Role of SEC in securities market
Role of the Securities and Exchange Commission (SEBI) in the Securities Market
Overview
SEBI (in India) is the statutory regulatory authority established in 1988 and given statutory powers through the SEBI Act, 1992.
Its primary role is to regulate and develop the securities market to protect investors' interests and promote the orderly functioning of the securities market.
SEBI acts as a regulatory watchdog over stock exchanges, intermediaries (brokers, merchant bankers), mutual funds, and other market participants.
It is responsible for enforcing securities laws, preventing fraud and manipulation, ensuring transparency, and fostering investor confidence.
Functions of SEBI:
Regulatory Role: Frame regulations and guidelines governing market participants.
Protect Investor Interests: Ensure transparency, fair trade practices, and protect investors from fraudulent activities.
Development Role: Promote market development through training, education, and modernization.
Quasi-Judicial Role: Conduct inquiries, adjudicate disputes, and impose penalties.
Surveillance: Monitor market transactions for irregularities and insider trading.
Important Case Laws on SEBI and Securities Market Regulation
1. SEBI v. Sahara India Real Estate Corporation Ltd. (2012 & 2014)
Facts: Sahara collected money through optionally fully convertible debentures (OFCDs) without SEBI’s approval and did not disclose details as required.
Issue: Whether SEBI had jurisdiction over these collections and whether Sahara violated securities laws.
Judgment: The Supreme Court held that SEBI has jurisdiction over all types of securities and public offerings and that Sahara must refund the money collected from investors.
Significance: Affirmed SEBI’s regulatory and enforcement powers over companies raising money from the public, strengthening investor protection.
2. SEBI v. Shri Ram Mutual Fund (2006)
Facts: Shri Ram Mutual Fund made certain misstatements and manipulations in the securities market.
Issue: Whether SEBI can pass orders against mutual funds for market manipulation.
Judgment: The Supreme Court held that SEBI has wide powers to regulate mutual funds and can take strict action against market malpractices.
Significance: Established that mutual funds come under SEBI’s regulatory ambit and stressed SEBI’s role in maintaining market integrity.
3. Ketan Parekh v. SEBI (2001)
Facts: Ketan Parekh, a stockbroker, was accused of manipulating stock prices using illegal means like circular trading and artificial demand.
Issue: SEBI’s power to investigate and impose penalties on market manipulators.
Judgment: SEBI’s investigations and penalties were upheld; the court recognized SEBI’s authority to protect market fairness.
Significance: Reinforced SEBI’s role as a watchdog against market manipulation and fraud.
4. Rajasthan State Industrial Development and Investment Corporation Ltd. v. SEBI (2006)
Facts: The company challenged SEBI’s jurisdiction over its securities issuance and market operations.
Issue: Scope of SEBI’s regulatory powers over industrial corporations.
Judgment: The Supreme Court held that SEBI’s jurisdiction extends to all companies and entities issuing securities and engaging in market transactions.
Significance: Clarified the broad jurisdiction of SEBI, confirming its role in regulating all aspects of securities market.
5. R.K. Jain v. SEBI (1995)
Facts: This case dealt with SEBI’s power to pass interim orders in market manipulation cases.
Issue: Whether SEBI can act promptly by issuing interim orders to protect investors.
Judgment: The Supreme Court upheld SEBI’s power to issue interim orders under Section 11B of the SEBI Act.
Significance: Empowered SEBI to take immediate action against unfair trade practices, preventing investor harm.
6. MCX Stock Exchange Ltd. v. SEBI (2018)
Facts: MCX challenged SEBI’s regulatory actions over its functioning and alleged procedural lapses.
Issue: Whether SEBI’s authority to regulate stock exchanges includes taking stringent disciplinary measures.
Judgment: The Supreme Court upheld SEBI’s regulatory and disciplinary powers over stock exchanges.
Significance: Affirmed SEBI’s autonomy in supervising stock exchanges and maintaining market discipline.
Summary: SEBI’s Role Illustrated by Case Law
SEBI is the primary regulator safeguarding the securities market.
It has wide powers to investigate, regulate, and penalize market participants, including companies, brokers, mutual funds, and exchanges.
SEBI’s jurisdiction is broad and inclusive, covering all securities-related activities.
The judiciary consistently supports SEBI’s quasi-judicial powers and prompt action to ensure market fairness.
SEBI’s authority promotes transparency, investor confidence, and healthy market growth.
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