Powers & Functions of the Board
Chapter III. TRANSFER OF ASSETS, LIABILITIES OF THE EXISTING SEBI
Section 10. Transfer of assets, liabilities of existing Securities and Exchange Board to the Board
10(1).
From the date the Board is established:
(a).
If any other law mentions the existing (old) Securities and Exchange Board, that mention will now be read as referring to the Board under this Act.
The same applies to contracts, and any other legal documents.
There is no need to amend, rewrite, or sign those documents again just because the Board’s name or legal status has changed.
(b).
All assets, whether movable or immovable that belong to the existing (old) Board shall vest in the Board constituted under this Act.
The transfer happens automatically by operation of law.
No separate transfer deed or formal conveyance is required.
(c).
All rights such as claims, powers, and entitlements of the existing (old) Board shall stand transferred to the Board under this Act.
All liabilities such as obligations, duties, and responsibilities of the existing (old) Board shall also stand transferred.
After the transfer:
Those rights may be enforced by the Board.
Those liabilities must be discharged by the Board.
The transfer takes place automatically by operation of law, without any further action.
(d).
All debts, obligations, liabilities incurred by the existing (old) Securities and Exchange Board before the relevant date shall be treated as those of the Board.
All contracts entered into by, with, or for the existing (old) Board before that date shall be deemed to have been entered into by, with, or for the Board.
All acts, matters, and things undertaken or agreed to be undertaken by, with, or for the existing Board for its purposes:
They shall be treated as having been undertaken by, with, or for the Board.
This applies only to matters connected with the purposes of the existing Board.
The effect is automatic, and no fresh contracts or approvals are required.
(e).
All sums of money due to the existing (old) Board immediately before the relevant date shall be treated as due to the Board.
The right to receive such money automatically transfers to the Board under this Act.
No fresh demand, assignment, or legal formality is required.
(f).
All suits and other legal proceedings that were:
Already instituted, or capable of being instituted, by or against the existing Board immediately before the relevant date:
may be continued by or against the Board under this Act.
Fresh suits or proceedings may also be instituted by or against the Board in respect of such matters.
There is no need to withdraw, refile, or restart any legal proceedings.
(g).
With respect to every employee holding office under the existing (old) Securities and Exchange Board immediately before the relevant date:
Such employee shall continue in service under the Board constituted under this Act.
The employee shall hold office:
For the same tenure, and on the same terms and conditions of service.
These terms and conditions include:
Remuneration, leave, provident fund, retirement benefits, and other terminal benefits.
The employee’s position shall be as if the Board(new) had not been established and no disadvantage would arise due to the transition.
However:
If the employee opts not to become an employee of the Board, he must exercise this option within six months from the relevant date.
If such option is exercised, the employee shall continue only up to the expiry of six months from that date.
10(2).
Notwithstanding anything contained in the Industrial Disputes Act, 1947 or any other law in force.
When an employee is absorbed into the regular service of the Board under this section:
Such absorption shall not be treated as retrenchment or termination.
As a result, the employee:
Is not entitled to claim any compensation under the Industrial Disputes Act, 1947, or under any other law.
No claim for such compensation shall be:
Entertained by any court, tribunal, or other authority.
Chapter IV. POWERS AND FUNCTIONS OF THE BOARD
Section 11. Functions of Board
11(1).
Subject to the provisions of the Act, the Board has a statutory duty.
The primary duty of the Board is to protect the interests of investors in securities.
The Board is also required to promote the development of the securities market.
In addition, the Board must regulate the securities market.
To achieve these objectives, the Board may adopt such measures as it thinks fit, within the framework of the Act.
11(2).
Without limiting the scope of the above provisions, the measures mentioned may include:
(a).
The Board has the power to regulate the business carried on in stock exchanges.
This includes supervising how stock exchanges function.
The power also extends to any other securities markets, not just stock exchanges.
Regulation covers activities such as:
Trading practices, market conduct, and compliance with applicable laws and regulations.
(b).
The Board has the power to register persons and entities involved in the securities market.
It also has the power to regulate how they function after registration.
This applies to a wide range of market intermediaries, including:
Stock brokers and sub-brokers.
Share transfer agents.
Bankers to an issue.
Trustees of trust deeds.
Registrars to an issue.
Merchant bankers.
Underwriters.
Portfolio managers.
Investment advisers.
Any other intermediaries connected with the securities market in any manner.
