India: Securities Laws (Amendment) Ordinance 2013

Last Updated: 12 September 2013

Article by Megha Kapoor and Shresth Choudhary1

The Securities and Exchange Board of India (frequently abbreviated SEBI) was established in the year 1988 and all its statutory powers were granted to it on the 12th of April, 1992 under the Securities and Exchange Board of India Act, 1992. SEBI is responsible for regulating the security market of India. The Controller of Capital Issues was the regulatory authority before SEBI came into existence. The Controller of Capital Issues was established and given authority under the Capital Issues (Control) Act, 1947.

Recently, the Securities Law Amendment Ordinance 2013 was tabled in Lok Sabha in order to amend the Securities and Exchange Board of India Act, 1992, the Securities Contracts (Regulation) Act, 1956 and the Depositories Act, 1996. This ordinance is the result of the approval of the Cabinet that held a meeting on the 17th of July, 2013. The Cabinet in its meeting approved the recommended amendment in the Securities and Exchange Board of India (SEBI) Act and related Acts by enhancing their powers so that they are able to regulate the capital markets more efficiently and deal with the growing problem of illegal collective investment schemes and insider trading.

It may be observed that the securities regulations in India have become extremely extensive and sophisticated in the past two decades. The securities laws are being constantly updated in order to meet the market developments, whether it is in the primary market (Initial Public Offerings (IPOs), Qualified Institutional Placements (QIPs), etc.) or in the secondary markets (insider trading, market manipulation, etc.). However, SEBI has been unable to effectively enforce these laws. It may be stated that these strong laws are no good unless they can be effectively enforced by the regulator.

In order to curb this problem, the Union Cabinet approved the Securities Law (Amendment) Ordinance, 2013 which is to bring about significant changes, especially in the enforcement powers of SEBI along with its authority. Apart from a substantive change in the Ordinance relating to the expansion of the scope of collective investment schemes (CIS), all the other changes are aimed at improving the SEBI's investigative and enforcement powers.


1. Collective Investment Schemes

The registration or non registration of a collective investment scheme is no longer a perquisite for invoking the jurisdiction of SEBI. There are no longer any doubts regarding SEBI's domain over innovative methods of raising funds from investors, the scope of the Collective Investment Schemes has been clarified under the Ordinance. Under section 11AA of the SEBI Act, which details with the parameters of a Collective Investment Schemes, it has now been stated that "pooling of funds under any scheme or arrangement" involving a corpus of Rs. 100 crores or more shall be deemed to be a Collective Investment Scheme irrespective of whether it is registered or not registered with SEBI. Hence, registration with SEBI is no longer a prerequisite for such a scheme to fall within the regulatory purview of SEBI

2. Investigative Powers

Additional powers have been conferred to SEBI in regard to the investigation done by them. These additional powers are in support of the powers that have been granted to SEBI under section 11 of the SEBI Act. However, these rights are to be exercised only under the authority of the chairman and include the power to search and seize record statements under oath, etc. These rights will be in addition to the currently available powers of SEBI.

Moreover, SEBI has now been granted the right to call for information and record information that is relevant including the telephone call data records. This will act as a boon to SEBI as there is hardly any direct evidence available in most of the insider trading cases and due to the lack of evidence SEBI has to rely on circumstantial evidence.

Further, the power to call for information has also been granted to SEBI wherein information may be called from international sources through regulators in other countries with whom it has entered into an agreement for the sharing of information. These powers will prove to be extremely useful in case of Foreign Direct Investment through entities such as the Foreign Institutional Investors (FIIs) where Know Your Customer (KYC) norm may not have been implemented adequately by the entities involved.

3. Enforcement Methods / Remedies

Powers have been granted to SEBI to attach the violator's property, bank accounts and also to arrest and detain the violators in prison. These powers have been granted to SEBI under the ordinance as it has been noted that even when SEBI was successful in obtaining a favorable outcome in enforcing its regulations, often the consequence on the violators has been less than desirable. An example of this is the Sahara case where despite a favorable outcome from the Hon'ble Supreme Court, there have been delays and difficulties in the enforcement of the orders against the person who is guilty of non-compliance.

