POWERS AND FUNCTIONS OF SEBI BOARD UNDER SEBI ACT, 1992

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This article is written by Sowjanya. N of 6th Semester of BA.LLB (Hons.) of University Law College and Department of Studies in Law Bangalore University, an intern under Legal Vidhiya

Abstract

Investing in the stock market offers the potential for significant returns, but it also involves various risks. Thus, it was crucial to regulate the securities market in order to safeguard investors’ interests and ensure the market’s expansion. Similar to how the Reserve Bank of India oversees and manages the banking sector in India, SEBI was instituted to oversee and regulate the securities market in India. The establishment of SEBI was a crucial turning point in the development of India’s financial markets since it established a formal regulatory framework to control various market participants and guarantee ethical behaviour. SEBI has been instrumental in evolving India’s securities market over time into a vibrant and strong ecosystem that draws both domestic and foreign investors. This article aims to discuss in detail the powers and functions of SEBI.

Keywords: Securities Exchange Board of India, Protective functions, Regulatory functions, Developmental functions, powers of SEBI, Quasi legislative, Quasi-judicial, Quasi executive power.

Introduction

Before the creation of SEBI, the Indian securities market was essentially uncontrolled. In order to protect the interests of investors who invest in the securities market and to promote the expansion and growth of the securities industry, SEBI was established in the year 1988. At present, the Securities and Exchanges Board of India (SEBI) is one of the most important regulatory bodies in charge of overseeing the Indian securities industry.

History of SEBI

Before SEBI was created, the Capital Issues (Control) Act, of 1947, which gave the Controller of Capital Issues the authority to regulate, served as the regulating body.

The Indian stock market faced numerous frauds during the 1970s and 1980s, including unauthorised private placements, insider trading, disregard for the Companies Act’s requirements, market manipulation, rule violations, price manipulation, and delays in the distribution of shares, among other things.

The Committee on the Regulation of the Stock Market was established by the government in 1984, and it made recommendations for the creation of a regulatory organisation to monitor and control the securities market. The committee’s recommendations led to the establishment of SEBI in 1988 through a law passed by Parliament. SEBI was established with the purpose of preventing fraud and preserving market transparency.

After being established in 1988 as a non-statutory organization, the Securities and Exchange Board of India became a statutory body in 1992 with the enactment of the Securities and Exchange Board of India Act, 1992.

Purpose of SEBI

The purpose of the Securities and Exchange Board of India is outlined in the Preamble “…to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto”

Objectives of SEBI

Protecting the interest of stock market participants is one of the important functions of SEBI. It safeguards the interests of investors by providing advice and making sure that the investment is secure.
Preventing fraudulent trading practices and other malpractices and regulating stock market activity.
To strike a balance between statutory control and self-regulation of the securities industry.
To develop and regulate a code of conduct for intermediaries such as brokers, underwriters, and aggregators, in order to prevent fraud and misconduct.

The Headquarters of SEBI is located in the business district of Bandra Kurla Complex in Mumbai and has regional offices in the north, east, south, and west in New Delhi, Kolkata, Chennai, and Ahmedabad, respectively.

Composition of SEBI

Section 4 of the SEBI, Act provides for the composition of the SEBI board as follows:

The board consists of nine members:

The Chairman – Nominated by the central government.
Two members of the officials of the Finance Ministry of the Central Government.
One member who is an official of the Reserve Bank of India.
Other five members – Nominated by the Central Government. Among these, at least 3 should be full-time members.

Qualification

According to section 4 of the SEBI Act Chairman and members shall be persons of ability, integrity, and standing who have shown capacity in dealing with problems relating to the securities market or have special knowledge or experience of law, finance, economics, accountancy, administration or in any other discipline which, in the opinion of the Central Government, shall in be helpful to SEBI.

Powers and function of SEBI :

Section 11 of the Securities and Exchange Board of India Act, 1992 deals with the functions of SEBI which can be broadly divided into the following heads:

Protective functions
Regulatory functions
Developmental functions

1.Protective function:

The protective function relates to SEBI’s duty to protect the interests of investors, dealers, and other market participants. SEBI’s responsibilities in the area of protection include:

Prohibiting insider trading of securities:

The act of buying or selling securities by insiders of a firm, such as directors, employees, and promoters, is known as insider trading. Companies are not permitted to buy their own shares on the secondary market, as SEBI has done in order to stop such trading.

Monitoring price rigging:

Price rigging, which results in unanticipated losses for investors, is the act of generating abnormal changes in the price of securities by either increasing or decreasing the market price of the equities. To curtail such malpractices, SEBI maintains a strict watch.

Prohibit unfair practices:

Companies are not permitted by SEBI to make any claims that might deceive consumers and encourage them to buy or sell securities by any other person.

Educate Investors:

SEBI takes a number of initiatives to educate investors so they may quickly assess the securities of various companies and choose the most profitable security.

Promote fair practice:

The following actions were taken by SEBI to encourage fair practice and a code of conduct in the securities industry.

