ADVANCE COURSE FOR HON’BLE JUDGES HANDLING COMMERCIAL MATTERS

Dharmishta Raval, Raval & Raval AdvocatesAhmedabad

SEBI JUDGE, JURY & EXECUTIONER?

SEPARATION OF POWERPRINCIPLE OF CONSTITUTIONALISM

Legislates Investigator Police power Quasi judicial authority – Judge Executioner

STATUTES AVAILABLE Sebi Act, 1992 Depositories Act, 1996 Securities Contract (Regulation) Act, 1956 -

delegated powers Companies Act –Delegated powers Repeal of Forward Contract Regulation Act &

Merger of FMC with SEBI, September 29, 2015

GUIDING PRINCIPLES OF SEBI ACT Preamble of Sebi Act

Protect the interest of investors Regulate the securities market Develop the securities market

Charging section of Sebi Act-Sc 11 Section 11 of the Sebi Act casts a duty to carry

out the above 3 objectives by such measures as it thinks fit.

JURISDICTION OF SEBI Section 2(h) of SC(R)Act defines”

securities”as,- Shares, scripts, bonds, debentures or other

marketable securities of a like nature in or of any incorporated company or other body corporate:

Units of mutual fund or collective investment scheme:

Security receipt under Sarfesi Act: Government Securities : Any instrument declared by the Central

Government as Security.

REGULATION OF PRIMARY MARKET -COMPANIESSEBI ACT

Section 11A of the Act empowers Sebi to specify matters relating to, -

Issue of capital, Offer document, Advertisements soliciting money from public

for issue of securities and Transfer of securities.

REGULATION OF COMPANIESCOMPANIES ACT Section 55 A of Companies Act 1956

delegates to SEBI the power to administer sections of Companies Act relating to ,-

Prospectus, allotment, refund, listing, Buy-back of securities Transfer of securities, Debentures & Dividend

REGULATION OF COMPANIESPRIMARY MARKET

Limited to listed companies or companies intending to get listed;

Not available vis-a vis,- Private companies: Legal entities other than companies: Entities not issuing securities.

PRIMARY MARKET INTERMEDIARIES

Regulates all the intermediaries in the primary market i.e.

Merchant Bankers Bankers to an issue Share Transfer Agents Registrar to issue Debenture Trustees

The Regulation of Intermediaries enables Sebi to regulate securities market, ensure investor protection, fair market practises, due diligence, true and fair disclosures.

INVESTOR PROTECTION Individual complaints with Sebi v/s SEC USA Systematic changes in the primary market Shorten the period of listing & allotment Shorten the period of refund

Case of Roopalben Panchal

REGULATION OF DEPOSITORIES DEPOSITORIES ACT ,1996 Securities are dematerialized No physical share certificate No numbering of share certificate Depository is the registered owner Optional Tri –partite Agreement International Experience

INVESTOR PROTECTION Maintaining physically the share certificates Non receipt of Share certificates Forged share certificate Delay in Transfers Corporate Practices

SC (R ) ACT Regulation of Secondary market Regulation of stock exchanges Regulation of transaction in securities market Regulation of intermediaries in the

Secondary Market e.g. stock brokers (SEBI Act)

STOCK- EXCHANGES Self Regulatory Organizations Sections 4, 7A & 9 of the Act empowers

stock exchanges to frame its own rules and bye-laws.

Power of Sebi to direct amendments to be made.

Examples inter-alia are,- Re-constitution of the Stock-Exchange Reconstitution of Governing Board.

REGULATION OF TRANSACTIONS IN SECURITIES Capital adequacy of brokers Margin Trade Guarantee fund Fully computerized system Shortening of Settlement cycles Surveillance of Transactions Transactions in notified areas other than thru

stock – exchange -illegal

LISTING AGREEMENT

Is a Statutory Agreement which is part of the Regulations of Stock Exchange

SEBI can direct amendment of listing agreement

Agreement consists of continuous obligations of the listed company to stock exchange, shareholders and public e.g.

Disclosures regarding Board practices, Corporate Governance, Information regarding Company.

