Establishment of SEBI

Section 2. Definitions

2(1).

In this Act, unless the context otherwise requires:

(a). Board

• It means the Securities and Exchange Board of India established under section 3.

(b). Chairman

• It means the Chairman of the Securities and Exchange Board.

(ba). Collective Investment Scheme

• It covers any scheme or arrangement.

  1. The scheme must meet the conditions laid down in Section 11AA.

  2. Only schemes that satisfy those conditions are treated as collective investment schemes.

(c). Existing Securities and Exchange Board

• This refers to the Securities and Exchange Board of India (SEBI) that existed earlier, before it was given statutory status by law.

• SEBI was not originally created by an Act of Parliament.

• It was constituted by the Government of India through an administrative resolution.

• The resolution was issued by the Department of Economic Affairs on 12th April 1988 through Resolution No. 1(44) SE/86.

(d). Fund

• It means the Fund constituted under section 14.

• Section 14 deals with the Securities and Exchange Board of India General Fund.

(da). Insurance Regulatory and Development Authorit

• IRDAI is a statutory regulatory authority.’

• It was established under Section 3(1) of Insurance Regulatory and Development Authority Act, 1999.

(db). Judicial Member

• It refers to a Member of the Securities Appellate Tribunal (SAT).

• Such a Member must be appointed under Section 15MA(1).

• Section 15MA of the SEBI Act, 1992, governs the composition and appointment of SAT Members.

• Judicial Member also includes the Presiding Officer of the Securities Appellate Tribunal.

(e). Member

• It means a member of the Board and includes the Chairman.

(f). Notification

• It means a notification published in the Official Gazette.

(fa). Pension Fund Regulatory and Development Authority.

• PFRDA is a statutory regulatory authority and is created by an Act of Parliament.

• It is established under Section 3 (1) of Pension Fund Regulatory and Development Authority Act, 2013.

• PFRDA is responsible for regulating, developing, and supervising the pension sector in India.

(g). Prescribed

• It means prescribed by rules made under this Act.

(h). Regulations

• It means the regulations made by the Board under this Act.

(ha). Reserve Bank

• It refers to the Reserve Bank of India (RBI).

• It is a statutory body and is constituted under Section 3 of Reserve Bank of India Act, 1934.

(i). Securities

• The term is not defined independently here.

• The meaning is Section 2 of the Securities Contracts (Regulation) Act, 1956.

(j). Technical Member

• It refers to a Member of the Securities Appellate Tribunal (SAT).

• A Technical Member is appointed under Section 15MB(1) of the SEBI Act, 1992.

• Section 15MB is a provision of the SEBI Act, 1992.

• A Technical Member typically brings expertise in securities markets, finance, economics, or administration.

• The definition of a Technical member is limited to Members appointed under Section 15MB(1).

2(2).

• If a word or expression is used in this Act but not defined in it then:

  1. Such undefined words must be checked in other specified laws.

  2. The primary reference law is the Securities Contracts (Regulation) Act, 1956.

  3. The secondary reference law is the Depositories Act, 1996.

  4. If the word or expression is defined in either of these Acts, that meaning must be adopted.

Section 3. Establishment and incorporation of Board

3(1).

• The Central Government has the authority to decide when this provision will come into force.

• The date of commencement will be announced through an official notification.

• From that notified date, a Board will be formally created.

• The Board is being established specifically for the purposes of this Act.

• The official name of the Board will be the Securities and Exchange Board of India.

• Once established, this Board becomes the statutory authority under the Act.

3(2).

• The Board is constituted as a body corporate and is a separate legal entity.

• It will function under the name Securities and Exchange Board of India.

• It has perpetual succession and it continues to exist regardless of changes in its members.

• It will have a common seal, which represents its official authority (for formal/legal acts).

• Subject to the provisions of the Act, the Board has the power to:

  1. Acquire property.

  2. Hold property.

  3. Dispose of property.

• This power extends to both movable and immovable property.

• The Board has the legal capacity to enter into contracts.

• In its own name, the Board can sue others and can also be sued.

3(3).

• The head office of the Board shall be at Bombay

3(4).

• The Board may establish offices at other places in India

Section 4. Management of the Board

4(1)

• The Board consists of the following members:

• (a).

  1. The Board has a Chairman who heads the Board.

• (b).

  1. Two members are selected from Central Government officials who work in:

     1. Finance.

     2. Administration of the Companies Act.

• (c).

  1. One member comes from officials of the Reserve Bank of India.

• (d).

  1. Five other members are appointed by the Central Government.

     1. Out of these five, at least three must be whole-time members (they work full-time for the Board).

4(2).

• The overall control and supervision of the Board’s affairs lies with the Board of members.

• This Board of members has the authority to direct and manage how the Board functions.

• It can use all powers given to the Board under the law.

• It can also do anything that the Board is legally allowed to do.

4(3).

• Unless regulations say otherwise, the Chairman has overall control and supervision of the Board’s affairs.

  1. The Chairman can direct how the Board functions.

  2. The Chairman may exercise all the powers that the Board itself can exercise.

  3. The Chairman may do any act or thing that the Board is legally permitted to do.

4(4).

