The TENNER’s

 Group Members:
Ankit Gupta (10)
Rashmi Wadha (20)
Ishita Dhingra (30)
Mayank Bansal (40)
Sumit Bedi (50)
Siddharth Sud (60)
SEBI
 Setting up of SEBI
1988- SEBI established by the Government of
India

1992- Upgraded as a fully autonomous body

In place of Government Control, a statutory

and autonomous regulatory board with
defined responsibilities, to cover both
development & regulation of the market, and
independent powers was set up.
How SEBI came into picture?
 Introduction
of Financial Services Assessment
Programme (FSAP) by World Bank and IMF

 FSAP designed to help countries

o strengthen the monitoring of financial systems
o enhance their resilience to crisis and cross-border
contagion
o foster growth by promoting financial system
soundness and financial sector diversity

 SEBI endeavors to achieve the standards of FSAP

 Need of a Regulatory
body
 India is an ` informationally ' weak market

 Boosting capital market demands restoring the

confidence of lay investors who have been beaten
down by repeated scams

 Progressively softening interest rates

 An under performing economy has eroded investment

options, and requires enhanced investing skills
 SEBI - Mission
 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
 Organization Details
• Headquarters-Mumbai, Maharashtra
• Established-1992
• Head- Chairman
• Chairman- CB Bhave
• Total staff- 525

SEBI Bhavan, Mumbai Headquarters of SEBI

 Constitution of SEBI
SEBI consists of the following members :

 One Chairman

 One member each from finance and Law

department of Central Government

 One member from amongst the official of the

reserve bank of India

 Two other persons

Approaches followed by SEBI
 Two broad approaches of SEBI are to:
 Integrate the securities market at the national
level, and
 To diversify the trading products

This ensures there is an increase in number of

traders including banks, financial institutions,
insurance companies, mutual funds, primary
dealers etc. to transact through the Exchanges.
 Progress at SEBI
 Improvements in the securities markets like capitalization requirements,
margining, establishment of clearing corporations.

 Introduced
• comprehensive regulatory measures
• prescribed registration norms
• code of obligations and the code of conduct for different intermediaries like,
bankers to issue, merchant bankers, brokers and sub-brokers, registrars,
portfolio managers

 Framed bye-laws, risk identification and risk management systems

 Made dealing in securities both safe and transparent to the end investor
 FUNCTIONS OF SEBI
 Section 11 of the Securities and Exchange Board of India Act.

 Regulation Of Business In The Stock Exchanges

A review of the market operations, organizational structure

and administrative control of the exchange

 All stock exchanges are required to be Body Corporates

 The exchange provides a fair, equitable and growing market
to investors.
 The exchange’s organisation, systems and practices are in
accordance with the Securities Contracts (Regulation) Act
(SC(R) Act), 1956
 FUNCTIONS OF SEBI
B) Registration And Regulation Of The Working Of
Intermediaries

Primary Market Secondary Market

Merchant Bankers Stock brokers

Underwriters Sub- Brokers

Portfolio Managers

•regulates the working of the depositories [participants], custodians of

securities, foreign institutional investors, credit rating agencies and such
other intermediaries
 FUNCTIONS OF SEBI
C) Registration And Regulation Of Mutual Funds, Venture
Capital Funds & Collective Investment Schemes

 AMFI-Self Regulatory Organization-'promoting and protecting the

interest of mutual funds and their unit-holders, increasing public
awareness of mutual funds, and serving the investors' interest by
defining and maintaining high ethical and professional standards
in the mutual funds industry'.
 Every mutual fund must be registered with SEBI and registration
is granted only where SEBI is satisfied with the background of the
fund.
 SEBI has the authority to inspect the books of accounts, records
and documents of a mutual fund, its trustees, AMC and custodian
where it deems it necessary
 SEBI (Mutual Funds) Regulations, 1996 lays down the
provisions for the appointment of the trustees and their
obligations

 Every new scheme launched by a mutual fund needs to be

filed with SEBI and SEBI reviews the document in regard to
the disclosures contained in such documents.

