue of OFCDs to millions of persons who subscribed to the issue
is a Private Placement so as not to fall in the purview of SEBIs jurisdiction.

Findings

SEBI does have power to investigate and adjudicate in this matter.

Although the OFCDs issued by the two companies are in the

nature of
"hybrid" instruments, it does not cease to be a "Security" within the meaning
of Companies Act, SEBI Act and SCRA.

Although

the intention of the companies was to make the issue of OFCDs

look like a private placement, it isnt so as such securities are offered to more
than 50 persons (Sec 67 of Co. Act 2013).

Analysis & Suggestions

Courts order lays out how two companies made a pre-planned attempt to

bypass the regulatory and administrative authority of SEBI. SEBI should

take steps to institutionalize the elements that led to this rare victory in court.

The

money-raising operation followed a ban on Saharas para-banking

activities by RBI in 2008. SEBI however, alerted to the operation 2 years after
it started when one of the group companies came to the regulator for a
legal public issue. The level of interaction between the different financial
sector regulators is clearly insufficient. More active co-ordination is needed at
the grass-roots level.

Thank You!