Study Notes

SEBI Act
Descriptive Question Notes
SEBI Act – Descriptive Question Notes

Question no. 1. Discuss the various powers and functions of SEBI under the SEBI Act
1992.

It shall be the duty of the Board to protect the interests of investors in securities and to promote
the development of, and to regulate the securities market

Function of SEBI are given under Section 11(2) of SEBI Act 1992 as

 Regulating the business in stock exchanges and any other securities markets.
 Registering and regulating the working of stockbrokers, sub-brokers, share transfer
agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant
bankers, underwriters, portfolio managers, investment advisers and such other
intermediaries who may be associated with securities markets in any manner.
 Registering and regulating the working of the depositories, participants, custodians of
securities, foreign institutional investors, credit rating agencies, and other intermediaries.
 Registering and regulating the working of VCF and CIS, including MFs.
 Promoting and regulating self-regulatory organizations.
 Prohibiting fraudulent and unfair trade practices relating to securities markets.
 Promoting investor’s education and training of intermediaries of securities markets.
 Prohibiting insider trading in securities.
 Regulating substantial acquisition of shares and takeover of companies.
 Calling for information from, undertaking inspection, conducting inquiries and audits of
the stock exchanges, mutual funds, other persons associated with the securities market
intermediaries and self-regulatory organizations in the securities market.
 Calling for information and record from any bank or any other authority or board or
corporation established or constituted by or under any Central, State, or Provincial Act in
respect of any transaction in securities which is under investigation or inquiry by the
SEBI.
 Performing functions and exercising powers under the provisions of the SCR Act, 1956
delegated by the Central Government.
 Levying fees or other charges.
 Conducting research.
 Calling from or furnishing to any such agencies, as may be specified by the Board, such
information as may be considered necessary by it for the efficient discharge of its
functions.
 Performing such other functions as may be prescribed.

Power of SEBI to make inspection [Section 11(2A)]: The SEBI may take measures to
undertake inspection of any book, or register, or other document or record of

 Any listed public company, or

 A public company that is in process of listing its securities on the recognized stock
exchange.

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SEBI Act – Descriptive Question Notes

Such inspection can be made by the SEBI if it has reasonable grounds to believe that company
has been indulging in insider trading or fraudulent and unfair trade practices relating to the
securities market.

Power of Civil Court exercisable by SEBI [Section 11(3)]: The SEBI shall have the same
powers as are vested in a Civil Court under the Code of Civil Procedure, 1908, while trying a
suit, in respect of the following matters:

 The discovery and production of books of account and other documents, at such place
and such time as may be specified by the SEBI
 Summoning and enforcing the attendance of persons and examining them on oath.
 Inspection of any books, registers, and other documents of various market
intermediaries at any place.
 Inspection of any book, or register, or other document or record of any listed public
company or a public company that intends to get its securities listed on any recognized
stock exchange
 Issuing commissions for the examination of witnesses or documents.

Power to SEBI to take action pending investigation and inquiry [Section 11(4)]

Power of SEBI to levy penalty

Power of SEBI to regulate or prohibit issue of prospectus, offer document or

advertisement soliciting money for issue of securities [Section 11A]

Suggestive Questions-

 Q. Discuss the powers of SEBI to inspect and investigate

 Q. How are powers of SEBI similar to that of Civil Court?
 Q. Discuss the powers of SEBI pending investigation and inquiry
 Q. Discuss the powers of SEBI related to issue of prospectus as given in SEBI Act
 Q. SEBI has been given the necessary autonomy and authority to regulate and develop
an orderly market. Elucidate the statement in the light of statutory powers vested with
SEBI.

Question no. 2. SEBI has been established with the objective of protecting the interest of
investors and promoting the development of and regulating the securities market (SEBI
Act, 1992). Discuss the composition and initiatives taken by the SEBI for the
development and regulation of the securities market.

Objectives of the SEBI Act, 1992 are as follows:

 To protect the interests of investors in securities.