 Regulations have been laid down regarding listing of funds,

refund procedures, transfer procedures, disclosures,
guaranteeing returns etc

 SEBI has also laid down advertisement code to be followed by

a mutual fund in making any publicity regarding a scheme
and its performance

 SEBI has prescribed norms / restrictions for investment

management with a view to minimize / reduce undue
investment risks.

 SEBI also has the authority to initiate penal actions against an

erring MF.

 In case of a change in the controlling interest of an asset

 FUNCTIONS OF SEBI
D) Promoting & Regulating Self Regulatory Organizations

 In order for the SRO to effectively execute its responsibilities,

it would be required to be structured, organized, managed and
controlled such that it retains its independence, while
continuing to perform a genuine market development role

E) Prohibiting Fraudulent And Unfair Trade Practices In The

Securities Market

SEBI is vested with powers to take action against these

practices relating to securities market manipulation and
misleading statements to induce sale/purchase of securities.
 FUNCTIONS OF SEBI
F] Prohibition Of Insider Trading

 Stock Watch System, which has been put in place,

surveillance over insider trading would be further
strengthened.

G] Investor Education And The Training Of

Intermediaries
 SEBI distributed the booklet titled “A Quick Reference Guide for
Investors” to the investors
 SEBI also issued a series of advertisement /public notices in
national as well as regional newspapers to educate and caution
the investors about the risks associated with the investments in
collective investment schemes
 SEBI has also issued messages in the interest of investors on
National Channel and Regional Stations on Doordarshan.
 FUNCTIONS OF SEBI
H) Inspection And Inquiries

I) Regulating Substantial Acquisition Of Shares And Take-overs

J) Performing Such Functions And Exercising Such Powers Under

The Provisions Of The Securities Contracts (Regulation) Act,
1956 As May Be Delegated To It By The Central Government;

K) Levying Fees Or Other Charges For Carrying Out The Purposes

Of This Section

L) Conducting Research For The Above Purposes

 Market intermediaries
Merchant bankers
 They constitute an important pillar of the primary capital. They provide a
range of specialized financial services to their clients.

SEBI has a comprehensive regulatory frame work for merchant banker:

 merchant bankers require compulsory registration to carry out their
activities
 all issues should be managed by at least one authorized merchant banker
functioning as the sole or lead manager of the issue.
 To ensure a direct stake of a merchant banker in the issue managed by it.
The lead manager are required accept minimum of 5 percent underwriting
obligation subject to ceiling.
 The bankers have to follow the SEBI code of conduct .
 The banker have to submit to the SEBI any information or documents
relating to the securities issue
 Contd..
Underwriters
Underwriters , are required to be registered by the SEBI, and
as per the SEBI code they must:
 Observe high standards of integrity and fairness in his
conduct of business.
 Observe high standards of ethics and morality with respect
to the issuing company , lead managers and other clients
 Provide high quality of service with diligence , care and
professional independence.
 Contd..
Bankers to the issue
The basic function of the bakers to the issue is to
accept application from the investors for the issue of
securities and to refund the same if need arises ,the
bankers must be registered by SEBI.
The banker will have to furnish any information
relation to its function and performance to the SEBI,
wherever required.

Portfolio managers
These intermediaries manage the portfolio of securities
on behalf of the clients and provide various portfolio
managers , and a registration certificate. Provide a
high standard of diligent ,careful and professionally
independent service to their clients.
 VETTING BY SEBI
 A company cannot come out with public issue unless Draft Prospectus is
filed with SEBI. Prospectus is a document by way of which the investor
gets all the information pertaining to the company in which they are
going to invest. It gives the detailed information about the Company,
Promoter / Directors, group companies, Capital Structure, Terms of the
present issue etc.

 A company cannot file prospectus directly with SEBI. It has to be filed

through a merchant banker. After the preparation of prospectus, the
merchant banker along with the due diligence certificates and other
compliances and sends the same to SEBI for Vetting.

