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A Minor Project Report



Submitted in partial fulfillment of the requirements for the award of the
degree of Bachelor of Business Administration (Gen) programme of
Guru Gobind Singh Indraprastha University, Delhi.



Submitted To: Submitted by:
Guide Name Student Name
Roll No.:





Delhi College of Advanced Studies
B-7,Shanker Garden, Vikaspuri
New Delhi 110018
Batch (2013-2016)





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DECLARATION

I hereby declare that the minor project report, entitled
, is based on
my original study and has not been submitted earlier for award of any degree or diploma
to any institute or university.
The work of other author(s), wherever used, has been acknowledged at appropriate
place(s).

Place: New Delhi Candidates signature
Date: Name:
Enroll. No.: ..


Countersigned

Name :
Supervisor
Delhi College of Advanced Studies



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ACKNOWLEDGEMENT
An independent project is a contradiction in terms. Every project involves contribution of
many people. This project also bears the imprints of many people and it is a pleasure for
me to acknowledge and thank all of them.
I am deeply indebted to Ms... who acted as a
mentor and guide, providing knowledge and giving me his/her valuable time out of her
busy schedule, at every step throughout the project. It is only because of her this project
came into being.
I also thank Prof. (Dr.) M.S. Chaudhry, Director of Delhi College of Advanced Studies,
for providing an opportunity of doing this project under his leadership.
I also take the opportunity to express my sincere gratitude to each and every person, who
directly or indirectly helped me throughout the project and without anyone of them this
project would not have been possible.
The immense learning from this project would be indelible forever.









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TABLE OF CONTENTS
S.No Topic Page No
1

Declaration 2
2 Acknowledgement

3
3 Chapter-I: Introduction
Introduction to SEBI
Establishment
Objectives of the study
Methodology
5-16
5-9
10-14
15
16

4
Chapter-II: Conceptual Framework
Role of SEBI
Features
Functions
Advantage & Disadvantages
Power of Board
Transfer of securities
Finance, Account & Audit
Penalties & Adjudication
SEBI Law

17-46
17-23
24
25-27
28
29-31
32-33
34-35
36-41
42-46
5 Chapter-III: Summary
Summary of the project
Limitations of the study
Suggestions
Case Study

47-56
47-48
49-51
52-54
55-56
6 Bibliography 57

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Objectives of the Study
To Study the activities of stock exchange.
To study the role of Securities and Exchange Board of India (SEBI) and Stock
Exchange in protecting the interests of investors and redressing their grievances.
To study the criteria for investment decisions.
To analyse the features of SEBI.
To know about the functions of SEBI.
To analyse the SEBI laws.
To study the powers of SEBI.
To analyse the penalties and adjudication of SEBI.













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RESEARCH METHODOLOGY
Primary data
Primary data is information that you collect specifically for the purpose of your research
project. An advantage of primary data is that it is specifically tailored to your research
needs. A disadvantage is that it is expensive to obtain.
Primary data means original data that has been collected specially for the purpose in
mind. It means someone collected the data from the original source first hand. Data
collected this way is called primary data.
Primary data has not been published yet and is more reliable, authentic and objective.
Primary data has not been changed or altered by human beings; therefore its validity is
greater than secondary data.
The people who gather primary data may be an authorized organization, investigator,
enumerator or they may be just someone with a clipboard. These people are acting as a
witness so primary data is only considered as reliable as the people who gathered it.

Secondary Data
Secondary data, is data collected by someone other than the user. Common sources of
secondary data for social science include censuses, organisational records and data
collected through qualitative methodologies or qualitative research. Primary data, by
contrast, are collected by the investigator conducting the research.
Secondary data analysis saves time that would otherwise be spent collecting data and,
particularly in the case of quantitative data, provides larger and higher-quality databases
that would be unfeasible for any individual researcher to collect on their own. In addition,
analysts of social and economic change consider secondary data essential, since it is
impossible to conduct a new survey that can adequately capture past change and/or
developments.

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Secondary Data has been used in this project.
Secondary data is the data that has been already collected by and readily available from
other sources. When we use Statistical Method with Primary Data from another purpose
for our purpose we refer to it as Secondary Data. It means that one purpose's Primary
Data is another purpose's Secondary Data. So that secondary data is data that is being
reused. Such data are cheaper and more quickly obtainable than the primary data.
These secondary data may be obtained from many sources, including literature, industry
surveys, compilations from computerized databases and information systems, and
computerized or mathematical models of environmental processes.
SOURCES OF SECONDARY DATA
Secondary data is often readily available. After the expense of electronic media and
internet the availability of secondary data has become much easier.
Published Printed Sources
There are varieties of published printed sources. Their credibility depends on many
factors. For example, on the writer, publishing company and time and date when
published. New sources are preferred and old sources should be avoided as new
technology and researches bring new facts into light.

Books
Books are available today on any topic that you want to research. The uses of books start
before even you have selected the topic. After selection of topics books provide insight on
how much work has already been done on the same topic and you can prepare your
literature review. Books are secondary source but most authentic one in secondary
sources.
Journals/periodicals
Journals and periodicals are becoming more important as far as data collection is
concerned. The reason is that journals provide up-to-date information which at times
books cannot and secondly, journals can give information on the very specific topic on
which you are researching rather talking about more general topics.
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Magazines/Newspapers
Magazines are also effective but not very reliable. Newspaper on the other hand is more
reliable and in some cases the information can only be obtained from newspapers as in
the case of some political studies.
Published Electronic Sources
As internet is becoming more advance, fast and reachable to the masses; it has been seen
that much information that is not available in printed form is available on internet. In the
past the credibility of internet was questionable but today it is not. The reason is that in
the past journals and books were seldom published on internet but today almost
every journal and book is available online. Some are free and for others you have to pay
the price.
E-journals: e-journals are more commonly available than printed journals.
Latest journals are difficult to retrieve without subscription but if your university has an
e-library you can view any journal, print it and those that are not available you can make
an order for them.
General Websites; Generally websites do not contain very reliable information so their
content should be checked for the reliability before quoting from them.
Weblogs: Weblogs are also becoming common. They are actually diaries written by
different people. These diaries are as reliable to use as personal written diaries.









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CHAPTER II
Conceptual Framework
Capital Market
Capital markets are financial markets for the buying and selling of long-term debt or
equity-backed securities. These markets channel the wealth of savers to those who can
put it to long-term productive use, such as companies or governments making long-term
investments. Financial regulators, such as the UK's Bank of England (BoE) or the U.S.
Securities and Exchange Commission (SEC), oversee the capital markets in their
jurisdictions to protect investors against fraud, among other duties.
Modern capital markets are almost invariably hosted on computer-based electronic
trading systems; most can be accessed only by entities within the financial sector or the
treasury departments of governments and corporations, but some can be accessed directly
by the public. There are many thousands of such systems, most serving only small parts
of the overall capital markets. Entities hosting the systems include stock exchanges,
investment banks, and government departments. Physically the systems are hosted all
over the world, though they tend to be concentrated in financial centres like London, New
York, and Hong Kong. Capital markets are defined as markets in which money is
provided for periods longer than a year.
A key division within the capital markets is between the primary markets and secondary
markets. In primary markets, new stock or bond issues are sold to investors, often via a
mechanism known as underwriting. The main entities seeking to raise long-term funds on
the primary capital markets are governments (which may be municipal, local or national)
and business enterprises (companies). Governments tend to issue only bonds, whereas
companies often issue either equity or bonds. The main entities purchasing the bonds or
stock include pension funds, hedge funds, sovereign wealth funds, and less commonly
wealthy individuals and investment banks trading on their own behalf. In the secondary
markets, existing securities are sold and bought among investors or traders, usually on an
exchange, over-the-counter, or elsewhere. The existence of secondary markets increases
the willingness of investors in primary markets, as they know they are likely to be able to
swiftly cash out their investments if the need arises.
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A second important division falls between the stock markets (for equity securities, also
known as shares, where investors acquire ownership of companies) and the bond markets
(where investors become creditors).