 To promote the development of the securities market.
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SEBI Act – Descriptive Question Notes

 To regulate the securities market.

 To promote fair dealing by the issuer of securities.
 To ensure the issuer of securities can raise funds at a relatively low cost.
 To regulate and develop a code of conduct and fair practices by various intermediaries.
 To monitor the activities of stock exchanges, mutual funds, and merchant bankers etc

Composition of the SEBI [Section 4(1)]: The SEBI shall consist of the following members:

 A Chairman.
 Two members from amongst the officials of the Ministry of the Central Government
dealing with Finance and administration of the Companies Act, 2013.
 One member from amongst the officials of the RBI.
 Five other members of whom at least 3 shall be the whole-time members to be
appointed by the Central Government.

Thus, SEBI Board consists of a total of 9 members.

Management of the SEBI [Section 4(2)]: The general superintendence, direction, and
management of the affairs of the SEBI shall vest in a Board of members, which may exercise all
powers and do all acts and things which may be exercised or done by the SEBI.

Power of Chairman of SEBI [Section 4(3)]: The Chairman shall also have powers of general
superintendence and direction of the affairs of the SEBI. He may exercise all powers and do all
acts and things which may be exercised or done by the SEBI.

Appointment of Chairman [Section 4(4)]: The Chairman and members shall be appointed by
the Central Government. The members shall be nominated by both Central Government and
RBI.

Who can be a member of SEBI [Section 4(5)]: The Chairman and other members shall be
persons of ability, integrity, and standing who have shown capacity in dealing with problems
relating to the securities market or have special knowledge or experience of law, finance,
economics, accountancy, administration or in any other discipline which, in the opinion of the
Central Government, shall be useful to the SEBI.

Suggestive Questions-

 Q. Discuss the composition of SEBI

 Q. Who all are present on Securities and Exchange Board of India?
 Q. How are members of SEBI appointed?

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SEBI Act – Descriptive Question Notes

Question no. 3. How can the members of SEBI be removed?

Removal of member from office [Section 6]: Removal of members of SEBI

 adjudicated as insolvent;
 is of unsound mind and stands so declared by a competent court;
 has been convicted of an offence which, in the opinion of the Central Government,
involves a moral turpitude;
 has, in the opinion of the Central Government, so abused his position as to render his
continuation in office detrimental to the public interest :

Provided that no member shall be removed under this clause unless he has been given a
reasonable opportunity of being heard in the matter.

Question no. 4. State the measures that can be taken by the SEBI either pending
investigation or inquiry or on completion of investigation or inquiry.

Power of SEBI where an inquiry or investigation is ordered [Section 11(4)]: The SEBI may
take any of the following measures, either pending investigation or inquiry or on completion of
investigation or inquiry:

 Suspend the trading of any security in a recognized stock exchange.

 Restrain persons from accessing the securities market and prohibit any person
associated with the securities market to buy, sell or deal in securities.
 Suspend any office-bearer of any stock exchange or self-regulatory organization from
holding such a position.
 Impound and retain the proceeds or securities in respect of any transaction which is
under investigation.
 Direct any intermediary or any person associated with the securities market in any
manner not to dispose of or alienate an asset forming part of any transaction which is
under investigation.
 Conditions for passing orders: SEBI shall give an opportunity of hearing to such
intermediaries or persons concerned either before or after passing such orders.

Suggestive Questions-

 Q. “Derivatives are contracts which derive their value from the value of one or
more of other assets.” Comment.
 Q. What are the types of Derivatives?
 Q. Differentiate between options and futures
 Q. What are commodity derivatives

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SEBI Act – Descriptive Question Notes

Question no. 5. State the circumstances under which SEBI may pass cease and desist
orders in respect of any listed company.

Cease and desist proceedings [Section 11D]: After inquiry, SEBI can issue cease and desist
order to any person who has violated or is likely to violate any provisions of the Act or any rules
or regulations.

