Module 2: SEBI Act & Regulatory Framework

SEBI was established as a statutory body under the SEBI Act, 1992. Prior to this, it existed as a non-statutory body from 1988.

The SEBI Board consists of 9 members including the Chairman, two members from ministries, one from RBI, and five other members (at least three whole-time).

Under Section 5 of the SEBI Act, the Chairman's maximum term is 5 years, with eligibility for reappointment.

Section 2(h) of SEBI Act defines "securities" by reference to Section 2(h) of the SCRA, 1956.

SEBI's tripartite mandate is: investor protection, market development, and market regulation.

Section 11 enumerates the functions of the Board and is the fountainhead of SEBI's regulatory powers.

Section 11B empowers SEBI to pass cease and desist orders after conducting an enquiry.

Section 27 makes operating without registration a criminal offence punishable with imprisonment up to 10 years and fine up to Rs. 25 crore.

Section 11A directions are preventive/remedial, not punitive penalties. They are meant to protect investors and market integrity.

Section 30 empowers SEBI to make regulations consistent with the Act and rules.

Section 11C empowers SEBI to order investigation. Section 11D covers search and seizure.

Only the Chairman or a Member authorized by the Chairman can authorize search under Section 11D.

Under Section 11C(3), investigation proceedings are deemed judicial proceedings. False statements constitute perjury.

Under Section 11C(2), the Investigating Authority has powers of a civil court under CPC for discovery, production, summoning, etc.

Non-cooperation leads to adverse inference in adjudication and separate penalty under Section 15A(a) for failure to furnish information.

Legal professional privilege protects communications with lawyers for obtaining legal advice. However, privilege must be specifically claimed.

During search, ensure: witnesses are present, panchnama is prepared, and copies of seized documents are obtained immediately.

Constitutional protection against self-incrimination under Article 20(3) applies to SEBI examination proceedings as well.

Section 15G provides for penalty of Rs. 25 crore or 3 times the profit made, whichever is higher.

Under Section 15-I, the AO must be of the rank of Division Chief or above.

Section 15J requires consideration of: (a) disproportionate gain; (b) loss to investors; (c) repetitive nature of default.

Section 15HA provides penalty for fraudulent and unfair trade practices - Rs. 25 crore or 3x profit.

Chapter VIA (Sections 15A to 15HB) contains the penalty provisions of the SEBI Act.

Post-2014, there is no minimum penalty - AO has discretion to impose any amount up to maximum based on Section 15J factors.

Section 15HB is the residuary penalty provision for contraventions where no specific penalty is prescribed - maximum Rs. 1 crore.

Settlement is governed by SEBI (Settlement Proceedings) Regulations, 2018, made under Section 15JB of SEBI Act.

Settlement application must be filed within 60 days of show cause notice (can also be filed before SCN in some cases).

Settlement is without admission or denial of guilt, has no precedent value, and is not appealable to SAT.

HPAC is the High Powered Advisory Committee that reviews serious settlement matters before approval.

Matters referred for criminal prosecution under Section 24 are not eligible for settlement.

Settlement amount comprises disgorgement + interest + settlement charges (percentage of maximum penalty).

Settlement terms are finally approved by a Panel of Whole Time Members.

Section 15T provides for appeal to SAT against orders of SEBI and Adjudicating Officers.

Limitation is 45 days from date of receipt of order, with possible condonation of further 45 days only.

The absolute outer limit is 90 days (45 days + 45 days condonation). No appeal can be entertained beyond this.

The Presiding Officer must be a person who is or has been a Judge of Supreme Court or Chief Justice of High Court.

Section 15Z appeal to Supreme Court lies only on questions of law arising out of SAT order.

Appeal to Supreme Court must be filed within 60 days from date of communication of SAT order.

Settlement orders are not appealable to SAT. The settlement route provides finality in exchange for certainty.

SAT has power to confirm, modify, set aside, or remand matters to SEBI for fresh consideration.

Sahara case established substance over form - OFCDs were securities regardless of nomenclature. SEBI has wide investigative jurisdiction.

LODR stands for Listing Obligations and Disclosure Requirements Regulations, 2015.

PIT Regulations refer to Prohibition of Insider Trading Regulations, 2015.

PFUTP refers to Prohibition of Fraudulent and Unfair Trade Practices Regulations, 2003.

The correct hierarchy is: Act > Rules > Regulations > Circulars/Guidelines.

Section 24 provides for offences punishable with imprisonment and fine (criminal prosecution).

Fit and proper criteria include financial integrity, good reputation, competence, and fair conduct.

Ex-parte interim orders must be followed by post-decisional hearing. Ad-interim orders valid for 15 days must be confirmed after hearing.

SAST refers to Substantial Acquisition of Shares and Takeovers Regulations, 2011.

SEBI proceedings follow preponderance of probability standard, not the criminal standard of beyond reasonable doubt.