Types of Capital Market
Primary Market
Secondary Market
1. Primary market
The primary market is the part of the capital market that deals with issuing of
new securities. Companies, governments or public sector institutions can obtain
funds through the sale of a new stock or bond issues through primary market. This
is typically done through an investment bank or finance syndicate of securities
dealers.
The process of selling new issues to investors is called underwriting. In the case of
a new stock issue, this sale is an initial public offering (IPO). Dealers earn a
commission that is built into the price of the security offering, though it can be
found in the prospectus. Primary markets create long term instruments through
which corporate entities borrow from capital market.
The primary market is that part of the capital markets that deals with the issuance of new
securities. Companies, governments or public sector institutions can obtain funding
through the sale of a new stock or bond issue. This is typically done through a syndicate
of securities dealers. The process of selling new issues to investors is called underwriting.
In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a
commission that is built into the price of the security offering, though it can be found in
the prospectus.
Features of primary markets are:
It is related with New Issues:
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The first important feature of the primary market is that it is related with the new issues.
Whenever a company issues new shares or debentures, it is known as Initial Public Offer
(IPO).
It has No Particular Place:
Primary market is not the name of any particular place but the activity of bringing in new
issues is called the primary market.
It has Various Methods of Floating Capital:
Following are the methods of raising capital in the primary market:
(i) Public Issue:
Under this method, the company issues a prospectus and invites the general public to
purchase shares or debentures.
(ii) Offer for Sale:
Under this method, firstly the new securities are offered to an intermediary (generally
firms of stock brokers) at a fixed price. They further resell the same to the general public.
The advantage of doing this is that the issuing company feels free from the tedious work
of making a public issue.
(iii) Private Placement:
Under this method, the company sells securities to the institutional investors or brokers
instead of selling them to the general public. They, in turn, sell these securities to the
selected clients at a higher price. This method is preferred as it is a cheaper method of
raising funds as compared to a public issue.

(iv) Right Issue:
This method is used by those companies who have already issued their shares. When an
existing company issues new shares, first of all it invites its existing shareholders. This
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issue is called the right issue. In this case, the shareholder has the right either to accept the
offer for himself or assign a part or all of his right in favour of another person.
(v) Electronic Initial Public Issue (e-IPOs):
Under this method, companies issue their securities through the electronic medium (i.e.
internet). The company issuing securities through this medium enters into a contract with
a Stock Exchange.
SEBI registered broker have to be appointed for the objective of accepting applications.
This broker regularly sends information about it to the company.
The company issuing security also appoints a Registrar, who helps in making the issue a
success by establishing contact with the stock exchange. (Whatever method, out of the
above five is adopted, it is the activity of the primary market.)
It Comes before Secondary Market:
The transactions are first made in the primary market. The turn of the secondary market
comes later.
2. Secondary market
The market for all investors in a security, except for the first ones to whom a
new issue of a security is sold. The secondary market consists of all sellers and buyers,
except for the issuer and the first group of investors who bought the issue. The secondary
market is often less volatile than the primary market because it is easier to determine the
underlying value of a security after it has already begun trading. Nearly all trading of a
security occurs on the secondary market.
The secondary market, also known as the aftermarket, is the financial market where
previously issued securities and financial instruments such as stock, bonds, options, and
futures are bought and sold. The term secondary market is also used to refer to the
market for any used goods or assets, or an alternative use for an existing product or asset
where the customer base is the second market (for example, corn has been traditionally
used primarily for food production and feedstock, but a second- or third- market has
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developed for use in ethanol production). Another commonly referred to usage of
secondary market term is to refer to loans which are sold by a mortgage bank to investors
such as Fannie Mae and Freddie Mac.
With primary issuances of securities or financial instruments, or the primary market,
investors purchase these securities directly from issuers such as corporations issuing
shares in an IPO or private placement, or directly from the federal government in the case
of treasuries. After the initial issuance, investors can purchase from other investors in the
secondary market.
The secondary market for a variety of assets can vary from loans to stocks, from
fragmented to centralized, and from illiquid to very liquid. The major stock exchanges are
the most visible example of liquid secondary markets in this case, for stocks of publicly
traded companies. Exchanges such as the New York Stock Exchange, Nasdaq and the
American Stock Exchange provide a centralized, liquid secondary market for the
investors who own stocks that trade on those exchanges. Most bonds and structured
products trade over the counter, or by phoning the bond desk of ones broker-dealer.
Loans sometimes trade online using a Loan Exchange.
Features of Secondary Market
It Creates Liquidity:
The most important feature of the secondary market is to create liquidity in securities.
Liquidity means immediate conversion of securities into cash. This job is performed by
the secondary market.
It Comes after Primary Market:
Any new security cannot be sold for the first time in the secondary market. New
securities are first sold in the primary market and thereafter comes the turn of the
secondary market.
It has a Particular Place:
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The secondary market has a particular place which is called Stock Exchange. However, it
must be noted that it is not essential that all the buying and selling of securities will be
done only through stock exchange.
Two individuals can buy or sell them mutually. This will also be called a transaction of
the secondary market. Generally, most of the transactions are made through the medium
of stock exchange.
It Encourages New Investment:
The rates of shares and other securities often fluctuate in the share market. Many new
investors enter this market to exploit this situation. This leads to an increase in investment
in the industrial sector of the country.

Role of SEBI in Capital Market
As per the SEBI act, 1992, the power and functions of the Board encompass the
regulation of Stock Exchanges and other securities markets; registration and regulation of
the working stock brokers, sub-brokers, bankers to an issue (a public offer of capital),
trustees of trust deeds, registrars to an issues, merchant bankers, under writers, portfolio
managers, investment advisors and such other intermediaries who may be associated with
the stock market in any way; registration and regulations of mutual funds; promotion and
regulation of self-regulatory organizations; prohibiting Fraudulent and unfair trade
practices and insider trading in securities markets; regulating substantial acquisition of
shares and takeover of companies; calling for information from, undertaking inspection,
conducting inquiries and audits of stock exchanges, intermediaries and self-regulatory
organizations of the securities market; performing such functions and exercising such
powers as contained in the provisions of the Capital Issues(Control) Act,1947 and the
Securities Contracts (Regulation) Act, 1956, levying various fees and other charges,
conducting necessary research for above purposes and performing such other functions as
may be prescribes from time to time.
Securities & Exchange Board of India (SEBI) formed under the SEBI Act, 1992 with the
prime objective of :
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Protecting the interests of investors in securities,
Promoting the development of, and
Regulating, the securities market and for matters connected therewith or incidental
thereto. Focus being the greater investor protection, SEBI has become a vigilant
watchdog.
Role of SEBI in Capital Market
As per the SEBI act, 1992, the power and functions of the Board encompass the
regulation of Stock Exchanges and other securities markets; registration and regulation of
the working stock brokers, sub-brokers, bankers to an issue (a public offer of capital),
trustees of trust deeds, registrars to an issues, merchant bankers, under writers, portfolio
managers, investment advisors and such other intermediaries who may be associated with
the stock market in any way; registration and regulations of mutual funds; promotion and
regulation of self-regulatory organizations; prohibiting Fraudulent and unfair trade
practices and insider trading in securities markets; regulating substantial acquisition of
shares and takeover of companies; calling for information from, undertaking inspection,
conducting inquiries and audits of stock exchanges, intermediaries and self-regulatory
organizations of the securities market; performing such functions and exercising such
powers as contained in the provisions of the Capital Issues(Control) Act,1947 and the
Securities Contracts (Regulation) Act, 1956, levying various fees and other charges,
conducting necessary research for above purposes and performing such other functions as
may be prescribes from time to time.
Securities & Exchange Board of India (SEBI) formed under the SEBI Act, 1992 with the
prime objective of :
Protecting the interests of investors in securities,
Promoting the development of, and
Regulating, the securities market and for matters connected therewith or incidental
thereto. Focus being the greater investor protection, SEBI has become a vigilant
watchdog.