However, in the case of a listed public company or a public company that intends to get its
securities listed on any recognized stock exchange, such an order can be passed only if such a
company has indulged in insider trading or market manipulation.

Question no. 6. Explain the procedure to be adopted by the SEBI for adjudication of
penalties under the SEBI Act, 1992. Also, state the factors that must be taken into
accounts by the Adjudicating Officer while determining the quantum of penalty in such
case.

Power to adjudicate [Section 15I(1)]: For the purpose of adjudging under sections 15A, 15B,
15C, 15D, 15E, 15F, 15G, 15H, 15HA, and 15HB, the SEBI shall appoint any officer not
below the rank of a Division Chief to be an Adjudicating Officer for holding an inquiry in the
prescribed manner after giving any person concerned a reasonable opportunity of being heard
for the purpose of imposing any penalty.

Power of Adjudicating Officer [Section 15-I(2)]: While holding an inquiry the Adjudicating
Officer shall have the power

 to summon and enforce the attendance of any person acquainted with the facts and
circumstances of the case
 to give evidence or to produce any document which in the opinion of the Adjudicating
Officer, may be useful for or relevant to the subject-matter of the inquiry.
 If on such inquiry, he is satisfied that the person has failed to comply with the provisions
of any of the specified sections, he may impose such penalty as he thinks fit in
accordance with the provisions of any of those sections.

Enhancement of quantum of penalty in case of erroneous order by Adjudicating Officer

[Section 15-1(3)]: The SEBI may call for and examine the record of any proceedings under this
section and if it considers that the order passed by the adjudicating officer is erroneous to the
extent it is not in the interests of the securities market, it may, after making or causing to be
made such inquiry as it deems necessary, pass an order enhancing the quantum of penalty if
the circumstances of the case so justify.

However, no such order shall be passed unless the person concerned has been given an
opportunity of being heard in the matter.

It is to be noted here that provisions of passing order enhancing the penalty in case of
erroneous order by Adjudicating Officer are not applicable after expiry of a period of 3 months

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SEBI Act – Descriptive Question Notes

from the date of the order passed by the Adjudicating Officer or disposal of the appeal u/s 15T,
whichever is earlier.

Factors to be taken into account by Adjudicating Officer [Section 15J]: While adjudging
quantum of penalty u/s 15-1, the Adjudicating Officer shall have due regard to the following
factors, namely:

 Amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a

result of the default.
 Amount of loss caused to an investor or group of investors as a result of the default.
 Repetitive nature of the default.

Crediting sums realized by way of penalties to Consolidated Fund of India [Section

15JA]: All sums realized by way of penalties under this Act shall be credited to the Consolidated
Fund of India.

Question no. 7. What actions lie against registered intermediary in case of defaults or
violation under the SEBI Act, 1992?

Following actions can be taken by the SEBI in case of defaults or violation under the SEBI Act,
1992 by a registered intermediary like merchant bankers:

1. Investigation: As per Section 11C, the SEBI may appoint any person (Investigating
Authority) to investigate the affairs of intermediary if the SEBI has reasonable ground to believe
that any intermediary has violated any of the provisions of the SEBI Act, 1992 or Rules or
Regulations made or directions issued by the SEBI.

2. Cease and desist order: As per Section 1 ID, after inquiry, SEBI can issue cease and desist
order to a registered intermediary who has violated or is likely to violate any provisions of the
Act or any rules or regulations.

3. Imposition of penalty: The Adjudicating Officer of SEBI can also impose penalties under
sections 15A to 15HB for violating any of the provisions of the SEBI Act, 1992 or Rules or
Regulations made thereunder.

4. Cancellation of registration certificate: SEBI can also cancel the registration certificate of
the intermediary after giving the opportunity of being heard.

Question no. 8. When can a stock broker or sub-broker be liable for prosecution under
SEBI Act for violation?