 SEBI on receiving the same scrutinizes it and may suggest changes

within 21 days of receipt of prospectus

 The company can come out with a public issue any time within 180 days
from the date of the letter from SEBI or if no letter is received from SEBI,
within 180 days from the date of expiry of 21 days of submission of
prospectus with SEBI

 If the issue size is upto Rs. 20 crores then the merchant bankers are
required to file prospectus with the regional office of SEBI falling under
the jurisdiction in which registered office of the company is situated.
 Broker’s Code
 The four-part model, which was recommended by the M R
Mayya committee

 The market regulator would hold the remote control on the

management of the exchanges by approving nominations of
60 per cent non-broker members of an exchange board.

 Induction and removal of managing director would also be

controlled by SEBI.

Lead to increased control by the markets regulator and

also impose restrictions on elected brokers without
giving them any authority.
 Search And Seizure
 To impose penalties of up to Rs 25 crore or three times the
amount involved in the violation of a norm, whichever is
higher.

 In the cases of some offences, including defaults by brokers,

a failure to furnish returns and information by corporates
and brokers and other lapses, the market regulator can
impose a higher penalty of Rs 1 lakhs a day or a maximum
fine of Rs 1 crore, whichever is lower.

 At present, the offences carry penalties ranging between Rs

5,000 and Rs 5 lakhs.
 Corporate Governance
The listing requirements, are ensured in two ways.

Corporates are expected to submit compliance

reports as per clause 49 of the listing agreement

They are also required to provide details of the

same in their annual reports.
 Delisting
The exit price to be determined in accordance with the book
building process (known as reverse book building) through an
electronically-linked transparent facility.

The offer price shall have a floor price, which will be the average
of 26 weeks traded price preceding the date of the public
announcement. The final offer price shall be determined as the
price at which maximum number of shares has been offered.

After the final price is determined based on the book-building

process, the promoter or the acquirer will have to make a public
announcement of the final price and communicate to the
exchanges from which the delisting is sought to be made within
two working days.

Further, the number of bidding centres shall not be less than 30,
including all the stock exchange centres, which should have at
least one electronically-linked computer terminal each.

In case the promoter does not accept the above price, he should
not make an application to the exchange for delisting of the
securities, as per the guidelines. Instead, he shall ensure that the
public shareholding is brought up to the minimum limits specified
under the listing conditions within six months.

Strict norms for compulsory delisting by stock exchanges

 Role of SEBI in Public Issue
Public issue is a way to make an offer to investors in the
shareholdings of a company.

Any company making a public issue or a listed company

making an issue of value of more than Rs 50 lakh is
required to file a draft offer document with SEBI for its
observations.

The company can proceed further on the issue only after

getting observations from SEBI. The validity period of
SEBI's observation letter is three months only i.e. the
company has to open its issue within three months
period.
 Public Issues
An unlisted company has to satisfy the following criteria to be
eligible to make a public issue

 Pre-issue networth of the co. should not be less than Rs.1

crore in last 3 out of last 5 years with minimum networth
to be met during immediately preceding 2 years

 Track record of distributable profits for at least three (3)

out of immediately preceding five (5) years

 The issue size (i.e. offer through offer document + firm

allotment + promoters’ contribution through the offer
document) shall not exceed five (5) times its pre-issue
networth.

 In case an unlisted company does not satisfy any of the

above criterions, it can come out with a public issue only
through the Book-Building process. In the Book Building
process the company has to compulsorily allot at least
sixty percent (50%) of the issue size to the Qualified
Institutional Buyers (QIB’s), failing which the full
 Initial Public Offer 
 In case of an Initial Public Offer (IPO) i.e. public issue by unlisted
company, the promoters have to necessarily offer at least 20% of
the post issue capital.

 In case of public issues by listed companies, the promoters shall

participate either to the extent of 20% of the proposed issue or
ensure post-issue share holding to the extent of 20% of the post-
issue capital.

