Sebi Compliances and Penalties

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  • Thus ensuring highest level of Integrity Independence Excellence and Innovation
  • Thus ensuring highest level of Integrity Independence Excellence and Innovation
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Transcript

  • 1. Compliances Penalties Opportunities Securities Laws & Pavan Kumar Vijay
  • 2. Laws Regulating Capital Markets Companies Act, 1956 SCR Act, 1956 SEBI Act, 1992 Public Ltd Co’s Stock Exchanges Intermediaries Listed Co’s Listed Co’s Self Regulatory Org Depositories Act 1996 NSDL CDSL DP’s/ RTA Listed Co’s
  • 3.
    • Administrative proceedings
    • Monetary penalty proceedings
    • Disciplinary proceedings
    • Prosecution
    • Civil litigation
    Types of enforcement actions taken by SEBI
  • 4. Powers & Functions of SEBI 11 General Powers
    • Promoting / Development / Regulating Securities Market;
    • Regulating the working of Stock Exchange
    • Registering & Regulating Intermediaries ;
    • Promoting & Regulating Self-Regulatory Organizations ;
    • Prohibiting Fraudulent and Unfair Trade Practices relating to securities;
    • Prohibiting Insider Trading in securities;
    • Regulating substantial acquisition of shares and take over of the Companies;
  • 5. Powers & Functions of SEBI 11 General Powers Contd..
    • Power to make orders for :
    • suspension of trading in any security;
    • restraining to access the market & prohibit any person to sell, buy, deal in securities;
    • suspend any office bearer of a Stock Exchange and Self Regulatory Organization from holding such position;
    • Impound and retain the proceeds and securities in respect of any transaction under investigation.
  • 6.
    • Power to call information:
    • Kania committee recommends that SEBI be empowered to ask for the information from the professionals subject to the professional’s right to withhold the privileged information under the professional code of conduct.
    Powers & Functions of SEBI
  • 7. Powers & Functions of SEBI 11 A Relating to Issue of Securities
    • In order to protect the investors it has the powers :
    • Matters relating to issue of capital, transfer of securities and other incidental matters;
    • Manner how the disclosures have to be made by companies;
    • Prohibit any company from issuing prospectus, any offer document or advertisement soliciting money from public for issue of securities. specify the conditions based on which the prospectus may be issued
    • Specify the requirements of listing, transfer of securities and other matters incidental thereto.
  • 8. Powers & Functions of SEBI To Issue Directions
    • If after making or causing to be made an enquiry, the board is satisfied that it is necessary-
    • In the interest of investors, or orderly development of securities market; or
    • To prevent the affairs which are detrimental to the interest of investors or securities market.
    • To secure the proper management of such intermediary or person.
    11 B
  • 9.
    • It may issue such directions which are in the interest of the investors and securities market.
      • to any Intermediary, person or class of persons associated with the securities market;
      • to any company in respect of matter specified in section 11A.
    Powers & Functions of SEBI To Issue Directions Contd. 11 B
  • 10. Case Law – 11A, 11B
    • Integrated Amusement Ltd. v. SEBI
    • Facts: Company raised certain amount towards share capital by public issue. Having come to know that appellant had not utilised funds for purpose specified in prospectus, SEBI directed appellant to submit details of funds so utilised but appellant failed to do so.
    • SEBI declared appellant as vanishing company and issued directions debarring appellant from associating with any capital market activity and also prohibiting them from accessing capital market for a certain period
    • Whether SEBI is empowered to issue directions in the interest of investors to any person or class of persons referred to in section 12 or associated with the securities market - Held, yes
    • Whether it could be said that a company having its shares listed on the exchange is out of the reach of sections 11 and 11B - Held, no
    • Whether taking into consideration the scope and reach of sections 11 and 11B it could be said that the SEBI was lacking authority to issue direction to the appellant - Held, no
  • 11. Case Law – 11B
    • Roopram Sharma v. SEBI
    • Facts : Appellant, a company-secretary in practice, was held guilty of violating terms of issue of prospectus, circulars and SEBI guidelines on disclosure and protection of investors by SEBI in the public issue of a company with which he was alleged to be associated
    • Consequently, invoking section 11B respondent directed that appellant be prohibited from accessing capital market and dealing in securities market in any capacity for a period of three years from date of order
    • Appellant challenged said prohibition contending that alleged violation had taken place after he vacated office of director. Further, he challenged validity of direction issued against him as tantamounting to imposition of penalty which was beyond scope and purview of section 11B
    • Whether SEBI is competent to issue a direction under section 11B which tantamounts to imposition of penalty - Held, no
    • Whether a remedial action is normally seen as one intended to correct, remove or lessen a wrong, fault or defect and in instant case there was no nexus between appellant’s action and said direction issued to prevent appellant indulging in such action in future - Held, yes
    • Whether said direction was a measure remedying mischief arisen as a result of appellant’s action within meaning of section 11B - Held, no
    • Whether said direction was extraneous to charge established against appellant - Held, yes - Whether impugned direction was to be set aside - Held, yes
  • 12. Case Law – 11B
    • Paresh M. Parekh v. SEBI
    • Facts : Whether it is duty of company and its management and intermediaries and other agencies associated with public issue and listing, to ensure that payment received after closing of public issue is not accounted for computing quantum of subscription received, but a person who has belatedly applied in public issue cannot be said to have violated any legal provision - Held, yes
