SECURITIES EXCHANGE BOARD OF INDIA ACT, 1992

Subject Matter : Functions of the Board
Relevant Section : Section 11: This sections gives a brief about the functions of the SEBI Board. It will be the duty of the Board to protect the interests of the investors in securities and take measures for the same.
Section 11A: The Board will regulate or prohibit issue of prospectus, offer document or advertisement seeking money for issue of securities.
Section 11B: The Board has the power to impose penalty and issue directions to others keeping in mind the interests of the investors.
Key Issue : 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?
Citation Details : Subrata Roy Sahara vs. Union of India (UOI) and Ors. (06.05.2014 - SC): MANU/SC/0406/2014
Summary Judgment :

Facts: The Sahara Group and its two group companies Sahara India Real Estate Corporation Limited and Sahara Housing Investment Corporation Limited floated an issue of Optionally Fully Convertible Debentures and started collected subscriptions from investors and collected Rs 17,656. The amount was collected from about 30 million investors in name of a PRIVATE PLACEMENT. The Whole Time Member of the SEBI took cognizance of this and restrained company from dealing in such amount and also directed to return the same to the investors. Sahara Company filed an appeal to such decision before SAT. The SAT upheld the Whole Time Member's decision. Then aggrieved by the decision the company filed an appeal before the apex court.

Held: The Supreme Court held that the matter falls well within the jurisction of SEBI. It is also contented that SEBI Act should be read in consonance with other acts. This act has been formulated to protect the interest of the investors with a view of not violating the provisions of the other acts and the powers, functions and jurisdiction of SEBI does not conflict with Ministry of Corporate Affairs under section 55A of Companies Act.

Subject Matter : Jurisdiction of SEBI
Relevant Section : Section 12A: This section states that the stock brokers, sub-brokers, share transfer agents etc they should obtain registration certificate from the Board and should deal accordingly with securities as per the certificate.
Key Issue : Whether SEBI has jurisdiction in matters pertaining to Global Depository Receipts (GDRs)?
Citation Details : In Re: GDR Issues of Asahi Infrastructure and Projects Ltd. (26.05.2020 - SEBI / SAT): MANU/SB/0347/2020
Summary Judgment :

Facts: Pan Asia Advisors Limited, a merchant banking firm, was the lead manager in the issuance on Global Depository Receipts of Asahi Infrastructure and Projects Limited. The SEBI investigations found that in all stages of the above transactions, entities related to Pan Asia had been involved in the purchase or sale of GDRs or shares. Pan Asia had facilitated transactions of the GDR issue, arranging of investors, providing of exit options for investors and conversion of GDRs into equity shares in the Indian market. These transactions were undertaken with the underlying intention of increasing the liquidity and market reputation of the Asahi. SEBI cancelled the dealings of securities for 10 years. Aggrieved by the decision PAN Asia appealed to SAT and got decision in its favor. SEBI appealed to the Apex court for its judgment.

Held: The SC by taking into consideration various definitions of the securities and relying on section 2(h) of Securities Contract (Regulation) Act, 1956 held that a GDR can be construed as a right or interest in securities and therefore, SEBI has jurisdiction to take cognizance of this subject matter. Also, the managers acted in a manner to deceive the investors about the contributions therefore, the regulatory power of SEBI over GDRs shall prevail and matter was sent back to SAT for the decision.

Subject Matter : Penalties and Adjudication of SEBI
Relevant Section : Section 15A: This section talks about penalty for failure to furnish information, return etc.
Section 15HA: Penalty for fraudulent and unfair trade practices shall not be less than five lakh rupees but may extend to twenty-five crore rupees or three times the amount of profits made out of such practices, whichever is higher.
Section 15J: It enumerates the factors to be taken into account by the Adjudicating Officer while adjudging the quantum of penalty.
Key Issue : Whether conditions stipulated in Section 15-J of SEBI Act were exhaustive to govern discretion in Adjudicating Officer to decide on quantum of penalty or said conditions were merely illustrative?
Citation Details : Adjudicating Officer, Securities and Exchange Board of India vs. Bhavesh Pabari (28.02.2019 - SC): MANU/SC/0296/2019
Summary Judgment :

Facts: The facts of the case are such that the Adjudicating officer fined the respondent to an amount to the tuning of Rs 1 Crore. In case of violation of Sections 15-A to 15-HB i.e. penalty provisions of the SEBI Act, an AO is appointed under Section 15-I for holding an inquiry for the purpose of imposition of the penalty. If he is satisfied with the existence of a failure of compliance with the relevant provisions, he may impose such penalty as he thinks fit in accordance with the concerned Sections.

Held: SC observed that sections 15A to 15HA have to be harmoniously read along with section 15J in such a manner as to avoid any inconsistency; the provision of one section cannot nullify the another unless it is impossible to reconcile the two. SC observed that in cases where there was no violation pertaining to mobilization of funds from the public under various schemes or arrangements. This illustrative proposition cannot stand in view of the Courtís harmonious interpretation of Section 15-J stated above.