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Capital Market Instruments

Shares
Shares are a unit of ownership in an organisation or corporation. It is a part of the
companys capital. Those individuals who are getting shares from any company, are
called Shareholders. When a company wants to borrow and increase their capital, they
issue their shares in the stock market (exchange) for their investors.
However, companies also require to refund the amount from their Net Profit. Therefore,
shares play a significant role in the lives of companies and investors / shareholders.
Companies can issue two types of shares, which they offer to investors/shareholders. The
two types of shares are:
(a) Equity shares
(b) Preference shares
Bonds
Bonds are issued by the banks, organisations and financial institutions. They issue bonds
for getting an amount of money from public (as a loan) and commit them a refund with
an actual interest and within a maturity period. They issue their bonds for financing their
capital expenses and their various projects or activities.
This is one of the most frequently used methods for increasing their capital and profits.
When companies offer their bonds to public, they define a specified interest rate and
maturity period in an applicant form.
Bonds have various types( i.e risk free bonds, high interest bonds, etc.) and different
companies issued various types of bond to public
Debentures
Debenture is an instrument which is used by the Corporations and Government for getting
a loan from public and it is given under the companys Stamp Act. Corporations and
Government can secure their debenture on company assets which it issues as long term
loans. In Debentures, companies are required to announce a fixed return at the time of
issuing.
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Therefore, holders know that, how much amount they will get in future by issuer.
Debentures have various advantages for holders and issuers. It implies that holders know
that how much amount they will get in future, therefore they do not worry about their
payment and, in general, debentures are freely transferable by their holder to others.
Therefore, holders have a right to transfer their shares to anyone before their redemption.
Fixed Deposit
Fixed Deposit is that kind of bank account, where the amount of deposit is fixed for a
specified period of time. All Commercial banks are given these opportunities to their
customers for opening a fixed account in their bank. In a Fixed account, the amount of
deposit is fixed, which means we cannot withdraw an unlimited amount from this
account, therefore it is also called a Fixed Deposit.
If an account holder wants to withdraw a small amount of money from their account, then
he will require closing of the Fixed deposit account. The main purpose of account holders
to open this account, is to earn interest money from their actual money, which is given by
the banks during a specified period of time.
Foreign exchange market (Forex market)
Forex is one of the most biggest investment markets in the world and it is a huge platform
for investors for their investment. There are various forms of currencies included for
trading on international level. The investors invest their money on the value of currencies
fluctuation because of variation in the economic position of countries and entire world
economy.
In the Forex market, we are dealing with different currencies of countries. We are not
dealing with only one currency at one time, we have to deal with a couple of currencies at
one time, for example USD/INR. In the example, the left side currency is called a Base
currency and the right side currency is called a Quote/Counter currency.
A price of one currency expressed in terms of the currency of another country is called as
the exchange rate. For example, the ratio of both currencies is 53.9, which implies that
one unit of US Dollar can buy or equals 53.9 Rupees of India. In that case, the US Dollar
is a base currency and the Indian Rupee is quote currency.
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Gold ETF
Gold ETF is one of the most popular funds as it does not get influenced due to stock
fluctuations or inflation. Gold ETF fund is a fiscal instrument which works as a mutual
fund and whose prices are depending upon the market price of gold. When the market
price of gold increases, gold ETF prices also increase.
The services of Gold ETF fund transfers is available in few stock exchanges, such as
Mumbai, Paris, Zurich and New York. Gold ETF fund provides a variety of advantages to
their holders, such as Low cost, Tax advantage, Gold purity, there is no need to worry
about safety, Issue of selling gold bars and also beneficial in short term investments.

Risk in Capital Market
The capital market risk usually defines the risk involved in the investments. The stark
potential of experiencing losses following a fluctuation in security prices is the reason
behind the capital market risk. The capital market risk cannot be diversified.
The capital market risk can also be referred to as the capital market systematic risk. While
an individual is investing on a security, the risk and return cannot be separated. The risk
is the integrated part of the investment. The higher the potential of return, the higher is
the risk associated with it.
The examination of the involved in the capital market investment is the one of the prime
aspects of investing. It can be easily said that the risk distinguishes an investment from
the savings. The systematic risk is also common to the entire class of liabilities or assets.
Depending on the economic changes the value of investments can fall enormously. There
may be some other financial events also impacting the investment markets. In order to
give a check to the capital market risk, the asset allocation can be fruitful in some cases.
Any investment in stocks or bonds comes with the following types of risks.
Market Risk
Industry Risk
Regulatory Risk
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Business Risk

The market risk defines the overall risk involved in the capital market investments. The
stock market rises and falls depending on a number of issues. The collective view of the
investors to invest in a particular stock or bond plays a significant role in the stock market
rise and fall. Even if the company is going through a bad phase, the stock price may go up
due to a rising stock market. While conversely, the stock price may fall because the
market is not steady even if the investor's company is doing well. Hence, these are the
market risks that the stocks investors generally face.

The industry risk affects all the companies of a certain industry. Hence the stocks within
an industry fall under the industry risk. The regulatory risk may affect the investors if the
investor's company comes under the obligation of government implemented new
regulations and laws. The business risk may affect the investors if the company goes
through some convulsion depending on management, strategies, market share and labor
force.

SEBI
A body set up in response to the provision of the Security and Exchange Board of India
Act of 1992 with the aim of protecting the interest of investors, promoting the
development of investments in securities, and controlling the security market. SEBI
became a statutory body in 2005 upon changes made to the original act.
The regulatory body for the investment market in India. The purpose of this board is to
maintain stable and efficient markets by creating and enforcing regulations in the
marketplace.


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ESTABLISHMENT OF THE
SECURITIES AND EXCHANGE BOARD OF INDIA
It was officially established by The Government of India in the year 1988 and given
statutory powers in 1992 with SEBI Act 1992 being passed by the Indian Parliament.
SEBI has its Headquarters at the business district of Bandra Kurla Complex in Mumbai,
and has Northern, Eastern, Southern and Western Regional Offices in New
Delhi, Kolkata, Chennai and Ahmedabad respectively.
Controller of Capital Issues was the regulatory authority before SEBI came into
existence; it derived authority from the Capital Issues (Control) Act, 1947.
Initially SEBI was a non statutory body without any statutory power. However in the year
of 1995, the SEBI was given additional statutory power by the Government of India
through an amendment to the Securities and Exchange Board of India Act, 1992. In April,
1988 the SEBI was constituted as the regulator of capital markets in India under a
resolution of the Government of India.
The SEBI is managed by its members, which consists of following: a) The chairman who
is nominated by Union Government of India. b) Two members, i.e. Officers from Union
Finance Ministry. c) One member from The Reserve Bank of India. d) The remaining 5
members are nominated by Union Government of India, out of them at least 3 shall be
whole-time members.
The office of SEBI is situated at SEBI Bhavan, Bandra Kurla Complex, Bandra East,
Mumbai- 400051, with its regional offices at Kolkata, Delhi,Chennai & Ahmadabad. It
has recently opened local offices at Jaipur and Bangalore and is planning to open offices
at Guwahati, Bhubaneshwar, Patna, Kochi and Chandigarh in Financial Year 2013 -
2014.
Establishment and incorporation of Board.
(1) With effect from such date as the Central Government may, by notification, appoint,
there shall be established, for the purposes of this Act, a Board by the name of the
Securities and Exchange Board of India.
(2) The Board shall be a body corporate by the name aforesaid, having perpetual
succession and a common seal, with power subject to the provisions of this Act, to
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acquire, hold and dispose of property, both movable and immovable, and to contract, and
shall, by the said name, sue or be sued.
(3) The head office of the Board shall be at Bombay.
(4) The Board may establish offices at other places in India.
Management of the Board.
(1) The Board shall consist of the following members, namely:-
(a) a Chairman;
(b) two members from amongst the officials of the 1 [5][Ministry] of the Central
Government dealing with Finance 2[6][and administration of the Companies Act, 1956(1
of 1956)];
(c) one member from amongst the officials of 3[7][the Reserve Bank];
(d) five other members of whom at least three shall be the whole-time members]
to be appointed by the central Government.
(2) The general superintendence, direction and management of the affairs of the Board
shall vest in a Board of members, which may exercise all powers and do all acts and
things which may be exercised or done by the Board.







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(3) Save as otherwise determined by regulations, the Chairman shall also have powers of
general superintendence and direction of the affairs of the Board and may also exercise all
powers and do all acts and things which may be exercised or done by that Board.
(4) The Chairman and members referred to in clauses (a) and (d) of sub-section (1) shall
be appointed by the Central Government and the members referred to in clauses (b) and
(c) of that sub-section shall be nominated by the Central Government and the[Reserve
Bank] respectively.
(5) The Chairman and the other members referred to in clauses (a) and (d) of sub-section
(1) shall be persons of ability, integrity and standing who have shown capacity in dealing
with problems relating to 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 be useful to the Board.

