Securities Law

SEBI supervision of Securities Market

Objective

The objective of the present thesis is to ascertain if the provisions of SEBI (Securities Exchange Board of India) regulating the Securities and Financials Markets ensure adequately levels of Investor Protection. The primary focus of this thesis shall be coinciding with the course of Investment Law, enduring upon Protection of Rights and Interests of the Investors.

The importance of Investor protection has been emphasized upon excessively in this thesis because investors are the backbone of the securities market and their understanding of the securities markets is very nascent. They are the ones determining and defining the level of activity in the securities market and the level of financial activity in the economy and still it is possible that many of the investors may not possess adequate expertise/knowledge to take informed investment decisions. The may not be aware of the complete risk and returns associated different investment options and may not be fully aware of the precautions they should take while dealing with financial market intermediaries and dealing in different securities. Most times, they are not even familiar with the market mechanism and the practices as well as their rights and obligations.

All those are the reasons why protecting the rights and interests of investor is important as, in a growing economy like India with such an enormous population, effective channelization of the savings of the individuals through investments and securities can be the make-or-break factor and holds a great importance in the financial market and even the performance of the economy itself.

Research Methodology

The present thesis shall be a theoretical study and will be taking into account the different legal precedents, real world case studies and scenarios and provisions of law so as to undertake the desired result for the abovementioned objective.

The thesis will deal with the investor protection aspect of the role of SEBI by citing and referring to the case study of Sahara Scam.

The provisions of statutory law referred in this thesis are:

  • Securities Exchange Board of India Act 1992
  • (Issue of Capital and Disclosure Requirements) Regulations, 2009.
  • The Securities and Exchange Board of India, (stock brokers and sub-brokers) Regulations, 1992.
  • The Securities and Exchange Board of India, (Prohibition of Insider Trading) Regulations, 1992.
  • The Securities and Exchange Board of India, (Prohibition of Fraudulent and Unfair Practices Relating to the Securities Market) Regulations, 1995.
  • The Securities and Exchange Board of India, (Depositories and Participants) Regulations, 1996.
  • The Securities and Exchange Board of India, (Custodian of Securities) Regulations, 1996.
  • Companies Act 2013

Introduction

In 1988, the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution, and was subsequently upgraded as a fully autonomous body on April 12, 1992. The SEBI Act[1] 1992 begins by declaring its main objective as, “to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto” coinciding with the objective of this thesis. The objectives of SEBI have been established to be essentially threefold; (1) to protect the interest of investors ensuring a steady flow of savings into the capital market, (2) to regulate the securities market and ensure fair practices and (3) to promote efficient services by brokers, merchant bankers, and other intermediaries, so that, they become competitive and professional and the investor’s money be safe of any malpractices.

Various Investors awareness program, Seminars and workshops have been conducted and continue to be conducted by the SEBI. SEBI has also maintained a website[2] especially for the investors where any kind of information is easily available. Investors can file their grievances online, this website is an initiative of SEBI to protect and educate the investors about their rights and obligations. It also launched a comprehensive education campaign aimed at creating awareness among investors about securities market, which has been christened – “Securities Market Awareness Campaign” (SMAC), the motto of it being – ‘An Educated Investor is a Protected Investor.’[3]

The SEBI also lays down the guidelines for regulation of securities issued by companies, guidelines regulating stock exchanges, stock brokers and other intermediaries, etc. Of all these guidelines and regulatory rules by SEBI, the Disclosure of Information and Investors Protection guidelines 2000 were expected to protect the interest of the investors. Presently, SEBI (DIP) Guidelines have been replaced by SEBI (Issue of Capital and Disclosure Requirements) Regulations of 2009. It is based on the reasoning that the disclosures of information by the issuing companies as per the law, enable the investors to take a right investment decision. Even after that if there is any grievance of an investor over the information disclosed or procedure to be followed, the investor can redress his grievance as per the grievance redressal mechanism provided by SEBI.

SEBI can specify the matters to be disclosed and the standards of disclosure required for the protection of investors in respect of issues of securities and can issue directions to all intermediaries and other persons associated with the securities market in the interest of investors. It can also conduct enquiries, audits and inspection of all concerned and adjudicate offences under the SEBI Act. In short, it has been given necessary autonomy and authority to regulate and develop an orderly financials and securities market.

