Securities Laws & SEBI Act 1992 PDF

SECTION B SECURITIES LAWS CHAPTER 1 10 THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 SEBI (LODR) REGULATIONS, 2015, SEBI (ICDR) REGULATIONS, 2018, SEBI (SAST) REGULATIONS, 2011, SEBI (PIT) REGULATIONS, 2015 LEARNING OUTCOMES By the end of this chapter, students will be able to-  Describe the role, powers and functions of the Securities and Exchange Board of India  Determine how the SEBI regulates the capital markets in India under a resolution of the Government of India  Specify the prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control  Lay down the penalties and adjudication and identify the establishment, jurisdiction, authority and procedure of Appellate Tribunal.  Elucidate the significant regulations governed by the SEBI(Listing Obligations and Disclosure Requirement) Regulations, 2015, SEBI (Issue of Capital and Disclosure Requirements) Regulations,2018, SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011, SEBI (Prohibition of Insider Trading) Regulations, 2015 1.2 CORPORATE AND ECONOMIC LAWS 1. INTRODUCTION The Securities and Exchange Board of India was established in 1988. It got legal character in 1992. SEBI was primarily set up to regulate the activities of the merchant banks, to control the operations of mutual funds, to work as a regulator of the stock exchange activities and to act as a regulatory authority of new issue activities of companies. The reason the SEBI was constituted was because before the SEBI the law relating to the securities market in India was contained in different enactments like Companies Act, 1956, Securities Contract (Regulation) Act, 1956, and the Capital Issues (Control) Act, 1947. Then, at times when the capital market witnessed tremendous growth, it was found, that the legislation was scattered in different laws and administrative agencies did not have proper manpower or expertise to deal with the investors. Even there was no monitoring or prosecuting machinery to check malpractices, insider trading, etc. Then, Government of India decided to set up an agency or regulatory body known as Securities Exchange Board of India (SEBI). SEBI was first established in 1988 as a non-statutory body for regulating the securities market. It became an autonomous body on 30 January 1992 and was accorded statutory powers with the passing of the SEBI Act 1992 by the Indian Parliament. In the year of 1995, the SEBI was given additional statutory power by the Government of India through an amendment to the Securities and Exchange Board of India Act, 1992. The prime objective of the SEBI Act, 1992 are: 1. Protecting the interests of the investors in securities; 2. Promoting the development of, and; 3. Regulating, the securities market and for matters connected therewith or incidental thereto. SEBI as the watchdog of the securities market has an important and crucial role in regulating the market participants and perform the aforementioned three duties in accordance with the regulatory norms. The preamble of the SEBI describes the basic functions of the SEBI as‘…to protect the interest of investors in the securities and to promote the development of, and to regulate the securities market and for matters connected therewith’. This SEBI Act deemed to have come into force on the 30 th day of January 1992 and extended to whole of India as per Section 1 of the SEBI Act, 1992. 2. IMPORTANT DEFINITIONS According to section 2 of the SEBI Act, 1992, following are some of the important definitions of terms used in the Act- Board means the Securities and Exchange Board of India established under section 3; [Section 2(1) (a)] Collective investment scheme means any scheme or arrangement which satisfies the conditions specified in section 11AA [Section 2(1)(ba)] SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.3 Judicial Member means a Member of the Securities Appellate Tribunal appointed under sub-section (1) of section 15MA and includes the Presiding Officer; [Section 2(1)(db)] Member means a member of the Board and includes the Chairman; [Section 2(1)(e)] Regulations means the regulations made by the Board under this Act; [Section 2(1)(h)] Reserve Bank means the Reserve Bank of India constituted under section 3 of the Reserve Bank of India Act, 1934 [Section 2(1)(ha)] Securities has the meaning assigned to it in section 2 of the Securities Contracts (Regulation) Act, 1956 [Section 2(1)(i)] Technical Member means a Technical Member appointed under sub-section (1) of section 15MB. [Section 2(1)(j)] (2) Words and expressions used and not defined in this Act but defined in the Securities Contracts (Regulation) Act, 1956 or the Depositories Act, 1996, shall have the meanings respectively assigned to them in that Act. 3. ESTABLISHMENT OF THE SECURITIES AND EXCHANGE BOARD OF INDIA Establishment and incorporation of Board [Section 3] SEBI (hereinafter called 'the Board') has been established as- a body corporate having perpetual succession and a common seal, with powers to acquire, hold and dispose of property, both movable and immovable, and to contract as also to sue or be sued by the name of SEBI. The head office of the Board shall be at Mumbai. Further the Board may establish offices at other places in India. Management of the Board [Section 4] The SEBI Board is managed by its members (appointed by the Central Government). The Board consists of the following members: 1.4 CORPORATE AND ECONOMIC LAWS Members of Board Chairman (nominated by Central Government of India) 2 Members (Officers from Ministry of CG) 1 member (From RBI) 5 other members (nominated by Central Government of India), out of them at least 3 shall be whole-time members The Chairman and the all the other members as referred in the section, shall be persons of ability, integrity and standing who have shown capacity in dealing with problems relating to securities market or have special knowledge or experience of law, finance; economics, accountancy, administration or in any other discipline which, in the opinion of the Central Government, shall be useful to the Board [Section 4(5)]. The general superintendence, direction and management of the affairs of the Board shall vest in a Board of Members, which may exercise all powers and do all acts and things, which may be exercised or done by the Board. [Section 4(2)] Term of office and conditions of service of Chairman and members of the Board [Section 5] The term of office and other conditions of service of Chairman and the Members appointed in section 4(1)(d) (i.e., the 5 members appointed by Central Government) shall be such as may be prescribed by rules made under the Act. Right to termination: The Central Government will have the right to terminate the services of the Chairman or the Members appointed in section 4(1)(d) (i.e., the 5 members appointed by Central Government) at any time before the expiry of their tenure- by giving not less than three months’ three months‘ salary and allowance notice in writing OR in lieu thereof The Chairman and all the other members (not just the 5 members appointed by CG) shall have the right to relinquish office at any time before the expiry of their tenure by giving a notice of three months in writing to the Central Government. SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.5 Term of office: As per the rules framed in this regard, the Chairman and Whole time Members shall hold office for such period, not exceeding 5 years, as many be specified in the order of his appointment; but he shall be eligible for reappointment; Provided that no person shall hold office as the Chairman or a Member after he attains the age of sixty-five years. Removal of Members of the Board [Section 6] The Central Government shall remove a member from office if he: at any time has been adjudicated as insolvent; has been declared by a competent court to be of unsound mind; has been convicted of an offence which in the opinion of the Central Government, involves a moral turpitude. has in the opinion of the Central Government so abused his position as to render his continuance in office detrimental to the public interest. Provided that no member shall be removed under this clause unless he has been given a reasonable opportunity of being heard in the matter Meetings of the Board [Section 7] The Board shall meet at such times and places and shall observe such rules of procedure in regard to the transaction of business at its meetings (including quorum at such meetings) as may be provided by regulations. In the absence of the Chairman: If for any reason, Chairman is unable to attend a meeting, any member chosen by the members present from amongst themselves shall preside over the meeting. Decision by majority vote: All questions which come up before any meeting shall be decided by majority vote of the members present and the Chairman or the presiding member will have a second or casting vote, in the event of equality of votes. Member not to participate in meetings in certain cases [Section 7A] Any member- who is a director of a company, and who as such director has any indirect pecuniary interest in any matter coming up for consideration at a meeting of the Board, shall, disclose (as soon as possible after relevant circumstances have come to his knowledge) the nature of his interest at such