In our country the primary legislation that was passed to ensure the orderly and healthy growth of the capital market with adequate protection to investors was the Capital Issues (Control) Act, 1947. The controller of Capital Issues was entrusted with the responsibility of regulation of capital related problems within the country under this act. However, it had been noticed over time that provisions of the Capital Issues (Control) Act, 1947 were inadequate to keep up with the growth of the capital market activity. This led to the enactment of the Companies Act, 1956 and also the Contracts Regulation Act, 1956. These legislations contain many provisions regarding the difficulty of prospectus, revelation of accounting and money information, listing of securities etc. With the passage of time India witnessed an exceptional growth of the stock exchange.
The changes within the capital structure of companies and globalization, gave birth to new intermediaries and establishments in the security market and thereby created new investment opportunities and increased awareness among investors. However, with the growth of the stock exchange the amount of malpractices additionally inflated primary as well as secondary markets. The malpractices were detected within the case of firms, merchant banks, brokers, etc. A few examples of such malpractices are square measure manipulation of security costs, price rigging, insider trading, and delay in settlement. Due to these circumstances the government felt the need for putting in place an associate apex body to develop and regulate the stock exchange in India. Eventually the Securities and Exchange Board of India was established in 1988. It had been established as a non- statutory body. It took almost four years for the government to enact a separate legislation known as SEBI Act 1992. The Indian capital market has witnessed an incredible growth throughout the last forty years, and this has led to an increase in the number of malpractices. These malpractices include price rigging, violation of rules and laws, delay in delivery of shares etc., and because of these malpractices, the government set up a separate regulatory body called the SEBI.
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Role of SEBI
– To the Issuers/ Issuing companies: It provides a marketplace in which the companies will with confidence foresee to boost finance in a simple, truthful and economical method. So, the company will simply raise capital from the capital market. And this confidence is given by SEBI.
– To the Investors: It protects the rights and interests of the investors through adequate, correct and authentic data and revealing of data on a regular basis.
– To the Intermediaries: SEBI offers a competitive, skilled and growing market with adequate economical infrastructure. This enables them to render higher quality of service to the investors and issuers.
Some other roles of SEBI are: It has the power to make rules and regulations for controlling the stock exchange in India, and to educate brokers and investors about the stock market. SEBI also encourages the investors to invest in the stock market. As SEBI is a regulatory body so it safeguards the rights and interest of investors and also helps in development of stock and share markets. The main role of SEBI is stopping all fraud and malpractices in the stock exchange. The brokers or intermediaries of the stock market shall have the license and SEBI has the power to provide license to brokers and if there is any default then it can cancel it.
Preamble of SEBI
The basic function of the Securities Exchange Board of India is “to protect the interest of investors in securities and to promote the development of and to regulate the securities market and for matters connected therewith or incidental thereto.”
It was established for the subsequent purposes: To defend the interest of investors and guarantee safety of their investment and promote the events of the capital market or stock exchange through intermediary education and training. The main objective of SEBI is to regulate exchange and conjointly all matters connected with stock exchange or incidental to it. Also to anticipate unfair trade practices in exchange and regulate and develop a code of conduct for intermediaries i.e., brokers, underwriters, merchant bankers. The Securities Exchange Board of India regulates the activities within the stock exchange.
Functions of SEBI
- Regulatory Functions
- Development Functions
- Protective Functions
Regulatory Functions: SEBI regulates the activities within the stock exchange. It regulates the collective investment schemes and prevents unfair trade practices. It conjointly regulates substantial acquisition of shares and takeover of corporations.
Development Functions: It promotes investor’s education to extend participation in the capital market. It provides training of intermediaries like brokers and sub- brokers.
Protective Functions: SEBI’s protective functions include dominant price rigging, prohibition of insider trading and unfair trade practices, and promotion of truthful practices as prescribed under code of conduct.
Powers of SEBI
SEBI has been vested with the following powers: It has power of the Civil Court in dealing with different cases with reference to malpractices, fraud etc. SEBI can suspend the trade of commerce of any security within the recognised securities market. It may prevent/ restrain persons from accessing the stock exchange and has the power to control or forbid issuing of prospectus, provide documents or packaging soliciting cash for issue of securities. SEBI can approve and amend the by- laws of the securities market. And also has the ability to investigate bound matters associated with stock exchange. Further it examines the book of accounts and involves periodical returns from recognized stock exchanges. It can examine the book of accounts of intermediaries additionally and has the power to cancel registration certificates. It can also impose penalties and adjudication. Lastly it has the power to ban or stop artful and deceptive devices and trading and substantial acquisition or takeover of securities or management.
Securities Appellate Tribunal
It is a statutory body established under the provision of Section 15K of the SEBI Act, 1992. The first SAT was established in 1995 through a notification issued by the Central government. The SAT is established for the purpose of listening to or getting rid of appeals against orders given by SEBI. Usually appeals or appellate tribunals could be a special court or committee that’s shaped to rethink a choice. It is located in Mumbai and also the SAT has the ability to control its own procedures. Composition of SAT is mentioned under section 15L of SEBI Act. It includes 3 members i.e.., a Presiding officer and 2 other members. The Presiding officer is appointed by the central government with the Chief Justice of India or his nominee and the other 2 members are appointed by the central government.
Qualifications required to become a Presiding Officer and 2 other members are mentioned under section 15M of the SEBI Act. The Presiding Officer ought to be 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 High Court who has completed at least seven years of service as a Judge in the High Court. Then the other 2 members ought to have the standard of ability, integrity and standing conjointly therewith he ought to have the capability in coping with stock market, company law, law, finance, economics, accountancy etc.
The tenure of these offices is mentioned in the section 15N of the SEBI Act. The tenure of the presiding officer is 5 years at a time or reappointment or sixty eight years (whichever is earlier). The tenure of the other members are the same as the presiding officer, however solely the age is sixty two years rather than sixty eight years.
The Powers of SAT are mentioned in section 15U of the SEBI Act are as mentioned:
- Summoning and enforcing the attendance of any person and examining him an oath. Which means every person related to any case should give an oath to SAT.
- Requiring the discovery and production of documents related to the particular case.
- Receiving evidence on affidavit. Which means if a person is giving an affidavit then sometimes the SAT asked evidence for that affirmation statement.
- Issuing commissions for the examination of witnesses or documents. If SAT wants to check the witness or to examine the documents then it can appoint commissions for checking that witnesses and documents.
- Reviewing its decisions. If anyone recommends to review SAT’s decisions then it can be reviewed.
- An application came from anyone beyond the law, the SAT can dismiss that application.
- The SAT can set aside the application as default.
- If any other matters prescribed other than the above powers of SAT the SAT can exercise it without any notification.
Investors Protection Under SEBI Act
An investor enjoys investing, if:
– He knows how to invest,
– He has full knowledge of the market,
– The market is safe and there are no miscreants; and
– There are arrangements to redress the grievances.
Securities and Exchange Board of India has been established with the prime mandate to protect the interest of investors in securities.
SEBI Measures to ensure Investor protection
- Stock brokers need to disclose all the rights and obligations associated with the investment to the investor,
- Mutual fund business has been opened to private sector,
- Depository Participants are required to get their internal audit done,
- Companies are required to undergo Secretarial audit which will bring more transparency,
- PAN has been mandatory in all capital market transactions to prohibit any sort of malpractices.
Today SEBI has become the authorisation body to shape the standards and guidelines for the financial exchanges in both capital and money market because of the development of SEBI the quantity of unscrupulous practices in the offer market has been diminished proportionately.
BY ANUKRITI | INSTITUTE OF COMPANY SECRETARY OF INDIA