Term of office and conditions of service of Chairman and members of the Board.
(1) The term of office and other conditions of service of the Chairman and the members
referred to in clause (d) of sub- section (1) of section 4 shall be such as may be
prescribed.
(2) Notwithstanding anything contained in sub-section (1), the Central Government shall
have the right to terminate the services of the Chairman or a member appointed under
clause (d) of sub-section (1) of section 4, at any time before the expiry of the period
prescribed under sub-section (1), by giving him notice of not less than three months in
writing or three months salary and allowances in lieu thereof, and the Chairman or a
member, as the case may be, shall also have the right to relinquish his office, at any time
before the expiry of the period prescribed under sub-section (1), by giving to the Central
Government notice of not less than three months in writing.
Meetings.
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(1) The Board shall meet at such times and places, and shall observe such rules of
procedure in regard to the transaction of business at its meetings (including quorum at
such meetings) as may be provided by regulations.
(2) The Chairman or, if for any reason, he is unable to attend a meeting of the Board, any
other member chosen by the members present from amongst themselves at the meeting
shall preside at the meeting.
(3) All questions which come up before any meeting of the Board shall be decided by a
majority votes of the members present and voting, and, in the event of an equality of
votes, the Chairman, or in his absence, the person presiding, shall have a second or
casting vote.
Officers and employees of the Board.
(1) The Board may appoint such other officers and employees as it considers necessary
for the efficient discharge of its functions under this Act.
(2) The term and other conditions of service of officers and employees of the Board
appointed under sub- section (1) shall be such as may be determined by regulations.









25





SEBI has to be responsive to the needs of three groups, which constitute
the market:
the issuers of securities
the investors
the market intermediaries.
1.Issuers:
For issuers it provides a market place in which they can raise finance fairly and
easily.
2. Investors:
For investors it provides protection and supply of accurate and correct
information.
3. Intermediaries:
For intermediaries it provides a competitive professional market. hich, in the
opinion of the Central Government, shall be useful to the Board.

SEBI has three functions rolled into one body quasi-legislative, quasi-judicial and quasi
executive. It drafts regulations in its legislative capacity, it conducts investigation and
enforcement action in its executive function and it passes rulings and orders in its judicial
capacity. Though this makes it very powerful, there is an appeals process to create
accountability. There is a Securities Appellate Tribunal which is a three-member tribunal
26

and is presently headed by a former Chief Justice of a High court - Mr. Justice NK Sodhi.
A second appeal lies directly to the Supreme Court. SEBI has enjoyed success as a
regulator by pushing systemic reforms aggressively and successively (e.g. the quick
movement towards making the markets electronic and paperless rolling settlement on T+2
basis). SEBI has been active in setting up the regulations as required under law. SEBI has
also been instrumental in taking quick and effective steps in light of the global meltdown
and the Satyam fiasco. It had increased the extent and quantity of disclosures to be made
by Indian corporate promoters. More recently, in light of the global meltdown, it
liberalized the takeover code to facilitate investments by removing regulatory strictures.
In one such move, SEBI has increased the application limit for retail investors to Rs 2
lakh, from Rs 1 lakh at present.
Capital market requires many intermediaries who are responsible to transfer funds from
those who save to those who require these funds for investments. The efficiency of the
markets is dependent on the specialization attained by these intermediaries. Some of them
are as follows:
1. Stock Exchanges.
2. Banks.
3. Investment Trusts and Companies.
4. Specialized Financial Institutions or Development Banks.
5. Mutual Funds.
6. Non-Banking Financial Institutions.
7. International Financial Investors and Institutions



27





Features of SEBI
Regulating the business in stock exchange and any other securities markets.
It safeguards the interest of the investors and provides policy and norms and also
develops of feeling of trust that their money not get lost.
Registering and regulating the working of collective investment schemes,
including mutual funds.
It also monitors and surveillance the amount of investment in a firm and keep the
record of all the investors and where the money invested .
Prohibiting fraudulent and unfair trade practices relating to securities
markets.
Many times it has been observed that money is invested spuriously from an
unidentified source it is the judicial power of SEBI to take stringent action against
fraudulent.
Promoting investor's education and training of intermediaries of securities
markets.
As per the SEBI direction an investing firm provide all the adequate and
comprehensive information about the plan of the company.
Judicial powers such as mortgaging and seize\ing of assets in order to recover
invested money
Prohibiting insider trading in securities, with the imposition of monetary penalties,
on erring market intermediaries. Regulating substantial acquisition of shares and
takeover of companies.
Regular monitoring and auditing of a firm
Calling for information from carrying out inspection, conducting inquiries and
audits of the stock exchanges, intermediaries and self regulatory organizations in
the securities market.
28













Functions of SEBI:
The SEBI performs functions to meet its objectives. To meet three objectives SEBI has
three important functions. These are:
i. Protective functions
ii. Developmental functions
iii. Regulatory functions.
1. Protective Functions:
These functions are performed by SEBI to protect the interest of investor and provide
safety of investment.
As protective functions SEBI performs following functions:
(i) It Checks Price Rigging:
29

Price rigging refers to manipulating the prices of securities with the main objective of
inflating or depressing the market price of securities. SEBI prohibits such practice
because this can defraud and cheat the investors.
(ii) It Prohibits Insider trading:
Insider is any person connected with the company such as directors, promoters etc. These
insiders have sensitive information which affects the prices of the securities. This
information is not available to people at large but the insiders get this privileged
information by working inside the company and if they use this information to make
profit, then it is known as insider trading, e.g., the directors of a company may know that
company will issue Bonus shares to its shareholders at the end of year and they purchase
shares from market to make profit with bonus issue. This is known as insider trading.
SEBI keeps a strict check when insiders are buying securities of the company and takes
strict action on insider trading.
(iii) SEBI prohibits fraudulent and Unfair Trade Practices:
SEBI does not allow the companies to make misleading statements which are likely to
induce the sale or purchase of securities by any other person.
(iv) SEBI undertakes steps to educate investors so that they are able to evaluate the
securities of various companies and select the most profitable securities.
(v) SEBI promotes fair practices and code of conduct in security market by taking
following steps:
(a) SEBI has issued guidelines to protect the interest of debenture-holders wherein
companies cannot change terms in midterm.
(b) SEBI is empowered to investigate cases of insider trading and has provisions for stiff
fine and imprisonment.
(c) SEBI has stopped the practice of making preferential allotment of shares unrelated to
market prices.
2. Developmental Functions:
30

These functions are performed by the SEBI to promote and develop activities in stock
exchange and increase the business in stock exchange. Under developmental categories
following functions are performed by SEBI:
(i) SEBI promotes training of intermediaries of the securities market.
(ii) SEBI tries to promote activities of stock exchange by adopting flexible and adoptable
approach in following way:
(a) SEBI has permitted internet trading through registered stock brokers.
(b) SEBI has made underwriting optional to reduce the cost of issue.
(c) Even initial public offer of primary market is permitted through stock exchange.

3. Regulatory Functions:
These functions are performed by SEBI to regulate the business in stock exchange. To
regulate the activities of stock exchange following functions are performed:(i) SEBI has f
ramed rules and regulations and a code of conduct to regulate the intermediaries such as
merchant bankers, brokers, underwriters, etc.
(ii) These intermediaries have been brought under the regulatory purview and private
placement has been made more restrictive.
(iii) SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer
agents, trustees, merchant bankers and all those who are associated with stock exchange
in any manner.
(v) SEBI regulates takeover of the companies.
(vi) SEBI conducts inquiries and audit of stock exchanges.


31






ADVANTAGES OF SEBI

It promotes healthy and orderly growth of securities and protect investors.
It helps in maintaining steady flow of saving in capital market.
It helps in regulating security market and ensures fair practices by issuers to help
them raise recourses at optimum cost.
SEBI operated to develop capital market .

LIMITATION OF SEBI
No dent of price manipulation
Poor rate of conviction and very few cases of exemplary penal action .
No due process for changing regulation.








