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SEBI AS A REGULATORY AUTHORITY IN INDIA

Updated: Feb 19

Author: TARUN LOHANI, IV Year of BBA.,LLB, from Faculty of Law, Integral University, Lucknow


Co-Author: ADITI AGARWAL, IV Year of BBA.,LLB, from Faculty of Law, Integral University, Lucknow


From the very past years, it has been seen that India is actively engaged and always tends to show its considerable interest in capital markets. But people also have to go through a bitter reality that the Indian market is one of the most intricate markets having many complexities regarding various factors, so complex that the procedure of which requires to be understood by the market experts.


Therefore, the experts are required to give advice to those who want to invest their money in terms of investment or other monetary matters. But, what if these experts start to misuse their powers. The early era between the 1980s and 1990s shows many cases where it was seen that people often used to get trapped by the agents and brokers who are considered as the market experts, and those people get manipulated by them and do accordingly.


As India is a type of country having a mixed economy which consists of both public and a private limited company which invests and contributes their time, money and hard work for the betterment, upliftment, and development of our country. As in today’s time, there are countless (Small- and Large-scale companies) in India, and many of them are functioning as (Listed Companies). Listed companies are basically known as those companies whose shares can be traded in the stock exchange.


These listed companies are the ones who are bound to follow all the rules and regulations of a regulating authority which regulates their day-to-day practices because there are several cases in which a company may be doing some of the activities which may conflict with the interest of the investors or other parties.


Therefore, in order to overcome these barriers regarding the malpractices and unfair means and to protect the interest of the investors involved there in trading and investments, the body must be created with the aim to regulate these practices. As a result, the body was created which is today known as SEBI (Securities and Exchange Board of India).


SEBI; A Regulatory Authority in India

SEBI (Securities and Exchange Board of India) was composed on 12th April 1988 by the government of India in the form of a non-statutory body by way of the Administrative Resolution to deal with all those matters relating to the evolution and regulation of the Securities Market for the welfare of the investors and to protect them against all malpractices. However, it gets its legal status as SEBI Act, 1992 being passed by the Parliament of India. SEBI as a statutory body having its headquarters in Mumbai and has Western Regional Offices in New Delhi, Kolkata, Chennai, and Ahmedabad.


Structure of SEBI

SEBI is a system having multiple departments and all these departments are headed by a (head of the department). Generally, there are more than 20 departments are corporation finance, policy enforcements, investment policies, etc.


The hierarchical structure in SEBI includes the following:

  • The Chairman of SEBI is nominated by the Union Government of India.

  • 2 officers by the Union Ministry will be part of this hierarchy.

  • A member will also be appointed by RBI (Reserve Bank of India).

  • 5 other members will again be appointed by the Union Government of India.


The authorities of SEBI

The Preamble of Security and Exchange Board of India is mentioned as:

The basic function is 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”.


As the preamble suggests, the prime motive of SEBI is to protect and develop the interests of the investors who deal in the world of the capital market. Therefore, SEBI does the following things by (using the several authorities given by it in the statute). The various authorities are:


Quasi-Judicial Authority:

Under this authority, SEBI can give judgements and orders in any case came in front of it to prevent an unfair trade and mal practices, and to ensure the applicability of just and fair practices.


Quasi-Executive Authority:

Under this authority, SEBI can apply or execute the rules and regulations to take legal actions against anyone who breaks the law. It can also check the books of accounts of various organizations if it thinks that it is necessary to do so.


Quasi-Legislative Authority:

Under this authority, SEBI can make or frame any rules and regulations as well as the policies regarding the interests of the investors. It can also frame rules for the various organizations and all others who are bound to follow the rules of SEBI.


(However, these above-mentioned powers are bound to go for review under the Supreme Court of India and Securities Appellate Tribunal).


Objective of SEBI

As the preamble suggests, the basic and the foremost objective of SEBI is to protect the interests of the investors. It encourages people to convert their savings as an investment for the aim of capital generation. SEBI tends to be responsible to responsive for guidance and needs of three forces which are responsible to influence the market, which are (the issuer of securities, the market investors, and the market intermediaries).


SEBI ensures that investors do not fall for deceptive and false advertisements. In return, SEBI issued guidelines to protect investors and ensure that the advertisement was fair and concise. SEBI strives to educate investors so that they can make a choice between offerings from different companies and select the most profitable securities.


Functions of SEBI


The functions of SEBI can broadly be divided into 3 categories: namely.

  • Protective functions

  • Regulatory functions

  • Developmental functions


Protective functions

It keeps a check on price handling, as well as it prevents unjust and fraudulent trade practices, takes steps to aware the investors to analyze their investments even better. It also enhances a fair and reasonable code of behavior in the market of security.


Regulatory functions

It has plans, rules, regulations and a code of behavior to govern the brokers, underwriters and other intermediaries. SEBI also takes charge of the company’s regulation. It also governs and registers the stockbrokers, merchant bankers, workings of share transferred, trustees, mutual funds and others who are linked to the stock exchange.


Developmental functions

It provides training to the intermediaries and aims to adopt flexible approaches for the betterment of activities regarding stock exchange.


SEBI, therefore, is a result of all those malpractices and unfair means of trade which are conflicting with the interests of the parties who are interested in money-making matters or other matters related to capital markets. It is by far one of the most important tools for all those who want to play safe and always want to be on the safe side in the market. A person always seeks guidance whenever he tries something new or for the first time. Therefore, SEBI acts as a guardian for those who wants to step up in the field of the market. It also acts as a guardian for the companies to prevent the company to stop doing anything for which the company has to pay the cost in the future. So, it can be said that SEBI acts as a guardian for those who are or decide to engage in the capital market.


SEBI acts as a Boon in the process of trading done either by any natural person or by an Artificial person (Company). Both can use this concept as their privilege and can rely on its hypothesis and always ensure that no agent, broker, or any other market intermediary can make a fool of them until they are guided and protected by the guidelines of the (Security and Exchange Board of India).