Penalty for default in case of stockbrokers [Section 15F]: A registered stockbroker shall be liable
to a penalty which shall not be less than ₹ 1 lakh but which may extend to ₹ 1 lakh for each day
subject to a maximum of ₹ 1 Crore if it fails

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SEBI Act – Descriptive Question Notes

(a) To issue contract notes in the form and manner specified by the stock exchange;

(b) To deliver any security or fails to make payment of the amount due to the investor in the
manner within the period specified in the regulations;

(c) Charges an amount of brokerage which is in excess of the brokerage specified in the
regulations.

Question no. 9. Write a short note on Collective Investment Scheme.

Collective Investment Scheme [Section 11AA]: Any scheme or arrangement which satisfies
the conditions referred below

 the contributions, or payments made by the investors, by whatever name called, are
pooled and utilized for the purposes of the scheme or arrangement;
 the contributions or payments are made to such scheme or arrangement by the
investors with a view to receive profits, income, produce or property, whether
movable or immovable, from such scheme or arrangement;
 the property, contribution or investment forming part of scheme or arrangement, whether
identifiable or not, is managed on behalf of the investors;
 the investors do not have day-to-day control over the management and operation of the
scheme or arrangement.

Any pooling of funds under any scheme or arrangement, which is not registered with the Board,
involving a corpus amount of one hundred crore rupees or more shall be deemed to be a
collective investment scheme

Following are not collective investment schemes : Schemes or arrangements

 made or offered by Cooperative Society

 under which deposits are accepted by NBFC
 Contract of insurance
 Scheme, Pension Scheme or the Insurance Scheme framed under the Employees
Provident Fund and Miscellaneous Provisions Act,
 Deposits under Nidhi company or mutual benefit society
 falling within the meaning of Chit business
 under which contributions made are in the nature of subscription to a mutual fund
 such other scheme or arrangement which the Central Government may notify

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SEBI Act – Descriptive Question Notes

Question no. 10. Write a short note on composition of Securities Appellate Tribunal.

Establishment of Securities Appellate Tribunals [Section 15K]: The Central Government

shall establish Securities Appellate Tribunal by issuing a notification.

Composition of Securities Appellate Tribunal [Section 15L]: A SAT shall consist of a

Presiding Officer and two other members, to be appointed by the Central Government by
notification.

Qualification for appointment as Presiding Officer or Member of SAT [Section 15M]:

Following person can be appointed as Presiding Officer of the SAT:

(a) A person who is a sitting or retired Judge of the Supreme Court or a sitting or retired Chief
Justice of a High Court.

(b) A person who is a sitting or retired Judge of a High Court who has completed 7 years of
service as a Judge in a High Court.

The Presiding Officer shall be appointed by the Central Government in consultation with the
Chief Justice of India or his nominee.

A person can be appointed as a member of SAT if he is a person of ability, integrity, and

standing who has shown capacity in dealing with problems relating to the securities market and
has qualification and experience of corporate law, securities laws, finance, economics or
accountancy.

Tenure of office of Presiding Officer and other Members of SAT [Section 15N]: The
Presiding Officer and every other Member of an SAT shall hold office for a term of 5 years from
the date on which he enters upon his office and shall be eligible for re-appointment, up to the
age of 70 years

Orders constituting Appellate Tribunal to be final and not to invalidate its proceedings
[Section 15R]: No order of the Central Government appointing any person as the Presiding
Officer or a Member of SAT shall be called in question in any manner, and no act or proceeding
before SAT shall be called in question in any manner on the ground merely of any defect in the
constitution of SAT.

Question no. 11. Write a short note on powers of Securities Appellate Tribunal

or

“Securities Appellate Tribunal shall have the same power as are vested in a Civil Court
while trying a suit.” In the light of this statement, state the powers vested in SAT as a
Civil Court.

