SEBI Act 1992: Overview, Features and Details5 min read

BY- OJASVI GUPTA

Overview

The Securities and Exchange Board of India Act was enacted on 12 April 1992 to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development and regulation of the securities market and for matters related to it. Securities are financial assets that can be traded e.g., stocks, bonds, banks notes. The act changed the status of the board from a non-statutory to a statutory as a corporate sector.

The securities and exchange board has its headquarters in Mumbai, India, and its regional offices can be established across India as per the requirement under section 3 of the act. The main purpose behind establishing SEBI was to create an environment that effectively mobilizes and allocates resources among the players of the market such as the investors, the market intermediaries, and the issuers of securities. SEBI also aims to prevent unfair and fraudulent trade practices along with making sure that these intermediaries are competitive by developing a code of conduct. SEBI is based on the Trinity Principles of Securities Regulations. The Trinity Principles of Securities Regulations, disclosure, insider trading, and market manipulation namely were considered as an indispensable bundle of rights in Hindustan Lever Employees’ Union v. Hindustan Lever Ltd.

Features

SEBI Act, 1922 has authorised the security and exchange board as a regulatory body of the corporate sector by endowing it with features of a judicial, legislative as well as an executive body.

Quasi-Judicial

SEBI act as a judicial authority for hearing all matters concerning the securities market be it misrepresentation, fraud or any other unethical practice. This allows SEBI to protect transparency, accountability, reliability, and fairness in the capital market. Capital market are markets in which the trade (borrowing and lending) is for more than a year.

Quasi-Legislative

SEBI is empowered to draft legislatures with respect to the capital market. Such rules and regulations ensure that the interests of the investors are protected. e.g., Listing Obligation and Disclosure Requirements, Insider Trading Regulations. This helps in consolidating and streamlining the provisions of existing listing agreements for several segments of the financial market. Moreover, the guidelines declared by the board layout a concrete legal framework keeping malpractices at a bay.

Quasi-Executive

SEBI also ensures the implementation of the legislation. They can file a complaint against any person or company who violate the regulations. The board can order an assessment of a suspicious organizations’ account records and reports to check for any malpractice.

Details

The SEBI Act is divided into seven chapters that regulates the capital market in its entirety.

  • The First Chapter is an introductory or preliminary chapter of the Act which provides the title, extent, scope, and definitions of the terms used in the Act.
  • The Second Chapter establishes the Securities and Exchange Board of India. This chapter deals with management, employees, meetings, and the office structure of the board and provides the necessary details of the board thus established.
  • The Third Chapter talks about the transfer of assets, liabilities, etc. of the then existing Security and Exchange Board to the Board, which means it declares the provisions to be used to transfer the assets in the case of the formation of a new board.
  • The Fourth Chapter states the powers and functions of the Board. This chapter mentions all the powers and functions of the board which are given by the Act. The Board and its members are bound to follow the instructions provided in the provisions and not allowed to exploit their powers.
  • The Fifth Chapter is about the Registration Certificate. It deals with the process of documentation involved in the registration of the stockbrokers, sub-brokers, and share transfer agents, etc.
  • The Sixth Chapter deals with finance, accounts, and audits. This chapter assigns the control of all the grants given by the Central Government, funds and accounts, to ensure the productivity of the board as well as the capital market of the economy.
  • The seventh Chapter is for miscellaneous provisions, which discuss other topics that are relevant to the board and the security market to help the board inefficient regulation.

In addition to the main act, there have been guidelines and regulations updated time to time to ensure healthy and competitive environment of this sector, some of which are as follows:

  • Regulations on the Issue of Capital and Disclosure Requirements, 2009: These regulations deal with the issues related to capital and disclosure by improving the trading in securities of the listed companies and investors in India.
  • Regulations on Substantial Acquisition of Shares and Takeovers, 2011: These regulations of SEBI were established to solve difficulties related to the legal and fair acquisition of shares and takeovers by other companies.
  • Regulations on Prohibition of Insider Training, 2015: These regulations introduced new provisions for prohibiting the insider training of securities and tries to protect the laws for lawful and fair trading in India.
  • The Equity Listing Agreement: These provisions contained the clauses which mainly dealt with the mandatory compliances to be made between the stock exchange of India and the listed companies.

Conclusion

The enactment of the SEBI Act under a resolution of central government within the context of other statutes such as the Companies Act, Depositories Act, and Securities Contracts Regulation Act has provided a strong regulatory framework for the Indian market. Subsequently, much of the growth of the Indian market can be attributed to the robust processes for issuance, pricing, allotment, and listing of securities enabled by SEBI. 

The SEBI Act, 1992 is the supreme power of the securities market of India and has the authority to make laws and regulations. And these rules and regulations are applied to all the listed companies, their board of directors, key managerial personnel of such companies, investors, and all the other financial institutions who are associated with the security market sector. Strengthening SEBI’s power in the investigative, administrative and legal aspects of enforcement would enable it to speedily address legal challenges such as those faced during disclosure of requirements. SEBI strongly believes that the investors are the soul of the securities market and they need to protect the interests of investors for the development of the capital market and therefore the economy.

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