 In case of any issue of capital to the public the minimum

contribution of promoters shall be locked in for a period of 3 years,
both for an IPO and Public Issue by listed companies.

 In case of an IPO, if the promoters’ contribution in the proposed

issue exceeds the required minimum contribution, such excess
contribution shall also be locked in for a period of one year.

 In case of a public issue by a listed company, participation by

promoters in the proposed public issue in excess of the required
minimum percentage shall also be locked-in for a period of one
year as per the lock-in provisions as specified in Guidelines on
Preferential issue.
 Initial Public Offer 
 paid up share capital prior to IPO and shares issued on a firm
allotment basis along with issue shall be locked-in for a period
of one year from the date of allotment in public issue.

 In case of over-subscription in a fixed price issue the

allotment is done in marketable lots, on a proportionate basis

 In case of a book building issue, allotment to Qualified

Institutional Buyers and Non-Institutional buyers are done on
a discretionary basis. Allotment to retail investors is done on
a proportionate basis

 all steps for completion of the necessary formalities for listing

and commencement of trading at all stock exchanges where
the securities are to be listed are taken within 7 working days
of finalization of basis of allotment.
 RECOMMENDATIONS ON
CORPORATE GOVERNANCE
 If an institution wishes to appoint a director on the board of a
company, it should be approved by the shareholders of the
company. Such a person is not to be considered an independent
director.

 An institutional director, so appointed, shall have the same

responsibilities and shall be subject to the same liabilities as
any other director.

 companies should lay down a code of conduct for all the board
members and the senior management of company.

 Mandatory review by audit committees of listed companies

 Companies raising money through a public issue should

disclose to the audit committee, the uses and applications of
funds by major category on a quarterly basis.
Evaluation Of SEBI’ s Performance
Enhancing disclosures

In most case only the minimum information required

under the Companies Act is made available

The manner in which the swap ratio is fixed and what

the management thinks of the same is largely taken for
granted.

valuation reports are made available for inspection, but

access is not easy for all investors.
Inability To Utilize The Existing Powers
Effectively
SEBI could initiate prosecution proceedings on insider trading only in
one case and seven cases on fraudulent and unfair practices.
Only in seven of the 181 cases, SEBI resorted to cancellation of
registration during the last four years.
Though SEBI has the power to impose a penalty of Rs 1.50 lakhs
every time a person fails to furnish the requisite information, but
rarely has this power has been exercised by it
The provision for mandatory punishment of imprisonment in addition
to award for penalty has scarcely has been used.
 Quality Of Decisions
What is worrying is the poor rate of conviction in
major cases. Virtually every SEBI decision involving
major cases — such as Sterlite, BPL, Videocon, Anand
Rathi and Associates and Hindustan Lever — has
been overturned by the appeals process (or the
Securities Appellate Tribunal).

Accounting, audit quality

The plethora of inter-corporate investments, intra-
company and intra-group transactions, guarantees
and contingent liabilities are areas where there is
room for considerable concern.
Price Manipulation — No Dent:
Price manipulation, informed trading and insider trading
with key operators/investors is now routine. This is an area
that is difficult to tackle for any regulator. But over the last
ten years, SEBI has taken action on such price manipulation
in just two cases (Bayer ABS and Amara Raja Batteries).
Here, too, the penal action has hardly been stringent

Enticing ads and investor risk

Advertisement sans indication of performance by mutual
funds has continued regardless of the SEBI guidelines on
this.
The Securities and Exchange Board of India (Sebi) is being
blamed for lack of alertness and poor risk-management
measures with regard to the automated lending and
borrowing mechanism.
Failures
 Change In Market
The complete transformation of the trading,
clearing and settlement infrastructure

Dramatic transformation to a paperless market and

transparent trading system. All trades on the
National Stock Exchange are settled in demat
(paperless mode).