Regulation may include:
Setting eligibility conditions.
Prescribing duties and codes of conduct.
Monitoring compliance.
(ba).
The Board has the power to register certain key entities in the securities market.
It also has the power to regulate the manner in which they function.
This power to regulate applies to:
Depositories.
Participants of depositories.
Custodians of securities.
Foreign institutional investors.
Credit rating agencies.
Any other intermediaries that the Board may specify by notification.
Regulation may include:
Conditions of registration.
Ongoing compliance requirements.
Supervision and enforcement.
(c).
The Board has the power to register certain investment vehicles.
It also has the power to regulate how they operate.
This power to regulate applies to:
Venture capital funds.
Collective investment schemes including mutual funds.
Regulation may cover:
Eligibility and registration requirements.
Investment and operational norms.
Protection of investors’ interests.
(d).
The Board has the function of promoting self-regulatory organisations (SROs).
It also has the power to regulate the functioning of such organisations.
This includes:
Recognising suitable bodies as SROs.
Prescribing standards and codes of conduct.
Supervising their activities.
(e).
The Board has the power to prohibit fraudulent practices in the securities market.
It also has the power to prohibit unfair trade practices relating to securities.
This applies to all activities connected with the securities market.
(f).
The Board has the function of promoting education of investors.
This includes spreading awareness and understanding about:
Securities, investment risks, and investor rights and responsibilities.
The Board also promotes training of intermediaries in the securities market.
Such training aims to: Improve professional competence, and ensure compliance with market regulations.
(g).
The Board has the power to prohibit insider trading in securities.
Insider trading involves:
Dealing in securities while in possession of unpublished price-sensitive information.
Communicating such information to others for trading.
The prohibition applies to all persons involved in the securities market.
(h).
The Board has the power to regulate substantial acquisition of shares in companies.
It also regulates the takeover of companies.
Regulation makes sure that:
Acquisitions and takeovers are transparent.
Public shareholders are protected.
Fair exit opportunities are provided where required.
The Board prescribes rules on disclosure requirements, and open offer obligations.
(i).
The Board has the power to call for information from entities connected with the securities market.
It may undertake inspections of such entities.
It may also conduct inquiries and audits.
These powers apply to:
Stock exchanges, mutual funds.
Other persons associated with the securities market.
Intermediaries, and self-regulatory organisations.
(ia).
The Board has the power to call for information and records.
This power extends to any person, including:
Banks, and any authority, board, or corporation established under a Central or State law.
The Board may exercise this power when it forms the opinion that such information or records are relevant.
Relevance must be in connection with:
An investigation or inquiry conducted by the Board, relating to any transaction in securities.
(ib).
The Board may call for information from other authorities.
It may also furnish (share) information with such authorities.
These authorities may be within India, or outside India.
The authorities must have functions similar to those of the Board.
Information may be exchanged for matters relating to:
Prevention of violations of securities laws.
Detection of violations of securities laws.
Such exchange of information is subject to the provisions of other laws that are in force.
When the Board proposes to furnish information to an authority outside India then:
The Board may enter into:
An arrangement or an understanding with such foreign authority.
Prior approval of the Central Government is mandatory before entering into any such arrangement, agreement, or understanding.
This requirement acts as a safeguard in matters involving international information sharing.
(j).
The Board may perform certain functions and exercise certain powers.
These functions and powers arise under the Securities Contracts (Regulation) Act, 1956.
Such functions and powers are not automatic.
They must be delegated to the Board by the Central Government.
Once delegated, the Board may exercise them in accordance with that Act.
(k).
The Board has the power to levy fees or other charges.
Such fees or charges may be imposed for carrying out the purposes of this section.
The levy must be:
Connected to the Board’s regulatory or supervisory functions.
It must also be in accordance with the Act and applicable regulations.
These fees and charges help in funding and administering the Board’s functions.
(l).
The Board has the function of conducting research.
Such research must be for the purposes mentioned earlier in the section.
These purposes include:
Protection of investors.
Development of the securities market.
Regulation of the securities market.
Research may involve:
Market studies.
Analysis of trends and risks.
Evaluation of regulatory frameworks.
(la).
The Board may call for information from certain agencies.
It may also furnish (provide) information to such agencies.
These agencies must be specified by the Board.
The information exchanged must be considered necessary by the Board.
The purpose of such exchange is to ensure the efficient discharge of the Board’s functions.