It has guidelines that forbid mid-term changes to the terms in order to preserve the interests of debenture holders.
It gives authorities the power to conduct investigations of allegations relating to insider trading and includes provisions for stiff fines and imprisonment
It has also banned the practise of allocating shares in a preferential manner that is unrelated to market pricing.

2.Regulatory functions

The regulatory duties of SEBI aid the statutory body in monitoring how market activity is conducted. Establishing rules and regulations for corporations as well as financial intermediaries is a part of the regulatory function. SEBI’s responsibilities in the regulatory field include:

SEBI has outlined a set of rules and regulations as well as a code of conduct to regulate intermediaries including underwriters, brokers, and others.
SEBI grants licences and regulates the actions of stock brokers, 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 any other intermediaries who may be associated with the securities markets in any way.
registering and controlling the activities of the depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies, and other intermediaries as informed by the board in that regard.
SEBI regulates substantial acquisition of shares and takeover of companies.
SEBI collects information from intermediaries, self-regulatory groups in the securities market, stock exchanges, mutual funds, and other people connected to the securities market. SEBI also conducts inspections, inquiries, and audits of these entities.
SEBI registers venture capital funds and collective investment schemes, including mutual funds, and regulates their operations.

3. Developmental functions

Developmental function describes the actions undertaken by SEBI to promote and develop the activities in the stock exchange and to increase the business in the stock exchange. it includes educating investors on how trading and the market work. The following actions are categorized as developmental functions.

SEBI encourages the education and training of securities market intermediaries.
It makes an effort to promote the stock exchange’s operations. To achieve this, it employs an approach that is flexible and adaptable in the following ways:
Introduction of electronic trading or online trading with the assistance of certified stock brokers.
SEBI has made underwriting optional in an effort to lower the cost of issuance.
Through the stock exchange, it has enabled primary market initial public offerings.
By carrying out research in the necessary and significant area of the securities market, SEBI releases informative material. Consequently, the investor and other market participants can make smart investment decisions.
SEBI promotes and regulates self-regulatory organizations.
Encourage fair trade practices and eliminate unfair conduct.

Powers of SEBI

The power of SEBI can be studied under 3 broad categories as follows:

Quasi-Legislative Powers
Quasi-executive Powers
Quasi-judicial Powers

1. Quasi-Legislative Powers

To ensure the protection of investor interests, SEBI has the authority to create rules and regulations. Its regulations include things like disclosure requirements, trading rules, and listing obligations, all of which were created to prevent fraud.

2. Quasi-executive Powers

In addition to having the authority to create rules and regulations, SEBI also has the authority to put those rules and regulations into effect. SEBI has the authority to examine a company’s financial accounts and statements in order to ensure that businesses are adhering to SBEI rules and regulations. The regulatory authority may take legal action by rendering judgment on violators if it discovers them to be in violation of the rules.

3. Quasi-judicial Powers:

These powers offer SEBI the ability to hold hearings and deliver judgments in the event that any fraudulent or unethical trading practices exist. SEBI may make sure that there is fairness and transparency in the capital markets by using this authority.

Other powers:

1. Power of search and seizure:

In accordance with Section 10, SEBI is authorized to search any location where it believes any records related to the securities market are held, including computers, computer discs, and storage devices, and to confiscate those records if necessary. It has the authority to issue search warrants under Section 11 of the Act for any location or set of premises where a person is reasonably believed to have engaged in conduct that is criminal under the Act, etc.

2. Power of arrest:

Anyone who has committed an offence that is punishable under the Act may be arrested without a warrant under Section 12 by any SEBI officer or by any other police officer who holds a rank no lower than that of an Assistant Superintendent of Police.

3. Power for service or attachment:

In accordance with section 14 of the Act, SEBI or any officer designated by it in this regard may serve a copy of an order on the party in question through one of its officers and may also seize the property of that party while legal action is pending against them.

4. Appointment of officials:

According to Section 19, SEBI is permitted to designate its officials, staff members, and other individuals as required for the fulfilment of Act-related duties. Any officer of the government or a law enforcement organization may be co-opted to serve as a SEBI officer.

5.. Granting sanctions:

In accordance with Section 21, SEBI may authorise the initiation of any proceedings before the Appellate Tribunal or even take independent action to authorise prosecution under the Act. It maintains a thorough record of every proceeding that comes before it.

6. Recovery of dues:

The Board has the authority, under Section 28, to compel payment of any amounts due under this Act and any other amounts owed by any individual to the Board under this Act or its rules. The Board may bring a claim for compensation to a civil court. Any lawsuit filed to recover money owed to SEBI will not be admissible in the Civil Court without SEBI’s prior approval.

Conclusion:

India’s securities markets are governed by SEBI, a statutory regulatory organization. All investors in the Indian capital market are subject to SEBI regulation. It seeks to promote financial markets while also aiming to protect investors’ interests by enforcing several laws and regulations. The presence of SEBI guarantees investors a hassle-free trading experience.

References