Securities Exchange Board of India

The 1980s boom in the securities market in India revealed the insufficiency of the previous legislation (Capital Issues Act) and this situation gave birth to the Securities and Exchange Board of India (SEBI) in 1988. The Government of India issued an ordinance on January 30, 1992 giving statutory powers to the Securities and Exchange Board of India. The preamble stated the purpose of this Board as follows:

  • To protect the interests of investors in the Securities Market.
  • To promote the development of the Securities Market.
  • To regulate the Securities Market, and
  • For matters connected therewith or incidental thereto.

The Securities and Exchanges Board of India (SEBI) has adopted many important roles in the area of policy formulation, regulation, enforcement and market development. SEBI ensures that it vets every element of the Capital Market reforms, designed in India. It attempts enforcements against problems such as market manipulation and payment crises, and is the overseer of all market intermediaries.[4]

The mechanism of ‘badla’ finance can be explained as follows: Suppose A has to buy 100 shares of a company at Rs 50 each. But he doesn’t have enough money now. But the value of shares is very less now, so in order to buy the shares at current prices, A can do a badla transaction. Now there is a badla financier B who has enough money to purchase the shares, so on A’s request, B purchases the shares and gives the money to his broker. The broker gives the money to exchange and the shares are transferred to B. But the exchange keeps the shares with itself on behalf of B. Now, say one month later, when A has enough money, he gives this money to B and takes the shares. The money that A gives to B is slightly higher than the total value of the shares. This difference between the two values is the interest as badla finance is treated as a loan from B to A. The rate of interest is decided by the exchange and it changes from time to time.[5]

In late 1993, SEBI banned ‘badla’[6] which was an indigenous carry-forward system invented on the Bombay Stock Exchange as a solution to the perpetual lack of liquidity in the secondary market. Badla were banned by the Securities and Exchange Board of India (SEBI) in 1993 and was replaced by Futures Contracts in 2000. This was a major milestone in two respects:

  • It marked the commencement of a major role for SEBI, and
  • It curtailed the market manipulation and systemic risk that accompanied ‘badla’.[7]

Statutory Provisions of the SEBI Act for investor protection

Starting off the study of legal statutes and provisions with the powers that SEBI has backed by statute for effective performance of the functions thereof, Section 11(3) of SEBI Act provides the Board vested powers as are available to a Civil Court under the Code of Civil Procedure Code 1908 for trying a suit in respect of carrying out the duties assigned to it under the act.

Also, under Section 11(4) of the said Act, the Board while investigating or on completion of such investigation and after giving the accused proper opportunity to be heard, has the power to suspend the trading of any security in the stock exchange; to restrain person/s from accessing, buying, selling or dealing in the securities market; to suspend any office-bearer; impound and retain the proceeds or securities under investigation and to attach any bank account of any intermediary or any person associated with the securities market. The board can enforce these powers on any listed public company where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices.

The Board has the power under Section 11A(1) of the SEBI Act to prohibit any company from issuing new securities as well as subject that issue to any specific conditions and requirements as a measure of protection of investors. It also has power under Section 11B of the Act, to issue directions to any intermediary (stock brokers, share transfer agents, etc.) or any company to prohibit any detriment to and secure the interests of the investors and proper regulation of securities market.[8]

The board also has power of investigation under Section 11C of the act enabling it to order an investigation agency to carry out investigation in case the board has a reason to believe that any act is being carried out detrimental to interest of investors or any provision of the SEBI Act is violated by the intermediaries. Section 11D of the Act specifies the power of the board to order Cease and Desist to any person in violation of the provisions of the act and stop him from continuing.

Under Section 12 of the act, SEBI has made a regulatory arrangement for intermediaries like stock brokers, bankers to an issue, trustees of trust deed, registrar to an issue, merchant banker, underwriter, etc. wherein these intermediaries are to obtain registration certificates so as to be able to practice. However, SEBI has kept a check on these intermediaries by keeping with itself, under the same provision, the power to cancel or suspend registration certificates in case of any violation. This power of cancellation of registration is also available under Regulation 12 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. Section 12A of the SEBI act gives the power to SEBI to prohibit any act of fraud by any means, deceit of any kind, trading on advance or unlawful and non public information, insider trading or any other contravention of the statutory provisions in the securities market.

