INTRODUCTION
The Securities and Exchange Board of India was established through the SEBI Act, 1992. It is a regulatory body for the capital and security market. The main function of SEBI is to protect the interests of the investors in the security market and also to promote the development of the security market. SEBI was established with an objective to protect the rights and interests of the people in the stock market by guiding them into a healthy environment and protecting the money involved in the market. It looks over the functioning of the company so as to curb any malpractices related to trading or stock exchange. This article deals with the power of SEBI to regulate securities in the market and the punishment that is given to the person who does not follow the guidelines in the manner prescribed.
POWER OF SEBI UNDER COMPANIES ACT, 2013
Section 24 of the Companies Act, 2013 provides power of SEBI to regulate matters contained in Chapter III running from Sections 23 to 42 with deals with prospectus and allotment of securities. Chapter IV, Section 43 to 72 which deals with share capital and debenture and those of Section 127 which relates to punishment for failure to distribute dividend[1].
SEBI has the power to prescribe different percentage of the nominal value of the shares. Basically, when the shares are offered to the public the amount of minimum subscription has to be stated in the prospectus. No shares can be allotted less than the amount that amount has been subscribed and the application money must not be less than five per cent or as prescribed by SEBI[2]. It must specify a time period in case minimum subscription has not been received within 30 days of the issue of prospectus.
POWER OF SEBI AS PER SEBI ACT, 1992
Section 11 of the SEBI Act, 1992 provides that it is the duty of the Board to protect the interests of investors in securities and to promote the development of and to regulate the securities markets as it thinks fit.
The measures that SEBI is entitled to follow are as follows-
- Regulating the business in stock exchanges and other securities market
- Registering and regulating that working of stock brokers, sub- brokers, share transfer agent, bankers to an issue, trustees of trust deeds, register to an issue, merchant bank etc, who may be associated with securities markets in any manner.
- Registering and regulating the working of venture capital funds and collective investment schemes, including mutual funds.
- Prohibiting investor’s education and training of intermediaries of securities market
- Calling for informing 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 securities market.
- Calling for information from or furnishing information to other authorities whether in India or outside India, having functions similar to those of the Board in the matters relating to the prevention or detection of violations in respect of securities laws, subject to the provisions of other laws for the time being in force.
- Any other matter as may pe prescribed.
It also provides that Board may take the following measures regarding the interests of investors and securities market in order to complete an investigation-
- Suspend the training of any security in a recognised stock exchange
- Restrain persons from accessing the securities market and prohibit any person associated with the securities market to buy or sell or deal in securities
- Suspend any officer bearer of any stock exchange or self- regulatory organisation from holding such position
- Impound and retain the proceeds or securities in respect of any transaction which is under investigation
- To direct any intermediary or any other person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation.
Section 11B of the SEBI Act, 1992 provides that SEBI is empowered to issue direction regarding-
- prohibition of companies from making an attempt to issue capital with false or misleading information and
- to prohibit the investors who manipulated the market from buying, selling or dealing in the securities market[3].
UNFAIR TRADE PRACTICES IN SECURITIES MARKET
In order to prevent unfair trade practices in the securities market, the Securities & Exchange Board of India (SEBI) has prescribed SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulation, 1995. The rules provide for an investigation in respect of the conduct and affairs of any person buying, selling or otherwise dealing in any securities. Persons connected with securities market would include primary sellers and buyers. Securities market is not confined to stock exchanges only SEBI has the power to call for information and documents relevant to any inquiry even from persons against whom an inquiry cannot be or has not been constituted.
In the case of M/s MCX Biz Solutions and Mr Syed Sadaq[4], SEBI noticed that the entity was soliciting and collecting money from public and was promising high returns. Therefore, SEBI undertook preliminary inquiries into the matter and it was observed that MBS was maintaining website wherein it claimed to be active in stock trading and commodities training. Hence, MBS and his sole proprietor, Mr Syed Sadaq were inter-alia restrained from assessing the securities market and was further prohibited from buying, selling or otherwise dealing in securities directly or indirectly or being associated with the securities market in any manner.
In the case of Sahara India Real Estate Corpn Ltd v SEBI[5], the Supreme Court observed that Section 73 of the Companies Act, 1956 provided a restriction on every company intending to offer shares and debentures to the public. A default in this respect makes allotment violative of the provisions and therefore allotees money has to be referred to them with interest at 15 per cent.
CONCLUSION
The Companies Act, 2013 deals with the issue of prospectus, securities, debentures, allotment of securities, etc and in order to regulate these it has given the Securities and Exchange Board of India (SEBI) the power. The main objective of SEBI is to deal with the interests of the investors and shareholders. SEBI has also implemented various regulations for effective working of the companies. In order to deal with the malpractices including false claims to investors, mobilizing money for different schemes so prompt action was taken by passing an interim order and can also impose penalties as may be prescribed.
REFERENCES
- The Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).
- Guna Sekhar Kalla, SEBI and its Powers to Issue Directions, http://www.penacclaims.com/wp-content/uploads/2019/12/Guna-Sekhar.pdf.
- The Securities and Exchange Board of India, 1992, No. 15, Acts of Parliament, 1992 (India).
- Deepankar Sharm, Law of Corporate Governance 52 (Central Law Publications 2020).
[1] The Companies Act, 2013, § 24, No. 18, Acts of Parliament, 2013 (India).
[2] AVTAR SINGH, COMPANY LAW 141 (Eastern Book Company 2018).
[3] Securities and Exchange Board of India Act, 1992, § 11B, No. 15, Acts of Parliament, 1992 (India).
[4] M/s MCX Biz Solutions and Mr Syed Sadaq, WTM/RKA/ MIRSD/ 46/ 2013.
[5] Sahara Real Estate Corpn Ltd v SEBI, (2013) 1 SCC 1.
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