(m).
The Board may be required to perform additional functions.
Such functions are not listed in the Act itself.
They will be prescribed by rules or regulations made under the Act.
Once prescribed, the Board is bound to perform those functions.
11(2A).
This power is exercised without prejudice to 11(2), so it does not limit or replace other powers of the Board.
The Board may undertake inspection of books, registers, and other documents or records.
Such inspection may be carried out in respect of:
Any listed public company.
A public company (other than intermediaries under section 12) which intends to list its securities on a recognised stock exchange.
The Board must have reasonable grounds to believe that the company has:
Indulged in insider trading, or engaged in fraudulent and unfair trade practices relating to the securities market.
11(3).
Notwithstanding anything contained in any other law:
When the Board exercises its powers under the specified clauses, it shall have the same powers as a civil court under the CPC 1908, while trying a suit.
These civil-court–like powers include:
The Board may require the discovery and production of books of account and other documents, at such place and time as it specifies.
The Board may summon persons, enforce their attendance, and examine them on oath.
The Board may carry out inspection of books, registers, and other documents of any person referred to in section 12, at any place.
Section 11A. Board to regulate or prohibit issue of prospectus, offer document or advertisement soliciting money for issue of securities
11A(1).
Without affecting the provisions of the Companies Act, 1956, the Board may, for investor protection:
(a).
The Board has the power to specify matters by way of regulations.
These regulations may cover:
(i).
Matters relating to the issue of capital.
Matters relating to the transfer of securities.
Other matters incidental to the issue or transfer of securities.
The Board may also prescribe:
(ii).
The manner in which such matters must be disclosed by companies.
(b).
The Board may act by issuing general or special orders.
Under such orders, the Board may:
(i). Prohibit Issuance
Prohibit any company from issuing a prospectus.
Prohibit any company from offering a document.
Prohibiting any advertisement that invites or solicits money from the public for the issue of securities.
(ii). Permit issuance subject to conditions
Where/If such issuance is not prohibited, the Board may specify conditions subject to which:
The prospectus, the offer document, or the advertisement may be issued.
11A(2).
This power is exercised without prejudice to section 21 of the Securities Contracts (Regulation) Act, 1956, so it does not override or limit that provision.
The Board may specify requirements relating to:
Listing of securities.
Transfer of securities.
Other matters incidental to listing and transfer.
These requirements may be laid down through regulations or directions.
Section 11AA. Collective investment scheme
11AA(1).
Any scheme or arrangement that satisfies the conditions mentioned in 11A(2) or 11(2A) is treated as a Collective Investment Scheme (CIS).
Additionally, any pooling of funds under a scheme or arrangement will also be deemed to be a Collective Investment Scheme if:
It is not registered with the Board.
It is not exempt under 11AA(3).
The total corpus is ₹100 crore or more.
11AA(2).
Any scheme or arrangement that is created or offered by any person under which:
(i).
Investors make contributions or payments to the scheme.
These contributions may be called by any name (fees, deposits, investments, etc.).
All such amounts are pooled together.
The pooled money is used for the purposes of the scheme or arrangement.
Then such a scheme or arrangement would be a CIS.
(ii).
Investors make contributions or payments to the scheme or arrangement.
The payments are made with the expectation of returns.
The expected returns may be in the form of:
Profits, or income, or produce, or property (whether movable or immovable)
These returns are expected to arise from the scheme or arrangement itself.
Then such a scheme or arrangement would be a CIS.
(iii).
The property, contribution, or investment forms part of the scheme or arrangement
It may or may not be individually identifiable
Such property or investment is managed by someone else
The management is done on behalf of the investors.
Then such a scheme would also be a CIS.
(iv).
The investors do not manage the scheme themselves
They do not have day-to-day control over the management, or the operation of the scheme or arrangement.
Then Such a scheme would also be a CIS.
11AA(2A)
Any scheme or arrangement Made or offered by any person that meets the conditions as specified in the regulations framed under this Act then:
That scheme or arrangement would also be considered a CIS.
11AA(3).
Notwithstanding the provisions of !!AA(2) or 11(2A), any scheme or arrangement that falls under the following conditions is NOT considered as a CIS.
(i).
The scheme or arrangement is made or offered by a co-operative society
The society is:
Registered under the Co-operative Societies Act, 1912.
Registered or deemed to be registered under any State law relating to co-operative societies currently in force.