The penalizing provisions are given under Section 15A to Section 15HB of the act and define statutory penalties for acts like Failure to furnish any document, return or report to SEBI when required under the Act, rules or regulations, Failure to maintain books of account or record, Failure to obtain from SEBI a certificate of registration for sponsoring or carrying on any collective investment scheme including mutual fund, Failure to dispatch unit certificates to the holder of the units under any collective investment scheme, including mutual fund in the manner provided for in the concerned regulations, Communicating by an insider, 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 as required by law, Indulging in fraudulent and unfair trade practices, etc. And, for other administrative and regulatory purposes, SEBI has been granted the power to make regulations under Section 30 of the Act.

Regulations by SEBI

The Board brought into force regulations governing the functioning of the Securities Market in relation to trading, clearing, settlements, depositories, capital adequacy norms, margining, Stock Exchanges and their role, equity financing, dematerialization and the custody services. Subsequent to the enactment of the SEBI Act, 1992, the following regulations have been framed over the years:

  1. The Securities and Exchange Board of India, (stock brokers and sub-brokers) Regulations, 1992.
  2. The Securities and Exchange Board of India, (Prohibition of Insider Trading) Regulations, 1992.
  3. The Securities and Exchange Board of India, (Prohibition of Fraudulent and Unfair Practices Relating to the Securities Market) Regulations, 1995.
  4. The Securities and Exchange Board of India, (Depositories and Participants) Regulations, 1996.
  5. The Securities and Exchange Board of India, (Custodian of Securities) Regulations, 1996.

These regulations set out the basic framework and guidelines for operations of the Stock Exchanges and all the related intermediaries. The regulations are suitably modified from time to time.

Importance of Disclosure Standards[9]

SEBI has been emphasizing on the importance of disclosure standards for corporate in disseminating relevant and correct information to the investors. With this view SEBI has appointed a committee under the chairmanship of Shri C B Bhave to suggest measures for improving the continuing disclosure standards by corporate and timely dissemination of price sensitive information to the public. The committee submitted its report t the SEBI.

Previously Issue of Securities has been dealt with by SEBI (DIP) Guidelines 2000. Presently Issue of Securities is regulated by SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. SEBI (DIP) Guidelines have been replaced by these Regulations of 2009. These regulations are called the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. These regulations apply to all of the following:

  • a public issue;
  • a rights issue, where the aggregate value of specified securities
  • offered is fifty Lakh rupees or more;
  • a preferential issue;
  • an issue of bonus shares by a listed issuer;
  • a qualified institutions placement by a listed issuer; (f) an issue of Indian Depository Receipts.

To better explain SEBI’s role in regulating securities market, an example of the functions of SEBI in the Initial Public Offer (IPO) is taken below.

Role of SEBI in IPO’s[10]

An IPO is, when a company which is presently not listed at any stock exchange makes either, a fresh issue of shares or makes an offer for sale of its existing shares or both for the first time to the public. Through a public offering, the issuer makes an offer for new investors to enter its shareholding family.

The shares are made available to the investors at the price determined by the promoters of the company in consultation with its investment bankers. The successful completion of an IPO leads to the listing and trading of the company’s shares at the designated stock Exchanges.

Because of the public participation, SEBI oversees that such companies act in a reasonable and fair manner, especially with reference to the minority shareholders. For example, such companies should have a board of directors, where at least half the members are independent of the promoters/company. Moreover, companies have to comply with the listing agreement, which among other things, stipulate continuing disclosures in specified formats and frequency.

