CA Final - Law - SEBI Chapter (short summary)

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08 April 2012  

 

                           
   

Securities and Exchange Board of India Act, 1992
                           
1 Objects of the SEBI Act                    
    Protection of the interests of investors                
    Promoting orderly and healthy growth of the securities market          
    Regulation of the securites market and other incidental matters          
    Promoting the fair dealings by the issuer of securites and ensuring  a market place where they can raise funds at a realtively low cost.
    Monitoring the activities of stock exchanges,Mutual funds and Merchant bankers etc.      
                           
2

Establishment of SEBI -Sec.3

                    
    CG is empowered to set up SEBI by issuing notification in the official gazette.        
    It has power to acquire, hold and dispose of property, both movable and immovable, to contract and to sue or be sued.
    The head office  of the SEBI is situated at Mittal court, B-wing Nariman point, bombay - 400021.    
                           
3 Management of SEBI -Sec.4                    
    The members of sebi shall be appointed by CG              
    A chairman                    
    Two members from the ministry of CG dealing with finance and adminstration of the companies act 1956.  
    One member from amongst the officials of the RBI.              
    Five other members of whom at least three shall be whole time members.        
    The general superintendence, direction and management of the affairs of the EBI shall vest in a board directors/ chairman
    Members and the chairman shall be persons of ability, integrity and standing who have special knowledge or experience of law, finance, economics, etc.etc…which in the opinion of CG, shall be useful to SEBI.
                           
4 Power of SEBI to regulate/ prohibit issue of prospectus etc. -Sec. 11A              
    For the protection of investors, SEBI may by regulations specify the matters relating to issue of capital, transfer of securites and other matters incidental thereto. And the manner in which such matters shall be disclosed by the companies.
                           
    For the protection of investors,SEBI may by general or special orders prohibit any company from issuing of prospectus, any offer document or advertisement soliciting money from the public for the issue of securities.
    Specify the conditions subject to which the prospectus, such offer document o advertisement, if not prohibited , may be issued
                           
    SEBI may specify the requirements for listing and transfer of securities and other matters incidental thereto.  
                           
5 Power of sebi to order investigation - Sec. 11C                  
    Grounds for ordering investigation                
      Where sebi has reasonable ground to believe that any transactions in securites are being dealt with in a manner detrimental to the investors or the securities market.
      Where SEBI has reasonable ground to believe that any intermediary or any person associated with the securities market has violated any of the provisions of this act or the rules or the regulations made or directions issued by the SEBI thereunder.
                           
    Duties of directors, officers and employees              
      Every manager , managing director, officer and other employee of the company and every intermediary shall be duty bound to preserve  and produce
      to the investing authority all books, registers, other documents and record which are in their custody or power.
                           
      Furnish such information as the investigationg authority may consider relevant or necessary for the purpose of its investigation.
                           
    Powers of the investigating authority                
      Power to retain books etc. ( for 6 months)            
      Power to examine on oath                
      Power to take notes on examination ( shall be in wiritng , & shall be read over to the person examined, & may be used as evidence against such person.
                           
    Powers to seize document by investigating authority.            
      Application by investigating authority for seizure of books and papers. ( to magistrate of the first class for an order for the seizure of books and papers)
      Such an application may be made on the ground that it may be estroyed, mutilated, altered, falsified or secreted.
      After considering the application and hearing the investigating authority, the magistrate may authorise to enter & search the books as specified in the order., to seize books etc, as the investigating authority considers necessary.
      The investigating authority may keep the books till the conclusion of the investigation, and will inform magistrate while it returns the books, and may place identification marks on them.
                           
6 Cease and Desist proceedings - Sec. 11D                    
      Sebi is empowered to pass an order requiring a person to cease and desist from committing or causing the violation of the act or rules made thereunder.
      Sebi may pass such order by complying with the following two requriements.      
      1 SEBI shall make an enquiry to determine whether any person has violated, or is likely to violate, any provisions of this act.
      2 However it shall not pass such order against any listed company or a public compnay which intends to get its securites listed on any recognised , unless it has resonable ground to believe that such company has indulged in insider trading or market manipulation.
                           
7 Penalties under SEBI ACT                     
      Lower of Rs. 1,00,000/- per day or Rs.1. crore.            
      1 Failure to furnish document/ return/ report to SEBI.        
      2 Failure to maintain the books of account or records.        
      3 Failue by intermediary to enter into an agreement  with his client.      
      4 Failure  to redress the investor grievance within the time specified by SEBI.    
      5 Carrying on any collective investment scheme without obtaining certificate of registration.  
      6 Failure by any asset mngt company of a mutual fund to comply with any of the regulations providing for restrictions on the activities of asset mngt companies.
      7 A Registered stock broker fails to deliver any security or fails to make payment of the amount due to the investor.
                           
