The Securities and Exchange Board of India Act, 1992
The Securities and Exchange Board of India Act, 1992
1. Background
India’s securities market was growing rapidly in the 1980s, but there was:
Insider trading
Market manipulation
Fraudulent practices
Before 1992, SEBI was only a regulatory body under an ad-hoc resolution in 1988, with very limited powers.
The SEBI Act, 1992 was enacted to:
Provide statutory powers to SEBI.
Regulate the securities market effectively.
Protect investors from unfair trade practices.
2. Objectives
To protect investors in securities.
To regulate the securities market (stock exchanges, brokers, etc.).
To promote and develop the securities market.
To prevent fraudulent and unfair practices in securities transactions.
3. Key Definitions (Section 2)
Securities – includes shares, bonds, debentures, debenture stock, and derivatives.
Stock Exchange – any body of individuals or institutions providing a platform for buying/selling securities.
Insider Trading – trading based on unpublished price-sensitive information.
4. Powers and Functions of SEBI
(a) Regulatory Functions (Section 11)
Register and regulate stock brokers, sub-brokers, and merchant bankers.
Regulate takeovers, acquisitions, and mergers.
Prohibit fraudulent and unfair trade practices.
Regulate mutual funds and collective investment schemes.
(b) Development Functions
Promote fair practices in securities markets.
Encourage training of intermediaries and investors.
Conduct research to develop the securities market.
(c) Investor Protection (Section 11 & 11B)
SEBI can:
Require disclosures by companies issuing securities.
Investigate insider trading, price rigging, and misstatements.
Protect interests of small investors.
5. Penalties (Chapter VIA)
Failure to comply with SEBI regulations may attract:
Monetary fines up to ₹25 crore in some cases.
Imprisonment up to 10 years for insider trading or fraudulent activities.
Debarring individuals from securities markets.
SEBI can also issue cease and desist orders for unfair practices.
6. Adjudication & Tribunal
SEBI can adjudicate cases through an adjudicating officer (monetary penalties).
Appeals go to Securities Appellate Tribunal (SAT), and thereafter to Supreme Court.
7. Important Case Laws
(a) Sahara India Real Estate Corp. Ltd. v. SEBI (2012, SC)
SEBI ordered Sahara to refund investor money raised through optionally fully convertible debentures (OFCDs), claiming violation of SEBI Act.
Supreme Court upheld SEBI’s powers to:
Protect investors
Regulate securities market
Key principle: SEBI has wide powers under Section 11 & 11B to safeguard investors.
(b) SEBI v. Capital Market (2001, SAT)
Insider trading and price manipulation case.
SAT upheld that even indirect trading or influencing trades comes under SEBI’s regulatory powers.
(c) SEBI v. Narayana Finance (2007, SAT)
SEBI barred the company and directors for misleading investors in IPO allotment.
Court confirmed SEBI’s authority to issue cease and desist orders and impose penalties.
(d) MCX Stock Exchange v. SEBI (2014, SAT)
SEBI regulated commodity derivatives; exchange challenged SEBI’s powers.
Tribunal held that SEBI has statutory power to regulate and develop securities and commodity derivatives market under its Act.
(e) Ketan Parekh Case (2001)
Stock market manipulation scandal.
SEBI used its powers under SEBI Act, 1992 to investigate, ban Ketan Parekh and associated brokers, and impose fines.
Showed SEBI’s role in policing unfair practices.
8. Significance
Provides statutory authority to SEBI to regulate securities market.
Protects investors from fraudulent practices.
Enables market development and transparency.
Prevents insider trading, price rigging, and misrepresentation.
Forms the legal foundation for Mutual Funds, Takeovers, and Collective Investment Schemes.
✅ Conclusion
The SEBI Act, 1992 is the cornerstone of India’s securities regulation framework. It gives SEBI the power to:
Regulate market intermediaries
Protect investors
Develop and maintain market integrity
Courts have consistently upheld SEBI’s wide powers to investigate, penalize, and prevent unfair practices, making the Act crucial for investor confidence in India’s financial markets.
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