By also moving towards rolling settlement (albeit

after a considerable and unnecessary delay),
cutting the settlement cycle and now going forward
towards a T+1 settlement system, SEBI has made
the markets much safer for investors
 Takeover Code Failures
The SEBI has not been given the sweeping powers to
directly tackle the wrongdoers (many of whom have
surfaced during the five-year timeframe when the
committee was deliberating on the issue) on the takeover
front.

The creeping acquisition limit will be applicable for the

financial year, against the earlier practice where a
company couldn't exceed the creeping acquisition limit in
any one-year time frame.

 SEBI has almost always been found lacking in the legal

foundations of its action against defaulting corporates.
 Disclosures and Investor
Protection guidelines
SEBI framed its DIP guidelines in 1992.
In 2000, SEBI issued "Securities and Exchange
Board of India (Disclosure and Investor
Protection) Guidelines, 2000" which is
compilation of all circulars organized in chapter
forms.
SEBI (Disclosure and investor protection)
guidelines 2000 are in short called DIP
guidelines. It provides a comprehensive
framework for issuances of the companies.
 Amendments made in
“DIP guidelines 2000”
Major amendments have been made by SEBI on
14-8-2003, in the DIP Guidelines 2000.
These have been made based on recommendation
of various committees set up by SEBI.
The purpose of amendments:
(a)to enhance the level of investors’ protection
(b) to increase the transparency and efficiency of
the primary market
(c) to strengthen the disclosure and eligibility
norms for issuer companies.
 Certain Amendments..
(1)Eligibility Norms of the issuer:

A company with net tangible assets of at least three crores can

make IPO (Initial Public Offer) through public issue.

The company should have track record three years of

profitability.

Companies which do not fulfill the requirements of profitability,

issue size etc. can make IPO through book- building process.
 Book building process
(2) Book building is a facility given to issuer
companies and merchant bankers to ascertain the
demand and indicative price before the actual opening
of the issue.The companies have now been given a
flexibility of indicating a movable price band or a fixed
floor price in Red Herring prospectus.

The book building process is being integrated with stock

exchange procedures. Transactions will be routed
through brokers. Brokers will be responsible for defaults
in payment of their clients.
 Contd..
The issuer company shall enter into an agreement with
one or more of the Stock Exchange(s) which have the
requisite system of on-line offer of securities.

The red herring prospectus shall disclose, either the

floor price of the securities offered through it or a price
band along with the range within which the price can
move, if any. If price band is indicated, required
conditions should be fulfilled.

Trading shall commence within 6 days from the

closure of the issue failing which interest at the rate of
15% p.a. shall be paid to the investors.
 Contd..
 (3) Changes in Disclosures requirements in the
offer documents:

• Details of promoters like photograph, Voter ID Number,

Driving License Number shall be disclosed. This
requirement has been added as during investigation of
the security scam, it was found that many companies
and even promoters are not even traceable.

• One standard financial unit shall be used in the offer

document [e.g. thousands, lakhs, millions or crore]
 Contd..
Some miscellaneous amendments:
An issue shall open within 3 months from the date of
issuance of the observation letter by the SEBI.

Securities may be branded describing their nature but not

the quality e.g. name ‘ICICI Savings Bond’ is permissible but
‘ICICI Safety Bond’ will not be permissible.

A minimum 50% of the net offer of securities to the public

shall initially be made available for allotment to retail
individual investors. ‘Retail individual investor’ means an
investor who applies or bids for securities of or for a value of
not more than Rs.50,000/-
 How does SEBI ensure
compliance with DIP?
The Merchant Banker are the specialised
intermediaries who are required to do due diligence
and ensure that all the requirements of DIP are
complied with while submitting the draft offer
document to SEBI.The draft offer document filed by
Merchant Banker is also placed on the Web site for
public comments.