meeting and such disclosure shall be recorded in the proceedings of 1.6 CORPORATE AND ECONOMIC LAWS the Board, and the member shall not take any part in any deliberation or decision of the Board with respect to that matter. Vacancies, etc., not to invalidate proceedings of the Board [Section 8] Any vacancy in the Board shall not invalidate any of the acts or proceeding of the Board. Similarly, the following events shall not invalidate any act or proceeding of the Board- or any defect in the appointment of any person or member of the Board any irregularity in the procedure of any defect in the the Board not affecting the merits of constitution of the Board the case or 4. POWERS AND FUNCTIONS OF SEBI [SECTION 11] Subject to the provisions of this Act, it shall be the duty of the Board to protect the interest of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. The measures 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 organisations; SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.7 (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 securities market, intermediaries and self-regulatory organizations in the securities market (ia) calling for information and records from any person including any bank or any other authority or board or corporation established or constituted by or under any Central or State Act which, in the opinion of the Board, shall be relevant to any investigation or inquiry by the Board in respect of any transaction in securities; (ib) 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 in this regard: Provided that the Board, for the purpose of furnishing any information to any authority outside India, may enter into an arrangement or agreement or understanding with such authority with the prior approval of the Central Government; (j) performing such functions and exercising such powers under the provisions of the Securities Contracts (Regulation) Act, 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. Power with respect to inspection of books and Documents: Further, the Board may take measures to undertake inspection of any book, or register, or other document or record of any listed public company or a public company which intends to get its securities listed on any recognised stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market. Board are vested with same power as that of civil court: The Board shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit, in respect of the following matters, namely: 1.8 CORPORATE AND ECONOMIC LAWS discovery and production of at such place and such time books of account and other as may be specified by the documents Board; summoning and enforcing the attendance of persons Examination on oath Power of Board while trying a suit inspection of any books, referred to in Section 12, at registers and other documents any place of any persons inspection of any book, or of any listed company or a register, or other document or public company which intends record to get its securities listed issuing commissions for the examination of witnesses or documents Passing of an order by an Board: The Board may, by an order, for reasons to be recorded in writing, in the interests of investors or securities market, take any of the following measures, either pending investigation or inquiry or on completion of such investigation or inquiry, namely:— (a) suspend the trading of any security in a recognised stock exchange; (b) restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities; (c) suspend any office-bearer of any stock exchange or self-regulatory organization from holding such position; (d) impound and retain the proceeds or securities in respect of any transaction which is under investigation; (e) attach, for a period not exceeding ninety days, bank accounts or other property of any intermediary or any person associated with the securities market in any manner involved in violation of any of the provisions of this Act, or the rules or the regulations made thereunder: Provided that the Board shall, within ninety days of the said attachment, obtain confirmation of the said attachment from the Special Court, established under section 26A, having jurisdiction and on such confirmation, such attachment shall continue during the pendency of the aforesaid proceedings and on conclusion of the said proceedings, the provisions of section 28A shall apply: SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.9 Provided further that only property, bank account or accounts or any transaction entered therein, so far as it relates to the proceeds actually involved in violation of any of the provisions of this Act, or the rules or the regulations made thereunder shall be allowed to be attached. (f) direct any intermediary or any 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. The amount disgorged, pursuant to a direction issued, under the SEBI Act or the Securities Contracts (Regulation) Act, 1956 or the Depositories Act, 1996, as the case may be- shall be credited to the Investor Protection and Education Fund (IPEF) established by the Board, and such amount shall be utilised by the Board in accordance with the regulations made under this Act.’’. Provided that the Board may take any of the measures specified in clause (d) or clause (e) or clause (f), in respect of any listed public company or a public company (not being intermediaries referred to in section 12) which intends to get its securities listed on any recognised stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market: Provided further that the Board shall, either before or after passing such orders, give an opportunity of hearing to such intermediaries or persons concerned. Penalty: The Board may, by an order, for reasons to be recorded in writing, levy penalty under sections 15A, 15B, 15C, 15D, 15E, 15EA, 15EB, 15F, 15G, 15H, 15HA and 15HB after holding an inquiry in the prescribed manner. Consequences: The amount disgorged, pursuant to a direction issued, under various Acts i.e., section 11B of this Act or section 12A of the Securities Contracts (Regulation) Act, 1956 or section 19 of the Depositories Act, 1996 or under a settlement made under section 15JB or section 23JA of the Securities Contracts (Regulation) Act, 1956 or section 19-IA of the Depositories Act, 1996, as the case may be, shall be: 1. Credited to the Investor Protection and Education Fund established by the Board and 2. Such amount shall be utilized by the Board in accordance with the regulations made under this Act. Example 1: The Securities and Exchange Board of India (SEBI) has received certain information and complaints which have led to it believe that DA Brokers Ltd, a registered Market Intermediary has violated multiple provisions of the SEBI regulations. In such a case, SEBI may, at any time by order in writing, direct any person (hereafter in this section referred to as the Investigating Authority) specified in the order to investigate the affairs of such intermediary or persons associated with the 1.10 CORPORATE AND ECONOMIC LAWS securities market and to report thereon to the Board. Therefore, an order for an investigation into the affairs of the broker may be initiated. Additional functions of SEBI under the Securities Contracts (Regulation) Act, 1956: The Securities Contracts (Regulation) Act, 1956 which was enacted to prevent undesirable transactions in securities and to regulate the business of securities had given certain powers to the Central Government, under the provisions of that Act. The functions of the Central Government under that Act have been granted to SEBI. These functions are: (a) Power to call for periodical returns or direct enquiries to be made (Section 6 of SCRA): SEBI will receive from every Recognised Stock Exchange such periodical returns relating to its affairs as may be prescribed by SCRA rules. Description of Powers Powers of SEBI Power to inspect It shall be open to SEBI to inspect at all reasonable times books of accounts and other documents to be maintained by the Stock Exchanges for periods not exceeding five years as may be prescribed in the public interest and in the interest of trade by the Central Government. Power of SEBI to call for It shall also be open to SEBI to call upon recognised information/explanation relating to stock exchanges or any member thereof to furnish affairs of the stock exchange in writing such information or explanation relating to the affairs of the Stock Exchange or of the member in relation to the stock exchange as may be required by SEBI in the interest of trade or in the public interest. SEBI to appoint persons to make an It shall also be open to SEBI to appoint, by order in inquiry writing, one or more persons to make an inquiry in the prescribed manner in relation to the affairs of the governing body of stock exchange or the affairs of any of the members of the stock exchange in relation to the stock exchange and submit a report of the result of such enquiry to SEBI within the time as, specified in the order. In the case of affairs of any of the members/ of a stock exchange, SEBI can direct the governing body of such stock exchange to make an inquiry and submit its report. SEBI will bound the concerned Every director, manager, secretary or other officer of persons to produce documents such stock exchange, every