Subject Matter : Bar on civil court jurisdiction
Relevant Section : Section 20A: This sections puts a bar on civil court jurisdiction in matters where SEBI is empowered to take cognizance of as per the Act.
Section 11B: Power to issue directions to persons in interest of investors, to prevent affairs detrimental to investors and to secure proper management of intermediary or an other person
Key Issue : Whether the jurisdiction of Civil Courts is barred by virtue of 20A of the SEBI Act in disgorgement of profits?
Citation Details : Rakesh Agrawal vs. Securities Exchange Board of India (SEBI / SAT): MANU/SB/0208/2003
Summary Judgment :

Facts: The Appellant is the Managing Director of ABS Industries Ltd., Vadodara (ABS) a company incorporated under the Companies Act 1956 ,name of the company has been subsequently changed to Bayer ABS Ltd. SEBI on investigations found that there were allegations of purchases being made prior to announcement of Bayer acquiring controlling stake in ABS. SEBI's investigation revealed that one Mr. I. P. Kedia, brother in law of the Appellant had purchased shares preceding acquisition of ABS and that the said acquisition was made at the behest of the Appellant and he funded the acquisition. The investigation is also stated to have revealed that the shares were acquired on the basis of the unpublished price sensitive information relating to impending takeover by ABS by Bayer, which the Appellant had by virtue of his position as the Managing Director of ABS and also as the negotiator from the side of ABS. SEBI contended that the power to direct disgorgement of alleged profits, to aggrieved investors is an equitable power which vests in SEBI. Whereas the Respondent argued that if the power to direct disgorgement of alleged profits is not read into Section 11B of the SEBI Act, pursuant to Section 20A of the SEBI Act no civil court would have jurisdiction to award such compensation, as its jurisdiction in this regard would be barred.

Held: It was held that SEBI does not have the equitable power to direct disgorgement of any alleged profits and therefore the jurisdiction of the Civil Court sustains. It is well established that equitable powers can only be exercised by courts and not any quasi-judicial tribunals/ bodies. Accordingly, SEBI does not have the power to direct disgorgement of any alleged profits. That it is always open to any aggrieved investors to seek disgorgement of any alleged profits, made in breach of the said Regulation, by using the process of a Civil Court.

Subject Matter : Cognizance of offence by the civil courts
Relevant Section : Section 26: It states that no court will take cognizance of the case until the case is referred by the Board.
Key Issue : Whether a court inferior to that of to that of a Metropolitan Magistrate (or, a Judicial Magistrate of the first class) shall try an offence punishable under this Act?
Citation Details : Securities and Exchange Board of India vs. Classic Credit Ltd. (21.08.2017 - SC): MANU/SC/1030/2017
Summary Judgment :

Facts: Complaints were filed against the private parties, for offences punishable under the Securities and Exchange Board of India Act, 1992. The change of 'forum' for trial, was contended by some of the private parties, before the Court to which the matters were committed. Their challenge failed. The matters were then went to the High Court. A Division Bench of the High Court, through the impugned judgment collectively disposed of all matters pending before it, by setting aside the judgment rendered by the Court of Session. The SEBI therefore approached this Court to assail the judgment rendered by the High Court.

Held: SC held that Section 26(2) of the Act expressly provided, No court inferior to that of a Metropolitan Magistrate (or, a Judicial Magistrate of the first class) shall try an offence punishable under this Act. It was therefore apparent, that the forum for trial of offences under the unamended Section 24 of the Act would be conducted only by a Metropolitan Magistrate (or, a Judicial Magistrate of the first class). Trials for offences under the SEBI Act, even prior to the Amendment Act, could well have been conducted by a Court of Session, or an Additional Sessions Judge.

Subject Matter : Compounding of offences
Relevant Section : Section 24A: It states that an offence punishable under this Act, not being an offence punishable with imprisonment only, or with imprisonment and also with fine, may either before or after the institution of any proceeding, be compounded by a Securities Appellate Tribunal or a court before which such proceedings are pending.
Section 24(2): Punishment of imprisonment for a term which shall not be less than one month but which may extend to [ten years or with fine, which may extend to twenty-five crore rupees or with both] for not complying with the orders of the Board or Adjudicating officer. Section 26: It states that no court will take cognizance of the case until the case is referred by the Board.
Section 15HA: Penalty for fraudulent and unfair trade practices shall not be less than five lakh rupees, may extend to twenty-five crore rupees or three times the amount of profits made out of such practices, whichever is higher.
Key Issue : Whether the SEBI Adjudicating Officer was correct in passing order of conviction for the accused?
Citation Details : SEBI and Ors. vs. Prem Chand Batra (06.01.2009 - SEBI / SAT): MANU/SB/0010/2009
Summary Judgment :