Basically , schemes or arrangements offered by Registered Co-operative Societies are considered to NOT be a CIS.
(ii).
The scheme or arrangement involves acceptance of deposits.
The deposits are accepted by Non-Banking Financial Companies (NBFCs).
NBFCs are those defined under clause (f) of section 45-I of Reserve Bank of India Act, 1934.
Then such schemes or arrangements are also considered to NOT be a CIS.
(iii).
If the scheme or arrangement is a contract of insurance and such contract is governed by the Insurance Act, 1938.
Then such schemes are NOT CIS.
(iv).
All such schemes which are framed under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 such as:
Provident Fund Schemes.
Pension Schemes.
Insurance Schemes.
All such schemes are NOT CIS.
(v).
The scheme or arrangement involves acceptance of deposits.
Such deposits are accepted under section 58A of the Companies Act , 2013.
Section 58A of the Companies Act, 2013 deals with Acceptance of Deposits.
Then such schemes are NOT CIS.
(vi).
The scheme or arrangement involves acceptance of deposits and:
Such deposits are accepted by a company declared as a Nidhi or a mutual benefit society.
Such deposits should also be made with a declaration under section 620A of the Companies Act, 1956.
Then such schemes are NOT CIS.
With respect to the Companies Act, 2013 , Nidhi Companies are dealt with under the Section 406.
(vii).
The scheme or arrangement relates to a chit business
The term “chit business” is defined in section 2(d) under the Chit Funds Act, 1982
Such scheme or arrangements are also NOT CIS.
(viii).
If the contributions made are in the nature of subscription to a mutual fund.
Then such scheme or arrangements are also NOT CIS.
(ix).
Such other scheme or arrangement which the Central Government may, in consultation with the Board, notify.
Upon such notification the scheme or arrangement will NOT be a CIS.
Section 11B. Power to issue directions
11B(1).
Save as otherwise provided in section 11:
If after making or causing to be made an enquiry, the Board is satisfied that action is necessary, it may issue appropriate directions.
The power can be exercised only for the following purposes.
(i) In the interest of investors or orderly development of the securities market
The Board may act to protect investors from unfair practices, fraud, mismanagement, or abuse.
It also covers situations where market discipline, transparency, or stability is at risk.
(ii) To prevent affairs being conducted in a manner detrimental to investors or the securities market
If an intermediary or other person referred to in section 12 conducts business in a harmful manner, the Board can intervene.
Detrimental includes:
Activities causing financial loss to investors.
Market manipulation, insider trading, or misuse of confidential information.
Non-compliance with regulatory standards.
Preventive action can be taken before actual damage occurs, not only after harm is done.
(iii) To secure the proper management of such intermediary or person
The Board may act where management practices are improper, negligent, or risky.
This includes situations involving:
Weak internal controls.
Poor governance standards.
Mismanagement affecting investor confidence.
Directions may be issued to the following persons/entities:
(a) Any person or class of persons referred to in section 12, or associated with the securities market.
This includes:
Registered intermediaries (brokers, merchant bankers, portfolio managers etc).
Any person associated with the securities market, even if not formally registered.
Directions may require them to:
Stop certain activities.
Comply with specific regulatory requirements.
Take corrective or remedial measures.
(b) Any company in respect of matters specified in section 11A
The Board may issue directions to companies, not just intermediaries
Such directions must relate to matters covered under section 11A, such as Issue, transfer, or listing of securities.
The directions must be appropriate and necessary to protect: Investors in securities and the overall securities market
Explanation:
For the removal of doubts, it is clarified that the power to issue directions under this section:
Includes, and Is deemed to have always included, the power to order disgorgement.
The Board may direct any person to disgorge amounts where all of the following conditions are met:
If the person has Earned wrongful gains, or Avoided losses that would otherwise have occurred.
If the transaction or the activity is in contravention of the provisions of this Act, or egulations made under the Act.
The Board may direct disgorgement of:
An amount equivalent to the wrongful gain made, or An amount equivalent to the loss averted
11B(2).
The power mentioned here does not override or limit the powers already given under Section 11(1) , 11(4A) , 15-1.
The Board is empowered to act under this provision.
The Board may exercise this power by passing an order.
Such order must be reasoned, and the reasons must be recorded in writing.
The Board may levy penalties under sections 15A, 15B, 15C, 15D, 15E, 15EA, 15EB, 15F, 15G, 15H, 15HA, and 15HB.