member of such stock SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.11 before himself /other enquiry officer exchange and every constituent or agent of such member if it is a firm and every other person or body of persons having dealings with any of these persons whether directly or indirectly shall be bound to produce before SEBI or other enquiry officer, all books of accounts and other documents in his custody or power relating to the subject matter of the enquiry. This has to be done within the time specified and as may be required by the enquiry authority. (b) Power to approve the bye-laws of stock exchanges: Section 9 of SCRA provides that any recognised stock exchange may make bye-laws for the regulation and control of contracts with the previous approval of SEBI. Such bye- laws may provide for submission of periodical settlements carried out by clearing houses to SEBI or publication of such particulars by clearing houses subject to SEBI's directions. Such bye-laws have to be published for public comments and after approval by SEBI shall have to be published in the Gazette of India and also in the Official Gazette of the State unless SEBI, by written order with reasons dispense with the condition of previous publication. (c) Power of SEBI to make or amend bye-laws of recognised stock exchanges (Section 10, SCRA): SEBI may either on a request in writing received by it in this behalf from the governing body of a recognised stock exchange or on its own motion make bye-laws on matters specified in Section 9 of SCRA or amend any bye-laws made by such stock exchange. SEBI will have to be satisfied, after consultation with the governing body of the stock exchange, that it is necessary or expedient to make or amend the bye-laws and record its reasons also. (d) Licensing of dealers in securities in certain areas (Section 17 SCRA): SEBI has been empowered to grant a Iicense to any person for the business of dealing in securities in any State or area to which Section 13 of SCRA has not been declared to apply. Section 13 of SCRA deals with contracts in notified areas to be illegal in certain circumstances. (e) Public Issue and listing of securities referred to in section 2 (h) (ie) of SCRA: As per section 17A, securities of the nature referred to in section 2 (h) (ie) shall be offered to the public or listed on any stock exchange unless the issuer fulfills eligibility criteria and complies with other requirements as may be specified by SEBI by regulations. (f) Power to delegate: Section 29A of SCRA provides that the Central Government may, by order published in the Official Gazette, direct that the powers exercisable by it under any provision of the SCRA shall, in relation to such matters and subject to such conditions, if any as may be specified in the order, be exercisable also by SEBI or the Reserve Bank of India. More Powers for SEBI: Certain additional powers with regard to certain provisions under the Companies Act, 2013, related to issue and transfer of securities and non-payment of dividend, in the case of listed public companies intending to get their securities listed on any recognised stock exchange, shall be administered by SEBI. 1.12 CORPORATE AND ECONOMIC LAWS 5. BOARD TO REGULATE OR PROHIBIT ISSUE OF PROSPECTUS, OFFER DOCUMENT OR ADVERTISEMENT SOLICITING MONEY FOR ISSUE OF SECURITIES [SECTION 11A] (1) As per this section, the Board may, for the protection of investors,— Specify, by regulations by general or special orders— the matters relating to issue of prohibit any company from capital, transfer of securities and issuing prospectus, any offer other matters incidental thereto; document, or advertisement and soliciting money from the public the manner in which such for the issue of securities; matters shall be disclosed by the specify the conditions subject to companies; which the prospectus, such offer document or advertisement, if not prohibited, may be issued. (2) The Board may specify the requirements for listing and transfer of securities and other matters incidental thereto. 6. COLLECTIVE INVESTMENT SCHEME [SECTION 11AA] Any scheme or arrangement which satisfies the conditions referred to in sub-section (2) or sub- section (2A) shall be a collective investment scheme. Provided that any pooling of funds under any scheme or arrangement, which is not registered with the Board or is not covered under sub-section (3), involving a corpus amount of one hundred crore rupees or more shall be deemed to be a collective investment scheme. Requisite conditions [Section 11AA(2)]: Any scheme or arrangement made or offered by any person under which, - (i) the contributions, or payments made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement; (ii) the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement; (iii) the property, contribution or investment forming part of scheme or arrangement, whether SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.13 identifiable or not, is managed on behalf of the investors; (iv) the investors do not have day-to-day control over the management and operation of the scheme or arrangement.[Sub-section 2] Section 11AA(2A): Any scheme or arrangement made or offered by any person satisfying the conditions as may be specified in accordance with the regulations made under this Act. Exceptions [Section 11AA(3)]: Following scheme or arrangement shall not be a collective investment scheme- (i) made or offered by a co-operative society registered under the Co-operative Societies Act, 1912 or a society being a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State; (ii) under which deposits are accepted by non-banking financial companies as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934; (iii) being a contract of insurance to which the Insurance Act, 1938 applies; (iv) providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; (v) under which deposits are accepted under the Companies Act, 2013 (vi) under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society under the Companies Act, 2013; (vii) falling within the meaning of Chit business as defined in clause (d) of section 2 of the Chit Fund Act, 1982; (viii) under which contributions made are in the nature of subscription to a mutual fund; (ix) such other scheme or arrangement which the Central Government may, in consultation with the Board, notify, 7. POWER TO ISSUE DIRECTIONS AND LEVY PENALTY [SECTION 11B] Save as otherwise provided in Section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary: 1.14 CORPORATE AND ECONOMIC LAWS in the interest of investors, or orderly development of securities market; or to prevent the affairs of any intermediary or other persons referred to in Section 12 being conducted in a manner detrimental to interest of investors or securities market; or to secure the proper management of any such intermediary or persons, Board may issue directions to any company in respect of to any person or class of matters specified in Section persons 11A, associated with in the interests of referred to in the securities the securities investors in Section 12, or market. market; securities, and Levy of Penalty: The Board may, by an order, for reasons to be recorded in writing, levy penalty under sections 15A, 15B, 15C, 15D, 15E, 15EA, 15EB, 15F, 15G, 15H, 15HA and 15HB after holding an inquiry in the prescribed manner. Explanation—For the removal of doubts, it is hereby declared that the power to issue directions under this section shall include and always be deemed to have been included the power to direct any person, who made profit or averted loss by indulging in any transaction or activity in contravention of the provisions of this Act or regulations made thereunder, to disgorge an amount equivalent to the wrongful gain made or loss averted by such contravention. 8. INVESTIGATION [SECTION 11C] (1) Grounds for issue of an order of investigation: Where the Board has reasonable ground to believe that— SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.15 (a) the transactions in securities are being dealt with in a manner detrimental to the investors or the securities market; or (b) any intermediary or any person associated with the securities market has violated any of the provisions of this Act or the rules or the regulations made or directions issued by the Board there under. It may, at any time by order in writing, direct any person (hereafter in this section referred to as the Investigating Authority) specified in the order to investigate the affairs of such intermediary or persons associated with the securities market and to report thereon to the Board. (2) Furnishing of relevant documents to the investigating authority: It shall be the duty of- every manager, managing director, officer and other employee of the company and every intermediary referred to in section 12, or every person associated with the securities market, to preserve, and to produce to the Investigating Authority or any person authorised by it in this behalf, all the books, registers, other documents and record of, or relating to, the company or, as the case may be, of or relating to, the intermediary or such person, which are in their custody or power. (3) Period of custody: The Investigating Authority may keep in its custody any books, registers, other documents and record produced for six months and thereafter shall return the same to any intermediary or any person associated with securities market by whom or on whose behalf the books, registers, other documents and record are produced: The Investigating Authority may call for any book, register, other document and record if they are needed again. If the person on whose behalf the books, registers, other documents and record are produced requires certified copies of the books, registers, other documents and record produced before the Investigating Authority, it shall give certified copies of such books, registers, other documents and record to such person or on whose behalf the books, registers, other documents and record were produced. (4) Examination on oath: Any person, directed to make an investigation, may examine on oath, any manager, managing director, officer and other employee of any intermediary or any person associated with securities market in any manner, in relation to the affairs of his business and may administer an oath accordingly and for that purpose may require any of those persons to appear before it personally. 