Officials of SEBI at various levels examine the

compliance with DIP guidelines and ensure that all
necessary material information is disclosed in the
draft offer documents.
 Insider Trading
SECURITIES AND EXCHANGE BOARD OF INDIA
(1[PROHIBITION OF] INSIDER TRADING)
REGULATIONS, 1992
In exercise of the powers conferred by section 30 of the Securities and Exchange Board
of India Act, 1992 (15 of 1992), the Board, with the previous approval of the Central
Government, hereby makes the following regulations, namely:—
CHAPTER I
PRELIMINARY
Short title and commencement.
1. (1) These regulations may be called the Securities and Exchange Board of India
(2[Prohibition of] Insider Trading) Regulations, 1992.
(2) These regulations shall come into force on the date of their publication in the
Official3Gazette.
PROHIBITION ON DEALING, COMMUNICATING
OR COUNSELLING
 Prohibition on dealing, communicating or counselling on matters relating to
insider trading.
 3. No insider shall—
 (i) either on his own behalf or on behalf of any other person, deal in securities of a
 company listed on any stock exchange 17[when in possession of] any unpublished
 price sensitive information; or
 18 [(ii) communicate counsel or procure directly or indirectly any unpublished price
sensitive information to any person who while in possession of such unpublished
price sensitive information shall not deal in securities :
Provided that nothing contained above shall be applicable to any communication
required in the ordinary course of business
 19[or profession or employment] or under any law.]

 21[3A. No company shall deal in the securities of another company or associate of that
other company while in possession of any unpublished price sensitive information.]
 22[Regulation 3A not to apply in certain cases.

 3B. (1) In a proceeding against a company in respect of regulation 3A, it shall be a

 defence to prove that it entered into a transaction in the securities of a listed company
 when the unpublished price sensitive information was in the possession of an officer or
 employee of the company, if:
 (a) the decision to enter into the transaction or agreement was taken on its behalf by a
 person or persons other than that officer or employee;
 Contd..
 (b) such company has put in place such systems and procedures which demarcate the
 activities of the company in such a way that the person who enters into transaction
 in securities on behalf of the company cannot have access to information which is in
 possession of other officer or employee of the company; and

 (c) it had in operation at that time, arrangements that could reasonably be expected to
 ensure that the information was not communicated to the person or persons who
 made the decision and that no advice with respect to the transactions or agreement
 was given to that person or any of those persons by that officer or employee; and

 (d) the information was not so communicated and no such advice was so given.

 (2) In a proceeding against a company in respect of regulation 3A which is in possession

 of unpublished price sensitive information, it shall be defence to prove that acquisition of
 shares of a listed company was as per the Securities and Exchange Board of India
 (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.]
 Violation of provisions relating to insider trading.

 4. Any insider who deals in securities 23[***] in contravention of the provisions of

 regulation 3 24[or 3A] shall be guilty of insider trading.
 INVESTIGATION
 25[Power to make inquiries and inspection.

 4A. (1) If the Board suspects that any person has violated any provision of these
 regulations, it may make inquiries with such persons or any other person as mentioned in
 clause (i) of sub-section (2) of section 11 as deemed fit, to form a prima facie opinion as
 to whether there is any violation of these regulations.
 (2) The Board may appoint one or more officers to inspect the books and records of
 insider(s) or any other persons as mentioned in clause (i) of sub-section (2) of section 11
 for the purpose of sub-regulation (1).]

 Board’s right to investigate.

 5. (1) Where the Board, 26[is of prima facie] opinion that it is necessary to investigate and
 inspect the books of account, either records and documents of an insider 27[or any other
 person mentioned in clause (i) of sub-section (1) of section 11 of the Act] for any of the
 purposes specified in sub-regulation (2), it may appoint an investigating authority for the
 said purpose.
 (2) The purpose referred to in sub-regulation (1) may be as follows :
 (a) to investigate into the complaints received from investors, intermediaries or any
 other person on any matter having a bearing on the allegations of insider trading;
 Contd…
 (b) to investigate suo motu upon its own knowledge or information in its possession to
 protect the interest of investors in securities against breach of these regulations.

