A Guide to the Securities and Exchange Board of India Act, 1992

A Guide to the Securities and Exchange Board of India Act, 1992

18 min read

The Securities and Exchange Board of India Act, 1992 setup SEBI to promote & regulate the securities market and to protect the interests of investors.

The Securities and Exchange Board of India Act, 1992 was introduced with the aim of establishing a Board:

  1. to protect the interests of investors in securities
  2. to promote the development of the securities market
  3. to regulate the securities market
  4. for all connected and related matters.

Brief History of the Act

The Securities and Exchange Board of India Act, 1992 was first introduced before the Lok Sabha as the Securities and Exchange Board of India Bill, 1992 on 03/03/1992 and was passed by the Lok Sabha on 30/03/1992. The Rajya Sabha passed this Bill on 01/04/1992 and it received Presidential assent on 04/04/1992. 

Download:
Securities and Exchange Board of India Act, 1992

List of Amendments

  • Securities Laws (Amendment) Act, 1995
  • Securities Laws (Amendment) Act, 1999
  • Securities Laws (Second Amendment) Act, 1999
  • SEBI (Amendment) Act, 1999
  • Repealing & Amendment Act, 2001
  • Securities Laws (Amendment) Act, 2002
  • SEBI (Amendment) Act, 2002
  • Securities and Insurance Laws (Amendment and Validation) Act, 2010
  • SEBI (Amendment) Act, 2013
  • Securities Laws (Amendment) Act, 2014
  • Finance Act, 2017
  • Finance Act, 2018
  • Finance Act, 2019

1. Important Definitions

Board means the Securities and Exchange Board of India established under section 3.

Collective Investment Scheme means any scheme or arrangement which satisfies the conditions specified in section 11AA.

Fund means the fund constituted under section 14.

Judicial Member means a Member of the Securities Appellate Tribunal appointed under sub-section (1) of section 15MA and includes the Presiding Officer.

Reserve Bank means the Reserve Bank of India constituted under section 3 of the Reserve Bank of India Act, 1934.

Securities has the meaning assigned to it in section 2 of the Securities Contracts (Regulation) Act, 1956.


2. The Securities and Exchange Board of India

The Securities and Exchange Board of India (SEBI) is established under this Act having a corporate identity and a head office at Mumbai.

Members of the Board

  1. Chairman;
  2. Two members from amongst the officials of the Ministry of the Central Government
    dealing with Finance and administration of the Companies Act, 2013
  3. One member from amongst the officials of the Reserve Bank of India
  4. Five other members of whom at least three shall be the whole-time members, to be appointed by the Central Government.

Conditions of Removal of Members

  1. If any member is or at any time has been, adjudicated as insolvent
  2. If any member is of unsound mind and stands so declared by a competent court
  3. If any member has been convicted of an offence which, in the opinion of the Central Government, involves moral turpitude
  4. If any member has, in the opinion of the Central Government, so abused his position as to render his continuation in office detrimental to the public interest. (No member shall be removed under this clause unless he has been given a reasonable opportunity of being heard in the matter).