1.16 CORPORATE AND ECONOMIC LAWS (5) On failure: If any person fails without reasonable cause or refuses— Failure in compliance Punishment (a) to produce to the Investigating Person shall be punishable with- Authority or any person imprisonment for a term which may authorised by it in this behalf any extend to one year, or book, register, other document with fine, which may extend to one crore and record which is his duty to rupees, or produce; or with both, and (b) to furnish any information which also with a further fine which may extend is his duty to furnish; or to five lakh rupees for every day after the (c) to appear before the Investigating first during which the failure or refusal Authority personally or to answer continues. any question which is put to him by the Investigating Authority in pursuance of that sub-section; or (d) to sign the notes of any examination, (6) Notes of examination to be used as examination: Notes of any examination shall be taken down in writing and shall be read over to, or by, and signed by, the person examined, and may thereafter be used in evidence against him. (7) Impounding of documents :Where in the course of investigation, the Investigating Authority has reasonable ground to believe that the books, registers, other documents and record of, or relating to, any intermediary or any person associated with securities market in any manner, may be destroyed, mutilated, altered, falsified or secreted, the Investigating Authority may make an application to the Magistrate or Judge of such designated court in Mumbai, as may be notified by the Central Government for an order for the seizure of such books, registers, other documents and record. (8) Demand of services of other officers: The authorized officer may requisition the services of any police officer or any officer of the Central Government, or of both, to assist him for all or any of the purposes as specified above with respect to impounding of documents and it shall be the duty of every such officer to comply with such requisition. (9) Order of court: After considering the application and hearing the Investigating Authority, if necessary, the Magistrate or Judge of the Designated Court may, by order, authorise the Investigating Authority – SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.17 to enter, with such assistance, as may be required, the place or places where such books, registers, other documents and record are kept; to search that place or those places in the manner specified in the order; and to seize books, registers, other documents and record, it considers necessary for the purposes of the investigation: Exemptions: Provided that the Magistrate or Judge of the Designated Court shall not authorise seizure of books, registers, other documents and record, of any listed public company or a public company (not being the intermediaries specified under section 12) which intends to get its securities listed on any recognised stock exchange unless such company indulges in insider trading or market manipulation. (10) Impounded documents will remain in the custody of investigating authority: The Investigating Authority shall keep in its custody the books, registers, other documents and record seized under this section for such period not later than the conclusion of the investigation as it considers necessary and thereafter shall return the same to the company or the other body corporate, or, as the case may be, to the managing director or the manager or any other person, from whose custody or power they were seized and inform the Magistrate or Judge of the Designated Court of such return: Provided that the Investigating Authority may, before returning such books, registers, other documents and record as aforesaid, place identification marks on them or any part thereof. (11) Every search or seizure made under this section shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) relating to searches or seizures made under that Code. 9. CEASE AND DESIST PROCEEDINGS [SECTION 11D] If the Board finds, after causing an inquiry to be made, that any person has violated, or is likely to violate, any provisions of this Act, or any rules or regulations made thereunder, it may pass an order requiring such person to cease and desist from committing or causing such violation: Provided that the Board shall not pass such order in respect of any listed public company or a public company (other than the intermediaries specified under section 12) which intends to get its securities listed on any recognised stock exchange unless the Board has reasonable grounds to believe that such company has indulged in insider trading or market manipulation.” 1.18 CORPORATE AND ECONOMIC LAWS 10. REGISTRATION CERTIFICATE [SECTION 12] Provision related to Provides Persons who are authorized to buy, Stock broker, sub-broker, share transfer agent, banker sell or deal in securities 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 in accordance with, the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this Act Board may by notification specify the Depository, participant, custodian of securities, persons who shall buy or sell or deal foreign institutional investor, credit rating agency, or in securities 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 in accordance with the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this Act; Person who shall sponsor or cause to Shall be, who obtains certificate of registration from be sponsored or carry on or caused to the Board in accordance with the regulations. be carried on any venture capital funds and collective investment scheme including mutual funds Person who shall sponsor or cause to Shall be, who obtains certificate of registration from be sponsored or carry on or caused to the Board in accordance with the regulations. be carried on the activity of an alternative investment fund or a business trust as defined in clause (13A) of section 2 of the Income-tax Act, 1961 Manner of application for registration: Every application for registration shall be in such manner and on payment of such fees as may be determined by regulations. Suspension /cancellation of a certificate of registration: 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. SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.19 11. PROHIBITION OF MANIPULATIVE AND DECEPTIVE DEVICES, INSIDER TRADING AND SUBSTANTIAL ACQUISITION OF SECURITIES OR CONTROL [SECTION 12A] Prohibition on person From performing following activities use or employ in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder; employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are No person shall directly or indirectly listed or proposed to be listed on a recognised stock exchange; engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder; engage in insider trading; deal in securities while in possession of material or non-public information or communicate such material or non-public information to any other person, in a manner which is in contravention of the provisions of this Act or the rules or the regulations made thereunder; acquire control of any company or securities more than the percentage of equity share capital of a company whose securities are listed or proposed to be listed on a recognised stock exchange in contravention of the regulations made under this Act. 1.20 CORPORATE AND ECONOMIC LAWS 12. FINANCE, ACCOUNTS AND AUDIT Grants by the Central Government [Section 13] The Central Government may, after due appropriation made by Parliament by law in this behalf, make to the Board grants of such sums of money as that Government may think fit for being utilized for the purposes of this Act. Fund [Section 14] (1) There shall be constituted a Fund to be called the Securities and Exchange Board of India General Fund and there shall be credited thereto- all grants, fees and charges received by the Board under this Act; all sums received by the Board from such other sources as may be decided upon by the Central Government. (2) The Fund shall be applied for meeting— the salaries, allowances and other remuneration of the members, officers and other employees of the Board; the expenses of the