• The Chairman and the members mentioned in clauses (a) and (d) are appointed by the Central Government.

• The members mentioned in clause (b) (Central Government officials) are nominated by the Central Government.

• The member mentioned in clause (c) is nominated by the Reserve Bank.

4(5).

• The Chairman and the members mentioned in clauses (a) and (d) must be capable and trustworthy persons.

• They should have good reputation and integrity.

• They must have experience or proven ability in dealing with securities market issues.

• They should have special knowledge or experience in areas such as:

  1. Law.

  2. Finance.

  3. Economics.

  4. Accountancy.

  5. Administration.

  6. Any other useful field

• The Central Government decides whether a person’s expertise is useful for the Board.

Section 5. Term of office and conditions of service of Chairman and members of the Board

5(1).

• The length of tenure or the term of office of the Chairman and the members mentioned in 4(1)(d) is not fixed in the Act itself.

• Their service conditions such as salary, allowances, leave are laid down in the rules.

• These rules are prescribed by the Central Government under the Act.

5(2).

• Even if a fixed term of office is prescribed, the Central Government may terminate the services of:

  1. The Chairman, or a member appointed under 4(1)(d), at any time before the term expires.

• Such termination can be done by:

  1. Giving at least three months’ written notice, or Paying three months’ salary and allowances in place of notice.

• The Chairman or such member may also relinquish his office before the end of the prescribed term.

• Relinquishment requires giving the Central Government at least three months’ written notice.

Section 6. Removal of member from office

• The Central Government shall remove a member from office if:

  1. (a). The member shall be removed if he is, or has at any time been, declared insolvent by a competent authority.

  2. (b). The member shall be removed if he is of unsound mind and has been so declared by a competent court.

  3. (c). The member shall be removed if he has been convicted of an offence which, in the opinion of the Central Government, involves moral turpitude.

  4. (d). Omitted.

  5. (e). Central Government must form an opinion about the conduct of the member:

     1. The member must have abused his official position.

     2. The abuse must be serious in nature, not minor or technical.

     3. Because of this abuse, the member’s continuation in office becomes harmful to the public interest.

     4. On this ground alone, the member is liable to be removed from office.

• Before removal under this clause, the member must be given a reasonable opportunity of being heard.

• This means the member must be:

  1. Informed of the grounds of proposed removal.

  2. Allowed to present his explanation or defence.

• Removal cannot be ordered without following this procedure.

• Principles of natural justice are supposed to be complied with in this situation.

  Section 7. Meetings

7(1).

• The Board shall hold its meetings at such times and places as may be specified.

• The procedure for conducting meetings shall be governed by regulations.

• These regulations will lay down:

  1. How business is to be transacted.

  2. The quorum required for Board meetings.

• Accordingly, the conduct and validity of Board meetings depend on the procedural rules prescribed by regulations.

7(2).

• Ordinarily, the Chairman shall preside over meetings of the Board.

• If the Chairman is unable to attend a particular meeting for any reason:

  1. The members present shall choose one member from amongst themselves.

  2. The member so chosen shall preside over that meeting.

  3. Thus, the meeting will always have a presiding authority, even in the Chairman’s absence.

7(3).

• All matters placed before a Board meeting shall be decided by a majority of votes of the members present and voting.

• Only the votes of members who are present and actually voting are counted.

• If there is an equality of votes on any question the Chairman shall have a second or casting vote.

• In the absence of the Chairman, the member presiding over the meeting shall exercise the casting vote.

Section 7A. Member not to participate in meetings in certain cases

7A.

• If any member has any financial interest (direct or indirect) in a matter being discussed by the Board and:

  1. The interest may arise because of his role as a company director.

• Once the member becomes aware of this interest, he must disclose it at the Board meeting as early as possible.

• The details of the interest must be recorded in the official records (minutes) of the meeting.

• After making the disclosure, the member:

  1. Must not participate in the discussion.

  2. Must not vote or take part in the decision on that matter.

Section 8. Vacancies etc. not to invalidate proceedings of Board

• No act or proceeding of the Board shall be invalid merely by reason of

• (a).

  1. Any decision or proceeding of the Board does not become invalid merely because:

     1. There is a vacant position on the Board.

     2. There is some defect in how the Board is constituted.

• (b).

  1. Acts or proceedings of the Board remain valid even if:

     1. There is a defect or irregularity in the appointment of a person acting as a member.

• (c).

  1. A Board decision is not invalid merely due to some procedural irregularity, as long as it does not affect the merits of the case.

Section 9. Officers and employees of the Board

9(1).

• The Board has the power to appoint officers and employees.

• Such appointments can be made as the Board considers necessary.

• The purpose of these appointments is to make sure there is efficient discharge of the Board’s functions.

• These functions must be in accordance with the Act.

9(2).

• The tenure (term of service) of the officers and employees appointed by the Board is not fixed in the Act.

• Their service conditions such as pay, allowances, leave are laid down by regulations.

• These regulations are framed by the Board under the Act.

• Accordingly, the appointment and service of officers and employees are governed by the regulatory framework, not by the Act itself.