ARTICLE
21 March 2022

SEBI And The Capital Market Regulations: A Critique

Ka
Khurana and Khurana

Contributor

K&K is among leading IP and Commercial Law Practices in India with rankings and recommendations from Legal500, IAM, Chambers & Partners, AsiaIP, Acquisition-INTL, Corp-INTL, and Managing IP. K&K represents numerous entities through its 9 offices across India and over 160 professionals for varied IP, Corporate, Commercial, and Media/Entertainment Matters.
SEBI was created to safeguard the interests of investors and traders in the Indian stock market by promoting the growth and regulation of the equity market and by ensuring a healthy atmosphere in securities.
India Corporate/Commercial Law
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Introduction

SEBI was created to safeguard the interests of investors and traders in the Indian stock market by promoting the growth and regulation of the equity market and by ensuring a healthy atmosphere in securities. Furthermore, one of the primary reasons for the establishment of SEBI was to avoid financial market misconduct in India.

SEBI is responsible for the three most essential financial market participants in order to accomplish its goals. The following are SEBI's primary responsibilities in the Indian financial market

  1. "Issuer of securities: These are companies that are listed on the stock exchange and raise money by issuing shares. SEBI assures that initial public offerings (IPOs) and Follow-on Public Offers (FPOs) are handled in an open and healthy manner.
  2. Protectors of the traders and investors: The capital market is only able to operate because traders exist. SEBI is in charge of making sure that investors are not defrauded in the stock market or manipulated .
  3. Financial Intermediaries: They operate as intermediaries in the securities market, ensuring that stock market transactions go smoothly and securely. SEBI is responsible for overseeing the activity of stock market intermediaries like brokers and sub-brokers."

SEBI and Its Functions

"In order to carry out its responsibility, SEBI performs three important functions:

  1. Protective Function: The protective functions of SEBI are designed to protect the interests of investors and financial institutions. Protective functions include avoiding price rigging, preventing insider trading, supporting fair practises, raising investor knowledge, and outlawing fraudulent and unfair trade practises. The safeguarding functions of SEBI are designed to protect the interests of investors and financial institutions.
  2. Regulatory Functions: Financial market intermediary are regulated by SEBI. SEBI sets standards and a code of practice, as well as regulating mergers, acquisitions, and takeovers. Stock exchanges are also inspected and audited by SEBI. There are many finance experts that use it like a registrar for brokers and sub-brokers. The credit rating agencies are governed by SEBI.
  3. Development Functions:One of SEBI's development responsibilities is to educate financial intermediaries. SEBI is committed to promoting integrity in the marketplace and eliminating fraud and abuse. The IEPF (Investor Education and Protection Fund) is for fostering and safeguarding the interests of investors. Resources are also used to instruct and enlighten investors about the stock market.

SEBI and Unfair Trade Practices: An Analysis

Unfair business tactics in the securities market are not only considered unlawful, but also an unethical practice that degrades investors' confidence in the stock market. "Legislation that punishes those who manage securities relying on unpublished, cost-sensitive information seems to be in place in the majority of industrialised nations, making it unlawful to do so in such countries.

India has recently joined this arena through a quasi-legislative level in the form of SEBI's Insider Trading Regulation 1992, SEBI's False and Out of Line Exchange Homes relating to Securities Market Direction 1995, and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities market) Regulations, 1995. The effectiveness of these Controls will, of course, be determined by how well they are implemented, and whether or not such implemented instructions can help to curb the spread of such practises.

Regulations and Rights of the SEBI

Without prejudice to its rights, SEBI may begin criminal proceedings under Section 24 of the SEBI Act, 1992, or take any other action to ensure that the SEBI Act and its rules are strictly observed. An appeal can be filed with the Securities Appellate Tribunal, if any individual is dissatisfied with a decision granted by SEBI.

The rights of SEBI in this respect may be summarised as follows:

  • Making it illegal to dispose any security obtained in contravention of these regulations.
  • Refusing to interact with or advise anybody about trading in securities.
  • Declare the transactions/trading to be "null and void."
  • Requiring the parties who obtained the securities in contravention of these restrictions to return them to the seller.
  • If a buyer is unable to deliver such securities, the market price at the time of giving such directive or at the time of transaction, whichever is greater, should be paid to the seller.
  • Requiring the person who violated this rule by dealing in securities to transfer to the Investor Protection an amount equal to or greater than the cost price or market price of securities , whichever is higher.

Conclusion

Many frauds and malpractices occurred in the Indian stock market prior to the establishment of SEBI. The "Harshad Mehta scam" was a well-known Indian stock market fraud. Following the establishment of SEBI, the stock market began to improve and become more transparent. Despite this, certain securities mark frauds have occurred after SEBI took office. The "Ketan Parekh scam" is a well-known case.

Even if unethical practises still occur in the Indian capital market today, they are much less prevalent. Furthermore, the legislation and regulations governing the security market are amended on a regular basis. As a result, SEBI's authority is becoming more strict with time. As a result, it can be concluded that the SEBI plays a critical role in the proper functioning of India's capital market, ensuring that investors' hard-earned money generates a good return with minimal risk.

Author: Ananya Pande is a student at Hidayatullah National Law University, in case of any queries please contact/write back to us via email vidushi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.

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ARTICLE
21 March 2022

SEBI And The Capital Market Regulations: A Critique

India Corporate/Commercial Law

Contributor

K&K is among leading IP and Commercial Law Practices in India with rankings and recommendations from Legal500, IAM, Chambers & Partners, AsiaIP, Acquisition-INTL, Corp-INTL, and Managing IP. K&K represents numerous entities through its 9 offices across India and over 160 professionals for varied IP, Corporate, Commercial, and Media/Entertainment Matters.
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