    • Whether belated submission of application with or without request consideration only disables applicant from getting allotment of shares, but no penal consequences would visit him on that count - Held, yes
    • Whether market manipulation resulting in defrauding the investors is a serious charge, which has to be established with reasonably good evidence, if not beyond doubt - Held, yes
    • Whether if one is to be charged for helping a person in committing an offence, it is necessary to bring on record commissioning of offence by other person - Held, yes –
    • Whether where order prohibiting appellants from dealing in securities market for a period of two years had failed to establish charge levelled against appellants, it was of no consequence as to specific legal provision invoked to issue directions against appellants and, therefore, it was not necessary for Tribunal to examine legality or otherwise of direction issued by respondent to appellants under section 11B - Held, yes
  • 13. Case Law – 11B
    • Gold Multifab Ltd. v. SEBI
    • Facts : Appellant-company made public issue of equity shares, Respondent-SEBI carried out an investigation into matter and issued show-cause notice to appellant for violation of provisions of sections 69, 73(3A) and 77 of the Companies Act, 1956, SEBI Guidelines on Disclosure and Investor Protection and also terms and conditions of prospectus
    • After adjudicating show-cause notice, SEBI found that charges were substantiated and passed impugned order under section 11B, Whether adjudicating authority can go beyond scope of show-cause notice and adjudicate charge other than one specified in show-cause notice - Held, no
    • Whether since in show-cause notice it was not clear as to which specific guideline/terms and conditions were violated, adjudication of said two charges, i.e. violation of SEBI Guidelines on Disclosure and Investor Protection and Violation of terms and conditions of prospectus and decisions based thereon could not be sustained - Held, yes
    • Whether, therefore, charges against appellants, which needed be taken cognizance of were that of violation of sections 69, 73(3A) and 77 of Companies Act, 1956, in light of facts stated in show-cause notice - Held, yes
    • Whether for enforcement of provisions of Companies Act, there are provisions in Companies Act itself and no external assistance for purpose is required or is permissible - Held, yes
    • Whether SEBI can resort to provisions of SEBI Act for purpose of enforcing provisions of Companies Act in absence of an enabling provision for purpose in SEBI Act - Held, no
    • Whether, therefore, section 11B could not be invoked by SEBI to take action for violation of provisions of sections 69, 73(3A) and 77 of Companies Act - Held, yes
  • 14. Powers & Functions of SEBI To Investigate
    • Where the Board has reasonable ground to believe that:
      • Any transaction that are dealt in a manner detrimental to the investors or securities market ;
      • Intermediary violates any provision of the Act, rules, regulations made under it or any order passed by the chairman.
    • It may Direct any person to investigate the affairs of such intermediaries or any other person concerned and to report thereon to the Board.
    11 C
  • 15. Powers & Functions of SEBI To Cease and Desist the Proceedings
    • The board may pass cease & desist order in the following case:
    • Where any provision of the Act, rules and regulations has been violated or is likely to be violated.
    • In case of insider trading or market manipulation .
    11 D
  • 16. Powers & Functions of SEBI Adjudication Powers
    • For the purpose of adjudging under sections 15A - 15HB,
    • the Board appoints any of its officer not below the rank of Divisional Chief to be an adjudicating officer for holding an inquiry,
    • after giving any person concerned a reasonable opportunity of being heard for the purpose of imposing any penalty. 
    • Governed by SEBI (Procedure of Holding Enquiry & Imposing Penalty by Adjudicating Officer) Rules, 1995
    15 I
  • 17. Case Law – 15 I
    • Adjudication - Powers of adjudicator
    • Whether decision as to imposition of penalty for failure to perform statutory obligation is a matter of discretion left to Adjudicating Officer but that discretion has to be exercised judicially and on a consideration of all relevant facts and circumstances - Held, yes
    • Words and phrases - ‘he may impose such penalty’ occurring in section 15-I and ‘the Adjudicating Officer shall, have due regard to the... factors’, occurring in section 15J of the Securities and Exchange Board of India Act, 1992
  • 18. Case Law – 15 I
    • Doogar & Associates Ltd. v. SEBI
    • Facts: Appellant was lead manager to public issue - Respondent found that appellant had failed to exercise due diligence, proper care and independent professional judgment as required to be exercised by it in terms of clause 2 of Schedule III of Regulation 13 of 1992 regulations
    • Respondent suspended appellant’s certificate of registration for two months
    • Whether oral submissions are also to be treated as replies and, therefore, order issued within 30 days of completion of oral submissions could be said as having been issued within time-limit prescribed in regulation 40(3) - Held, yes
    • Whether when there was nothing on record to show that appellant had failed to discharge specific duties assigned to it in its capacity as lead manager and it was not case of respondent that omissions and commissions attributed to appellant were of any serious consequences to investors in public issue or that appellant had intentionally suppressed material facts, suspension of certificate of registration for two months was unjustified - Held, yes
    • Whether, however, since appellant was lead manager to issue, it would be sufficient if suspension period was allowed to run for one month - Held, yes
  • 19. Powers & Functions of SEBI 15 J Factors to be taken care by Adjudication Officer
    • While adjudicating the quantum of penalty under section 15-I, the adjudicating officer shall take care of following factors :
    • the quantum of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;
    • The amount of loss caused to an investor or group of investors as a result of the default. 