Any company making an IPO is required to file a draft offer document with SEBI for its observations. Draft offer document in respect of issues of size up to Rs. 100 crores shall be filed with the concerned regional office of the Board under the jurisdiction of which the registered office of the issuer company falls. Officials of SEBI at various levels examine the compliance with SEBI ICDR Regulations 2009 and ensure that all necessary material information is disclosed in the draft offer documents. In addition to draft offer document, the company is also required to disclose the following:

  1. Red herring prospectus

A red herring prospectus (RHP) is a preliminary registration document that is filed with SEBI in the case of book building issue which does not have details of either price or number of shares being offered or the amount of issue. This means that in case price is not disclosed, the number of shares and the upper and lower price bands are disclosed. On the other hand, an issuer can state the issue size and the number of shares are determined later. In the case of book- built issues, it is a process of price discovery as the price cannot be determined until the bidding process is completed. Hence, such details are not shown in the Red Herring prospectus filed with ROC in terms of the provisions of the Companies Act. Only on completion of the bidding process, the details of the final price are included in the offer document. The offer document filed thereafter with ROC is called a prospectus.

In the Sahara Case[11], the dispute arose with the Petitioner Company from the stage when Sahara Prime City Limited, a listed Company filed its draft Red Herring Prospectus with SEBI for its IPO on 29.9.2009. It appeared that after receipt of Red Herring Prospectus from Sahara Prime City Limited, SEBI wrote a letter dated 12.5.2010 to the Petitioner Company SIRECL, regarding draft Red Herring Prospectus filed by Sahara Prime City Limited, with averments that SEBI received complaints alleging that SIRECL had filed prospectus with the Registrar of Companies and had allegedly issued Optional Fully Convertible Debentures, violating statutory requirements.

  1. Offer Document

It means the final prospectus in the case of a public issue/offer for sale which is filed and registered with the Registrar of Companies and the stock exchanges. An offer document covers all the relevant information required to be disclosed under various regulations and incorporates the observations of the Registrar of Companies and SEBI.

  1. Abridged Prospectus

It means the memorandum as prescribed in Form 2A under sub-section (3) of section 56 of the Companies Act, 1956. It contains all the salient features of a prospectus. It accompanies the application form of public issues.

Case Study

Sahara vs SEBI case[12]

Facts:

Sahara India Pariwar was an Indian conglomerate company headquartered in Lucknow which has diversified business in finance, infrastructure & housing, media, entertainment, consumer retail, venture, etc. It was started by Mr. Subrata Roy Sahara in 1978 and the company achieved its peak of success in very short period, hence, raising suspecting eyes towards itself.

Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHICL), two of the constituents of Sahara Pariwar, floated an issue of OFCDs and started collecting subscriptions from investors with effect from 25th April 2008 up to 13th April 2011. During this period, the company had a total collection of over Rs 17,656 crore. The amount was collected from about 3 crore investors in the guise of a “Private Placement” without complying with the requirements applicable to the public offerings of securities.

SEBI while taking cognizance of the matter passed an order dated 23rd June, 2011, thereby directed the two companies to refund the money so collected to the investors because SEBI apprehended that Sahara was raising money in violation of capital raising norms and certain sections of the Companies Act and under the garb of an OFCD the company was running an extensive parabanking activity without conforming to regulatory disclosures and investor protection norms pertaining to public issues.

Sahara challenged SEBI’s order saying the capital markets regulator did not have any jurisdiction over the group companies since they were not listed. The court dismissed Sahara’s petition, also hauling it up for not complying with its orders of furnishing details of the OFCDs it had issued including subscriptions and refunds within 10 days and submit these to SEBI. It also gave Sahara 90 days to deposit roughly Rs 24,000 Cr. SEBI which was given powers to freeze Sahara’s accounts, attach properties etc. Sahara has repeatedly missed deadlines to comply with the Supreme Court’s orders. It claims the total money due is only Rs. 5,200 Cr, as the balance amount has already been repaid. SEBI meanwhile, told the court that while it had begun the refund process; it couldn’t trace many of Sahara’s investors as details submitted by Sahara were not in the prescribed format, with addresses and other details missing in some cases.

SEBI also restrained the promoters of the two companies including Mr. Subrata Roy from accessing the securities market till further orders. Sahara then preferred an appeal before SAT (Securities Appellate Tribunal) against the order of the Whole Time Member and after hearing the SAT confirmed and maintained the order of the Whole Time Member by an order dated 18th October, 2011. Subsequently Sahara filed an appeal before the Supreme Court of India against the SAT order.