The power to levy penalty can be exercised only after holding an inquiry.
The inquiry must be conducted in the prescribed manner.
Section 11C. Investigation
11C(1).
The Board may act if it has reasonable grounds to believe that:
(a). Transactions in securities are being conducted in a manner harmful to investors or to the securities market.
(b). Any intermediary or any person associated with the securities market has violated the provisions of this Act, or the rules, regulations, or directions by SEBI.
In such cases, the Board may, at any time, pass a written order.
By such order, the Board may direct any person specified in the order (referred to as the Investigating Authority) to investigate.
The Investigating Authority shall investigate the affairs of the intermediary or the persons associated with the securities market.
The Investigating Authority shall submit a report of the investigation to the Board.
11C(2).
Without affecting the provisions of sections 235 to 241 of the Companies Act, 1956, certain duties are imposed.
The following persons are obligated to follow this duty:
Every manager, managing director, officer, and employee of the company.
Every intermediary referred to in section 12 also has this duty.
Every person associated with the securities market is likewise bound by this duty.
The duties are:
They must preserve all books, registers, documents, and records.
They must produce these materials to the Investigating Authority or any person authorised by it.
This obligation applies to all such materials relating to the company, intermediary, or person.
The duty covers all records that are in their custody or control.
11C(3).
The Investigating Authority may ask any intermediary or any person associated with the securities market to cooperate.
Such person may be required to furnish information.
They may also be required to produce books, registers, documents, or records.
The information or documents must be produced before the Investigating Authority or any person authorised by it.
This requirement applies only when the information or documents are considered relevant or necessary.
The purpose of seeking such information or documents is to aid the investigation.
11C(4).
The Investigating Authority may keep custody of the books, registers, documents, and records produced under 11C(2) & 11C(3).
Such custody can be for a period of up to six months.
After six months, the documents must be returned.
The return shall be made to the intermediary or the person associated with the securities market who produced them, or on whose behalf they were produced.
The Investigating Authority may ask for any book, register, document, or record again.
If the person who produced the books, registers, documents, or records, or on whose behalf they were produced, asks for certified copies then:
The Investigating Authority must provide certified copies of such books, registers, documents, or records to that person.
11C(5).
Any person directed to conduct an investigation under 11C(1) has certain powers.
Such person may examine on oath:
Any manager, managing director, officer.
Other employee of any intermediary.
Any person associated with the securities market in any manner.
The examination shall be in relation to the affairs of the business.
The investigating person may administer an oath for this purpose.
They may also require any of these persons to appear before them personally.
11C(6).
If any person, without reasonable cause, fails or refuses to comply with the following duties:
(a). To produce before the Investigating Authority, or any person authorised by it:
Any book, register, document, or record which he is required to produce under 11C(2) or 11C(3).
(b). To furnish any information which he is required to furnish under 11C(3).
(c). To appear personally before the Investigating Authority when required under 11C(5), or to answer any question put to him.
(d). To sign the notes of examination referred to in 11C(7).
Such person shall be punishable with any of the following:
Imprisonment for a term which may extend to one year.
Fine which may extend to one crore rupees.
Both imprisonment and fine.
In addition, a further fine may be imposed.
This additional fine may extend to five lakh rupees for every day after the first day during which the failure or refusal continues.
11C(7).
Notes of every examination conducted under 11C (5) must be recorded in writing.
The written notes shall be read over to, or by, the person examined.
The person examined must sign the recorded notes.
After this, the notes may be used as evidence against that person.
11C(8).
During an investigation, the Investigating Authority may form a reasonable belief about certain risks.
The belief may be that books, registers, documents, or records relating to an intermediary or any person connected with the securities market may be:
Destroyed, mutilated, altered, falsified, or hidden (secreted).
In such a situation, the Investigating Authority may apply for permission.
The application shall be made to the Magistrate or Judge of the designated court in Mumbai, as notified by the Central Government.
The purpose of the application is to obtain an order for seizure of the concerned books, registers, documents, or records.
11C(8A).
The authorised officer may ask for assistance for the purposes mentioned in 11C(8).
Such assistance may be requisitioned from: Any police officer, Any officer of the Central Government, or both.
Every officer whose services are requisitioned has a duty to comply with such request.
11C(9).
After considering the application, and after hearing the Investigating Authority if required:
The Magistrate or Judge of the Designated Court may pass an order authorising the Investigating Authority to:
(a). Enter, with such assistance as may be necessary, the place or places where the books, registers, documents, and records are kept.