Facts: On investigations by SEBI it was found that the accused Prem Chand Batra, Director of M/s. MKM Finsec Pvt. Ltd. issued fictitious contract notes and bills to some of the companies engaged in the business of manufacturing iron and steel products and therefore, SEBI initiated adjudication proceedings under the Securities and Exchange Board of India Act, 1992 against the accused to inquire into and adjudge the alleged violations of the provisions of regulations 4 (1), 4 (2) (a), (b), (g) & (p) of the SEBI Regulations, 2003. It is pleaded that SEBI appointed the Adjudicating Officer to inquire into and adjudge unfair trade practices as per the SEBI Act. On notice being served accused failed to submit his reply. Adjudicating Officer after duly considering the material on record, facts and circumstances of the matter and the law on the subject proceeded with the matter in accordance with the powers conferred upon him and imposed a penalty of Rs.5,00,000/≠ on the accused under Section 15HA of the SEBI Act. The Ld. ACMM after considering the material on record, took cognizance of the offence under Section 26 read with Section 24 (2) of the Securities and Exchange Board of India Act vide order dated 11.02.2014 after which the present case was sent to the Sessions Court.

Held: It was held that the complainant has proved beyond reasonable doubt that the accused Prem Chand Batra has not complied with the Adjudication Order which was duly served upon him and did not deposit the penalty amount of Rs.5 lacs to SEBI within 45 days despite reminder being served. It was held that the accused Prem Chand Batra was guilty of the offence under Section 24 (2) of the SEBI Act and hence should be convicted.

Subject Matter : Offences by companies
Relevant Section : Section 27: Offences by the Company Where a contravention of any of the provisions of this Act has been committed by a company, every person, who at the time of the contravention was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty and shall be liable to be punished accordingly.
Key Issue : Whether a director who resigned before the offence and was not aware of day to day activities should be held liable?
Citation Details : Sayanti Sen vs. Securities and Exchange Board of India (09.08.2019 - SEBI / SAT): MANU/SB/0698/2019
Summary Judgment :

Facts: SEBI received a complaint against Silicon Projects India Limited (SPIL) in respect of the issue of Secured Redeemable Non-Convertible Debentures (NCDs) and made an investigation as to whether SPIL made any public issue of securities without complying with the provisions of the Companies Act, 1956. On investigation, it was found that SPIL had made an offer of NCDs in the financial years 2009-10, 2010-11, 2011-12 and raised an amount of Rs 18.03 crore from 406 allottees. This offer was found to be in violation of the provisions of SEBI Act, 1992, the Companies Act, 1956 and SEBI Regulations, 2008. Accordingly, SEBI passed an order for their debarment and refund to the investors against SPIL and its Directors. Since the directions were not complied with, SEBI initiated recovery proceedings against the Company and its Directors and passed an order to restrain from assessing the securities of the company. The appellant in her reply contended that she was appointed as a secretary first and later on director and by the end of the year she has resigned from the post of Director. But the Whole Time Member did not pay attention to that and as per the Section 73(2) he held the directors liable on the assumption that in the absence of any officer being nominated as an officer in default then all the Directors were liable under Section 5(g) of the Companies Act.

Held: It was held by the SAT that the liability is not imposed on all the officers of the company en bloc. And on reading of Section 27 it was held that an appellant who has nothing to do with the day-to-day affairs of the Company cannot be held guilty of any violation as there is no such thing as vicarious liability under Section 11-B of the SEBI Act.

Subject Matter : Regulations made by SEBI
Relevant Section : Section 30: The Board may, by notification, make regulations consistent with this Act.
Key Issue : Whether the accused can take the defence that his was lured by the broker and was not aware of the regulations framed?
Citation Details : Basic Clothing Pvt. Ltd. Vs Securities and Exchange Board of India (21.08.2019 - SEBI / SAT): MANU/SB/0793/2019
Summary Judgment :

Facts: SEBI observed reversal of trade in Stock Options segment of BSE Ltd., leading to the creation of artificial volume. On investigation, it was found that trades executed in Stock Options segment of BSE were not genuine trades and they created artificial volume to the tune of 826.21 crore units. The appellant was one of the various entities which indulged in this. A show-cause notice was issued indicating that the appellant had indulged in reversal trades which were non-genuine and creating a false and misleading appearance of trading in terms of artificial volumes in Stock Options and, therefore, were manipulative and deceptive in nature, thus, violating the provision of Regulations 3 and 4 of the PFUTP Regulations, 2003. The Adjudicating Officer for this case imposed a penalty of Rs 5,50,000 for violation of the said Regulations on the appellant. The appellant contended before the AO ,a specific relief was prayed that the authority should summon the stockbroker and question him as to how he has executed the trades.

Held: It was held that the stand taken by the appellant before the AO was that he was trapped by R.K. Stockholding Pvt. Ltd. who was their stockbroker and who gave them assurance of high volatility with high rate of return in securities market and succeeded to gain confidence of the appellant by opening a trading account after signing the account opening booklet the trades were performed in the account of the appellant under supervision of the stockbroker. Thus, it is clear that the appellant was doing trades which amounted to a violation of Regulations 3 and 4 of the PFUTP Regulations. In light of the same, the order passed by the AO was upheld.