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Sebi And Its Power To Regulate Issue And Transfer Of Securities Under Companies Act 2013

This article aims to give overview about sebi and its power to regulate issue and transfer of securities under companies act 2013.

Sebi stands for Securities and Exchange Board of India, it is established in 1988 and came into statutory power on 30th Jan 1992 through Sebi act 1992 and it became autonomous body by government of India on 12th April 1992. Its head office is in Mumbai and regional zonal offices are in New Delhi , Ahmedabad, Chennai and Kolkata.

The present Chairman of Sebi is Ajay Tyagi and former chairman was V.R Sinha(18 feb 2011-10 feb 2017) and these chairman was appointed by Union Government of India.
At present ,17 stock exchanges are operating in India, including NSE and BSE, all these stock exchanges are regulated by the guidelines of Sebi.

Sebi includes the board of directors which includes chairman who is elected by parliament , two officers from the Ministry of Finance and one member from the reserve bank of India and five members who are elected by the parliament.

Meaning of Sebi
The securities of Exchange Board of India ( SEBI) is the regulation for the securities market in India owned by the government of India, securities include shares, debentures, bonds etc. Sebi works as regulating such markets by forming rules and regulations for such companies and supervise them to know whether they are working according to its rules or regulations or not.

Reason for Sebi to come into existence
With the expansion of trading in Stock market lot of malpractices has been also started such as breach of ethics, violation of rules and regulations, insider trading etc due to such practices customers lost reliance in the stock exchange as a result of which government of India decided to set up the regulatory body known as Sebi to gain the faith in stock exchange.

Role of Sebi
  • The main purpose of Sebi is to supervise the rules and regulations to keep the eye on malpractices and frauds
  • Sebi helps to work the interest of investors .
  • Sebi is set up to protect the needs of mainly three groups

  1. Issuers:
    It provide them market place for raising finances.
  2. Investors:
    It provide protection to their right and interest and provides them important information on continuous basis.
  3. Intermediaries:
    work as link between the issuers and investors , it provides them competitive markets so that they are able to render better services.

Functions of Sebi
  • It controls the malpractices and fraudulent transactions in the security market
  • It handles the registration of broker and sub-broker.
  • It controls the insider tradingf and impose penalties for such activities.
  • It helps to provide flexibility in working of capital market.
  • Sebi promotes investors education and training of intermediaries to avoid any kind of fraud.

Powers of Sebi
  • Sebi has power to make and regulate the by laws of stock exchanges.
  • Sebi has power to give notice to any suspicious and can examine them on oath.
  • Sebi has power to inspect document, books of accounnt or any intermediaries.
  • Sebi has power to inspect any document witness under security commission to control any fraudulent activity.

The organisation structure of Sebi
Sebi is a statutory body that means it has a legal recognisation and has wide range of authority and as result the system of stock markets works smoothly as sebi keeps the control on the activities of stock markets.

Sebi has divided its work into five departments each department headed by the executive director for the management of department.

Sebi's headoffice is at Mumbai along with regional offices in Kolkata , Chennai and Delhi , so that to handle the grieviances of investors.

Sebi has also formed two advisory committee these committees consists of the market player , investors association and expert persons who have crucial knowledge regarding capital. These committees are formed to provide important advice and guideline to form Sebi's policies.

Insider Trading with related case law
Insider trading involves trading in a public company's stock by someone who has non- public material information about that stock for any reason.

In a company's when persons working in for eg its directors, executives they have the strategic information about the company and when such information is shared by any other outsider for their benefit it is called insider trading . it is an unfair and illegal practice and highly violative against the rules and regulations of Sebi.

Sebi provides regulation to issue and transfer of securities, provisions related to the issue and transfer of securities, provisions related to the issue and transfer of securities, provisions related to the issue and transfer of securities and non payment of dividend by listed companies or those companies which are intended to get their securities listed on a recognised stock exchange in India will be managed under the guidelines of Sebi.

Hindustan Unilever limited vs Sebi
This case law is related to the unpublished price sensitive information (UPSI) that arised from the insider trading from big company Hindustan Unilever limited in its purchase of shares of Brooke bond lipton India limited (BBLIL).