4. Special Courts

Ordinance provides that special courts are to be set up in order to deal with cases involving securities regulations. This step has been taken in order to deal and settle the cases involving securities regulations in a timely manner and to avoid the unnecessary delay. However, one of the main reasons that led to the establishment of these special courts is that under the normal procedure there is no track record of criminal prosecution of securities offenders which may act as a deterrent to the markets.


Saradha Group Case

In the 70's, the legislature took steps to secure the economy of the nation. The Legislature had nationalized a large banking sector. During that time period, there were many problems which were being faced by Indians, especially which were to be named were the Indian Villagers & farmers; who were given loans but with a large amount of interest. This had been a heavy load on those Indian villagers & farmers.

The nationalization of the banking sector was to help those Indians villagers who were suffering this huge problem. The banks had come up with various schemes for the Indian villagers. This was the period for globalization. There were foreign banks who also invested huge amount of investments. The private banks were equally involved. They had also invested equally in the market. The small investment market was captured by many vultures," as stated in the judgment of; Basabi Rai Chowdhury Vs. Union of India & Ors.,2 which was given my Calcutta high Courrt dated 19.06.2013. The deposits were collected from the depositors and they were paid a high rate of interest which they never got from the market by investing the same amount of investment. But to this, The system had collapsed. Because of this, the small companies came under the scanner of Reserve Bank of India. There were certain companies who were functioning without any valid license. To which the the Reserve Bank of India took action, by compelling them to stop functioning. Sanchayini Saving was also one of them.

They used to collect lump sum deposits from the depositors and pay them high rate of interest that they could not get from the market by reinvesting the said sums. Very soon, the system had collapsed. There were many who did not have access to the banks. They also did not know how to operate this. For the same, The bank had several excuses. And tye mentors also agreed with the same. The finance companies flourished, and so did the Saradha group. The involvement was of 30,000 crores. The petitioner had filed a Public interest Litigation, where she came to know that Saradha Group was one of the largest chit fund company which had been operating from Eastern India.

On April 16, 2013 the state had informed the court about the "Saradha group." One of the directors, Monaj Negel, was arrested on April 20, 2013. Later 3 other people were also arrested for the same. One of them , was Sri Sudipta Sen, nabbed from Jammu & Kashmir.

The investments were fraudulently being sold as "chit fund," under the "Chit Fund Act (1982).which is regulated by the state government.

The state government of west Bengal was warned by SEBI about the saradha group's chit fund. Saradha had changed its way, this time the group had sold large numbers of share of various listed companies, siphoning off the proceeds of the sale to accounts which have not been identified.

The Saradha group's activities like CIS and not the chit fund were being identified by SEBI in 2012 and SEBI had demanded to stop operating its investment schemes. However, the Saradha Group never stopped until it was collapsed in April 2013.

Sahara Case3

The Judgment given in this case acts as a milestone in India's Corporate landscape, as it not only sanctifies SEBI's absolute powers to investigate the matters of listed companies, but also the matters pertaining to the unlisted companies. Under this judgment, SEBI has been vested 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 the significant points of law and removes the grey areas relating to the issues of securities by the so called unlisted companies which are trying to take advantage of the loopholes of law. This Judgment has also bridged the jurisdictional gap which previously existed between that of "the Ministry of Corporate Affairs (MCA)" & "SEBI". It is also hoped that in the future this judgment will be instrumental in preventing turf war between the "MCA" & "SEBI" concerning the jurisdiction issues as it categorically iterates that in the matter of public interest, both SEBI & MCA will have concurrent jurisdiction.


The ordinance passed by the Union Cabinet on the 18th of July, 2013 and tabled on Lok Sabha on 12th August, 2013 can be said to be exquisite in nature as it has acted as oil in a rusted mechanism. This ordinance has granted powers to SEBI that are required by it in order to regulate the securities market in today's world. SEBI was established by the government in order to control and regulate the securities market. The powers that have been granted to SEBI under the ordinance are somewhat similar to the powers that are given to the securities market regulators in foreign countries such as the USA. Hence, it may be stated that the ordinance passed by the union cabinet in regard to SEBI does not grant some special powers of SEBI but provides it with the mechanism that is required by it in order to regulate the securities market efficiently in today's world.


1 4th Year Law Intern from Ideal Institute of Management and Technology, GGIP University

2 MANU/WB/0147/2013

3 MANU/SC/0735/2012

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions