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
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
Functions of Sebi
It provide them market place for raising finances.
It provide protection to their right and interest and provides them
important information on continuous basis.
work as link between the issuers and investors , it provides them
competitive markets so that they are able to render better services.
Powers of Sebi
- It controls the malpractices and fraudulent transactions in the security
- It handles the registration of broker and sub-broker.
- It controls the insider tradingf and impose penalties for such
- It helps to provide flexibility in working of capital market.
- Sebi promotes investors education and training of intermediaries to
avoid any kind of fraud.
The organisation structure 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
- Sebi has power to inspect document, books of accounnt or any
- Sebi has power to inspect any document witness under security
commission to control any fraudulent activity.
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.
Sebiís 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 Sebiís policies.
Insider Trading with related case law
Insider trading involves trading in a public companyís stock by someone who has
non- public material information about that stock for any reason.
In a companyís 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 Sebiís 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 Sebiís 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
Prospectus and Allotment
Share capital and Debenture
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 sebiís 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
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
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.
Authentication No: JU115916107705-8-0621