Powers and Functions of the Board

  1. Protection of interests of investors in securities
  2. Promoting the development of the securities market by regulating it as it thinks necessary
  3. Regulating the business in stock exchanges and any other securities markets
  4. Registering and regulating the working of stockbrokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities markets in any manner
  5. Registering and regulating the working of the depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies and such other intermediaries as the Board may, by notification, specify in this behalf
  6. Registering and regulating the working of venture capital funds and collective investment schemes, including mutual funds
  7. Promoting and regulating self-regulatory organizations
  8. Prohibiting fraudulent and unfair trade practices relating to securities markets
  9. Promoting investors’ education and training of intermediaries of securities markets
  10. Prohibiting insider trading in securities
  11. Regulating substantial acquisition of shares and take over of companies
  12. Calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, mutual funds, other persons associated with the securities market, intermediaries and self-regulatory organisations in the securities market
  13. Calling for information and records from any person including any bank or any other authority or board or corporation established or constituted by or under any Central or State Act which, in the opinion of the Board, shall be relevant to any investigation or inquiry by the Board in respect of any transaction in securities
  14. Calling for information from, or furnishing information to, other authorities, whether in India or outside India, having functions similar to those of the Board, in the matters relating to the prevention or detection of violations in respect of securities laws, subject to the provisions of other laws for the time being in force in this regard
  15. Performing such functions and exercising such powers under the provisions of the Securities Contracts (Regulation) Act, 1956, as may be delegated to it by the Central Government
  16. Levying fees or other charges for carrying out the purposes of this section
  17. Conducting research for the above purposes
  18. Calling from or furnishing to any such agencies, as may be specified by the Board, such information as may be considered necessary by it for the efficient discharge of its functions
  19. Undertake inspection of any book, register, record or other document of any listed public company or a public company who is not an intermediary which intends to get its securities listed on any recognised stock exchange
  20.  The discovery and production of books of accounts and other documents, at such place and such time as may be specified by the Board
  21. Summoning and enforcing the attendance of persons and examining them on oath
  22. Inspection of any books, registers and other documents of any person or company
  23. Issuing commissions for the examination of witnesses or documents
  24. Suspend the trading of any security in a recognised stock exchange
  25. Restrain persons from accessing the securities market and prohibit any person associated
    with securities market to buy, sell or deal in securities
  26. Suspend any office-bearer of any stock exchange or self-regulatory organisation from
    holding such position
  27. Impound and retain the proceeds or securities in respect of any transaction which is under
    investigation
  28. Attach, for a period not exceeding ninety days, bank accounts or other property of any intermediary or any person associated with the securities market in any manner involved in violation of any of the provisions of this Act, or the rules or regulations
  29. Direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation
  30. Regulate or prohibit the issue of prospectus, offer document or advertisement soliciting money for issue of securities
  31. Power to issue directions and levy penalty
  32. Power to conduct investigation
  33. Power to initiate cease and desist proceedings
  34. Power to issue certificate of registration and impose conditions therein
  35. Power to order the suspension or cancellation of certificate of registration
  36. Performing such other functions as may be prescribed.

Investigation

The Board is empowered to direct any person by order in writing to investigate the affairs of any intermediary or persons associated with the securities market and to report it to the Board. The conditions under which such investigation can be initiated are-

  1. If the transactions in securities are being dealt within a manner detrimental to the investors or the securities market
  2. If any intermediary or any person associated with the securities market has violated any of the provisions of this Act or rules or regulations made or directions issued by the Board.

Miscellaneous

SEBI is entitled to receive grants on the discretion of the Central Government. The SEBI Fund has also been established under this Act. SEBI is required to maintain proper accounts and other relevant records and also prepare an annual statement of accounts. The Comptroller and Auditor General of India conducts audits for SEBI.  


3. Specific Prohibition

The SEBI Act, 1992 prohibits manipulative and deceptive devices, insider trading and substantial acquisition of securities or control. The Act states that no person shall directly or indirectly-

  1. use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder
  2. employ any device, scheme or artifice to defraud in connection with the issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange
  3. engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder
  4. engage in insider trading
  5. deal in securities while in possession of material or non-public information or communicate such material or non-public information to any other person, in a manner which is in contravention of the provisions of this Act or the rules or the regulations made thereunder
  6. acquire control of any company or securities more than the percentage of equity share capital of a company whose securities are listed or proposed to be listed on a recognised stock exchange in contravention of the regulations made under this Act.

4. Securities Appellate Tribunal

The Securities Appellate Tribunal is established by the Central Government by way of notification. The Tribunal consists of a Presiding Officer and such number of Judicial Members and Technical Members as determined by the Central Government. 

The Presiding Officer, Judicial Members and Technical Members hold office for a term of 5 years and are eligible for re-appointment for another period of 5 years. Civil courts are restricted from entertaining disputes which fall under the jurisdiction of the Securities Appellate Tribunal. 

Qualifications, Resignation and Removal

The qualifications for the post of Presiding Officer, Judicial Member or Technical Member of the Tribunal are-

  1. The person is, or has previously been a Judge of the Supreme Court or a Chief Justice of a High Court or a Judge of High Court for at least 7 years, in the case of the Presiding Officer.
  2. The person is, or has previously been, a Judge of High Court for at least 5 years, in the case of a Judicial Member.
  3. The person is, or has previously been, a Secretary or an Additional Secretary in the Ministry or Department of the Central Government or any equivalent post in the Central Government or a State Government, in the case of a Technical Member.
  4. The person is a person of proven ability, integrity and standing having special knowledge and professional experience, of not less than fifteen years, in the financial sector including securities market or pension funds or commodity derivatives or insurance, in the case of a Technical Member.

The Presiding Officer or any other Member of the Tribunal can submit a notice in writing addressed to the Central Government in order to resign from his post.

The Central Government can remove the Presiding Officer or any other Member of the Tribunal after an inquiry made by a Judge of the Supreme Court-

  1. If he currently is, or at any time has previously been adjudged as an insolvent
  2. If he has become physically or mentally incapable of acting as the Presiding Officer, Judicial or Technical Member
  3. If he has been convicted of any offence which, in the opinion of the Central Government, involves moral turpitude
  4. If he has, in the opinion of the Central Government, so abused his position as to render his continuation in office detrimental to the public interest
  5. If he has acquired such financial interest or other interest as is likely to affect prejudicially his functions as the Presiding Officer or Judicial or Technical Member (provided that he shall not be removed from office under clauses (4) and (5), unless he has been given a reasonable opportunity of being heard in the matter).

Appeal Provisions

The Securities Appellate Tribunal can entertain appeals against orders passed by 

  1. SEBI
  2. Adjudicating officers who have been appointed under the SEBI Act, 1992
  3. Insurance Regulatory and Development Authority
  4. Pension Fund Regulatory and Development Authority. 

Every appeal petition filed before the Securities Appellate Tribunal has to be filed within 45 days of the order of the lower authority specified above. The Act also requires that the Tribunal has to dispose of the appeal petition within six months.

Any person may even prefer to appeal before the Central Government against an order passed by SEBI.

Any person who is aggrieved by an order passed by the Securities Appellate Tribunal can file an appeal before the Supreme Court of India within 60 days from the date of communication of order on questions of law.

Powers of the Tribunal

  1. Summoning and enforcing the attendance of any person and examining him on oath
  2. Requiring the discovery and production of documents
  3. Receiving evidence on affidavits
  4. Issuing commissions for the examination of witnesses or documents
  5. Reviewing its decisions
  6. Dismissing an application for default or deciding it ex parte
  7. Setting aside any order of dismissal of any application for default or any order passed by it ex parte
  8.  Any other matter which may be prescribed.

5. Powers of the Central Government

  1. Power to issue directions
  2. Power to establish SEBI
  3. Power to establish Securities Appellate Tribunal
  4. Power to supersede SEBI if it cannot discharge its duties or has defaulted in its duties or it is necessary to supersede in public interest
  5. Power to require SEBI to furnish returns, statements and other particulars
  6. Power to issue grants on behalf of SEBI
  7. Power to appoint, remove or accept resignation of members of SEBI and the Securities Appellate Tribunal
  8. Power to grant immunity
  9. Power to make rules
  10. Power to make regulations
  11. Power to remove difficulties