Since Sahara hasn’t been able to deposit the Rs. 24,000 Cr amount with SEBI, the Supreme Court has asked Sahara India to submit a bank guarantee for Rs. 20,000 Crore. SEBI had earlier rejected Sahara’s offer to secure the difference (between Rs 5,200 and 24,000) through immovable property entrusted with a bank trustee.

In March 2015, the court had directed two Sahara group companies — Sahara Real Estate and Sahara Housing — to return around Rs 24,000 crore with interest to nearly 3 crore investors through market regulator SEBI in Aug 2012. The firms were later allowed to pay up by February 2013. So, the total dues have now gone up to Rs 40,000 crore with the accrual of interest.

Issues:

  1. The Apex court formed as the first issue, the question regarding whether SEBI has the power to investigate and adjudicate in this matter as per Sec 11, 11A, 11B of SEBI Act and under Sec 55A of the Companies Act. Or is it the Ministry of Corporate Affairs (MCA) which has the jurisdiction under Sec 55A (c) of the Companies Act.
  1. The second issue raised by the Supreme Court was whether the hybrid OFCDs fall within the definition of “Securities” within the meaning of Companies Act, SEBI Act and SCRA so as to vest SEBI with the jurisdiction to investigate and adjudicate.
  1. The court affixed the third question of whether the issue of OFCDs to millions of persons who subscribed to the issue is a Private Placement so as not to fall within the purview of SEBI Regulations and various provisions of Companies Act.

Findings of the Court:

The Supreme Court held with respect to the first issue that SEBI does have power to investigate and adjudicate in this matter. It categorically iterated that the SEBI Act is a special legislation bestowing SEBI with special powers to investigate and adjudicate to protect the interests of the investors. It has special powers and its powers are not derogatory to any other provisions existing in any other law and are analogous to such other law and should be read harmoniously with such other provisions and there is no conflict of jurisdiction between the MCA and the SEBI in the matters where interests of the investors are at stake. To support this view, the Supreme Court laid emphasis on the legislative intent and the statement of objectives for the enactment of SEBI Act and the insertion of Section 55A in the Companies Act to delegate special powers to SEBI in matters of issue, allotment and transfer of securities. The Court observed that as per provisions enumerated under Section 55A of the Companies Act, so far matters relate to issue and transfer of securities and non-payment of dividend, SEBI has the power to administer in the case of listed public companies and in the case of those public companies which intend to get their securities listed on a recognized stock exchange in India.

The Court held on the second issue that although the OFCDs issued by the two companies are in the nature of “hybrid” instruments, it does not cease to be a “Security” within the meaning of Companies Act, SEBI Act and SCRA. It says although the definition of “Securities” under section 2(h) of SCRA does not contain the term “hybrid instruments”, the definition as provided in the Act is an inclusive one and covers all “Marketable securities”. As in this case such OFCDs were offered to millions of people there is no question about the marketability of such instrument. And since the name itself contains the term “Debenture”, it is deemed to be a security as per the provisions of Companies Act, SEBI Act and SCRA.

The Supreme Court went on to hold with respect to the third issue that although the intention of the companies was to make the issue of OFCDs look like a private placement, it ceases to be so when such securities are offered to more than 50 persons. Section 67(3) specifically mentions that when any security is offered to and subscribed by more than 50 persons it will be deemed to be a Public Offer and therefore SEBI will have jurisdiction in the matter and the issuer will have to comply with the various provisions of the legal framework for a public issue. Although the Sahara companies contended that they are exempted under the provisos to Sec 67 (3) since the Information memorandum specifically mentioned that the OFCDs were issued only to those related to the Sahara Group and there was no public offer, the Supreme Court however did not find enough strength in this argument. The Supreme Court observed as the companies elicited public demand for the OFCDs through issue of Information Memorandum (IM) under Section 60B of the Companies Act, which is only meant for Public Issues. Supreme Court also observed that since introducers were needed for someone to subscribe to the OFCDs, it is clear that the issue was not meant for persons related or associated with the Sahara Group because in that case an introducer would not be required as such a person is already associated or related to the Sahara Group. Thus the Supreme Court concluded that the actions and intentions on the part of the two companies clearly show that they wanted to issue securities to the public in the garb of a private placement to bypass the various laws and regulations in relation to that. The Court observed that the Sahara Companies have issued securities to more than the threshold statutory limit fixed under proviso to Section 67(3) and hence violated the listing provisions attracting civil and criminal liability. The Supreme Court also observed that issue of OFCDs through circulation of IM to public attracted provisions of Section 60B of the Companies Act, which required filing of prospectus under Section 60B(9) and since the companies did not come out with a final prospectus on the closing of the offer and failed to register it with SEBI, the Supreme Court held that there was violation of sec 60B of the Companies Act also.