Board in the discharge of its functions under section 11; the expenses on objects and for purposes authorised by this Act. Accounts and audit [Section15] (1) Preparation of annual financial statement of Board in consultation with CAG of India: The Board shall maintain proper accounts and other relevant records and prepare an annual statement of accounts in such form as may be prescribed by the Central Government in consultation with the Comptroller and Auditor-General of India. (2) Audit of accounts of Board: The accounts of the Board shall be audited by the Comptroller and Auditor-General of India at such intervals as may be specified by him and any expenditure incurred in connection with such audit shall be payable by the Board to the Comptroller and Auditor-General of India. (3) Right and Privileges: The Comptroller and Auditor-General of India and any other person appointed by him in connection with the audit of the accounts of the Board shall have the same rights and privileges and authority in connection with such audit as the Comptroller and Auditor- General generally has in connection with the audit of the Government accounts and, in particular, shall have the right to demand the production of books, accounts, connected vouchers and other documents and papers and to inspect any of the offices of the Board. (4) Certified Accounts and Audit reports to be forwarded to the Central Government: The accounts of the Board as certified by the Comptroller and Auditor-General of India or any other person appointed by him in this behalf together with the audit report thereon shall be forwarded annually to the Central Government and that Government shall cause the same to be laid before each House of Parliament. SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.21 13. PENALTIES AND ADJUDICATION Penalty for failure to furnish information, return, etc. [Section 15A] If any person, who is required under this Act or any rules or regulations made thereunder,— to file any return or furnish any to furnish any document, information, books or other return or report to the documents within the time Board, fails to furnish the specified therefor in the same or who furnishes regulations, fails to file return or to maintain books of or files false, incorrect furnish the same within the account or records, fails to or incomplete time specified therefor in the maintain the same regulations, or who furnishes or information, return, files false, incorrect or report, books or other incomplete information, return, documents report, books or other documents he shall be liable to a he shall be liable to a he shall be liable to a penalty which shall not be penalty which shall not be penalty which shall not be less than one lakh rupees less than one lakh rupees less than one lakh rupees but which may extend to but which may extend to but which may extend to one lakh rupees for each one lakh rupees for each one lakh rupees for each day during which such day during which such day during which such failure continues subject failure continues subject failure continues subject to a maximum of one to a maximum of one to a maximum of one crore rupees crore rupees crore rupees Penalty for failure by any person to enter into agreement with clients [Section 15B] If any person, who is registered as an intermediary and is required under this Act or any rules or regulations made thereunder to enter into an agreement with his client, fails to enter into such agreement, he shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees. Penalty for failure to redress investors’ grievances [Section 15C] 1.22 CORPORATE AND ECONOMIC LAWS If any listed company or any person who is registered as an intermediary, after having been called upon by the Board in writing, to redress the grievances of investors, fails to redress such grievances within the time specified by the Board, such company or intermediary shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees. Penalty for certain defaults in case of mutual funds [Section 15D] Person liable For defaults Punishments levied required under this Act or any he shall be liable to a penalty which rules or regulations made shall not be less than one lakh thereunder to obtain a certificate rupees but which may extend to one of registration from the Board for lakh rupees for each day during sponsoring or carrying on any which he sponsors or carries on any collective investment scheme), such collective investment scheme including mutual funds, sponsors including mutual funds subject to a or carries on any collective maximum of one crore rupees; investment scheme, including mutual funds, without obtaining such certificate of registration registered with the Board as a he shall be liable to a penalty which collective investment scheme, shall not be less than one lakh including mutual funds, for rupees but which may extend to one sponsoring or carrying on any lakh rupees for each day during If any person, who investment scheme, fails to which such failure continues subject is— comply with the terms and to a maximum of one crore rupees; conditions of certificate of registration registered with the Board as a he shall be liable to a penalty which collective investment scheme, shall not be less than one lakh including mutual funds, fails to rupees but which may extend to one make an application for listing of lakh rupees for each day during its schemes as provided for in the which such failure continues subject regulations governing such listing to a maximum of one crore rupees; registered as a collective he shall be liable to a penalty which investment scheme, including shall not be less than one lakh SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.23 mutual funds, fails to dispatch unit rupees but which may extend to one certificates of any scheme in the lakh rupees for each day during manner provided in the regulation which such failure continues subject governing such dispatch to a maximum of one crore rupees; registered as a collective he shall be liable to a penalty which investment scheme, including shall not be less than one lakh mutual funds, fails to refund the rupees but which may extend to one application monies paid by the lakh rupees for each day during investors within the period which such failure continues subject specified in the regulations to a maximum of one crore rupees registered as a collective he shall be liable to a penalty which investment scheme, including shall not be less than one lakh mutual funds, fails to invest rupees but which may extend to one money collected by such lakh rupees for each day during collective investment schemes in which such failure continues subject the manner or within the period to a maximum of one crore rupees. specified in the regulations Penalty for failure to observe rules and regulations by an asset management company [Section 15E] Where any asset management company of a mutual fund registered under this Act, fails to comply with any of the regulations providing for restrictions on the activities of the asset management companies, such asset management company shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees Penalty for default in case of alternative investment funds, infrastructure investment trusts and real estate investment trusts [Section 15 EA] Where any person fails to comply with the regulations made by the Board in respect of:  alternative investment funds,  infrastructure investment trusts, and  real estate investment trusts or  fails to comply with the directions issued by the Board, such person shall be liable to penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a 1.24 CORPORATE AND ECONOMIC LAWS maximum of one crore rupees or three times the amount of gains made out of such failure, whichever is higher. Penalty for default in case of investment adviser and research analyst [Section 15EB] Where an investment adviser or a research analyst fails to comply with the regulations made by the Board or directions issued by the Board, such investment adviser or research analyst shall be liable to penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees. Penalty for default in case of stock brokers [Section 15 F] Person, contract notes in the form he shall be liable to a registered fails to issue and manner specified by penalty which shall not be as a stock the stock exchange of less than one lakh rupees broker which such broker is a but which may extend member, to one crore rupees for which the contract note was required to be issued by that broker any security or fails to make he shall be liable to a penalty fails to deliver payment of the amount due which shall not be less than one to the investor in the lakh rupees but which may manner within the period specified in the regulations extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees an amount of brokerage he shall be liable for penalty charges which is in excess of the which shall not be less than brokerage specified in the one lakh rupees but which regulations may extend to five times the amount of brokerage charged in excess of the specified brokerage, whichever is higher SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.25 Penalty for insider trading [Section 15G] Any insider shall be liable to a penalty which shall not be less than ten lakh rupees but which may extend to twenty-five crore rupees / three times the amount of profits made out of insider trading, whichever is higher, who- communicates any unpublished counsels, or procures for any either on his own behalf or on price-sensitive information to other person to deal in any behalf of any other person any person, with or without his securities of any body corporate request for such information on the basis of unpublished price-sensitive information deals in securities of a body corporate listed on any stock except as required in the exchange on the basis of any ordinary course of business or unpublished price-sensitive under any law, or information; or Penalty for non-disclosure of acquisition of shares and takeovers [Section 15 H] If any person, who is required under this Act or any rules or regulations made thereunder, fails to,— disclose the aggregate of his shareholding in the body corporate before he acquires any shares of that body corporate; or make a public announcement to acquire shares at a minimum price; or make a public offer by sending letter of offer to the shareholders of the concerned company; or make payment of consideration to the shareholders who sold their shares pursuant to letter of offer, he shall be liable to a penalty which shall not be less than ten lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of such failure, whichever is higher. 1.26 CORPORATE AND ECONOMIC LAWS Penalty for fraudulent and unfair trade practices [Section 15HA] If any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty which shall – not be less than five lakh rupees but Whichever is which may extend to twenty-five crore rupees or higher three times the amount of profits made out of such practices,. Penalty for alteration destruction, etc., of records and failure to protect the electronic database of Board [15HAA] Any person, who— (a) knowingly alters, destroys, mutilates, conceals, falsifies, or makes a false entry in any information, record, document (including electronic records), which is required under this Act or any rules or regulations made thereunder, so as to impede, obstruct, or influence the investigation, inquiry, audit, inspection or proper administration of any matter within the jurisdiction of the Board. Explanation.— For the purposes of this clause, a person shall be deemed to have altered, concealed or destroyed such information, record or document, in case he knowingly fails to immediately report the matter to the Board or fails to preserve the same till such information continues to be relevant to any investigation, inquiry, audit, inspection or proceeding, which may be initiated by the Board and conclusion thereof; (b) without being authorised to do so, access or tries to access, or denies of access or modifies access parameters, to the regulatory data in the database; (c) without being authorised to do so, downloads, extracts, copies, or reproduces in any form the regulatory data maintained in the system database; (d) knowingly introduces any computer virus or other computer contaminant into the system database and brings out a trading halt; (e) without authorisation disrupts the functioning of system database; (f) knowingly damages, destroys, deletes, alters, diminishes in value or utility, or affects by any means, the regulatory data in the system database; or (g) knowingly provides any assistance to or causes any other person to do any of the acts specified in clauses (a) to (f), shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to ten crore rupees or three times the amount of profits made out of such act, whichever is higher. SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.27 Explanation.—In this section, the expressions "computer contaminant", "computer virus" and "damage" shall have the meanings respectively assigned to them under section 43 of the Information Technology Act, 2000. Penalty for contravention where no separate penalty has been provided [Section 15HB] Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one crore rupees. Summary of Section 15A to 15HB Sec Kind of Failure: Penalty 15A a. Fails to furnish any document, return or report to the Board ` 1 lakh + ` 1 lakh / or furnishes or files false, incorrect or incomplete information, day up to ` 1 Crore. return, report, books or other documents. b. Fails to file any return or furnish any information, books or other documents within time specified or who furnishes or files false, incorrect, or incomplete information, return, report, books or other documents. c. Fails to maintain books of account or records. 15B If any person registered u/s 12 is required by the Act to enter into ` 1 lakh + ` 1 lakh / an agreement with his client, fails to enter into such agreement day up to ` 1 Crore. 15C If any listed company or any person who is registered u/s 12, ` 1 lakh + ` 1 lakh / after having been called upon by the Board, to redress the day up to ` 1 Crore. grievances of investors, fails to redress such grievances within the time specified by the Board, such company or intermediary 15D If any person, who is: ` 1 lakh + ` 1 lakh / a. required u/s 12 to obtain a CoR for sponsoring or carrying on day up to ` 1 Crore any CIS, including MF, sponsors or carries on any such activity without obtaining such CoR b. registered as a CIS u/s 12 but fails to comply with the T&C of CoR to make an application for listing of its schemes as provided for in the regulations governing such listing dispatch unit certificates of any scheme in the manner provided in the regulation governing such dispatch refund the application monies paid by the investors within the period specified in the regulations 1.28 CORPORATE AND ECONOMIC LAWS Invest money collected by such CIS as per regulations 15E Where any AMC of a MF registered under this Act, fails to comply ` 1 lakh + ` 1 lakh / with any of the regulations providing for restrictions on the day up to ` 1 Crore activities of the AMC, such AMC: 15EA Where any person fails to comply with the regulations in respect ` 1 lakh + ` 1 lakh / of, day up to (Higher of ` 1 alternative investment funds, Crore or 3 times of the infrastructure investment trusts, and gain made out of such failure) real estate investment trusts or or fails to comply with the directions issued by the Board, shall be liable to 15EB Where an investment adviser or a research analyst fails to ` 1 lakh + ` 1 lakh / comply with the regulations or directions issued by the Board, day up to ` 1 Crore such investment adviser or research analyst 15F If any person, who is registered as a stockbroker under this Act: ` 1 lakh up to ` 1 Crore (a) fails to issue contract notes in the form and manner specified by the stock exchange of which such broker is a member 15F (b) fails to deliver any security or fails to make payment of the ` 1 lakh + ` 1 lakh / amount due to the investor as per the regulations day up to ` 1 Crore 15F (c) charges an amount of brokerage which is in excess of the ` 1 lakh up to 5 times brokerage specified in the regulations the amount of brokerage charged in excess of the specified brokerage 15G If any insider who: ` 10 lakhs up to a. either on his own behalf or on behalf of any other person, (Higher of ` 25 Crores deals in securities of a body corporate listed on any stock or 3X amount of profit exchange on the basis of any unpublished price-sensitive made) information; or b. communicates any unpublished price-sensitive information to any person, with or without his request for such information except as required in the ordinary course of business or under any law; or c. counsels, or procures for any other person to deal in any securities of any body corporate on the basis of unpublished price-sensitive information SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.29 15H If any person, who is required under this Act/rules/regulations, ` 10 lakhs up to fails to: (Higher of ` 25 Crores a. disclose the aggregate of his shareholding in the body or 3X amount of profit corporate before he acquires any shares of that body made) corporate; or b. make a public announcement to acquire shares at a minimum price; or c. make a public offer by sending letter of offer to the shareholders of the concerned company; or d. make payment of consideration to the shareholders who sold their shares pursuant to letter of offer 15HA If any person indulges in fraudulent and unfair trade practices ` 5 lakhs up to (Higher relating to securities of ` 25 Crores or 3X amount of profit made) 15HAA Any person, who: ` 1 lakh up to (Higher a. knowingly DAMFS any information, record, document of ` 10 Crores or 3X (including e-records) required to be maintained as per the amount of profit made) Act, so as to impede, obstruct, or influence the III, Audit, or proper administration of any matter within the jurisdiction of the Board. b. without being authorised to do so, access or tries to access, or denies or modifies access parameters, to the regulatory data in the database; c. without being authorised to do so, downloads, extracts, copies, or reproduces in any form the regulatory data maintained in the system database; d. knowingly introduces any computer virus or other computer contaminant into the system database and brings out a trading halt; e. without authorisation disrupts the functioning of system