    • The repetitive nature of default
  • 20. Case law – 15J
    • J.M. Mutual Fund v. SEBI
    • Facts : First appellant was a mutual fund and second appellant was an asset management company - A penalty was levied by SEBI on sponsors of first appellant, for violating Regulations, 1997 - That information was not incorporated in offer documents prepared by appellants and vetted by SEBI
    • Subsequently, appellants devised seven schemes proposed to be launched - Sponsors approved said schemes without informing appellants about penalty levied on them despite letters written by compliance officer of appellants to sponsors - After getting approval, draft offer documents were filed by appellants with SEBI under regulation 28 of SEBI (Mutual Funds) Regulation. Thereafter, SEBI imposed penalties on appellants for failure to comply with sections 15E and 15D
    • Whether since penalty on first appellant (mutual fund) would adversely affect unit holders, no penalty should be levied on it - Held, yes
    • Whether since SEBI knew about penalties on sponsors and did not raise that issue while approving offer document and also second appellant did not wait for a reply from sponsors before submitting offer document for vetting, there was an element of lack of due diligence - Held, yes
    • Whether, by applying conditions laid down in section 15J, penalty imposed on second appellant was excessive as there was no disproportionate gain by second appellant and there was no loss caused to investors - Held, yes
    • Whether, therefore, order passed against first appellant was to be set aside and order passed against second appellant was to be modified and penalty was to be reduced - Held, yes
  • 21.
    • Issue related manipulations, mis-statement in prospectus, gray market operations and irregularities in the issue process.
    • Post listing market manipulations like price rigging, circular trading
    • Insider trading
    • Manipulations relating to takeover and acquisitions
    • Other violations of provisions of SEBI act/regulations
    Enforcement actions by SEBI becomes necessary in cases of:
  • 22. 15 A Penalities under SEBI Act, 1992 Listed Companies / Intermediaries / Any other person Applicability To maintain books of account or records File any return or furnish any information, books or other documents within the time specified therefore in the regulations Penalty of Rs.1 Lakh Per Day during which such failure continues or Rs. 1 Crore, whichever is less Failure to furnish any document, return or report to the Board Penalty Contravention
  • 23. Case law – 15A
    • SECURITIES APPELLATE TRIBUNAL, MUMBAI
    • Subhash A. Gandhi
    • v .
    • Securities and Exchange Board of India
    • Section 15A, read with, reg 7 of the S EBI (SAST) Reg, 1997 - Penalty - For failure to furnish information, return, etc.
    • Appellant informed target company about his shareholding exceeding prescribed limit of 5 per cent by .03 per cent but did not inform about aggregate shareholding and exact percentage of shareholding in company in desired format - Hence, SEBI imposed penalty of Rs. 10,000 on appellant for a delay in submitting information's in prescribed format as prescribed under regulation 7
    • Whether since appellant had complied with part of requirements and had exceeded limit only by .03 per cent, this was a case for taking a lenient view and consequently, penalty could be reduced to Rs. 1,000 - Held yes
  • 24. Case Law – 15A
    • SECURITIES APPELLATE TRIBUNAL, MUMBAI
    • NNV Finance Ltd. v. SEBI
    • Section 15A, read with reg 7 of the SEBI (SAST) Reg, 1997 - Penalty - For failure to furnish information, returns, etc.
    • Appellant had acquired shares representing 14 per cent of paid up equity and voting share capital of target company in two phases - Respondent-SEBI imposed penalty upon appellant for violation of regulation 7(1) on ground that acquirer had not made necessary disclosures to stock exchanges where shares of target company were listed
    • Facts revealed that certificate of posting to all stock exchanges was of same date and one stock exchange had admitted of having received communication
    • Whether when one of stock exchanges had admitted of receipt of communication, there was a strong presumption that remaining two exchanges would also have received same and since respondent had not produced any evidence to counter said presumption and made no enquiries that said other stock exchanges had denied having received intimation, no case was made out against appellant and, therefore, order imposing penalty was to be set aside - Held, yes
  • 25. 15 B Penalities under SEBI Act, 1992 Intermediaries Applicability Penalty of Rs.1 lakh per day during which such failure continues or Rs. 1 crore, whichever is less Failure to enter into an agreement with his client Penalty Contravention
  • 26. 15 C Penalities under SEBI Act, 1992 Listed Company / Intermediaries Applicability Penalty of Rs.1 lakh per day during which such failure continues or Rs. 1 crore, whichever is less Failure to redress the grievances of investors , after having been called upon by the Board in writing to redress the grievances of investors. Penalty Contravention
  • 27. Case Law – 15C
    • SECURITIES APPELLATE TRIBUNAL, MUMBAI
    • Dharnendra Industries Ltd.
    • v.
    • Securities and Exchange Board of India
    • Section 15C SEBI Act, 1992 - Penalty - For failure to redress investors’ grievances –
    • Appellants companies having failed to redress investors’ grievances, SEBI debarred them from securities market for five years
    • Whether since matter involved public interest and appellants’ annual reports for year 2002-03 admitted that there were 121 complaints, which had not been attended to, SEBI was justified in passing impugned order, as it was a clear case of mismanagement and appellants were bound to attend grievances of shareholders within a stipulated time schedule - Held, yes
  • 28. Case Law – 15C
    • SECURITIES APPELLATE TRIBUNAL, MUMBAI
    • Indo Biotech Foods Ltd.
    • v.
    • Securities and Exchange Board of India
    • Section 15C SEBI Act, 1992 - Penalty - For failure to redress investors’ grievances
    • SEBI directed certain officials of appellant-company to dissociate themselves from securities market for five years for having not redressed two out of total 108 investors’ grievances
    • Appellant-company denied any such grievances pending unredressed and contended that even if there be any such complaint pending, it would attend same to full satisfaction of investors - Whether in view of facts of case, action taken by respondent was totally disproportionate to alleged misdemeanor by company or any of its directors, and, therefore, impugned order was to be set aside - Held, yes
  • 29. 15 D Penalities under SEBI Act, 1992 Mutual Funds / Collective Investment Scheme (CIS) Applicability Penalty of Rs.1 lakh per day during which such failure continues or Rs. 1 crore, whichever is less Doing such activity without obtaining certificate of registration , OR fails to comply the conditions specified in the governing regulations Penalty Contravention
  • 30. 15 E Penalities under SEBI Act, 1992 Asset Management Company Applicability Penalty of Rs.1 lakh per day during which such failure continues or Rs. 1 crore, whichever is less Fails to comply with any of the regulations providing for restrictions on the activities of the asset management companies Penalty Contravention
  • 31. 15 F Penalities under SEBI Act, 1992 Stock Broker Applicability Penalty of Rs. 1 Lakh or 5 times the amount of brokerage excess charged, whichever is higher. Charges excess brokerage Penalty of Rs. 1 lakh per day during which such failure continues or Rs. 1 crore , whichever is less Fails to deliver any security Penalty not exceeding 5 times the amount of contract note . Fails to issue contract notes Penalty Contravention
  • 32. 15 G Penalities under SEBI Act, 1992 Any Insider Applicability Penalty of Rs. 25 crore or 3 times the amount of profits made out of such insider trading, whichever is higher. Contravention of provisions of Insider Trading Regulations Penalty Contravention
  • 33. Case Law – 15G
    • SECURITIES APPELLATE TRIBUNAL, MUMBAI
    • S. Ramesh and S. Padmalata Asis Bhaumik
    • v.
    • Securities and Exchange Board of India
    • Section 15G SEBI Act, 1992, read with reg 3 of the SEBI (Prohibition of Insider Trading) Regulations, 1992 - Penalty - For insider trading
    • Appellants, being company secretary and executive director of a company, had bought shares of that company on behalf of their family members on basis of unpublished price sensitive information, which was not known to general public but to appellants as employees of company
    • They, later on, tendered said shares in open offer announced by acquirer at higher price, thereby making an unlawful gain - SEBI held appellants guilty of misconduct of insider trading and imposed penalty - Appellants admitted that they had made a mistake and were willing to pay back profit earned by sale of shares
    • Whether any violation of provision relating to inside trading will make a person guilty of being an inside trader - Held, yes - Whether however, taking into account said financial position of both parties, their admission and their offer to pay back profit, which they had earned by sale of said shares, penalty was to be reduced - Held, yes
  • 34. 15 H Penalities under SEBI Act, 1992 Any Acquirer / Person Acting in Concert (PAC) Applicability Penalty of Rs. 25 crore or 3 times the amount of profits made out of such failure, whichever is higher. Contravention of provisions of Takeover Code Regulations Penalty Contravention
  • 35. Case Law – 15H
    • SECURITIES APPELLATE TRIBUNAL, MUMBAI
    • VLS Finance Ltd.
    • v.
    • Securities & Exchange Board of India
    • Section 15H SEBI Act, 1992, read with Reg 10 of the SEBI (SAST) Reg, 1997
    • In terms of a pledge document appellant advanced certain amount to ‘T’ Ltd., which, in turn, deposited certain shares with appellant by way of collateral securities As per agreement, acquirer had right to sell shares pledged to realize its dues - Later, parties entered into a fresh MOU whereby shares pledged were transferred in name of pledgee-appellant but those shares continued to be held as collateral securities and pledgee signed a power of attorney in favour of ‘K’ and ‘B’ of ‘T’ Ltd., for purpose of attending and voting on its behalf at all general meetings of ‘T’ Ltd. - Appellant made an application to SEBI seeking for exemption from provisions of Regulations of 1997, which was rejected –
    • Thereafter, because of failure of appellant to make public announcement of acquisition of shares of ‘T’ Ltd., Adjudicating and Enquiry Officer imposed penalty under section 15H(ii) - Whether since it was appellant whose name was entered as beneficial owner in register of members of company and, under section 41(3) of the Companies Act, it was appellant who was deemed to be a member of ‘T’ Ltd. with effect from date of transfer of shares, transfer of shares in name of appellant for realizing its lawful dues amounted to acquisition as defined in 1997 Regulations - Held, yes
    • Whether, therefore, voting rights vested with appellant and question whether he exercised those rights himself or through ‘K’ and ‘B’ through power of attorney did not alter situation with respect to acquisition in any manner whatsoever - Held, yes - Whether in light of that position, there was nothing objectionable in impugned order and same was to be upheld - Held, yes
  • 36. Case Law – 15H
    • SECURITIES APPELLATE TRIBUNAL, MUMBAI
    • Krishna Naik
    • v.
    • Securities and Exchange Board of India
    • Section 15H of the SEBI Act, 1992, read with reg 11 of the SEBI (SAST) Reg, 1997 - Penalty - For non-discloser of acquisition of shares and takeovers
    • Appellant, who was promoter of a company, was holding 30.82 per cent equity shares of said company - In year 2002, when company was facing certain difficulties, appellant advanced it an unsecured interest free loan and approached IDBI for restructuring by converting loan into equity shares
    • Accordingly, company reissued to appellant forfeited equity shares which constituted 6.4 per cent of total share capital of company - However, SEBI imposed penalty of Rs. 5 lakhs upon appellant for violation of regulation 11(1) of 1997 Regulation as increase in shareholding was more than creeping limit of 5 per cent and acquisition had taken place without making public announcement - It was found that preferential allotment stood annulled by a subsequent resolution of company and that until 9-9-2002, acquisition by way of preferential allotments was entitled to automatic exemption from discipline of Regulations - Whether since it was first default on part of appellant and gain to appellant or loss to investor, apart from being non-quantifiable, could at most be only notional in an admittedly illiquid scrip, appellant was entitled to be viewed leniently and penalty was to be reduced to Rs. 1 lakh - Held, yes
  • 37. Case Law – 15H
    • SECURITIES APPELLATE TRIBUNAL, MUMBAI
    • Continental Device India Ltd.
    • v.
    • Securities and Exchange Board of India
    • Section 15H SEBI Act, 1992, read with regulation 3(1)(c)(ii) of the SEBI(SAST) Reg, 1997 - Penalty - For non-disclosure of acquisition of shares and takeovers
    • SEBI, holding that appellant-company allotted certain shares on preferential basis to promoters without disclosing identity of proposing allottees, consequential changes in voting rights, changes in board of directors and shareholding pattern, imposed penalty of Rs. 1 lakh on appellant-company
    • However, from material on record, it appeared that it had disclosed all facts in board’s resolution to SEBI and also informed same details at annual general meeting to shareholders and that only violation was that identity of class of persons was not fully disclosed
    • Whether since most of details were correctly disclosed to SEBI; there was no loss to shareholders; management of company had not changed after issue; and issue was listed in two stock exchanges, misconduct was of technical nature and, therefore, fine was to be reduced from Rs. 1 lakh to Rs. 25,000 - Held, yes
  • 38. Case Law – 15H
    • SECURITIES APPELLATE TRIBUNAL, MUMBAI
    • Diamond Projects (P.) Ltd.
    • v.
    • Securities and Exchange Board of India
    • When a person comes forward and makes clean breast of violation of regulation, if such disclosure is bona fide, SEBI should pass a workable order so that it can be implemented
    • Section 15H SEBI Act, 1992, read with reg 3(1)(c) of the SEBI (SAST) Reg, 1997 - Penalty - For non-disclosure of acquisition of shares and takeovers
    • Appellant- company admitted mistake of having acquired 21.96 per cent equity shares of target company without informing SEBI but denied having any intention to cheat public - It had incurred heavy losses and had not met its liability - SEBI imposed penalty of Rs. 5 lakhs - Whether acquisition of shares in target company by appellant without disclosing it to respondent amounted to violation of regulation 3(1)(c) - Held, yes - Whether however, in matters of strict liability, SEBI must pass a workable order to maintain ability of company to make effective payment - Held, yes - Whether, therefore, taking a practical view of matter and fact that appellant had incurred heavy loss, penalty imposed should be reduced to Rs. 1,50,000 - Held, yes
  • 39. 15 HA Penalities under SEBI Act, 1992 Listed Companies / Intermediaries / Any Other Person Applicability Penalty of Rs. 25 crore or 3 times the amount of profits made out of such practices, whichever is higher. Indulgence in any Fraudulent and Unfair Trade Practices. Penalty Contravention
  • 40. 15 HB Penalities under SEBI Act, 1992 Listed Companies / Intermediaries / Any Other Person Applicability penalty which may be extend to Rs. 1 Crore Contravention of any of the provision of the Act where no specific penalty is specified Penalty Contravention
  • 41. Recommendations by Kania Committee
    • The Kania committee recommends that section 15HB of SEBI Act, may be amended to provide for monetary penalty for the failure to comply with the orders of SEBI
  • 42. 23 Penalities under SCR Act, 1956 Listed Companies / Intermediaries / Stock Exchanges Any Other Person Applicability Imprisonment up to 10 years OR Fine up to Rs. 25 crore OR Both
    • trades in contraventions
    • of various sections of the
    • Act,
    • operating non-
    • recognized exchanges,
    • non-compliance with the
    • orders of SAT ,
    • non-compliance with the
    • conditions of listing etc.
    Penalty Contravention
  • 43. 23 A Penalities under SCR Act, 1956 Any Person Applicability (b) Failure by any person to maintain books of accounts or records as per listing agreement or conditions. Rs. 1 lakh for each day during which such failure continues OR Rs. 1 crore Whichever is LESS (a) Failure by any person to furnish any information, document, books, returns or report to a stock exchange within specified time Penalty Contravention
  • 44. 23 C Penalities under SCR Act, 1956 Broker/ Listed Company/Proposed Listed Co. Applicability Rs. 1 lakh for each day during which such failure continues OR Rs. 1 crore Whichever is LESS Failure to redress the grievances of investors after having been called upon by SEBI to do so Penalty Contravention
  • 45. 23 E Penalities under SCR Act, 1956 Listed Company/Collective Investment Scheme/ Mutual Funds Applicability Penalty not exceeding Rs. 25 crore Failure by a company or any person managing collective investment scheme or mutual fund to comply with Listing / Delisting Conditions Penalty Contravention
  • 46. 23 F Penalities under SCR Act, 1956 Any Person Applicability Penalty not exceeding Rs. 25 crore Any person dematerialized securities more than the issued securities OR delivers unlisted securities in the exchange Penalty Contravention
  • 47. 23 G Penalities under SCR Act, 1956 Stock Exchange Applicability Penalty not exceeding Rs. 25 crore Failure or neglect by an exchange to furnish periodical returns to SEBI OR make or amend its rules/byelaws as directed by SEBI OR comply with directions of SEBI Penalty Contravention
  • 48. 19 A Penalities under Depositories Act, 1996 Any Person Applicability Rs. 1 lakh for each day during which such failure continues OR Rs. 1crore, whichever is LESS a). Failure to furnish any information, document, books, returns or report to SEBI b). Failure to file any return or furnish any information, books or other documents under the Act c). Failure to maintain books of accounts or records Penalty Contravention
  • 49. 19 G Penalities under Depositories Act, 1996 Any Person Applicability Penalty not exceeding Rs. 1 crore Failure to comply with any provision of the Act, the rules or regulations or byelaws made or directions issued by SEBI there under for which no separate penalty has been provided Penalty Contravention
  • 50. Kania Committee recommendations
    • The kania group recommends that in sections 15A to 15H of SEBI Act, the following words
    • “ one lac rupees for each day during which such failure continues or one core rupees, whichever is less.”
    • May be replaced by the words
    • “ not exceeding 1 lac rupees for each day during which such failure continues subject to a maximum of 1 crore rupees”
    • for the sake of clarity
  • 51. Prosecution under SEBI SCRA & DP Act.
    • Independent of penalty imposed by Adjudicating Officer under the Acts.
    • Authority not lower than Session Court .
    • The complaint should be filed within the period of Limitation under Limitation Act, 1963
  • 52. 24 Offences under SEBI Act, 1992 Offences for which prosecution can be launched
    • Imprisonment not less than 1 month but may extend to 10 Years ; or
    • With fine, which may extend to 25 crore rupees, or
    • With Both
    Failure to pay the penalty OR Failure to comply with any directions
    • Imprisonment may extend to 10 Years ; or
    • With fine, which may extend to 25 crore rupees, or
    • With Both
    Non Compliance of any of the provision of the Act, rules or regulations made hereunder. Punishment Offence
  • 53. Kania Committee recommendations
    • It has been recommended that section 24(2) be amended to make non compliance of SEBI order an offence under the provisions of the said section.
  • 54. 23 M Offences under SCR Act, 1992 Offences for which prosecution can be launched
    • Imprisonment not less than 1 month but may extend to 10 Years ; or
    • With fine, which may extend to 25 crore rupees, or
    • With Both
    Failure to pay the penalty OR Failure to comply with any directions
    • Imprisonment may extend to 10 Years ; or
    • With fine, which may extend to 25 crore rupees, or
    • With Both
    - Non Compliance of any of the provision of the Act - Non-Compliance of any of the provision for which no punishment is provided elsewhere in this Act. Punishment Offence
  • 55. 20 Offences under DP Act, 1996 Offences for which prosecution can be launched Imprisonment up to 10 years (not less than one month) OR fine up to Rs. 25 crore OR BOTH Failure to pay the penalty imposed by adjudicating officer or to comply with any of his directions or orders Imprisonment up to 10 years OR Fine up to Rs. 25 crore OR BOTH Contravenes or attempts to contravene or abets the contravention of the provisions of the Act or of any rules or regulations or byelaws made there under Punishment Offence
  • 56. 27 Offences by Companies under SEBI, SCRA, DP Act
    • Contravention : Non-compliance any of the provisions of Acts, rules or regulations made hereunder.
    • Applicability:
    • a.) Every person in charge of and responsible to, the
    • company, at the time the offence,
    • b.) Where it is proved that the offence 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, every such person .
    • Exclusion: Person proves that the offence was
    • committed without his knowledge or that he had
    • exercised all due diligence to prevent the
    • commission  
  • 57. Holding Enquiry & Imposing Penality Holding inquiry for any contravention by intermediaries
      • Governed by SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalties) Regulations, 2002.
      • Regulations 4 specifies the regulations, contravention of which, activates the enquiry proceedings.
      • APPLICABLE ONLY TO INTERMEDIARIES
  • 58. Holding Enquiry & Imposing Penality Contravention Noticed Exparte decision If no response SCN to Party Party to file Reply Appointment of Enquiry Officer Notice Issued Reply within 15 days Hearing Date Fixed Enquiry Report by EO Representation Before EO Order by Chairman Impose Minor or Major Penalty For contravention of the provision of regulations mentioned in Reg 4
  • 59. Types of Penality Minor Penalties
      • Warning or censure;
      • Prohibition to undertake any new assignment for a period of six months ;
      • Debarring from carrying out the activities as
      • intermediaries for a period upto six months .
      • Suspension of certificate of registration for a period upto 3 months .
  • 60. Comparison Between Enquiry Officer & Adjudicating Officer
  • 61. Points of Difference
    • Governing Regulation
    • Definition
    • Matters of Enquiry
    • Basis of Appointment
    • Manner of Service of Notice or order
    • Appeal to SAT
    • Imposition of Penalties
  • 62. Types of Penality Major Penalties
      • Cancellation of certificate of registration;
      • Prohibition to undertake any new assignment for a
      • period exceeding six months ;
      • Suspension of certificate of registration for a period
      • exceeding three months ;
      • Debarring from carrying out the activities as
      • intermediaries for a period exceeding six months .
  • 63. Types of Penality Major Penalties ONLY to be imposed where:
    • The contravening party has been guilty of:
      • Price or market manipulation of any scrip, index or of insider trading ;
      • Violation of conditions of registrations;
      • Failure to obey directions OR failure to comply with the monetary penalty;
      • Repeated offence by an intermediary .
  • 64. Appeals To Securities Appellate Tribunal (SAT) Appeals can be made in following cases:
      • Orders passed by SEBI (after Securities Laws amendment Act, 1999)
      • OR
      • Orders passed by an adjudicating officer
      • OR
      • Refusal, Omission or failure of Stock Exchange to list the securities
  • 65. Appeals To Securities Appellate Tribunal (SAT) Time limit for filing appeal:
      • In case of orders of SEBI or adjudicating officer , within 45 days from the date on which copy of order is received.
      • AND
      • In case of Stock Exchange refusal , failure or omission within 15 days of specified date of section 73(1A) of the Companies Act, 1956
  • 66. Appeals To Securities Appellate Tribunal (SAT) Appearance before SAT
    • Any person aggrieved by the orders can either appear in person or authorize the following persons to appear before SAT:
      • Chartered Accountant or;
      • Company Secretary or;
      • Cost Accountant or;
      • Legal practitioner or;
      • Any of its officers.
  • 67. Appeals To Securities Appellate Tribunal (SAT) Bar of Jurisdiction of Civil Courts:
    • EXCEPT for the appeals to SAT under section 15 T of or to Central Government under section 20
    • No civil court shall have the jurisdiction to entertain any matter which the Board or the adjudicating officer is empowered to act
    • And
    • No injunction shall be granted by any court or authority in respect of any action taken or in pursuance of any order passed by the Board or the adjudicating officer.
  • 68. Appeals To Securities Appellate Tribunal (SAT) Appeal to Supreme Court:
    • Aggrieved by the decision of or order of SAT or for determining any question of law arising out of the order,
    • Appeal can be filed to Supreme Court within 60 days of the date of communication of the decision or order of SAT.
  • 69. Composition of Offences
    • Offences can be compounded subject to following conditions :
    • The offence must not be punishable with Imprisonment only or with imprisonment and fine under SEBI Act ,
    • The offences can be compounded either before or after the institution of proceedings,
    • The offence can be compounded by SAT or by the Court under which the proceedings are pending,
    • The provision of SEBI Act shall be applicable notwithstanding any thing stated in Criminal Procedure Code.
    24 A
  • 70. Kania Committee recommendations
    • Compounding of offence
    • It has been recommended that, SEBI Act may be amended adopting the provisions on the line of section 15 of FEMA in terms of which any contravention may be compounded within 180 days from the date of receipt of an application made by the person committing such contravention.
    • The group further recommends that the said section may be amended to provide for compounding of all violations any not only offences, on the lines of provisions contained in section 279(2) of income tax act 1961.
  • 71. Power to Grant Immunity Special Powers to grant immunity from Penalty
    • Can be granted by Central Government
    • Where the alleged person gives a full and true disclosure in respect of the alleged violation
    • Central government imposes such conditions as it may think fit.
    • No immunity granted where the prosecution has already been instituted.
    • Immunity once granted can be withdrawn on non compliance of any condition imposed or giving of false evidence.
    24 B
  • 72. Recent Judgements
    • Can penal laws be Resptropective? – NO
    • According to the article 20(1) of the constitution:
    • Decision in the cases of :
      • Rameshchandra manshukani NRI Vs. adjudicating officer, SEBI – Appeal No. 151/2004
      • DSQ holdings
      • “ penalties unless specifically made retrospectively must inevitable be only with effect from the date of the amendment”
  • 73.
    • Retrospective changes
    • It has been recommended that SEBI be empowered to make regulation with respect to retrospective effect in the matter relating to charging of fees or procedural matters for the limited purpose of giving relief and not for imposing new liabilities and obligations.
    Recommendations of Kania Committee
  • 74. Recent Case laws
    • Reliance Industries Ltd. Vs. SEBI
    • where breach of regulations is not deliberate and non-disclosure of information is due to lack of understanding of law, penalty should not be levied under the section 15A of the SEBI Act.
  • 75. Recent Case laws contd.
    • Sanjay Jhalani Vs. Whole Time Member, SEBI ( 2005) 63 SCL 444 ( SAT- Mumbai):
    • It was held that on the basis of the facts and circumstances of the case that the appellants having suffered the inordinate delay of 9 years in passing the impugned order and taking into account the facts that the impugned order had been in force without it being stayed and also taking into account that the matter relates to the transactions made in the year of 1996, it would be appropriate that period of suspension be reduced from 2 years to 9 months.
  • 76. Recent Case laws contd.
    • Golden Glade Plantations P. Ltd. Vs. SEBI, ( 2005) 63 SCL 450 (SAT- Mumbai):
    • While allowing the review petition of the appellant, the Tribunal observed that there is no method contemplated under the provision of the Act to execute any order of repayment made by the SEBI. The only course open for the SEBI is to prosecute the appellant for not complying with the order of repayment. That would not help the investors cause. What is needed is a flexible approach by which the appellant could repay the investors.
  • 77. Recent Case laws contd.