The facts of the case focuses on the purchase of shares by Hindustan Unilever Limited (HLL) of 8 lacs on 25th march 1996 of Brooke bond lipton India limited (BBLIL) from the unit trust of India (UTI).

The two companies HLL and BBLIL were proposed to be merger and the purchase was done two weeks prior to public announcement of merger.

On invetigation by Sebi's order on date march 11, 1998 sebi found that HLL was an insider as under section 2(e) of the 1992 of the 1992 regulations at the time of the purchase of shares of BBLIL from UTI. And HLL has all the unpublished price sensitive information was available with them , Sebi also stated that both the companies have common directors due to which information shared between the two , and it is also stated that both the companies are in same management control, so Sebi stated that HLL directors have prior knowledge about merger, HLL was covered under definition of insider.

HLL appeealed against the Sebi order before the Securities Appellate Authority and said that the information of merger was not unpublished, it was published and was available to different platforms like in media and in newspapers and secondly they stated that there was a merger of two healthy companies due to which there is no violation.

But the appellate authority however noted that even in the merger of two healthy companies there are synergistic possibilities which could lead to price sensitivity for either company, thus the appellate authority agreed with Sebi's conclusion that information of the merger was price sensitive (though not unpublished).

Section 24 of Companies act
Section 24 of the companies act seeks to provide the issue and transfer of security etc. of the listed company or the companies which are intended to get their securities listed shall be administered by cental government as required.

The provision contain in
Chapter 3
Prospectus and Allotment
Chapter 4
Share capital and Debenture
Section 127

Punishment to distribute failure of dividend
Provisions related to the issue and transfer of securities and non payment of dividend by listed companies or those companies which are intented to get their securities listed on a recognised stock exchange in India will be managed under the regulations of Sebi and in other case by the central government.

The section also explains that all the mattersrelated to prospectus, written off on allotment , redemption of preference shares be authorised by central government, tribunal or the registrar.

Sebi in respect of matters specified above and the matters delegated to it under provision of section 458(1) exercise the power conferred upon it under sub section 1(2A), (3) and (4) of section 11 of Sebi act.

Whereas any obstacle emerged regarding this in confirmity with the section 24, 58,59 of the companies act 2013.

They relate to exercise of certain powers by the tribunal during the period , it is duly constituted under 2013 act, ministry of corporate affairs with respect to it issued order called the companies removal of difficulties order 2013.

The ministry clarified until the date is notified by central government under section 434(1) of the companies act for the transfer of all the matters proceeding or cases to the tribunal constituted the power of tribunal under section 24 , 53 , 59 in pursuance of the second proviso to subsection (1) of 465 of said act.

Important case law Sahara vs Sebi
This case involving the Sahara group , Sahara work in multi segment such as infrastructure, sports retail and finance. Under this case the two companies of Sahara group issued OFCD (optional fully convertible debenture) in public, in 2009 another company approached to Sebi for listing of shares. And after analysation of whole Sahara group the Sebi came to know about the two companies who issued optional fully convertible debenture and on this Sebi claimed jurisdiction as they issued securities without sebi's guidelines and regulations and in defence the companies claimed that the securities were issued with the compliance of the companies act and sebi has no jurisdiction over it.

Sebi conflicts with the Sahara, as the Sahara violates the regulations of Sebi, the case undergo several rounds of stays, court proceedings and hearings etc and finally appeared before Supreme Court , which favoured the Sebi and ordered the Sahara company to repay the money raised by breach of guidelines and regulations of Sebi.

It is concluded that stock market is important instrument for economic growth of the country , before the establishment of Sebi people started investing less in stock market as they lost the trust due to unfair practices in stock market , to regain the faith of people in stock markets government took the step for establishment of Sebi to monitor and supervise the activities of stock market, initially Sebi has granted less powers but in 1992 when Sebi became the statutory body and legally recognised, its authorities has been widened.

Award Winning Article Is Written By: Ms.Pragya Saini - BBA LLB 3rd year Chandigarh University.
Awarded certificate of Excellence
Authentication No: JU115916107705-8-0621

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