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SEBI Act – Descriptive Question Notes

Procedure and powers of the SAT [Section 15U]: The SAT is not bound by the procedure
laid down by the Code of Civil Procedure, 1908 but shall be guided by the principles of natural
justice. SAT has powers of Civil Court in respect of:

 Summoning and enforcing the attendance of any person and examining him on oath.
 Requiring the discovery and production of documents.
 Receiving evidence on affidavits.
 Issuing commissions for the examination of witnesses or documents.
 Reviewing its decisions.
 Dismissing an application for default or deciding it ex parte.
 Setting aside any order of dismissal of any application for default or any order passed by
it ex parte.
 Any other matter which may be prescribed.

Every proceeding before SAT shall be deemed to be a judicial proceeding and the SAT shall be
deemed to be a Civil Court.

Question no. 12. Explain the procedure for appeal to SAT?

Appeal to the Securities Appellate Tribunal (Section 15T): An appeal shall lie to SAT against
the following orders:

 An order made of an Adjudicating Officer imposing a penalty.

 Any order of SEBI made under the SEBI Act, 1992 or the rules or regulations made
thereunder.
 an order of the Insurance Regulatory and Development Authority or the Pension Fund
Regulatory and Development Authority

Every appeal to SAT shall be filed within a period of 45 days from the date on which a copy of
the order. However, the SAT may entertain an appeal after the expiry of 45 days if it is satisfied
that there was sufficient cause for not filing it within that period.

On receipt of an appeal, the SAT may pass orders as it thinks fit, confirming, modifying, or
setting aside the order appealed after giving an opportunity of being heard to the parties.

The SAT shall send a copy of every order made by it to the SEBI, parties to the appeal, and to
the concerned Adjudicating Officer.

The appeal should be decided by the SAT expeditiously and possibly within 6 months.

Question no. 13. How can a person approach the Board for settlement of administrative
proceedings under SEBI Act?

Settlement of administrative and civil proceedings [Section 15JB]:

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SEBI Act – Descriptive Question Notes

1. Filing of application to the SEBI: Any person against whom any of the procedures have been
initiated or may be initiated may file an application in writing to the SEBI proposing for
settlement of the proceedings initiated or to be initiated for the alleged defaults.

2. SEBI may consider the matter for the settlement: The SEBI may, after taking into
consideration the nature, gravity, and impact of defaults, agree to the proposal for settlement,
on payment of such sum by the defaulter or on such other terms as may be determined by the
SEBI in accordance with the regulations made under the SEBI Act, 1992.

3. Procedure to be followed as prescribed under the SEBI Act: For the purposes of settlement,
the procedure as specified by the SEBI under the SEBI Act, 1992 shall apply.

4. No appeal to order: No appeal shall lie against any order passed by the SEBI or the
adjudicating officer, as the case may be, under this section.

5. Settlement Amounts: All settlement amounts, excluding the disgorgement amount and legal
costs, realized under the Act shall be credited to the Consolidated Fund of India.

Question no.14. Discuss the power of Central Government to supersede the Board under
SEBI Act.

Power of Central Government to supersede the Board. (Section 17)

If at any time the Central Government is of opinion-

 that on account of grave emergency, the Board is unable to discharge the functions and
duties imposed on it by or under the provisions of this Act; or
 that the Board has persistently made default in complying with any direction issued
by the Central Government under this Act or in the discharge of the functions and duties
imposed on it by or under the provisions of this Act and as a result of such default the
financial position of the Board or the administration of the Board has deteriorated;
or
 that circumstances exist which render it necessary in the public interest so to do,

the Central Government may, by notification, supersede the Board for such period, not
exceeding six months, as may be specified in the notification.

All the members shall from the date of supersession, vacate their offices. All powers,
functions and duties of Board shall be exercised by the Central Government. All property
owned or controlled by the Board shall vest in Central Government, until the Board is
reconstituted.

The Central Government may then later reconstitute the Board by fresh appointment and a
full report shall be laid before each House of Parliament.