(b). Search such place or places in the manner specified in the order.
(c). Seize such books, registers, documents, and records as it considers necessary for the purposes of the investigation.
The Magistrate or Judge of the Designated Court shall not authorise seizure of books, registers, documents, or records of:
Any listed public company, or public company (other than intermediaries section 12) intending to get its securities listed on a recognised stock exchange.
But if such company is involved in insider trading, or market manipulation then under such circumstances a seizure can be authorised.
11C(10).
The Investigating Authority shall keep custody of the books, registers, documents, and records seized under this section.
These items may be kept only for such period as considered necessary, but not beyond the conclusion of the investigation.
After the investigation is completed, the seized items must be returned.
The return shall be made to any of the following:
Company or other body corporate.
The managing director, manager.
Any other person from whose custody or control the items were seized.
The Investigating Authority shall inform the Magistrate or Judge of the Designated Court about the return of such items.
Before returning the seized books, registers, documents, and records, the Investigating Authority may place identification marks on them.
Such identification marks may be placed on the whole document or on any part of it.
11C(11).
Unless this section provides otherwise, all searches or seizures under this section must follow a set prescribed procedure.
That procedure is the one laid down in the Code of Criminal Procedure, 1973 for searches and seizures.
Section 11D. Cease and desist proceedings
The Board must first form an opinion based on facts
and material available to it.
Before taking action, the Board is required to cause an inquiry to be conducted.
The purpose of the inquiry is to determine whether person has violated, or is likely to violate, any provision of the Act or the rules or regulations made under it.
This covers both actual violations, and apprehended or imminent violations.
If, after inquiry, the Board is satisfied about such violation or likelihood of violation, it may take preventive action.
The Board is empowered to pass an order against the concerned person.
Such order may require the person to Cease and Desist which means:
To stop committing the violation.
To refrain from causing or continuing such violation in the future.
The nature of this power is preventive and regulatory, not merely punitive.
Exception:
The Board is restricted from passing certain orders against specific companies.
This restriction applies to Listed public companies, and Public companies that intend to get their securities listed on a recognised stock exchange.
The restriction does not apply to intermediaries specified under Section 12 (such as stock brokers, merchant bankers, etc.).
The Board can pass such an order against the above companies only if it has:
Reasonable grounds.
A belief that the company has:
Indulged in insider trading.
Engaged in market manipulation.
In the absence of such reasonable grounds, the Board cannot pass the order against listed companies or companies proposing to list.
Chapter V. Registration of Certificates
Section 12. Registration of stock brokers, sub-brokers, share transfer agents.
12(1).
The following intermediaries shall not buy, sell, or deal in securities.
If they so , then they may do so only if they have obtained a certificate of registration from the Board.
Any buying, selling, or dealing in securities must be strictly in accordance with the conditions of that certificate.
These are:
Stock broker, Sub-broker, Share transfer agent, Banker to an issue, Trustee of trust deed, Registrar to an issue.
Merchant banker, underwriter, portfolio manager, investment adviser.
Any other intermediary associated with the securities market.
Before SEBI Establishment (Not Relevant Anymore)
Before the Board was established, such persons were not required to obtain a registration certificate.
After the establishment of the Board, they are allowed to continue their activities temporarily.
They may continue to operate:
For three months from the date of establishment of the Board, or
Until their registration application is decided, if they apply for registration within those three months.
Any certificate of registration that was obtained immediately before the commencement of the Securities Laws (Amendment) Act, 1995:
Shall be deemed (legally treated) as if it were granted by the Board
Such certificate is considered to have been obtained in accordance with the regulations that provide for registration under the Act.
12(1A).
The following entities are collectively referred to as intermediaries associated with the securities market.
Depository , Participant , Custodian of securities.
Foreign Institutional Investor (FII), Credit Rating Agency.
Any other intermediary that the Board may notify.
Such intermediaries cannot:
Buy securities.
Sell securities.
Otherwise deal in securities
Unless they have obtained a certificate of registration from the Board (SEBI).
The certificate of registration must be:
Obtained in accordance with the regulations framed under the Act.
Complied with strictly, including all conditions attached to it.
The intermediaries must act only within the scope and conditions of their registration.
