Sec 11 and 12 SEBI Act

Palak Sharda,45/07F,8th Sem,B.A.LLB(Hons)

University Institute of Law,PURC,Ludhiana

Introduction
It was formed officially by the Government of India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. SEBI is headquartered in the business district of Bandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices in New Delhi, Kolkata, Chennai and Ahmedabad. Controller of Capital Issues was the regulatory authority before SEBI came into existence it derived authority from the Capital Issues (Control) Act, 1947. One of the key functions of the Board is to supervise and monitor the activities of the exchanges, clearing houses and the settlement system, strengthen market infrastructure and ensure that appropriate risk management systems are in place. The World Bank and the International Monetary Fund (IMF) have introduced a benchmark i.e., Financial Services Assessment Programme (FSAP) to strengthen the monitoring of financial systems in the context of the IMFs bilateral surveillance and the World Banks financial sector development work. The FSAP is designed to help countries enhance their resilience to crisis and cross-border contagion, and to foster growth by promoting financial system soundness and financial sector diversity. The mission of SEBI is to make India as one of the best securities market of the world and SEBI as one of the most respected regulator in the world. SEBI endeavors to achieve the standards of IOSCO/FSAP. Amendments will be required to be made in the Securities Laws especially the SEBI Act, which will facilitate India and SEBI to achieve above objective. The Securities and Exchange Board of India Act, 1992 (the SEBI Act) was amended in the years 1995, 1999 and 2002 to meet the requirements of changing needs of the securities market and responding to the development in the securities market. Based on the Report of Joint Parliamentary Committee (JPC) dated December 2, 2002 , the SEBI Act was amended to address certain shortcomings in its provisions. The mission of SEBI is to make India as one of the best securities market of the world and SEBI as one of the most respected regulator in the world. SEBI also endeavors to achieve the standards of IOSCO/FSAP.

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SEC 11
11. FUNCTIONS OF BOARD. (1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. (2) Without prejudice to the generality of the foregoing provisions, the measures referred to therein may provide for (a) regulating the business in stock exchanges and any other securities markets; (b) registering and regulating the working of stock-brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities markets in any manner; (ba) registering and regulating the working of the depositories [participants], custodians of securities, foreign institutional investors, credit rating agencies and such other intermediaries as the Board may, by notification, specify in this behalf; (c) registering and regulating the working of [venture capital funds and collective investment schemes], including mutual funds; (d) promoting and regulating self-regulatory organizations; (e) prohibiting fraudulent and unfair trade practices relating to securities markets; (f) promoting investors' education and training of intermediaries of securities markets; (g) prohibiting insider trading in securities; (h) regulating substantial acquisition of shares and take-over of companies; (i) calling for information from, undertaking inspection, conducting inquiries and audits of the [stock exchanges, mutual funds, other persons associated with the securities market] intermediaries and self-regulatory organizations in the securities market; (j) performing such functions and exercising such powers under the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), as may be delegated to it by the Central Government; (k) levying fees or other charges for carrying out the purposes of this section; (l) conducting research for the above purposes; (la) calling from or furnishing to any such agencies, as may be specified by the Board, such information as may be considered necessary by it for the efficient discharge of its functions; (m) performing such other functions as may be prescribed.

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(3) Notwithstanding anything contained in any other law for the time being in force while exercising the powers under clause (i) of sub-section (2), the Board shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely :(i) the discovery and production of books of account and other documents, at such place and such time as may be specified by the Board; (ii) summoning and enforcing the attendance of persons and examining them on oath; (iii) inspection of any books, registers and other documents of any person referred to in section 12, at any place.

REGULATION OF STOCK EXCHANGES AND SUBSIDIARIES

One of the key functions of the Board is to supervise and monitor the activities of the exchanges, clearing houses and the settlement system, strengthen market infrastructure and ensure that appropriate risk management systems are in place.

I. Inspection of Stock Exchanges

On-site supervision through inspection of stock exchanges is considered an effective regulatory tool. Under the policy of risk-based supervision which has been adopted from the year under review, stock exchanges having a significant turnover were taken up for onsite inspection. These were The Bombay Stock Exchange(BSE), Calcutta Stock Exchange (CSE), National Stock Exchange (NSE), Inter Connected Stock Exchange ( ISE) , Ludhiana Stock Exchange (LSE), Hyderabad Stock Exchange (HSE) and Ahmedabad Stock Exchange ( ASE). The objectives of the inspection were to ensure that A. The exchange provides a fair, equitable and growing market to investors, B. the exchange has complied with the conditions, if any, imposed on it at the time of renewal/ grant of its recognition under section 4 of the SC(R) Act, 1956. C. The exchanges organization, systems and practices are in accordance with the Securities Contracts (Regulation) Act (SC(R) Act), 1956 and rules framed there under, D. The exchange has implemented the directions, guidelines and instructions issued by the SEBI from time to time, E. There are adequate internal control mechanisms and risk management systems. SEBI has to be responsive to the needs of three groups, which constitute the market: 1) the issuers of securities 2) the investors 3) the market intermediaries.

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SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and quasi-executive. It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. Though this makes it very powerful, there is an appeals process to create accountability. There is a Securities Appellate Tribunal which is a three-member tribunal and is presently headed by a former Chief Justice of a High court - Mr. Justice NK Sodhi. A second appeal lies directly to the Supreme Court. SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the quick movement towards making the markets electronic and paperless rolling settlement on T+2 basis). SEBI has been active in setting up the regulations as required under law. SEBI has also been instrumental in taking quick and effective steps in light of the global meltdown and the Satyam fiasco.[citation needed] It had[when?] increased the extent and quantity of disclosures to be made by Indian corporate promoters. More recently, in light of the global meltdown,it liberalised the takeover code to facilitate investments by removing regulatory strictures. In one such move, SEBI has increased the application limit for retail investors to Rs 2 lakh, from Rs 1 lakh at present.