 Procedure for investigation.

 6. (1) Before undertaking any investigation under regulation 5, the Board shall give a
 reasonable notice to insider for that purpose.
 (2) Notwithstanding anything contained in sub-regulation (1), where the Board is
 satisfied that in the interest of investors or in public interest no such notice should be
 given, it may by an order in writing direct that the investigation be taken up without such
 notice.
 (3) On being empowered by the Board, the investigating authority shall undertake the
 investigation and inspection of books of account and the insider against whom an
 investigation is being carried out 28[an insider or any other person mentioned in clause (i)
 of sub-section (1) of section 11 of the Act] shall be bound to discharge his obligations as
 provided in regulation 7.

 Obligations of insider on investigation by the Board.

 7. (1) It shall be the duty of every insider, who is being investigated 29[or any other
 person mentioned in clause (i) of sub-section (1) of section 11 of the Act], to produce to
 the investigating authority such books, accounts and other documents in his custody or
 control and furnish the authority with the statements and information relating to the
 transactions in securities market within such time as the said authority may require.
 (2) The insider 30[or any other person mentioned in clause (i) of sub-section (2) of section
 11 of the Act] shall allow the investigating authority to have reasonable access to the
 premises occupied by such insider and also extend reasonable facility for examining any
 books, records, documents and computer data in the possession of the stock-broker or any
 other person and also provide copies of documents or other materials which, in the
 opinion of the investigating authority are relevant.
 Contd…
 (3) The investigating authority, in the course of investigation, shall
be entitled to examine
 or record statements of any member, director, partner, proprietor
and employee of the
 insider 31[or any other person mentioned in clause (i) of sub-section
(2) of section 11 of
 the Act].
 (4) It shall be the duty of every director, proprietor, partner, officer
and employee of the
 insider to give to the investigating authority all assistance in
connection with the
 investigation, which the insider 32[or any other person mentioned in
clause (i) of subsection
 (2) of section 11 of the Act] may be reasonably expected to give.
 Submission of Report to the Board.
 Contd…
 8. The investigating authority shall, within 33[reasonable time] of the conclusion of the
 investigation, submit an investigation report to the Board.
 Communications of findings, etc.
 9. 34[(1) The Board shall, after consideration of the investigation report communicate the
 findings to the person suspected to be involved in insider trading or violation of these
 regulations.
 (2) The person to whom such findings has been communicated shall reply to the same
 within 21 days.
 (3) On receipt of such a reply or explanation, if any, from such person, the Board may
 take such measures as it deems fit to protect the interests of the investors and in the
 interests of the securities market and for the due compliance of the 35[provisions] of the
 Act, the regulations made there under including the issue of directions under regulation
 11.]
 Appointment of Auditor.
 10. Notwithstanding anything contained in 36[regulation 4A and] regulation 5, the Board
 may appoint a qualified auditor to investigate into the books of account or the affairs of
 the insider 37[or any other person mentioned in clause (i) of sub-section (1) of section 11
 of the Act]:
 Provided that, the auditor so appointed shall have the same powers of the inspecting
 authority as stated in regulation 5 and the insider shall have the obligations specified in
 regulation 7.
 38[Directions by the Board.
 Contd…
 11. The Board may without prejudice to its right to initiate criminal prosecution under
 section 24 or any action under Chapter VIA of the Act, to protect the interests of investor
 and in the interests of the securities market and for due compliance with the provisions of
 the Act, regulation made thereunder issue any or all of the following order, namely :
 (a) directing the insider or such person as mentioned in clause (i) of sub-section (2) of
 section 11 of the Act not to deal in securities in any particular manner;
 (b) prohibiting the insider or such person as mentioned in clause (i) of sub-section (2) of
 section 11 of the Act from disposing of any of the securities acquired in violation of
 these regulations;
 (c) restraining the insider to communicate or counsel any person to deal in securities;
 (d) declaring the transaction(s) in securities as null and void;
 (e) directing the person who acquired the securities in violation of these regulations to
 deliver the securities back to the seller :
 Provided that in case the buyer is not in a position to deliver such securities, the
 market price prevailing at the time of issuing of such directions or at the time of
 transactions whichever is higher, shall be paid to the seller;
 (f) directing the person who has dealt in securities in violation of these regulations to
 transfer an amount or proceeds equivalent to the cost price or market price of
 securities, whichever is higher to the investor protection fund of a recognised stock
 exchange.]
Criminal Prosecution
CASES
 Case