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SEBI Act – Descriptive Question Notes

Question no. 15. Explain the power of the Central Government to grant immunity under
the SEBI Act.

The Central Government may grant immunity to a person who has violated the provisions of the
SEBI Act, 1992 as per Section 24B

Conditions for granting immunity:

 SEBI makes a recommendation to the Central Government.

 The concerned person has made full and true disclosure in respect of the alleged
violation.
 Proceedings for the prosecution for any such offense not have been instituted before
granting immunity.
 The Central Government may impose conditions subject to which immunity shall be
granted.

Withdrawal of immunity: An immunity granted to a person may be withdrawn by the Central

Government if it is satisfied that:

 Such person had not complied with the condition on which the immunity was granted, or
 Such a person had given false evidence.
 After the withdrawal of immunity, the concerned person may be tried for the offense of
which he appears to have been guilty and shall also become liable to the imposition of
any penalty.

Question no. 16. Write a short note on Special Courts established under SEBI Act

Establishment of Special Courts (Section 26A) - The Central Government may, for the
purpose of providing speedy trial of offences under this Act, by notification, establish or
designate as many Special Courts as may be necessary.

A Special Court shall consist of a single judge (Session Judge or Additional Session Judge) to
be appointed by the Central Government with the concurrence of the Chief Justice of the High
Court within whose jurisdiction the judge to be appointed is working.

Offences triable by Special Courts (Section 26B) - All offences under SEBI Act shall be
taken cognizance of and tried by the Special Court established for the area in which the offence
is committed

Appeal and Revision – An appeal against the order of Special Court shall lie to High Court, as
if the Special Court were a Court of Session

Application of Code to proceedings before Special Court – The provisions of CrPC shall
apply to the proceedings before a Special Court and for the purposes of the said provisions, the
Special Court shall be deemed to be a Court of Session and the person conducting prosecution
before a Special Court shall be deemed to be a Public Prosecutor.
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SEBI Act – Descriptive Question Notes

The person conducting prosecution should have been in practice as an advocate for not less
than seven years or should have held a post, for a period of not less than seven years, under
the Union or a State, requiring special knowledge of law

Transition Provisions - Any offence committed under this Act, which is triable by a Special
Court shall, until a Special Court is established, be taken cognizance of and tried by a Court of
Session exercising jurisdiction over the area.

Question no. 17. Write a short note on Contravention by Companies under SEBI Act

Where a contravention of any of the provisions of this Act or any rule, regulation, direction or
order has been committed by a company, every person who at the time 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 of the
contravention and shall be liable to be proceeded against and punished accordingly:

Any such person shall not be liable to any punishment provided in this Act, if he proves that the
contravention was committed without his knowledge or that he had exercised all due diligence
to prevent the commission of such contravention

Where a contravention under this Act has been committed by a company and it is proved that
the contravention has been committed with the consent or connivance of, or is attributable to
any neglect on the part of, any director, manager, secretary or other officer of the company,
such director, manager, secretary or other officer shall also be deemed to be guilty of the
contravention and shall be liable to be proceeded against and punished accordingly.

Question no. 18. If a person fails to pay the penalty imposed, how can the amount be
recovered?

Recovery of amounts (Section 28A)

If a person fails to pay the penalty imposed under this Act or fails to comply with any direction of
the Board for refund of monies or fails to comply with a direction of disgorgement order issued
under section 11B or fails to pay any fees due to the Board, the Recovery Officer may draw up
under his signature a statement in the specified form specifying the amount due from the person
shall proceed to recover from such person the amount specified in the certificate by one or more
of the following modes, namely:—

 attachment and sale of the person's movable property;

 attachment of the person's bank accounts;
 attachment and sale of the person's immovable property;
 arrest of the person and his detention in prison;

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SEBI Act – Descriptive Question Notes

 appointing a receiver for the management of the person's movable and immovable
properties

The Recovery Officer shall be empowered to seek the assistance of the local district
administration while exercising the powers

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