32




Transfer of assets, liabilities, etc., of existing Securities and Exchange
Board to the Board.
(1) On and from the date of establishment of the Board,-
(a) any reference to the existing Securities and Exchange Board in any law other than
this Act or in any contract or other instrument shall be deemed as a reference to the
Board;
(b) all properties and assets, movable and immovable, of, or belonging to, the existing
Securities and Exchange Board, shall vest in the Board;
(c) all rights and liabilities of the existing Securities and Exchange Board shall be
transferred to, and be the rights and liabilities of, the Board;
(d) without prejudice to the provisions of clause (c), all debts, obligations and liabilities
incurred, all contracts entered into and all matters and things engaged to be done by,
with or for the existing Securities and Exchange Board immediately before that date, for
or in connection with the purpose of the said existing Board shall be deemed to have
been incurred, entered into or engaged to be done by, with for, the Board;
(e) all sums of money due to the existing Securities and Exchange Board immediately
before that date shall be deemed to be due to the Board;
(f) all suits and other legal proceedings instituted or which could have been instituted by
or against the existing Securities and Exchange Board immediately before that date may
be continued or may be instituted by or against the Board; and
(g) every employee holding any office under the existing Securities and Exchange
Board immediately before that date shall hold his office in the Board by the same tenure
and upon the same terms and conditions of service as respects remuneration, leave,
33

provident fund, retirement and other terminal benefits as he would have held such office
if the Board had not been established and shall continue to do as so an employee of the
Board or until the expiry of the period of six months from that date if such employee
opts not to be the employee of the Board within such period.
(2) Notwithstanding anything contained in the Industrial Disputes Act, 1947(14
of 1947), or in any other law for the time being in force, absorption of any employee by
the Board in its regular service under this section shall not entitle such employee to any
compensation under that Act or other law and no such claim shall be entertained by any
court, tribunal or other authority.













34




Finance, Accounts and Audit
Grants by the Central Government.
The Central Government may, after due appropriation made by Parliament by law in this
behalf, make to the Board grants of such sums of money as that Government may think fit
for being utilised for the purposes of this Act.
Fund.
(1) There shall be constituted a Fund to be called the Securities and Exchange Board of
India general fund and there shall be credited thereto-

(a) all grants, fees and charges received by the Board under this Act;
(b) all sums received by the Board from such other sources as may be decided
upon by the Central Government.
(2) The Fund shall be applied for meeting -
(a) the salaries, allowances and other remuneration of members, officers and other
employees of the Board;
(b) the expenses of the Board in the discharge of its functions under section 11;
(c) the expenses on objects and for purposes authorised by this Act.

Accounts and Audit.
35

(1) The Board shall maintain proper accounts and other relevant records and prepare
an annual statement of accounts in such form as may be prescribed by the Central
Government in consultation with the Comptroller and Auditor- General of India.
(2) The accounts of the Board shall be audited by the Comptroller and Auditor-
General of India at such intervals as may be specified by him and any expenditure
incurred in connection with such audit shall be payable by the Board to the Comptroller
and Auditor-General of India.
(3) The Comptroller and Auditor-General of India and any other person appointed
by him in connection with the audit of the accounts of the Board shall have the same
rights and privileges and authority in connection with such audit as the Comptroller and
Auditor-General generally has in connection with the audit of the Government accounts
and, in particular, shall have the right to demand the production of books, accounts,
connected vouchers and other documents and papers and to inspect any of the offices of
the Board.
(4) The accounts of the Board as certified by the Comptroller and Auditor-General
of India or any other person appointed by him in this behalf together with the audit report
thereon shall be forwarded annually to the Central Government and that Government
shall cause the same to be laid before each House of Parliament.







36




Powers of the Board
(1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the
interests of investors in securities and to promote the development of, and to regulate the
securities market, by such measures as it thinks fit.
(2) Without prejudice to the generality of the foregoing provisions, the measures referred
to there in may provide for -
(a) regulating the business in stock exchanges and any other securities markets;
(b) registering and regulating the working of stock brokers, sub-brokers,share transfer
agents, bankers to an issue, trustees of trust deeds, registrars to anissue, merchant
bankers, underwriters, portfolio managers, investment advisersand such other
intermediaries who may be associated with securities markets inany manner;
(c) registering and regulating the working of 15[venture capital funds andcollective
investment schemes],including mutual funds;
(d) promoting and regulating self-regulatory organisations;
(e) prohibiting fraudulent and unfair trade practices relating to securities markets;
(f) Promoting investors' education and training of intermediaries of securities markets;
(g) Prohibiting insider trading in securities;
(h) Regulating substantial acquisition of shares and take-over of companies;
37

(i) 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 organizations in the securities market;
calling for information and record from any bank or any other authority or board or
corporation established or constituted by or under any Central, State or Provincial Act in
respect of any transaction in securities which is under investigation or inquiry by the
Board;
(j) performing such functions and exercising such powers under the provisions of the
Securities Contracts (Regulation) Act, 1956(42 of 1956), as may be delegated to it by the
Central Government;
(k) levying fees or other charges for carrying out the purposes of this section;
(l) conducting research for the above purposes; 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;]
(m) performing such other functions as may be prescribed.
Without prejudice to the provisions contained in sub-section (2), the Board may take
measures to undertake inspection of any book, or register, or other document or record of
any listed public company or a public company (not being intermediaries referred to in
section 12) which intends to get its securities listed on any recognised stock exchange
where the Board has reasonable grounds to believe that such company has been indulging
in insider trading or fraudulent and unfair trade practices relating to securities market.
Not with standing anything contained in any other law for the time being in force while
exercising the powers under the Board shall have the same powers as are vested in a civil
court under the Code of Civil Procedure, 1908 (5 of 1908),while trying a suit, in respect
of the following matters, namely :
(i) the discovery and production of books of account and other documents, at such place
and such time as may be specified by the Board;
38

(ii) summoning and enforcing the attendance of persons and examining them on oath;
(iii) inspection of any books, registers and other documents of any person referred to in
section 12, at any place;]
(iv) inspection of any book, or register, or other document or record of the company
referred to in sub-section (2A);
(v) issuing commissions for the examination of witnesses or documents.
For the discharge of its functions efficiently, SEBI has been invested with the necessary
powers which are:
1. To approve bylaws of stock exchanges.
2. To require the stock exchange to amend their bylaws.
3. Inspect the books of accounts and call for periodical returns from recognised stock
exchanges.
4. Inspect the books of accounts of a financial intermediary.
5. Compel certain companies to list their shares in one or more stock exchanges.
6. Levy fees and other charges on the intermediaries for performing its functions.
7. Grant licence to any person for the purpose of dealing in certain areas.
8. Delegate powers exercisable by it.
9. Prosecute and judge directly the violation of certain provisions of the companies
Act.







39

SEBI Laws
Improved corporate governance is the key objective of the regulatory framework in the
securities market. Accordingly, Securities and Exchange Board of India (SEBI) has made
several efforts with a view to evaluate the adequacy of existing corporate governance
practices in the country and further improve these practices. It is implementing and
maintaining the standards of corporate governance through the use of its legal and
regulatory framework, namely:-
1. Securities Contracts (Regulation) Act, 1956
This Act was enacted to prevent undesirable transactions and to check speculation in the
securities by regulating the business of dealing therein. Any stock exchange, which is
desirous of being recognised, may make an application in the prescribed manner to the
Central Government. Every application shall contain such particulars as may be prescribed,
and shall be accompanied by a copy of the bye-laws of the stock exchange for the
regulation and control of contracts as well as a copy of the rules relating in general to the
constitution of the stock exchange, and in particular to:-
(i) the governing body of such stock exchange, its constitution and powers of
management and the manner in which its business is to be transacted;
(ii) the powers and duties of the office bearers of the stock exchange;
(iii) the admission into the stock exchange of various classes of members, the
qualifications for membership, and the exclusion, suspension, expulsion and re-
admission of members there from or there into;
(iv) The procedure for the registration of partnerships as members of the stock
exchange, in cases where the rules provide for such membership; and the
nomination and appointment of authorised representatives and clerks.
Every recognised stock exchange shall furnish the Central Government with a copy of the
annual report, and such annual report shall contain such particulars as may be prescribed. It
may make rules or amend any rules made by it to provide for all or any of the following
matters, namely:-
(i) the restriction of voting rights to members only in respect of any matter placed
40

before the stock exchange at any meeting;
(ii) the regulation of voting rights in respect of any matter placed before the stock
exchange at any meeting so that each member may be entitled to have one vote
only, irrespective of his share of the paid-up equity capital of the stock exchange;
(iii) the restriction on the right of a member to appoint another person as his proxy to
attend and vote at a meeting of the stock exchange; etc.
If, in the opinion of the Central Government, an emergency has arisen and for the purpose
of meeting the emergency, the Central Government considers it expedient so to do, it may,
by notification in the Official Gazette, for reasons to be set out therein, direct a recognised
stock exchange to suspend such of its business for such period not exceeding seven days
and subject to such conditions as may be specified in the notification, and, if, in the opinion
of the Central Government, the interest of the trade or the public interest requires that the
period should be extended, it may, by like notification extend the said period from time to
time.
Securities Contracts (Regulation) Amendment Act, 2007 has been enacted in order to
further amend the Securities Contracts (Regulation) Act, 1956, with a view to include
securitisation instruments under the definition of 'securities' and provide for disclosure
based regulation for issue of the securitised instruments and the procedure thereof. This has
been done keeping in view that there is considerable potential in the securities market for
the certificates or instruments under securitisation transactions. Further, replication of the
securities markets framework for these instruments would facilitate trading on stock
exchanges and, in turn, help development of the market in terms of depth and liquidity.
2. Securities and Exchange Board of India Act, 1992
This Act was enacted 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. For this purpose, the SEBI (the Board), by regulation, specify:-
(i) the matters relating to issue of capital, transfer of securities and other matters incidental
thereto; and (b) the manner in which such matters shall be disclosed by the companies.
No stock-broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed,
41

registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser
and such other intermediary who may be associated with securities market shall buy, sell or
deal in securities except under, and in accordance with, the conditions of a certificate of
registration obtained from the Board in accordance with the regulations made under this
Act.
No depository, participant, custodian of securities, foreign institutional investor, credit
rating agency, or any other intermediary associated with the securities market as the Board
may by notification in this behalf specify, shall buy or sell or deal in securities except
under and in accordance with the conditions of a certificate of registration obtained from
the Board in accordance with the regulations made under this Act.
Further, no person shall sponsor or cause to be sponsored or carry on or caused to be
carried on any venture capital funds or collective investment scheme including mutual
funds, unless he obtains a certificate of registration from the Board in accordance with the
regulations.
Every application for registration shall be in such manner and on payment of such fees as
may be determined by regulations. The Board may, by order, suspend or cancel a
certificate of registration in a prescribed manner, as may be determined by regulations
under this Act. However, no order shall be made unless the person concerned has been
given a reasonable opportunity of being heard.

3. Depositories Act, 1996
This Act was enacted to provide for regulation of depositories in securities and for matters
connected therewith or incidental thereto. It provides for the introduction of scripless
trading system and settlement, which is considered necessary for the effective functioning
of the securities markets. As per the Act, the term 'depository' means "a company formed
and registered under the Companies Act, 1956 and which has been granted a certificate of
registration under sub-section (1A) of section 12 of the Securities and Exchange Board of
India Act, 1992".
42

No depository shall act as a depository unless it obtains a certificate of commencement of
business from the Board (the SEBI). The Board shall grant a certificate only if it is satisfied
that the depository has adequate systems and safeguards to prevent manipulation of records
and transactions. However, a certificate shall not be refused unless the depository
concerned has been given a reasonable opportunity of being heard.
A depository shall enter into an agreement with one or more participants as its agent, in
such form as may be specified by the bye-laws. Any person, through a participant, may
enter into an agreement, in such form as may be specified by the bye-laws, with any
depository for availing its services. Any such person shall surrender the certificate of
security, for which he seeks to avail the services of a depository, to the issuer in such
manner as may be specified by the regulations. The issuer, on receipt of certificate of
security, shall cancel the certificate of security and substitute in its records the name of the
depository as a registered owner in respect of that security and inform the depository
accordingly. A depository shall, on receipt of information, enter the name of the person
referred in its records, as the beneficial owner.
On receipt of intimation from a participant, every depository shall register the transfer of
security in the name of the transferee. If a beneficial owner or a transferee of any security
seeks to have custody of such security, the depository shall inform the issuer accordingly.
Every person subscribing to securities offered by an issuer shall have the option either to
receive the security certificates or hold securities with a depository. Where a person opts to
hold a security with a depository, the issuer shall intimate such depository the details of
allotment of the security, and on receipt of such information the depository shall enter in its
records the name of the allottee as the beneficial owner of that security.
A depository shall be deemed to be the registered owner for the purposes of effecting
transfer of ownership of security on behalf of a beneficial owner. However, it shall not
have any voting rights or any other rights in respect of securities held by it. The beneficial
owner shall be entitled to all the rights and benefits and be subjected to all the liabilities in
respect of his securities held by a depository.
The Board, on being satisfied that it is necessary in the public interest or in the interest of
43

investors so to do, may, by order in writing,:-
(i) call upon any issuer, depository, participant or beneficial owner to furnish in
writing such information relating to the securities held in a depository as it may
require; or
(ii) authorise any person to make an enquiry or inspection in relation to the affairs of
the issuer, beneficial owner, depository or participant, who shall submit a report of
such enquiry or inspection to it within such period as may be specified in the order.



















44

Penalties and Adjudication
A.Penalty for failure to furnish information, return, etc.-
If any person, who is required under this Act or any rules or regulations made thereunder,-
(a) to furnish any document, return or report to the Board, fails to furnish the same, he shall
be liable to a penalty of one lakh rupees for each day during which such failure continues
or one crore rupees, whichever is less.
(b) to file any return or furnish any information, books or other documents within the time
specified therefor in the regulations, fails to file return or furnish the same within the time
specified therefor in the regulations, he shall be liable to a penalty of one lakh rupees for
each day during which such failure continues or one crore rupees, whichever is less];
(c) to maintain books of accounts or records, fails to maintain the same, he shall be liable to
a penalty of one lakh rupees for each day during which such failure continues or one crore
rupees, whichever is less.

B.Penalty for failure by any person to enter into an agreement with clients.-
If any person, who is registered as an intermediary and is required under this Act or any
rules or regulations made thereunder to enter into an agreement with his client, fails to
enter into such agreement, he shall be liable to a penalty of one lakh rupees for each day
during which such failure continues or one crore rupees, whichever is less.

C.Penalty for failure to redress investors' grievances.-
If any listed company or any person who is registered as an intermediary, after having been
called upon by the Board in writing, to redress the grievances of investors, fails to redress
such grievances within the time specified by the Board, such company or intermediary
shall be liable to a penalty of one lakh rupees for each day during which such failure
45

continues or one crore rupees, whichever is less.
D.Penalty for certain defaults in case of mutual funds.-
If any person, who is -
(a) required under this Act or any rules or regulations made thereunder 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, he shall be liable to 4[41][a penalty of one lakh rupees for each day during
which he sponsors or carries on any such collective investment scheme including mutual
funds, or one crore rupees, whichever is less.
(b) 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, he shall be liable to 5[42][a penalty of one lakh
rupees for each day during which such failure continues or one crore rupees, whichever is
less.
(c) 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, he shall be liable to 6[43][a penalty of one lakh rupees for each day
during which such failure continues or one crore rupees , whichever is less.
(d) 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







46

despatch, he shall be liable to 7[44][a penalty of one lakh rupees for each day during which
such failure continues or one crore rupees, whichever is less.
(e) 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, he
shall be liable to pay 8[45][a penalty of one lakh rupees for each day during which such
failure continues or one crore rupees, whichever is less.
(f) 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, he shall be liable to 9[46][a penalty of one lakh rupees for each
day during which such failure continues or one crore rupees, whichever is less.
E. Penalty for failure to observe rules and regulations by an asset management
company.-
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, such asset management company shall be liable to a penalty of
one lakh rupees for each day during which such failure continues or one crore rupees,
whichever is less.
F. Penalty for failure in case of stock brokers.-
If any person, who is registered as a stock broker under this Act, -
(a) fails to issue contract notes in the form and in the manner specified by the stock







47

exchange of which such broker is a member, he shall be liable to a penalty not exceeding
five times the amount for which the contract note was required to be issued by that broker;
(b) 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, he shall be liable to 10[48][a
penalty of one lakh rupees for each day during which such failure continues or one crore
rupees, whichever is less.]
(c) charges an amount of brokerage which is in excess of the brokerage specified in the
regulations, he shall be liable to 11[49][a penalty of one lakh rupees] or five times the
amount of brokerage charged in excess of the specified brokerage, whichever is higher.
G.Penalty for insider trading.-
If any insider who,-
(i) 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; or
(ii) 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; or
(iii) counsels, or procures for any other person to deal in any securities of any body
corporate on the basis of unpublished price-sensitive information,
shall be liable to a penalty 12[50][of twenty-five crore rupees or three times the amount of
profits made out of insider trading, whichever is higher.






48

H.Penalty for non-disclosure of acquisition of shares and take-overs.-
If any person, who is required under this Act or any rules or regulations made thereunder,
fails to,-
(i) disclose the aggregate of his shareholding in the body corporate before he acquires any
shares of that body corporate; or
(ii) make a public announcement to acquire shares at a minimum price;
(iii) make a public offer by sending letter of offer to the shareholders of the concerned
company; or
(iv) make payment of consederation to the shareholders who sold their shares pursuant to
letter of offer.
he shall be liable to a penalty twenty-five crore rupees or three times the amount of profits
made out of such failure, whichever is higher.

H(A).Penalty for fraudulent and unfair trade practices.-
If any person indulges in fraudulent and unfair trade practices relating to securities, he shall
be liable to a penalty of twenty-five crore rupees or three times the amount of profits made
out of such practices, whichever is higher.
H(B).Penalty for contravention where no separate penalty has been provided.-
Whoever fails to comply with any provision of this Act, the rules or the regulations made
or directions issued by the Board there under for which no separate penalty has been
provided, shall be liable to a penalty which may extend to one crore rupees.

I.Power to adjudicate.-
(1) For the purpose of adjudging under sections A, B, C, D, E, F, G, H, H(A) and H(B) ,the


49

Board shall appoint any of its officers not below the rank of a Division Chief to be an
adjudicating officer for holding an inquiry in the prescribed manner after giving any person
concerned a reasonable opportunity of being heard for the purpose of imposing any
penalty.
(2) While holding an inquiry, the adjudicating officer shall have power to summon and
enforce the attendance of any person acquainted with the facts and circumstances of the
case to give evidence or to produce any document which in the opinion of the adjudicating
officer, may be useful for or relevant to the subject matter of the inquiry and if, on such
inquiry, he is satisfied that the person has failed to comply with the provisions of any of the
sections specified in sub-section (1), he may impose such penalty as he thinks fit in
accordance with the provisions of any of those sections.
J.Factors to be taken into account by the adjudicating officer.-
While adjudging quantum of penalty under section 15, the adjudicating officer shall have
due regard to the following factors, namely:
(a) The amount of disproportionate gain or unfair advantage, wherever quantifiable, made
as a result of the default;
(b) The amount of loss caused to an investor or group of investors as a result of the default;
(c) The repetitive nature of the default.
.Crediting sums realized by way of penalties to Consolidated Fund of India.-
All sums realised by way of penalties under this Act shall be credited to the Consolidated
Fund of India.





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CHAPTER III
SUMMARY
SUMMARY OF THE TOPIC
An investor while operating in corporate securities has to facevarious types of risks
associated with those transactions. He has to identify and manage these risks properly to
maximise his returns. A clear perception of risk is necessary to have a control over them.
Risk is the potential loss a portfolio is likely to suffer. As most losses proceed from
ignorance, they could be avoided by understanding them properly. Risk management aims
at identifying and understanding the various risks an investor has to face. Future return is
an expected return and may or may not be actually realised. Risk management measures
the various probabilities that may arise in a particular investment. It can show the strengths
and weaknesses of an investment. The emphasis on risk management is increasing with
globalisation and the economic liberalisation process altering the way risks are perceived.
The competitive market scenario and the progressive opening up of the economy leading to
global linkages point to multiplicity of risks and risk management processes. The spread of
the equity cult and the dawning of the information age have also contributed to the
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increasing dimensions of risk management. The investors now have to explicitly identify
and deal with all the risk components, as investors have to be accountable to themselves in
terms of the risk-return implications of their behaviour. At present the future outcomes of a
business environment are unpredictable and risk has become an integral part of it. Risk can
be defined as the volatility of expected future outcomes. The greater the volatility of
expected returns, the greater is the risk. The essence of risk management is to reduce the
volatility of future outcomes. Returns depend on the ability of the investor to bear risk. The
value maximisation involves both returns and risks and a balance between the two.
Prudence lies in the reduction of the area of uncertainty within which an investor is
operating. Because of the growing complexity in stock market operations, investors would
have to rapidly equip themselves with a variety of information, intensive skills and
appropriate techniques of risk management. To strengthen the risk bearing capacity of an
ordinary investor, the present problems of the investors should be identified and analysed.
This study covers the problems of the investors as well as their needs, aspirations, attitudes
and expectations related to investment in corporate securities. The methods adopted by
them to reduce the risk in the capital market are also critically analysed in this study.









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LIMITATIONS
1. SEBI keeps doling out regularly information about investors complaints. When it
is good to bring investors grievance to public notice, one would like to know what
kind of breakthrough SEBI has achieved in the redressed of these grievances. Since
an overwhelmingly large percentage of the complaints related to non receipt of
refunds allotment letters, dividends on share and interest on debenture these have
very little to do with the performance and the function of the stock exchanges. The
introduced of stockinvest should go a long way in mitigating the evil of non-
receipt of refunds.

2. It is a fact that stock exchange in India suffer from many organization, procedural
and deficiencies. Reformer are necessary to ensure efficient and healthy functioning
f capital markets secondary as well as primary. It is the responsibility of the stock
exchange supervisor body to see that all players conduct themselves in a
responsible and ethical way. But that needs not call for direct intervention in the
market by SEBI. Reforms should be aimed primarily at strengthening the markets
organizational formwork and rectifying infrastructure inadequacies to enable to
stock exchange to efficiently cope up with the expanding volume of business. This
essence of reform is not given adequate attention and important by SEBI. The
attitude of imposing reforms on the stock exchange will not give positive benefits
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but will lead to new problems and confrontation between SEBI on the one side and
other agencies (intermediaries) as well as stock exchange on the other side.

3. SEBI is supposed to protect the interest of investors in capital issues. For year this
responsibility was given to the controller if capital issues (CCI). The CCI
underpriced every issue, thereby protecting the investor at the expense of the issuer.
Recognizing that this discourager many an honest of the issuer from equity issue
while pushing several dishonest promoters into the void the government now favors
free pricing, SEBIs discussion note on the subject however confuses its role.
Instead of recognized that the free rider problem can only be minimized and not
prevented totally in a free pricing environment, SEBI has sought to promote
guideline, some if which will, if implemented, return the situation on the day to
rigid CCI control. There are many points noted in the guideline but are not clear.
Such confusion are undesirable. SEBI is supposed to rectify its guideline and
remove such confusions.

4. One of the major criticisms against the SEBI Act was that it did not provide SEBI
with sufficient powers it still has not got many of the circle powers. It is seeking
including the rights to prosecute or fine. Under the Act SEBI can only recommend
action to Government, but it cannot launch direct action against any erring capital
market operator. In contrast the securities exchange commission of the US can
prosecute and fine anyone on offences ranging from unlawful representation to
deliberate misuse of capital market. SEBI should be given power of notification
regulation without government approval and prosecute without government
sanction.

5. The image of SEBI as a regulator body is not a positive one. To make an impact,
regulatory bodies should be well supported by self regulatory organization as
regulatory bodies would be ineffective unless they foster institution or self-
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regulation to help them along.
SEBI is not increasingly emerging to be the regulator-par excellence .SEBI intends
to share this regulator role through self-regulatory with the co-operation of self
regulator bodies like AMBI (Association of Merchant Banker of India) or stock
exchange etc. however self regulation is still to find its root among various players
of Indian capital market, unlike in USA, UK and other development countries.