6. Penalties

Offence

Penalty

If any person is required to furnish any document, return
or report to the Board and fails to furnish the same or
furnishes false, incorrect or incomplete information
Not less than INR 1 lakh which may extend up to INR 1 lakh
for each day of the continuation of offence subject to a
maximum of INR 1 crore.
If any person is required to file any return or furnish any
information, books or other documents within a specified
period of time and fails to furnish the same or files
false, incomplete or incorrect information
Not less than INR 1 lakh which may extend up to INR 1 lakh
for each day of the continuation of offence subject to a
maximum of INR 1 crore.
If any person is required to maintain books, accounts or
records and fails to maintain them
Not less than INR 1 lakh which may extend up to INR 1 lakh
for each day of the continuation of offence subject to a
maximum of INR 1 crore.
If any person who is registered as an intermediary and is
required to enter into an agreement with his client, fails
to enter into such agreement
Not less than INR 1 lakh which may extend up to INR 1 lakh
for each day of the continuation of offence subject to a
maximum of INR 1 crore.
If any listed company or any person who is registered as an
intermediary, after having been called upon by the Board in
writing including by any means of electronic communication,
to redress the grievances of investors, fails to redress
such grievances within the time specified by the Board
Not less than INR 1 lakh which may extend up to INR 1 lakh
for each day of the continuation of offence subject to a
maximum of INR 1 crore.
If any person is required to obtain a certificate of
registration from the Board for sponsoring or carrying on
any collective investment scheme, including mutual funds,
sponsors or carries on any collective investment scheme,
including mutual funds without obtaining such certificate
of registration
Not less than INR 1 lakh which may extend up to INR 1 lakh
for each day of the continuation of offence subject to a
maximum of INR 1 crore.
If any person who is registered with the Board as a
collective investment scheme, including mutual funds, for
sponsoring or carrying on any investment scheme, fails to
comply with the terms and conditions of certificate of
registration
Not less than INR 1 lakh which may extend up to INR 1 lakh
for each day of the continuation of offence subject to a
maximum of INR 1 crore.
If any person who is registered with the Board as a
collective investment scheme, including mutual funds, fails
to make an application for listing of its schemes as
provided for in the regulations governing such listing
Not less than INR 1 lakh which may extend up to INR 1 lakh
for each day of the continuation of offence subject to a
maximum of INR 1 crore.
If any person who is registered as a collective investment
scheme, including mutual funds, fails to despatch unit
certificates of any scheme in the manner provided in the
regulation governing such despatch
Not less than INR 1 lakh which may extend up to INR 1 lakh
for each day of the continuation of offence subject to a
maximum of INR 1 crore.
If any person who is registered as a collective investment
scheme, including mutual funds, fails to refund the
application monies paid by the investors within the period
specified in the regulations
Not less than INR 1 lakh which may extend up to INR 1 lakh
for each day of the continuation of offence subject to a
maximum of INR 1 crore.
If any person who is registered as a collective investment
scheme, including mutual funds, fails to invest money
collected by such collective investment schemes in the
manner or within the period specified in the regulations
Not less than INR 1 lakh which may extend up to INR 1 lakh
for each day of the continuation of offence subject to a
maximum of INR 1 crore.
Where any asset management company of a mutual fund
registered under this Act, fails to comply with any of the
regulations providing for restrictions on the activities of
the asset management companies
Not less than INR 1 lakh which may extend up to INR 1 lakh
for each day of the continuation of offence subject to a
maximum of INR 1 crore.
Where any person fails to comply with the regulations made
by the Board in respect of alternative investment funds,
infrastructure investment trusts and real estate investment
trusts or fails to comply with the directions issued by the
Board
Not less than INR 1 lakh which may extend up to INR 1 lakh
for each day of the continuation of offence subject to a
maximum of INR 1 crore or up to three times the amount of
gains made out of such failure, whichever is higher.
Where an investment adviser or a research analyst fails to
comply with the regulations made by the Board or directions
issued by the Board
Not less than INR 1 lakh which may extend up to INR 1 lakh
for each day of the continuation of offence subject to a
maximum of INR 1 crore.
If any person who is registered as a stock broker fails to
issue contract notes in the form and manner specified by
the stock exchange of which such broker is a member
Not less than INR 1 lakh which may extend up to INR 1
crore.
If any person who is registered as a stock broker fails to
deliver any security or fails to make payment of the amount
due to the investor in the manner within the period
specified in the regulations
Not less than INR 1 lakh which may extend up to INR 1 lakh
for each day of the continuation of offence subject to a
maximum of INR 1 crore.
If any person who is registered as a stock broker charges
an amount of brokerage which is in excess of the brokerage
specified in the regulations
Not less than INR 1 lakh which may extend up to five times
the amount of brokerage charged in excess of the specified
brokerage, whichever is higher.
If any insider who either on his own behalf or on behalf of
any other person, deals in securities of a body corporate
listed on any stock exchange on the basis of any
unpublished price-sensitive information
Not less than INR 10 lakhs which may extend up to INR 25
crores or three times the amount of profit made out of
insider trading, whichever is higher.
If any insider who communicates any unpublished
price-sensitive information to any person, with or without
his request for such information except as required in the
ordinary course of business or under any law
Not less than INR 10 lakhs which may extend up to INR 25
crores or three times the amount of profit made out of
insider trading, whichever is higher.
If any insider who counsels, or procures for any other
person to deal in any securities of any body corporate on
the basis of unpublished price-sensitive information
Not less than INR 10 lakhs which may extend up to INR 25
crores or three times the amount of profit made out of
insider trading, whichever is higher.
If any person is required to disclose the aggregate of his
shareholding in the body corporate before he acquires any
shares of that body corporate, but fails in the same
Not less than INR 10 lakhs which may extend up to INR 25
crores or three times the amount of profits made out of
such failure, whichever is higher.
If any person is required to make a public announcement to
acquire shares at a minimum price and fails to do the same
Not less than INR 10 lakhs which may extend up to INR 25
crores or three times the amount of profits made out of
such failure, whichever is higher.
If any person is required to make a public offer by sending
letter of offer to the shareholders of the concerned
company and fails to do the same
Not less than INR 10 lakhs which may extend up to INR 25
crores or three times the amount of profits made out of
such failure, whichever is higher.
If any person is required to make payment of consideration
to the shareholders who sold their shares pursuant to
letter of offer
Not less than INR 10 lakhs which may extend up to INR 25
crores or three times the amount of profits made out of
such failure, whichever is higher.
If any person indulges in fraudulent and unfair trade
practices relating to securities
Not less than INR 5 lakhs which may extend up to INR 25
crores or three times the amount of profits made out of
such practices, whichever is higher.
If any person knowingly alters, destroys, mutilates,
conceals, falsifies, or makes a false entry in any
information, record, document (including electronic
records), which is required under this Act or any rules or
regulations made thereunder, so as to impede, obstruct, or
influence the investigation, inquiry, audit, inspection or
proper administration of any matter within the jurisdiction
of the Board
Not less than INR 1 lakh which may extend up to INR 10
crores or three times the amount of profits made out of
such acts, whichever is higher.
If any person without being authorised to do so, access or
tries to access, or denies of access or modifies access
parameters, to the regulatory data in the database
Not less than INR 1 lakh which may extend up to INR 10
crores or three times the amount of profits made out of
such acts, whichever is higher.
If any person without being authorised to do so, downloads,
extracts, copies, or reproduces in any form the regulatory
data maintained in the system database
Not less than INR 1 lakh which may extend up to INR 10
crores or three times the amount of profits made out of
such acts, whichever is higher.
If any person knowingly introduces any computer virus or
other computer contaminant into the system database and
brings out a trading halt
Not less than INR 1 lakh which may extend up to INR 10
crores or three times the amount of profits made out of
such acts, whichever is higher.
If any person without authorisation disrupts the
functioning of system database
Not less than INR 1 lakh which may extend up to INR 10
crores or three times the amount of profits made out of
such acts, whichever is higher.
If any person knowingly damages, destroys, deletes, alters,
diminishes in value or utility, or affects by any means,
the regulatory data in the system database
Not less than INR 1 lakh which may extend up to INR 10
crores or three times the amount of profits made out of
such acts, whichever is higher.
If any person fails without reasonable cause or refuses to
produce books, registers, other documents or records which
he is duty-bound to produce, fails to furnish information,
fails to sign notes of any examination or fails to appear
before the Investigating Authority
Imprisonment which may extend up to 1 year or fine which
may extend up to INR 1 crore and also a fine up to INR 5
lakhs in case of a continuing offence.
If any person fails to fails to comply with any provision
of this Act, the rules or the regulations made or
directions issued by the Board thereunder for which no
separate penalty has been provided
Not less than INR 1 lakh which may extend up to INR 1
crore.
If any person contravenes or or attempts to contravene or
abets the contravention of the provisions of this Act or of
any rules or regulations made thereunder
Imprisonment which may extend up to 10 years or fine which
may extend up to INR 25 crores or both.
If any person fails to pay the penalty imposed by the
adjudicating officer or Board or fails to comply with any
directions or orders
Imprisonment not less than 1 month which may extend up to
10 years or fine which may extend up to INR 25 crores or
both.