RATIO
The main issue in this case was whether the membership of the stock exchange was an asset of the member of the exchange after the
member commits a default.
 Key points
• The appellant in this appeal had dealings in sale and purchase of shares
with Yogesh Mehta, who was a member of Bombay Stock Exchange until he
was declared a defaulter by the said Exchange.
• A bare perusal of the Rules made under SEBI Act clearly shows that the said
rules provide that the membership of the Exchange constitutes a personal
permission from the Exchange to exercise the rights and privileges attached
thereto subject to the Rule, Bye- laws and Regulations of the Exchange.
• Every contract notice issued to a constituent contains a specific provision
that "the contract is made subject to the Rule, Bye-laws and Regulations
and usages of the Stock Exchange, Bombay".
• The members of the Stock Exchange, namely, the stock brokers are
permitted to buy and sell the shares for their clients like the appellant. To
secure due performance of his obligations the Exchange takes security from
each members upon which it has a lien as provided by Rule 43.
• A member is declared a defaulter if he fails to meet his obligation and the
Rules further show that thereafter his right of membership and nomination
ceases and vests in the Exchange and belongs to the Exchange.
• The vacancy thus created by the termination of the membership is filled by
the admission of another person, who generally is a person who offers to
pay the highest amount.
Decision
Once a defaulting member ceases to
be a member of the Stock Exchange
no interest in his card remains and
the same cannot be regarded as his
asset.
 Case

RATIO
The main issue in this case was whether SEBI can charge
any fees. If yes, then to what extent.
 Key points
• On 10th of April, 1992 on behalf of the Board, a letter was addressed to the
Presidents and Executive Directors of all the recognized Stock Exchanges whereby
the members, stock brokers of all the recognized Stock Exchanges in India were
called upon to submit their applications to the Board for the purpose of registration in
accordance with Section 12(1) of the Act.
• The said letter which enclosed a pro forma of the application for registration of stock
brokers required fees to be paid by applicants for registration.
• Section 11 of the Act defines the powers and functions of the Board which mandates
that 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.
• Section 11(2)(k) of the Act empowers the Board to levy fees or other charges for
carrying out the purposes enumerated in Section 11 of the Act.
• Section 12 requires the stock brokers, share transfer agents, bankers to an issue,
trustee of trust deed, Registrar to an issue, merchant banker, underwriter, portfolio
managers, investment advisors and such other intermediaries who may be
associated with securities market to get themselves registered and obtain a
certificate of registration from the Board in accordance with the Regulations made
under this Act.
• Section 12(2) empowers the Board to collect such fees as may be determined by the
Regulations from the applicants who seek registration.
 Contd..
• Section 12 requires the stock brokers, share transfer
agents, bankers to an issue, trustee of trust deed,
Registrar to an issue, merchant banker, underwriter,
portfolio managers, investment advisors and such other
intermediaries who may be associated with securities
market to get themselves registered and obtain a
certificate of registration from the Board in accordance
with the Regulations made under this Act.
• Section 12(2) empowers the Board to collect such fees as
may be determined by the Regulations from the
applicants who seek registration.
Decision
The Board is empowered to collect
two types of fees, namely, the fee
under Section 11(2)(k) for carrying
out the purposes of Section 11 and
a fee for the purpose of registering
the applicants under Section 12(2)
of the Act.
 THANK YOU
Make the securities market as
safe for practitioners as for
investors.