6. A year after being given the legal sanctions the SEBI finds itself embroiled in an
unending number of controversies. Much of this springs from the week foundation
if the low organizational structure on which it is established. Other comes from the
strong resistance to change amongst the stock market community, who so far has
got way with very little regulation. This situation has affected the smooth working
and positive contribution of a SEBI. In fact, SEBI has been facing problem in
implementing its directive because the stock exchange and brokers are seeking
shelter under the securities contracts (Regulation) Act in Indian companies Act.
7. The moral support offered by the government to SEBI in not very effective. Many
of SEBI problem are due to lack of adequate powers given to SEBI. Moreover,
SEBI received power on a piecemeal basic and this in the turn reflected in
piecemeal guideline. Such piecemeal rendering of power is not useful to SEBI. As a
regulator, the SEBIs image is not good as every announcement of SEBI could be
taken to court and eventually changed. This is unfair as what a regulator says
should stay. It is necessary to give premier stated of SEBI in regard to regulation of
stock exchange by transferring all necessary powers from the company law board
and department if company affairs to SEBI. Such consolidation of power will make
SEBI a strong regulator agency. It is also necessary to give more autonomy to SEBI
and present bureaucratic control on SEBI must be removed.

8. SEBI is a good watchdog. However, it has an adopted practical and cautious
approach while introducing reforms in various area under its control. Unfortunately,
the top administration of SEBI fails to take into consideration the fact that a lot of
education is required to change people. The practice of taking unilateral decision is
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not proper on the part of SEBI. It should take a decision on the basic of consensus
and compressive with unconcerned parties. The ex-chairman of SEBI has rightly
pointed out that SEBIs intention is not to interfere in the corporate sectors
working and capital market but the protect the invest of the investors. This
approach indicated positive change on the part of the SEBI.

SUGGESTIONS
Based on the findings and conclusions drawn from the study, the following suggestions
seem feasible for strengthening the capital market, especially the investors.
1. Investor protection continues to remain a dream despite a plethora of laws, rules and
regulations and a host of regulators in the form of RBI, the Company Law Board and the
SEBI. Investor protection should be the goal of the regulators. All the existing regulations
and fresh regulatory proposals are to be reviewed, aiming at this goal. It is time to take
stock of the realities and make drastic measures to ensure safety of investors.
2. Special regulation is needed to book the culprits in the case of vanishing companies.
SEBI should be empowered to award interest, costs and damages to investors who have
suffered on account of cheating by promoters. Provision should be made for personal
liability of promoters, directors and concerned intermediaries involved in vanishing
companies. SEBI should have the powers to attach the property of the defaulting company
and then it should be allowed to sell the property to make good the losses suffered by the
investors. Entrepreneurs setting up new companies should be asked to furnish more details
to the regulators, such as photographs, passport number etc. and at least three references so
that they do not disappear into thin air.
3. There is a strong need for rating of public issues by authorized agencies like CRISIL,
CARE, etc.
4. Investors should put forward their grievances to the regulatory bodies for redressal.
5. Appoint an Ombudsman for redressal of investor grievances.
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6. Stock Exchange should remove inefficiencies and promote market access to be attractive
to investors by improving both the trading and settlement process. Assure fair deal to
investors.
7.Probe into irregularities and manipulations in all transactions. The regulators should be
able to take quick corrective action, nip the problem in the bud, punish the guilty and plug
the loopholes in the system.
8. Efforts should be made to revive the capital markets, both the primary and the secondary
markets. Budget proposals should include tax incentives for investment in public issues
9.Ensure stability and integrity of the market. Monitor excessive volatility in the market
and take prompt action by imposing high margins. It acts as a 'brake' to excessive speed of
volatility.
10. It is necessary to tighten our systems and procedures besides ensuring the surveillance
mechanism across the stock markets in line with the developed markets. Review the
functions of the stock markets and stipulate policy issues on market operations.
11. More information and greater transparency in the disclosure of information is required
to inspire greater investor confidence.
12. Wherever the regulator proposes to introduce a new system in the capital market it
must allow sufficient transition time to ensure smooth sailing. Otherwise, investors are
prone to loose money.
13. Investors need to investigate events of unrealistic boom in the share prices to control
the damage of a scam that may happen.
14. Investors should try to attend company meetings to come to know about the policies of
the company.
15. Diversification is a safe method of risk management. Diversify the portfolios, as it will
help to reduce risks.
16. Investors should not run after hot tips. They should try to find out whether the price of
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a share is a real reflection of the earning capacity and future prospects of the issuer. He
should understand that long run investing is safer. Investing requires caution; patience and
hard work and the investor should never let greed judge his sentiment.
17. As a precaution against stress, practicing yoga would be advisable.


Stock markets provide an attractive opportunity for making money. There is no other form
of investment as on today which can offer a better rate of return than that offered by shares.
The other side of the picture is that the companies may not line up to the expectations of
the investors. Selecting only those shares in which he has a high level of confidence
regarding their stability and prosperity, can minimize the risk. The Indian stock market has
made rapid strides. Its role in the Indian financial system is getting transformed from being
peripheral to becoming central. The stock markets' behaviour has a powerful influence on
the course of economic activity. Everybody today accepts that economic growth requires
rising levels of investment. India, with its vast investor base, strong capital market tradition
and vibrant industry can optimally utilize the stock markets to raise resources cheaply and
provide an impetus for economic growth. But this could be possible only when we learn to
respect those investors who contribute to the stock markets' growth and help them to boost
their confidence. In this era of scams, it is absolutely imperative that the investor embraces
and manages properly the risks to make the extra buck, which bolsters his confidence.






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CASE STUDY
The curious case of Subrata Roy
Sahara-SEBI story
The Supreme Court of India on Wednesday issued a non-bailable warrant against Sahara
chief Subrata Roy for non-appearance despite a summon and contempt of court. The
Securities and Exchange Board of India (Sebi) had asked Sahara to refund over Rs 20,000
crore to investors but Sahara failed to do so repeatedly.
1) What is the case all about?

Between 2008 and 2011, two unlisted Sahara group companies (SCSCL and SHICL) raised
around Rs 18,000 Cr issuing OFCDs (Optionally Fully Convertible Debentures) to roughly
30 million shareholders. In 2011, SEBI ordered the group to refund this money to investors
with 15% annual interest. This order was upheld by the Supreme Court.
2) Why did SEBI ask Sahara to refund the money?

SEBI asked Sahara to refund investors because it felt Sahara was raising money in
violation of capital raising norms and certain sections of the Companies Act. SEBI found
that under the garb of an OFCD the company was running an extensive parabanking
activity without conforming to regulatory disclosures and investor protection norms
pertaining to public issues.

3) What did Sahara do?

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Sahara challenged SEBIs order saying the capital markets regulator did not have any
jurisdiction over the group companies since they were not listed. The court dismissed
Saharas petition, also hauling it up for not complying with its orders.

4) What orders did Sahara not comply with?

The court directed Sahara to furnish details of the OFCDs it had issued including
subscriptions and refunds within 10 days and submit these to SEBI. It also gave Sahara 90
days to deposit roughly Rs 24,000 Cr. SEBI which was given powers to freeze Saharas
accounts, attach properties etc. Sahara has repeatedly missed deadlines to comply with the
Supreme Courts orders. It claims the total money due is only Rs. 5,200 Cr, as the balance
amount has already been repaid. SEBI meanwhile, told the court that while it had begun the
refund process; it couldnt trace many of Saharas investors as details submitted by Sahara
were not in the prescribed format, with addresses and other details missing in some cases.

5) What has the court done today?

Since Sahara hasn't been able to deposit the Rs. 24,000 Cr amount with SEBI, the Supreme
Court has asked Sahara India to submit a bank guarantee for Rs. 20,000 Cr before October
28th which is the date for the next hearing of the case. Sebi had earlier rejected Saharas
offer to secure the difference (between Rs 5,200 and 24,000) through immovable property
entrusted with a bank trustee.






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BIBLIOGRAPHY
Books
1. I.M. Pandey, Financial Management, Vikas Publishing, New Delhi.
2. Prasanna Chandra, Financial Management Theory and Practice, Tata McGraw Hill,
New Delhi.
3. M.P. Pandikumar, Accounting & Finance for Managers, Excel Books, New Delhi.
Websites
4. www.kcgjournal.org/Commerce%20and%20Management/Issue%202/1%20Dipal.html
5. www.deccanchronicle.com/130524/news-businesstech/article/sebi-turns-25-seeks-
greater-powers-pm-warns-insider-trading
6. www.capitalmarket.com/ magazine/cm1519/mongor.htm
7. www.thehindubusinessline.com/markets/take-lead-role-in-helping-fund-infrastructure-
pm-tells-sebi/article4746390.ece






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