7. Important Judgments under the SEBI Act, 1992

Adjudicating Officer, Securities and Exchange Board of India Versus Bhavesh Pabari, Civil Appeal No. 11311 of 2013 dated 28th February, 2019 (Supreme Court)- In this case the Supreme Court of India explained the relevance of Section 15J of the SEBI Act, 1992 and has also differentiated between the meaning of a continuing offence and a repeat offence. The Court held that Section 15A to 15HA have to be harmoniously read with Section 15J and that these provisions cannot be inconsistent with each other. This case also overruled the judgment of SEBI v. Roofit Industries Ltd. (2016) 12 Supreme Court Cases p. 125

Sahara India Real Estate Corporation Ltd. & Ors. Versus SEBI, (2012) 174 Company Cases p. 154 (Supreme Court)- The Supreme Court applied the doctrine of legislative intent and doctrine of harmonious construction in this case and held that SEBI is empowered to exercise powers under Sections 11, 11A and 11B of the SEBI Act, 1992 and Section 55A of the Companies Act.The Court also held that the term securities has to be interpreted widely to include Optional Fully Convertible Debenture within its definition and held Sahara liable.

Dushyant N. Dalal Versus SEBI, Civil Appeal No. 5677 of 2017 dated 04th October 2017 (Supreme Court)- In this case the question before the Supreme Court of India was that if interest could be recovered on penalty orders issued under the Act or by orders punishing unlawful gains when the said amounts remain unpaid. The Supreme Court of India reversed the order of the Securities Appellate Tribunal and held that no interest was payable in this case.


Ultimate Guide to Fintech Law

Fintech Law is the regulatory ecosystem and legal framework governing the multi-trillion-dollar financial technologies (fintech) sector. Check out the Ultimate Guide to Fintech Law in India.


Manohar Samal