1. Financial Markets vs Capital Markets

Financial Markets: Umbrella term for all markets where financial assets are traded. Regulated by multiple regulators.

• Money Market: < 1 year instruments - T-Bills, Commercial Paper, Call Money. Regulator: RBI
• Capital Market: > 1 year instruments - Equity, Debt, Derivatives. Regulator: SEBI
• Other: Forex market - RBI, Insurance - IRDAI, Pension - PFRDA

Capital Market has two segments:

• Primary Market: Where securities are created. IPOs, FPOs, Private Placement, OFCDs. Governed by SEBI (ICDR) Regulations, 2018 and Companies Act, 2013.
• Secondary Market: Where already issued securities are traded. BSE, NSE, etc. Governed by SCRA, 1956.

2. Regulatory Architecture of Capital Markets in India

A. Four Pillars of Law

1. SEBI Act, 1992: Creates SEBI as regulator. Section 11 gives huge powers - to protect investors, regulate market, prohibit fraudulent practices. Section 11B - power to issue directions, Section 11C - investigation, Section 15 - penalties.
2. Securities Contracts (Regulation) Act, 1956 (SCRA): Recognizes and regulates stock exchanges, prohibits illegal contracts.
3. Depositories Act, 1996: Dematerialization - NSDL, CDSL.
4. Companies Act, 2013: Chapter III - prospectus and public offer.

B. Key SEBI Regulations

• SEBI (LODR) 2015 - Listing obligations
• SEBI (ICDR) 2018 - Issue of Capital
• SEBI (Prohibition of Insider Trading) 2015 - PIT
• SEBI (PFUTP) 2003 - Fraudulent and Unfair Trade Practices
• SEBI (SAST) 2011 - Takeover Code

Appeal structure: SEBI Whole Time Member -> Securities Appellate Tribunal (SAT) -> Supreme Court of India only. High Courts have no jurisdiction.

3. Landmark Case Laws - The Core

1. SAHARA CASE - The Mother of All Capital Market Cases

Sahara India Real Estate Corporation Ltd. & Ors. v. SEBI & Anr. (2012) 10 SCC 603

Facts: Two Sahara companies raised ~Rs.24,000 crore through Optionally Fully Convertible Debentures (OFCDs) from 3 crore investors, claiming it was a private placement.

Issue: Is OFCD a "security"? Does SEBI have jurisdiction over unlisted company raising money from >50 persons?

Judgment: Supreme Court on 31st Aug 2012 held:

• OFCDs are securities under SCRA.
• Under Section 67(3) of Companies Act, 1956, any offer to more than 50 persons is a public offer. Sahara's claim of private placement failed.
• SEBI has jurisdiction over all public issues, even by unlisted companies.
• Ordered refund of Rs. 17,400 crore + 15% interest, later ballooned to ~Rs.24,000 cr.

Principle: Private placement cannot be used to bypass public issue norms. This case established SEBI's paramount power over investor protection.

2. SEBI's Power to Regulate Exchanges

BSE Brokers Forum v. SEBI (2001) 3 SCC 482

Brokers challenged SEBI's registration fees. SC upheld SEBI's powers and held “SEBI has the authority to direct stock exchanges to amend their bye-laws, and if they fail to do so within a reasonable time, SEBI can itself make those amendments". Established SEBI as supreme market regulator.

3. SEBI's Jurisdiction Extends Beyond India - GDR Case

SEBI v. Pan Asia Advisors Ltd. (2015)

SAT had overturned SEBI's order on GDR manipulation. Supreme Court reversed SAT and held jurisdiction of SEBI extends to issuance of global depository receipts (GDRs) by Indian companies to foreign investors if they have adverse impact on Indian securities markets. Landmark for cross-border fraud.

4. Insider Trading - First Generation

A. Hindustan Lever Ltd. (HLL) v. SEBI (1998) - The First Insider Trading Case in India
Facts: Two weeks before merger of HLL and Brooke Bond Lipton India Ltd. (BBLIL), HLL purchased 8 lakh shares of BBLIL from UTI. HLL and BBLIL had common parent Unilever, so HLL knew about merger - which was UPSI.

SEBI held it insider trading under SEBI (Prohibition of Insider Trading) Regulations, 1992. SAT later set aside on technical grounds (UPSI definition), but it forced SEBI to redraft Insider Trading Regulations. It established what is Unpublished Price Sensitive Information (UPSI).

B. Dilip Pendse v. SEBI (SAT Order 19 Nov 2009)
Dilip was MD of Nishkalpa, subsidiary of Tata Finance. Nishkalpa had loss of Rs.79.37 crores, UPSI to be made public a month later. He tipped his wife who sold 2.9 lakh shares. SEBI imposed Rs.5 lakh penalty.

SAT held: "The charge of insider trading is one of the most serious charges... higher must be the preponderance of probabilities in establishing the same". Set high evidentiary standard for insider trading.

C. Recent Supreme Court Clarification
SEBI v. Abhijit Rajan / Ajay Agarwal (2022) and SEBI v. Kishore Ajmera (2016)

SC held insider trading can be proved by circumstantial evidence - possession of UPSI + trading. No need to prove communication of UPSI. Also:

Nilesh Shah v. SEBI (2025) and Dilip S. Pendse context: Supreme Court ruled "integrity of the securities market must take precedence over investor profits when assessing regulatory violations"and "Integrity of securities market is paramount and a violator of rules cannot cite investors' profit to escape liability". In Kotak AMC case, even if investors made profit, violation still punishable.

5. Fraudulent Trade Practices and Circumstantial Evidence

SEBI v. Kishore R. Ajmera (2016) 6 SCC 368
SC held synchronized trades, reversal of trades, creation of artificial volumes are fraudulent even if no direct evidence of collusion. Circumstantial evidence enough under PFUTP Regulations.