Analysis:

This case is about the corporate rashness towards the investors and failure of corporate governance mechanism of Sahara Group. It raises questions for both law makers and regulators.

Firstly, a question arises that whether India’s regulatory framework equipped to consistently detect, halt and penalize such organized efforts. The court’s order lays out how two Sahara group companies made “a pre-planned attempt” to “bypass the regulatory and administrative authority” of the Securities and Exchange Board of India (SEBI). The regulator should take steps to institutionalize the elements that led to this rare victory in court.

Secondly, the case highlights the issue of intelligence gathering and coordination among different financial sector regulators. The controversial money-raising operation followed a ban on Sahara’s para-banking activities by the Reserve Bank of India in 2008. SEBI was, however, only alert to the operation two years after Sahara started, that too when one of the group companies came to the regulator for a “legal” public issue. The level of interaction between the different financial sector regulators is clearly insufficient. The only regular forum for interaction, the Financial Stability and Development Council (FSDC), concentrates on macro-prudential matters. More active co-ordination is needed at the grass-roots level.

Thirdly, Sahara’s all or any of the estimated 30 million Sahara subscribers could be “fictitious”. “there may be no real subscribers”, or that fictitious subscribers are mixed in with the real ones. And yet, despite advertisements in papers and other strenuous efforts, the market regulator has not been able to find investors of more than Rs 10 crore. If the Sahara investors are fictitious, SEBI doesn’t really have a role as it is mandated to deal with real investors, and some other agency should look into the case.[13]

Fourthly, this case should serve as wake-up calls for authorities such as the Income Tax Department and the Enforcement Directorate to follow the money trail more closely. Different regulators and enforcement authorities should clearly act to avoid duplication and enable better deployment of resources. The government has formed a panel of retired and serving bureaucrats, called the Financial Sector Legislative Reforms Commission (FSLRC), to rewrite and harmonize around 60 financial sector laws.

Conclusion

Sahara’s misdeeds are considered as an eye-opener in several respects about the uncertain dealings inside the corporate houses and it brings in to being the need for protecting the interest of several millions of investors, who invested their hard earned money in such socially irresponsible corporations. SEBI proved to be effective machinery in tackling the case to an extent but still it has a limitation of regulating unlisted companies in India. The reasons for such scandals are several including lack of transparency, weak provisions, political nexus and above all, ignorance of investors. In the light of Sahara case, it is the responsibility of the government and its various agencies to protect the interests of investors and nation as well through putting in place necessary provisions in accordance with the changing requirement of market.

The landmark Judgment dealt with in this thesis is, undoubtedly, a milestone in India’s Corporate landscape, as it not only sanctifies SEBI’s absolute power to investigate into the matters of listed companies, but also into the matters pertaining to the unlisted companies for the protection of interests of the investors. It vests SEBI with myriad powers to investigate into any matter concerning the interest of the investors even if it pertains to companies which are not listed. It clarifies significant points of law and removes the grey areas relating to issue of securities by the so called unlisted companies taking advantage of the loopholes of law.

Also, in the matters of jurisdiction, this Judgment has bridged the jurisdictional gap which previously existed between that of the Ministry of Corporate Affairs and SEBI. It is hoped that in future this judgment will be instrumental in preventing turf war between the MCA and SEBI concerning jurisdictional issues as it categorically iterates that in the matter of public interest, both SEBI and MCA will have concurrent jurisdiction. This is a welcome relief, as in the past many defaulting parties have taken advantage of this jurisdictional lacuna and have been able to easily get off the hooks.