database; f. knowingly damages, destroys, deletes, alters, diminishes in value or utility, or affects by any means, the regulatory data in the system database; or g. knowingly provides any assistance to or causes any other person to do any of the acts specified in clauses (a) to (f) 15HB Person fails to comply with any provision of this ` 1 lakh up to ` 1 Crore Act/Rules/Regulations/directions issued by the Board for which no separate penalty has been provided 1.30 CORPORATE AND ECONOMIC LAWS Power to adjudicate [Section 15-I] On the matters related to Power to adjudicate For the purpose of adjudging under Board may appoint any officer not below the rank sections 15A, 15B, 15C, 15D, 15E, 15EA, of a Division Chief to be an adjudicating officer for 15EB , 15F, 15G ,15H, 15HA and 15HB holding an inquiry in the prescribed manner after giving any person concerned a reasonable opportunity of being heard for the purpose of imposing any penalty. On holding of an inquiry The adjudicating officer shall have power to: summon and enforce the attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document which in the opinion of the adjudicating officer, may be useful for or relevant to the subject-matter of the inquiry and if, on such inquiry, he is satisfied that the person has failed to comply with the provisions of any of the sections specified in subsection (1), he may impose such penalty as he thinks fit in accordance with the provisions of any of those sections. Order passed by adjudicating officer is not The Board may call for and examine the record of justified any proceedings and if it considers that the order passed by the adjudicating officer is erroneous to the extent it is not in the interests of the securities market, it may, after making or causing to be made such inquiry as it deems necessary, pass an order enhancing the quantum of penalty, if the circumstances of the case so justify: Provided that no such order shall be passed unless the person concerned has been given an opportunity of being heard in the matter: Limitation period: Provided further that nothing contained in this sub-section shall be applicable after an expiry of a period of three months from the date of the order passed by the adjudicating officer or disposal of the appeal under section 15T, whichever is earlier. SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.31 Factors to be taken into account while adjudging quantum of penalty [Section 15J] While adjudging quantum of penalty under section 15-I or section 11 or section 11B, the Board or the adjudicating officer, shall have due regard to the following factors, namely:— the amount of the amount of loss caused to disproportionate gain or an investor or group of the repetitive nature of the unfair advantage, wherever investors as a result of the default. quantifiable, made as a result default of the default It is clarified here that the power to adjudge the quantum of penalty under sections 15A to 15E, clauses (b) and (c) of sections 15F, 15G, 15H and 15HA shall be and shall always be deemed to have been exercised under the provisions of this section. Crediting sums realised by way of penalties to Consolidated Fund of India [Section15JA] All sums realised by way of penalties under this Act shall be credited to the Consolidated Fund of India. Settlement of administrative and civil proceedings [Section 15 JB] (1) Filing of an application: Any person, against whom any proceedings have been initiated or may be initiated under section 11, section 11B, section 11D, sub-section (3) of section 12 or section 15-I, may file an application in writing to the Board proposing for settlement of the proceedings initiated or to be initiated for the alleged defaults. (2) Board may consider for settlement of defaults: The Board may, after taking into consideration the nature, gravity and impact of defaults, agree to the proposal for settlement, on payment of such sum by the defaulter or on such other terms as may be determined by the Board in accordance with the regulations made under this Act. (3) Mode of settlement proceedings: The settlement proceedings under this section shall be conducted in accordance with the procedure specified in the regulations made under this Act. (4) Order not appealable: No appeal shall lie under section 15T against any order passed by the Board or adjudicating officer, as the case may be, under this section. (5) Settlement amount to be credited to consolidated fund of India: All settlement amounts, excluding the disgorgement amount and legal costs, realised under this Act shall be credited to the Consolidated Fund of India. 1.32 CORPORATE AND ECONOMIC LAWS 14. ESTABLISHMENT, JURISDICTION, AUTHORITY AND PROCEDURE OF SECURITIES APPELLATE TRIBUNAL (SAT) Establishment of Securities Appellate Tribunals [Section 15K] (1) The Central Government shall, by notification, establish a Tribunal to be known as the Securities Appellate Tribunal to exercise the jurisdiction, powers and authority conferred on it by or under this Act or any other law for the time being in force. (2) The Central Government shall also specify in the notification referred to in sub-section (1), the matters and places in relation to which the Securities Appellate Tribunal may exercise jurisdiction. Composition of Securities Appellate Tribunal [Section 15L] (1) Composition: The Securities Appellate Tribunal shall consist of a Presiding Officer and such number of Judicial Members and Technical Members as the Central Government may determine, by notification, to exercise the powers and discharge the functions conferred on the Securities Appellate Tribunal under this Act or any other law for the time being in force. (2) Subject to the provisions of this Act,— (a) the jurisdiction of the Securities Appellate Tribunal may be exercised by Benches thereof; (b) a Bench may be constituted by the Presiding Officer of the Securities Appellate Tribunal with two or more Judicial or Technical Members as he may deem fit: Provided that every Bench constituted shall include at least one Judicial Member and one Technical Member; (c) the Benches of the Securities Appellate Tribunal shall ordinarily sit at Mumbai and may also sit at such other places as the Central Government may, in consultation with the Presiding Officer, notify. (3) Transfer of members: The Presiding Officer may transfer a Judicial Member or a Technical Member of the Securities Appellate Tribunal from one Bench to another Bench. Qualification for appointment as Presiding Officer or Member of Securities Appellate Tribunal [Section 15M] A person shall not be qualified for appointment as the Presiding Officer or a Judicial Member or a Technical Member of the Securities Appellate Tribunal, unless he— (a) is, or has been, a Judge of the Supreme Court or a Chief Justice of a High Court or a Judge of High Court for at least seven years, in the case of the Presiding Officer; and SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.33 (b) is, or has been, a Judge of High Court for at least five years, in the case of a Judicial Member; or (c) in the case of a Technical Member–– (i) is, or has been, a Secretary or an Additional Secretary in the Ministry or Department of the Central Government or any equivalent post in the Central Government or a State Government; or (ii) is a person of proven ability, integrity and standing having special knowledge and professional experience, of not less than fifteen years, in financial sector including securities market or pension funds or commodity derivatives or insurance. Appointment of judicial member [Section 15MA] The Presiding Officer and Judicial Members of the Securities Appellate Tribunal shall be appointed by the Central Government in consultation with the Chief Justice of India or his nominee. Appointment of technical member [Section 15MB] (1) The Technical Members of the Securities Appellate Tribunal shall be appointed by the Central Government on the recommendation of a Search-cum-Selection Committee consisting of the following, namely:–– (a) Presiding Officer, Securities Appellate Tribunal—Chairperson; (b) Secretary, Department of Economic Affairs—Member; (c) Secretary, Department of Financial Services—Member; and (d) Secretary, Legislative Department or Secretary, Department of Legal Affairs—Member. (2) The Secretary, Department of Economic Affairs shall be the Convener of the Search-cum Selection Committee. (3) The Search-cum-Selection Committee shall determine its procedure for recommending the names of persons to be appointed under sub-section (1). Validity of appointment of Presiding officer and members of SAT [Section 15MC] (1) No appointment of the Presiding Officer, a Judicial Member or a Technical Member of the Securities Appellate Tribunal shall be invalid merely by reason of any vacancy or any defect in the constitution of the Search cum- Selection Committee. (2) Disqualification of members: A member or part time member of the Board or the Insurance Regulatory and Development Authority or the Pension Fund Regulatory and Development Authority, or any person at senior management level equivalent to the Executive Director in the Board or in such Authorities, shall not be appointed as Presiding Officer or Member of the Securities Appellate Tribunal, during his service or tenure as