REGULATION OF SECURITIES MARKET SEBI Regulates activities like - Substantial Acquisition of shares &Take-over Collective Investment schemes including

mutual funds and venture capital funds. -

Market manipulation and unfair Trade Practice

Prohibition of Insider Trading

SEBI -INVESTIGATOR Sebi is empowered to carry on investigations

when Transactions in Securities are being dealt with in a manner detrimental to the investors or Securities Market or

Any intermediary or any person associated with the Securities Market and has violated the Provision of the Act, Rules and the Regulations

Also has the power of search and seizure and impounding of documents and assets.

Hence jurisdiction of SEBI over Private Companies, other legal entities and investors during investigation.

SEBI-QUASI-JUDICIAL AUTHORITY Monetory Penalty An officer of Sebi (designated as adjudicating

officer) not below the rank of Division Chief can impose mometary penalty upto 25 corers for violating Sebi Act and regulations.

Before imposing monetary penalty, prior approval of Sebi Board or member is not required.

SEBI-QUASI-JUDICIAL AUTHORITY Cancellation of certificate of Registration of

Intermediaries Two stage enquiry.Like the departmental

enquiry The Order of cancellation has to be passed

by the Sebi Board member

SETTLEMENT OF PROCEEDINGS A person against whom proceedings are

initiated and directions are issued or monetory fine is imposed or a certificate of registration is cancelled can apply to Sebi for settlement of proceedings.

The settlement takes place in accordance with the Sebi (Settlement of Administrative and Civil Proceedings) Regulations 2014 on payment of amount as determined.

POWER TO ISSUE DIRECTIONS Preventive and Remedial Powers Sections 11, 11B,11(4) of Sebi Act and Sc. 12

A of SCRA Act and Sc. 19 of Depositories Act empowers Sebi to issue directions to,-

Intermediaries, Persons associated with the securities market, Stock exchanges Depository or To any company whose securities are listed or

proposed to be listed.

DIRECTIONS (CONTD) Directions can be issued during

investigations or inquiry. Post-facto hearing provided. Examples of directions are,-

• Prohibiting a person from buying selling or dealing in securities,

• Directions to Directors of Companies prohibiting them from accessing securities market.

• Directions for disgorgement

ENFORCEMENT POWERS Amendments in 2014 to enable Sebi to

recover monetary fines ,profits made or losses avoided to recover by ;-

attachment of property movable and immovable, bank accounts.

Sale of movable and immovable property. Appointment of receiver for management of

movable and immovable property,

DELEGATED LEGISLATION Sub-ordinate legislation as Sebi regulates

through Regulations, Guidelines and Circulars Regulations are substantive in nature. Independence to judge and prescribe the

policy to regulate the Securities market i.e. legislative independence

No prior approval of Government but to be placed on the house of the Parliament

Transparent procedure for drafting Regulations

Guidelines are binding in nature

MARKET MANIPULATION Sc 12 A of SEBI Act prohibits any

manipulative or deceptive device. Sec 12 A prohibits any device scheme or

artifice to defraud which operates as a fraud. Sebi has notified Sebi (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 1995 and after its repeal in 2003

APPEAL Statutory Appeal lies only to Securities

Appellate Tribunal Civil court jurisdictions is barred. Appeal from SAT only to Supreme Court and

not to High Courts.

CASE LAWS AIR 2001 SC 1010 “BSE Brokers Forum, Bombay v. SEBI (quid pro quo not necessary) 1999(1) GLR 275 SEBI v/s Alka Synthetics (Auction

proceeds) AIR 2010 SC 3466 “SEBI v. Ajay Agarwal (IPO false

disclosure of capital structure)) AIR 2013 SC 3191 "N. Narayanan v. Adjudicating Officer,

SEBI (false disclosure to stock exchange and public) AIR 2004 SC 4219 “ Swedish Match v/s Sebi (Regulations

are reulatory) Clariant International Ltd. v. SEBI (seperation of power) (2013) 1 SCC 1 Sahara India Real Estate Corporation Ltd.

and Ors. Vs. SEBI and Anr.(Prmary market Regulation) AIR 2014 SC 3241 "Subrata Roy Sahara v. Union of India“

(Contempt of Supreme Court Order)

IOSCO IOSCO is an agency of International

Securities Market Regulators and has prescribed minimum principles which a regulator should follow.

IMF asessment of Sebi in 2011

WAY FORWARD FSLRC Report(Justice B N.Srikrishna Report) Has made recommendations for reform in the

capital market One unified Regulator One Financial Services Tribunal One legislation

THANK- YOU