Temporary Permission to Continue Operations
With respect to persons/entities who were already carrying on such activities immediately before the commencement of the:
Securities Laws (Amendment) Act, 1995 , they were not required to obtain a certificate of registration from the Board.
Since the Amendment Act introduced registration requirements, but detailed regulations were not yet in place, a temporary relaxation was provided.
Such persons/entities are permitted to continue Buying or selling securities, or otherwise dealing in the securities market.
This permission is not permanent and lasts only until Regulations are made under section 30(2)(d) of the Act.
Once those regulations are in force, the concerned entities must comply with the new regulatory framework, including obtaining registration if required.
12(1B).
No person is allowed to:
Sponsor, or cause to be sponsored.
Carry on, or cause to be carried on.
any venture capital fund or collective investment scheme.
Collective investment schemes include mutual funds.
Such activities cannot be undertaken unless a certificate of registration is obtained from the Board (SEBI).
The registration must be obtained in accordance with the regulations framed under the Act.
Temporary Permission to Continue Operations
With respect to persons/entities who were already carrying on such activities immediately before the commencement of the:
Securities Laws (Amendment) Act, 1995 , they were not required to obtain a certificate of registration from the Board.
Since the Amendment Act introduced registration requirements, but detailed regulations were not yet in place, a temporary relaxation was provided.
Such persons/entities are permitted to continue Buying or selling securities, or otherwise dealing in the securities market.
This permission is not permanent and lasts only until Regulations are made under section 30(2)(d) of the Act.
Once those regulations are in force, the concerned entities must comply with the new regulatory framework, including obtaining registration if required.
Explanation:
For the purposes of this section, the terms “collective investment scheme” and “mutual fund” have a limited meaning.
A collective investment scheme or mutual fund does NOT include:
Any Unit Linked Insurance Policy (ULIP).
Any scrip, instrument, or unit, by whatever name called.
It also does not include such policy or instrument issued to an insurer which has:
Has an insurance component.
Also Has an investment component.
12(1C).
(1).
No person can freely start or run certain financial activities.
A person cannot directly or indirectly:
Sponsor an Restricted activity (provide backing, promote, or set it up).
Cause a Restricted activity to be sponsored (get someone else to sponsor it).
Carry on an Restricted activity (run or manage it).
Cause a Restricted activity to be carried on (get someone else to run it on their behalf).
The restricted activities are:
Operating an Alternative Investment Fund (AIF), and
Operating a Business Trust.
This means even indirect involvement (through agents, subsidiaries, or arrangements) is covered.
The term “Business Trust” has the meaning given in section 2(13A) of the Income-tax Act, 1961.
These activities cannot be undertaken unless a certificate of registration is granted by the Board (SEBI).
The registration must be granted in accordance with the regulations made under the Act.
(2).
Every application for registration shall be in such manner and on payment of such fees as may be determined by regulations.
(3).
The Board (SEBI) has the power to take action against a registered person.
The Board may, by passing an order:
Suspend a certificate of registration.
Cancel a certificate of registration.
Such suspension or cancellation must be done in the manner prescribed by regulations made under the Act.
However, this power is not absolute.
Before passing any such order, the Board must give the concerned person a reasonable opportunity of being heard
CHAPTER VA PROHIBITION OF MANIPULATIVE AND DECEPTIVE DEVICES, INSIDER TRADING AND SUBSTANTIAL ACQUISITION OF SECURITIES OR CONTROL
Section 12A. Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control.
(a)
No person shall use or employ any manipulative device, or any deceptive device or contrivance.
Such manipulative or deceptive practices are not allowed when they are used in connection with:
Issue of securities.
Purchase of securities.
Sale of securities.
The securities involved must be listed, or proposed to be listed on a recognized stock exchange.
The use of such devices is prohibited if it is in contravention of:
The provisions of the Act.
The rules made under the Act.
The regulations made under the Act.
(b).
No person shall employ any device, any scheme, or any artifice with any intention to defraud.
The prohibition applies when such fraudulent methods are used:
In connection with the issue of securities.
In connection with dealing in securities (buying, selling, or trading).
The securities concerned must be Listed, or Proposed to be listed, on a recognised stock exchange.
(c).
No person can freely adopt dishonest conduct in the securities market.
A person must not engage in any act , any practice , or any course of business if it operated as fraud or deceit or likely to operate as fraud or deceit.
This prohibition applies only when the conduct is connected with securities that are Listed, or Proposed to be listed, on a recognised stock exchange.