    • Pavak Securities Ltd. Vs. SEBI: ( 2005) 63 SCL 455 ( SAT - Mumbai):
    • It was held that though the appellant have been found guilty of violation of code of conduct, however, having regard to the fact that in similar cases, SEBI has taken lenient view and ordered minor or less severe penalties, penalty in the matter be reduced from Rs. 150,000 to Rs. 50,000.
  • 78. Recent Case laws contd.
    • Vinaychand Kothari & Ors Vs SEBI
    • Penalty reduced from Rs. 50,000/- to Rs 10,000/-
    • The respondent has imposed a penalty of Rs. 50,000/- for certain technical violation of the Takeover Code (Regulation 7 & 8).
    • It cannot be forgotten that the adjudicating officer changed and the whole matter took more than 2 years before the proceedings commenced for no fault of the appellant. It also cannot be forgotten that the appellants have placed documents to show that they have complied with the Regulations which was not accepted by the adjudicating officer since it was not produced at the time of reply to the show cause notice.
    • The adjudicating officer is bound to look at the documents placed before him and cannot decline to consider the documents merely because it was given belatedly. It is another matter if the adjudicating officer rejects the document as not being genuine, but refusing to look at the documents does not augur well. Taking all these factors into account and in the peculiar facts and circumstances of the case, penalty was reduced to Rs. 10,000/-
  • 79. Recent Case laws contd.
    • Dhaval Shah Vs. SEBI
    • The respondent by an order dated December 30th, 2004 imposed a penalty of Rs.1 lakh against the appellant for violating regulations 7(1) and (2) of the SEBI (SAST) Regulations,1997. As per the Regulations, there is a duty cast on the acquirer to inform the target company whenever an acquirer purchases more than 5% of the shares or voting rights in the target company. This must be done within 4 working days as required under regulation 7(2). The appellant had crossed the threshold limit of 5% on June 22, 2002 and it failed to inform the company within 4 working days of receipt of the allotment of shares.
    • It was however brought below the threshold limit of 5%
    •  
    • The Tribunal also held that the ignorance of law is no excuse but an erroneous interpretation of the law is a mitigating factor especially if such interpretation is honest and bona fide to the knowledge of the appellant. The appellant also relied on the Judgement of Cabbot International Capital corporation vs. Adjudicating Officer, SEBI where this Tribunal took the same view,
    • Taking all these factors into account and the precedents on the subject, & reduced the penalty from Rs.1 lakh to Rs.25,000/-.
    •  
  • 80. Recent Case laws contd.
    • Nokia Finance International Finance P. Ltd. Vs   SEBI
    •  
    • In exercise of the powers conferred under section 15-I(2) of the SEBI Act, 1992, read with Rule 5 of SEBI Adjudication Rules, respondent impose a penalty of Rs. 18,00,000/- on the basis of unjust enrichment and disproportionate gain accrued to the entity.
    • The appellant had been given more than one opportunity (three summonses) and a personal hearing to submit the required information which was submitted only partially. It is a serious case of excess dematerialized shares than the authorized capital being traded in the market.
    • The appellant could have availed of the opportunity of submitting all the required information and come clean, but he failed to do so. Decided that there is no violation of natural justice in this particular case and the penalty has been imposed as per the regulations. The impugned order indicates that the various factors to be reckoned under Section 15(J) of SEBI Act, 1992 were duly considered before deciding on the quantum of penalty imposed. In view of the fact that appellant has failed to give the necessary information to the respondent for conducting investigation into a very serious irregularity in the market, Sat appeal.
  • 81. Development in the securities laws has bought up new avenues for the professionals
  • 82. Opportunities in securities laws for Professionals
  • 83.
    • Securities Issue management & due diligence.
      • Public & right issues
      • ADR, GDR, EURO issues
      • Bonus issues
      • Preferential issues
      • ESOP / ESOS
      • Debt Instruments
      • Buy back
      • Takeover, Acquisition, Buy out, Open Offers etc
    Opportunities
  • 84.
    • Securities Audit
      • Listing Agreement ,
      • Takeover regulations,
      • Prohibition of Insider Trading regulation,
      • Depositories Act & regulations
      • Companies Act & rules
      • Indian Stamp Act,
      • Income Tax Act,
      • FEMA
    Opportunities contd.
  • 85.
    • Intermediaries registration & Audit,
      • Stock Brokers
      • Depository Participant
      • Registrar & Transfer Agent (RTA)
      • Mutual Fund
      • Portfolio Manager
      • Merchant Banker
    Opportunities contd.
  • 86.
    • Inquiry & Investigations
      • Unfair Trade Practice
      • Fraudulent Trade Practice
      • Insider Trading
      • Price Rigging
      • Takeover
    Opportunities contd.
  • 87.
    • Other Areas
      • Appearance before SAT,
      • Informal Guidance
      • Legal consultancy
    Opportunities contd.
  • 88.
    • Opportunities are unlimited
  • 89.
    • Understand Industry Needs
    • Gain ‘Substantial Knowledge’ – Learning little more than what is included in the course curriculum
    • Provide PQRS – Productivity, Quality, Reliability and Service
    • Use 3Cs - Creativity, Confidence and Communication
    • Conduct Periodical SWOT Analysis of Self
    • Use Technology to Beat Technology
    All you need to do is:
  • 90.
    • Co-operate instead of Competing
  • 91.
    • Optimism Comes from Co-operation
  • 92.
    • It’s a matter of Perception and Positive Thinking
  • 93. Thanks www.corporateprofessionals.com