The current efforts by SEBI involve education of Investors as an aware investor will be able to make a better informed decision. Its task is to make sure that investors are aware of the risks which they are taking when opting to invest in the Indian capital market. SEBI has made a lot of progress in the following areas:

  1. It has launched intensive investor education exercises.
  2. Help investor in redressal of complaints.
  3. Disseminates information through its websites.
  4. Published number of booklets on policy developments for educating the investors.
  5. It distributed booklets titled “A quick reference guide for investor”.
  6. Issued a series of advertisements/ public issues in national as well as regional newspapers to educate and caution the investor about the risks associated with the collective investment schemes.
  7. SEBI registered investor associations organized seminars for educating investors on various aspects relating to market. In the reform process it is clearly defined the various authorities that was accountable for and was redressing various kinds of the grievances. Some other steps for investors’ grievances redressed are; Investor Grievances Cell, Investor Protection Fund, Investor Service Fund, Complaints with consumer’s disputes redressal forums suits in the court of law, Ensuring Investor empowerment: timely available of quality and reliable information increases confidence of the investor. Over the past one decade many regulatory requirements have been imposed on issuers to disclose relevant information to public. Thus investor’s empowerment has become possible, Providing Transparency: market transparency refers to the ability of market participants to observe information about the trading process. Information can include prices, volumes, sources of order, identification of counter party to trade etc.

Suggestions

  1. Expanding the jurisdiction of SEBI to control unlisted companies and their activities, since they constitute a large chuck of business in India. Normally SEBI has the power to control the behavior of listed companies in India. It thus, needs to have more powers to control the nature of the business and protect the interest of share-holders, as well.
  2. It is the responsibility of the government and its various nodal agencies to furnish every area of business with necessary provisions to ensure that it is working, according to the interest of the nation and different share-holders, at large.
  3. Make necessary clarity and transparency in provisions dealing with regulating business towards the general objectives of the nation.
  4. Establish necessary banking institutions in the rural parts of India and make awareness among the people about various banking products. In essence, a loin share of people in rural parts of India does not have bank accounts for want of sufficient number of bank institutions.
  5. Pre-emptive policies should put in place to keep away corporate houses from political interventions, which enlarge the magnitude of corporate scams. It is clear that behind every corporate scam, there is an unscrupulous political nexus with corporate institutions. For example, both 2G spectrum scam and Saradha group financial scandal believed to have political patronage to an extent.
  6. All the informal collective investment schemes must be brought under the jurisdiction of a centralised enforcement authority with necessary stipulations and moreover, discourage the un- scrupulous investment schemes.

Bibliography

 

[1] Securities and Exchange Board of India Act, 1992 [As amended by the Securities Laws(Amendment) Act, 2014]

[2] http://investor.sebi.gov.in

[3] Kumar S, (2011). “Protection of Investors And Shareholders: A Critical Study Of Role Of SEBI”. Maharshi Dayandand University, Rohtak

[4] Balfour A. Feb 1995. “Bogged-down in Bombay.” Euromoney. Issue 310. p. 96.

[5] “Badla (stock trading)”. Wikipedia. Procured on 17-09-15

[6] Badla trading involved buying stocks with borrowed money with the stock exchange acting as an intermediary at an interest rate determined by the demand for the underlying stock and a maturity not greater than 70 days.

[7] C. Raja Rajeshwari. 28 January 2004. “From badla to derivatives.” The Hindu Business Line.

[8] ICAI. “Handbook for Investor Protection.” (2011)

[9] Sahni, O.P. “The role of securities and exchange board of India (SEBI) in regulating the Indian capital market: a case study of Ludhiana stock exchange”. May 2013. Punjab Tech University.

[10] “IPO Investing”. Investor Education and Protection Fund http://iepf.gov.in/IEPF/. Procured on 17-09-15.

[11] Sahara India Real Estate Corporation Ltd. Vs. Union of India MANU/UP/1950/2010

[12] Sahara India Real Estate Corporation Ltd. Vs. Union of India MANU/UP/1950/2010

[13] Kanteti, V.L. “Corporate Social Irresponsibility Towards Investors- a Case Analysis of Sahara Group” Indian Journal of Research. Vol 4 Issue 5. May 2015

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