The conduct must also be in contravention of:
The provisions of the Act.
The rules made under the Act.
The regulations made under the Act.
(d).
No person shall directly or indirectly engage in insider trading.
(e).
No person shall deal in securities while being in possession of material or non-public information.
No person shall also communicate, or share, such material or non-public information with any other person.
The prohibition applies when such dealing or communication:
Is in contravention of the provisions of the Act,
Violates the rules made under the Act.
Violates the regulations made under the Act.
(f)
No person shall acquire control of any company, or acquire securities beyond a specified limit.
The securities involved are equity shares of a company whose securities are Listed, or Proposed to be listed, on a recognised stock exchange.
The acquisition becomes prohibited when the percentage of equity share capital acquired exceeds the limit prescribed.
So , essentially , such acquisition is not allowed if it is done in contravention of the regulations made under the Act.
Chapter VI. FINANCE, ACCOUNTS AND AUDIT
Section 13. Grants by the Central Government.
The Central Government is empowered to provide financial grants to the Board.
Such grants cannot be made arbitrarily or directly.
Before any grant is released, there must be a due appropriation by law.
This appropriation must be made by Parliament so:
Parliament must authorise the expenditure.
The funds must be sanctioned through the budgetary or statutory process.
Only after Parliamentary approval, the Central Government may decide the amount of money to be granted.
The quantum of the grant is discretionary and may be such sum as the Government thinks fit.
The money so granted must be utilised strictly for the purposes of the Act.
Section 14. Fund.
14(1).
A Fund called the Securities and Exchange Board of India General Fund shall be created.
The following amounts shall be credited to this Fund:
All grants, fees, and charges received by the Board under the Act.
All other sums received by the Board from sources decided by the Central Government.
14(2).
The money in the SEBI General Fund can be used only for purposes permitted by law.
(a). It is used to pay the salaries, allowances, and other remuneration of Members of the Board , Officers , other employees of SEBI.
(b). It is used to meet the expenses incurred by SEBI while performing its statutory functions, especially those mentioned under section 11.
(c). It is also used for any other objects or purposes that are authorised by the Act.
Section 11 deals with regulating and protecting the securities market.
Section 15. Accounts and audit.
15(1).
The Board is under a statutory obligation to keep its financial affairs properly recorded.
It must maintain proper books of accounts, ensuring accuracy, completeness, and transparency.
In addition to accounts, the Board must also maintain other relevant records connected with its financial transactions and operations.
Every financial year, the Board is required to prepare an annual statement of accounts.
The form and manner in which these accounts are to be prepared is not discretionary.
Such form is prescribed by the Central Government.
While prescribing the format, the Central Government must act in consultation with the Comptroller and Auditor-General of India (CAG).
15(2).
The accounts of the Board are subject to audit.
Such audit must be conducted only by the Comptroller and Auditor-General of India (CAG).
The audit is not necessarily annual unless specified; it shall be carried out at such intervals as may be decided by the CAG.
The authority to decide the frequency of audit rests exclusively with the CAG.
Any expenditure incurred in conducting the audit (including fees, administrative costs, etc.) shall not be borne by the Government.
Instead, the Board itself is liable to pay all audit-related expenses.
These expenses are payable directly to the Comptroller and Auditor-General of India.
15(3).
The Comptroller and Auditor-General of India (CAG) may conduct the audit personally or through any other person appointed by him.
Both the CAG and such authorised persons enjoy the same rights, privileges, and authority for auditing the Board’s accounts.
These rights and powers are identical to those exercised by the CAG while auditing Government accounts.
The scope of authority is wide and comprehensive in order to make sure effective audit control.
In particular, the CAG (or his authorised representative) has the right to demand production of:
Books of accounts.
Financial records.
Connected vouchers.
Supporting documents.
All relevant papers.
The Board is legally bound to comply with such demands.
The CAG also has the right to inspect any office of the Board, without restriction.
15(4).
After audit, the accounts of the Board must be duly certified.
Such certification is done by the Comptroller and Auditor-General of India or by any person authorised by him for this purpose.
Along with the certified accounts, the audit report prepared in respect of those accounts must also be included.
These certified accounts together with the audit report must be forwarded every year.
The recipient of these documents is the Central Government.
Upon receiving them, the Central Government has a statutory duty to take further action.
The Central Government must cause the accounts and audit report to be laid before each House of Parliament.