POWERS & FUNCTIONS

1. Regulating the business in stock exchanges and any other securities markets. 2. Registering and regulating the working of stock brokers, sub-brokers, sharetransfer agents, bankers to an issue, trustees of trust deeds, registrars to anissue, merchant bankers, underwriters, portfolio managers, investment advisersand such other intermediaries who may be associated with securities marketsin any manner. 3. Registering and regulating the working of the depositories, participantscustodians of securities, foreign institutional investors, credit rating agenciesand such other intermediaries as the board may, by notification, specify in thisbehalf. 4. Registering and regulating the working of (venture capital funds and collectiveinvestment schemes) including mutual funds. 5. Promoting and regulating self-regulatory organizations. 6. Prohibiting fraudulent and unfair trade practices relating to securities markets. 7. Promoting investors' education and training of intermediaries of securitiesmarkets. 8. Prohibiting insider trading in securities. 9. Regulating substantial acquisition of shares and take-over of companies. 10. Calling for information from, undertaking inspection, conducting inquiries andaudits of the stock exchanges, (mutual funds) and other persons associatedwith the securities market and intermediaries and selfregulatory organizationsin the securities market. 11. Performing such functions and exercising such powers under the provisions of securities contracts (regulation) act, 1956, as may be delegated to it by thecentral government. 12. Levying fees or other charges for carrying out the purpose of this section. This article has been written by Palak Sharda,8 th sem,UIL,PURC Page 5

13. Conducting research for the above purposes.

Section 12 REGISTRATION OF STOCK-BROKERS, SUB-BROKERS, SHARE TRANSFER AGENTS, ETC.

(1) No stock-broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market shall buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this Act : Provided that a person buying or selling securities or otherwise dealing with the securities market as a stock broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market immediately before the establishment of the Board for which no registration certificate was necessary prior to such establishment, may continue to do so for a period of three months from such establishment or, if he has made an application for such registration within the said period of three months, till the disposal of such application : Provided further that any certificate of registration, obtained immediately before the commencement of the Securities Laws (Amendment) Act, 1995, shall be deemed to have been obtained from the Board in accordance with the regulations providing for such registration. (1A) No depository, participant, custodian of securities, foreign institutional investor, credit rating agency, or any other intermediary associated with the securities market as the Board may by notification in this behalf specify, shall buy or sell or deal in securities except under and in accordance with the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this Act : Provided that a person buying or selling securities or otherwise dealing with the securities market as a depository, [participant] custodian of securities, foreign institutional investor or credit rating agency immediately before the commencement of the Securities Laws (Amendment) Act, 1995, for which no certificate of registration was required prior to such commencement, may continue to buy or sell securities or otherwise deal with the securities market until such time regulations are made under clause (d) of sub-section (2) of section 30. (1B) No person shall sponsor or cause to be sponsored or carry on or caused to be carried on any venture capital funds or collective investment scheme including mutual funds, unless he obtains a certificate of registration from the Board in accordance with the regulations: Provided that any person sponsoring or causing to be sponsored, carrying or causing to be carried on any venture capital funds or collective investment scheme operating in the securities market immediately before the commencement of the Securities Laws (Amendment) Act, 1995, for which no certificate of registration was required prior to such commencement, may continue to operate till such time regulations are made under clause (d) of sub-section (2) of section 30. This article has been written by Palak Sharda,8 th sem,UIL,PURC Page 6

(2) Every application for registration shall be in such manner and on payment of such fees as may be determined by regulations. (3) The Board may, by order, suspend or cancel a certificate of registration in such manner as may be determined by regulations : Provided that no order under this sub-section shall be made unless the person concerned has been given a reasonable opportunity of being heard.

SAT cannot set aside orders passed by SEBI U/s. 12(1) of the SEBI Act related to registration of brokers: Supreme Court
The Securities and Exchange Board of India (Sebi) won a crucial judgment in the Supreme Court against the Securities Appellate Tribunal (SAT), which has many a time set aside its orders. The SC on Tuesday held that the tribunal cannot set aside orders passed by Sebi under section 12(1) of the Sebi Act. The section provides for the compulsory registration of stock brokers, sub-brokers and other entities dealing with the securities markets. Following this judgment, if Sebi cancels the license to trade issued to a broker on the charge of violations of the Sebi Act or imposes a heavy penalty under this provision, SAT cant modify or quash the decision. The apex courts decision came in a Sebi appeal against SAT orders over two cases involving dealing of registered brokers with certain unregistered entities. Sebi had invoked section 12(1) in these cases. The penalty provided for violation of this section is either suspension or cancellation of the certificate of registration. The section does not provide for monetary penalty or any other smaller punishment. SAT had modified Sebis orders in both the cases and awarded lesser penalty. The tribunal held that the proved charges against the respondents were not serious enough to warrant suspension. Sebi moved the apex court raising the question of whether SAT is empowered to modify the penalty imposed by it in such cases. Allowing Sebis appeal, a bench of Justices Arijit Pasayat and Lokeshwar Singh Panta held that the tribunal had no business setting aside these orders. No power is conferred on the tribunal to travel beyond the areas covered by Section 12 and Rule 3. When something is to be done statutorily in a particular way, it can only be done that way. There is no scope for taking shelter under a discretionary power, held the bench. The judgment could have far reaching importance beyond the specific cases pertaining to which Sebi had appealed.

This article has been written by Palak Sharda,8 th sem,UIL,PURC

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