such with the Board or with such 1.34 CORPORATE AND ECONOMIC LAWS Authorities, as the case may be, or within two years from the date on which he ceases to hold office as such in the Board or in such Authorities. (3) Effect of holding of office by officer or members on commencement of Finance Act, 2017: The Presiding Officer or such other member of the Securities Appellate Tribunal, holding office on the date of commencement of Part VIII of Chapter VI of the Finance Act, 2017 shall continue to hold office for such term as he was appointed and the other provisions of this Act shall apply to such Presiding Officer or such other member, as if Part VIII of Chapter VI of the Finance Act, 2017 had not been enacted. Tenure of office of Presiding Officer and other Members of Securities Appellate Tribunal [Section 15N] The Presiding Officer or every Judicial or Technical Member of the Securities Appellate Tribunal shall hold office for a term of five years from the date on which he enters upon his office, and shall be eligible for reappointment for another term of maximum five years: Provided that no Presiding Officer or the Judicial or Technical Member shall hold office after he has attained the age of seventy years. Salary and allowances and other terms and conditions of service of Presiding Officers [Section 15-O] The salary and allowances payable to and the other terms and conditions of service including pension, gratuity and other retirement benefits of the Presiding Officer and other Members of a Securities Appellate Tribunal shall be such as may be prescribed. Provided that neither the salary and allowances nor the other terms and conditions of service of the Presiding Officer and other Members of a Securities Appellate Tribunal shall be varied to their disadvantage after appointment. Filling up of vacancies [Section 15P] If, for reason other than temporary absence, any vacancy occurs in the office of the Presiding Officer or any other Member of a Securities Appellate Tribunal- then the Central Government shall appoint another person in accordance with the provisions of this Act to fill the vacancy, and the proceedings may be continued before the Securities Appellate Tribunal from the stage at which the vacancy is filled. In the event of occurrence of any vacancy in the office of the Presiding Officer of the Securities Appellate Tribunal by reason of his death, resignation or otherwise, the senior-most Judicial Member of the Securities Appellate Tribunal shall act as the Presiding Officer until the date on which a new Presiding Officer is appointed in accordance with the provisions of this Act. [Section 15PA] SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.35 Resignation and removal [section 15Q] (1) Resignation by notice in writing: The Presiding Officer or any other Member of a Securities Appellate Tribunal may, by notice in writing under his hand addressed to the Central Government, resign his office. Provided that the Presiding Officer or any other Member shall, unless he is permitted by the Central Government to relinquish his office sooner, continue to hold office- until the expiry of three months from the date of receipt of such notice or Whichever is the until a person duly appointed as his successor enters upon his office or earliest until the expiry of his term of office, (2) Removal of Presiding officer/Judicial member/Technical member: The Central Government may, after an inquiry made by the Judge of the Supreme Court, remove the Presiding Officer or Judicial Member or Technical Member of the Securities Appellate Tribunal, if he— (a) is, or at any time has been adjudged as an insolvent; (b) has become physically or mentally incapable of acting as the Presiding Officer, Judicial or Technical Member; (c) has been convicted of any offence which, in the opinion of the Central Government, involves moral turpitude; (d) has, in the opinion of the Central Government, so abused his position as to render his continuation in office detrimental to the public interest; or (e) has acquired such financial interest or other interest as is likely to affect prejudicially his functions as the Presiding Officer or Judicial or Technical Member: Provided that he shall not be removed from office under clauses (d) and (e), unless he has been given a reasonable opportunity of being heard in the matter. (3) Central Government authorized to regulate the procedure of investigation: The Central Government may, by rules, regulate the procedure for the investigation of misbehavior or incapacity of the Presiding Officer or any other Member. Appointment, qualification and the other terms and conditions of service of the Presiding Officer and other Members of the Appellate Tribunal to be governed by Finance Act, 2017 [Section 15QA] (i) Where the qualification, appointment etc. is after the commencement of Finance Act, 2017: Notwithstanding anything contained in this Act, the qualifications, appointment, term of office, salaries and allowances, resignation, removal and the other terms and conditions of service of the Presiding Officer and other Members of the Appellate Tribunal appointed after 1.36 CORPORATE AND ECONOMIC LAWS the commencement of Part XIV of Chapter VI of the Finance Act, 2017, shall be governed by the provisions of section 184 of that Act. (ii) Where the qualification, appointment etc. is before the commencement of Finance Act, 2017: Provided that the Presiding Officer and Member appointed before the commencement of Part XIV of Chapter VI of the Finance Act, 2017, shall continue to be governed by the provisions of this Act and the rules made thereunder as if the provisions of section 184 of the Finance Act, 2017 had not come into force. Orders constituting Appellate Tribunal to be final and not to invalidate its proceedings [Section 15R] No order of the Central Government appointing any person as the Presiding Officer or a Member of a Securities Appellate Tribunal shall be called in question in any manner, and no act or proceeding before a Securities Appellate Tribunal shall be called in question in any manner on the ground merely of any defect in the constitution of a Securities Appellate Tribunal. Staff of the Securities Appellate Tribunal [Section 15S] (1) The Central Government shall provide the Securities Appellate Tribunal with such officers and employees as that Government may think fit. (2) The officers and employees of the Securities Appellate Tribunal shall discharge their functions under general superintendence of the Presiding Officer. (3) The salaries and allowances and other conditions of service of the officers and employees of the Securities Appellate Tribunal shall be such as may be prescribed. Appeal to the Securities Appellate Tribunal [Section 15T] (1) Who may file an appeal of Board made under this Act, or the rules or regulations made thereunder; Any person aggrieved by an made by an adjudicating officer under order - this Act of the Insurance Regulatory and Development Authority or the Pension Fund Regulatory and Development Authority may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter SEBI ACT, 1992 & SEBI (LODR) REGULATIONS, 2015… 1.37 (2) Time period for filing of an appeal: Every appeal shall be filed within a period of forty-five days from the date on which a copy of the order made by the Board or the Adjudicating Officer or the Insurance Regulatory and Development Authority or the Pension Fund Regulatory and Development Authority, as the case may be, is received by him and it shall be in such form and be accompanied by such fee as may be prescribed: Condonation of delay: Provided that the Securities Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period. (3) Order passed by SAT: On receipt of an appeal, the Securities Appellate Tribunal may, after giving the parties to the appeal, an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against. (4) Forwarding of copies of order to the parties: The Securities Appellate Tribunal shall send a copy of every order made by it to the Board, or the Insurance Regulatory and Development Authority or the Pension Fund Regulatory and Development Authority, as the case may be the parties to the appeal and to the concerned Adjudicating Officer. (5) Time period for disposal of appeal: The appeal filed before the Securities Appellate Tribunal shall be dealt with by it as expeditiously as possible and endeavor shall be made by it to dispose of the appeal finally within six months from the date of receipt of the appeal. Procedure and powers of the Securities Appellate Tribunal [Section 15U] (1) The Securities Appellate Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice and, subject to the other provisions of this Act, and of any rules, the Securities Appellate Tribunal shall have powers to regulate their own procedure including the places at which they shall have their sittings. (2) The Securities Appellate Tribunal shall have, for the purposes of discharging their functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely:— (a) summoning and enforcing the attendance of any person and examining him on oath; (b) requiring the discovery and production of documents; (c) receiving evidence on affidavits; (d) issuing commissions for the examination of witne

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