      Fine upto 5 times the amount                
        A registered stock broker fails to issue contract notes in the form and in the manner specified by the stock exchange.
          ( fine upto 5 times the amount for which the contract note was required to be issued by that broker.)
                           
      Higher of Rs. 1 Lakh or 5 times the amount of excess brokerage charged.        
        A registered stock broker charges brokerage in excess of the brokerage specified in the regulations.
                           
      Higher of Rs. 25 crores or 3 times the amount of profits made out of such default.      
      1 Where an insider deals in securities of a body corporate listed on any stock exchange on the basis of any unpublished price sensitive information.
      2 Where an insider communicates any unpublished price sensitive information to any person except as required in the ordinary course of business or under any law.
      3 Where an insider cousels, or procures for any other person to deal in any securites of any body corporate on the basis of unpublished price sensitive information.
      4 Failure to disclose the aggregate of his shareholding in the body corporate before he acquires any share of that body corporate.
      5 Failure to make a public announcement to acquire shares at a minium price.    
      6 Failure to make a public offer by sending letter of offer to the shareholders of the concerned company.
      7 Failure to make payment of considerstion to the shareholders who sold their pursuant to letter of offer.
      8 Where a person indulges in fruadulant and unfair trade practices relating to securities.  
                           
      Maximu of Rs. 1 crore.                
        Where a person fails to comply with any provisions of this act, rules or regulations made thereunder or directions issued by SEBI for which no separate penalty has been provided.
                           
      Imprisonment for not less than 1 month , but upto 10 years or fine upto Rs.25 crores or both.    
        Where a person fails to pay the penalty imposed by the adjudicating officer or fails to comply with any of his directions or orders.
                           
8 Procedure for adjudication sec.15I & 15 J                    
    The adjudication officer shall be appointed by SEBI              
    Any officer of SEBI, not below the rank of division Chief, may be appointed as an adjudicating officer.    
    The adjudicating officer is appointed for the purpose of holding an enquiry for the purpose of imposing penalties under the act.
    The AA shall give a reasonable opportunity of being heard before imposing any penalty.      
    Powers of AA - To summon and enforce the atteendance of any person, power to receive evidence and compelling production of any document, to impose any penalty as he thinks fit…
    Factors to be taken into account by AA - Amt of unfair gain made, amount of loss caused, repetitive nature of default.
    Jurisdiction of court s barred except on acompliant made by SEBI.          
    No court inferior to that of a court of session shall try offence punishable under this ACT.      
                           
                           
9 Appeal to securites Appellate Tribunal-        Sec. 15T                  
    CG is empowered to establish SAT by issuing a notification in the official Gazette.        
    Appealable orders - Any order of the adjudicating officer imposing penalty & any order of SEBI made under SEBI act or rules or regulations made thereunder.
    However no appeal can be made to SAT against an order made with the consent of the parties.    
    The appeal shall be filed within 45 days of the order. SAT may condone the delay for sufficient reasons    
    Appeal shall be made in 3 copies, with additional copies for each additional respondent and shall signed by the authorised person.
    Any person aggrieved by any order of SAT may file an appeal to the supreme court, the appeal can  be filed only on a question of law.
    The appeal shall be filed within 60 days from the date of communication of order of SAT and SC may condone the delay for sufficient reasons.
                           
10 Composition of certain offences. sec. 24A                  
    Offences which can be compounded - Offence punishable with fine, offence punishable with fine or imprisonment or both.
    The application for compounding can be made at anytime (whether before or after or during prosecution)  
    An offence shall be compounded by SAT or the Court before which the procedings are pending.    
                           
                           
11 Power to Grant immunity- Sec. 24B                    
    The immunity can be granted by CG only                
    CG can grant only if SEBI has made a recommendation to CG for granting immunity to any person who is alleged to have violated any of the provisions of the SEBI act.
    IF CG is satisfied that such person has made a full and true disclosure in respect of the alleged violation, CG may grant immunity subject to conditions as it thinks fit.
    However an immunity granted to a person may be withdrawn by CG, if it is satisfied that such person had not complied with the conditions on which the immunity was granted or such person had given false evidence.
    If immunity withdrawn then that person may be tried for the offence with respect to which the immunity was granted and shall be liable to the imposition of any penalty under the SEBI Act, to which he would have been liable, if he had not been granted such immunity.