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Sebi Act. 1992 Presentation
The Securities and Exchange Board of India (SEBI) was established in 1988 to regulate capital markets and protect investor interests. It has the authority to impose penalties and oversee insider trading, with notable cases including the HLL-BBLIL merger, where SEBI found HLL guilty of insider trading but was later overruled by the Securities Appellate Tribunal. SEBI has also addressed lapses by the National Stock Exchange and non-compliance by other companies, enforcing regulatory measures to enhance market stability.
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Sebi Act. 1992 Presentation
- 1. Presented by: Abhinav Thakur AdilGarg Ajil Jalhotra Ankur Aggarwal Ayush Jain
- 2. Introduction • Established byGovernment of India in 1988. • Statutory powers given in January 30, 1992 with SEBI Act 1992. • Headquarters in Bandra Kurla complex in Mumbai. • Regulator for capital markets in india. Mumbai New Delhi Kolkata Chennai Ahmedabad
- 3. SEBI - Preamble ThePreamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as "...to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto"
- 4. Powers of SEBI •Powers Relating to stock exchanges and intermediaries • Powers Relating to Monetary penalties • Powers under Securities Contract act • Powers to regulate business of stock exchanges. • Powers relating Insider Trading.
- 5. Functions of SEBI •Protective Functions • Developmental Functions • Regulatory Functions etc.
- 6. Board Members ofSEBI Shri U. K. Sinha, Chairman, SEBI, SEBI Bhavan, Bandra Kurla Complex, Bandra (E), Mumbai - 400051 Shri Rajeev Kumar Agarwal Whole-Time Member, SEBI, SEBI Bhavan, Bandra Kurla Complex, Bandra (E), Mumbai - 400051 Shri Prashant Saran Whole-Time Member, SEBI, SEBI Bhavan, Bandra Kurla Complex, Bandra (E), Mumbai - 400051. Shri Shaktikanta Das Secretary, Department of Economic Affairs, Ministry of Finance, New Delhi Member Nominated Shri. Arun P. Saathe Member Appointed Shri S. Raman Whole-Time Member, SEBI, SEBI Bhavan, Bandra Kurla Complex, Bandra (E), Mumbai - 400051.
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- 8. HLL – BBLILMerger Case
- 9. Case Overview • Plannedmerger of HLL with sister concern BBLIL • Merger was to be carried by HLL Acquiring shares of BBLIL • HLL acquires 8 lakh shares of BBLIL, on March 25, 1996, before the HLL-BBLIL merger was announced on April 19, 1996
- 10. SEBI action SEBI penalizedHLL by Rs. 34 crores & initiated criminal proceedings against directors of HLL & BBLIL
- 11. Who is aninsider? An insider means any person who is, or was, • Connected with the company, and • who is reasonably expected to have access, by virtue of such connection, to unpublished price-sensitive information
- 12. Was HLL connected? SEBIargument • SEBI took stance that both are under a common management. Thus, HLL and its directors had prior knowledge of the merger. • Under Section 370 (1)(b) of the Companies Act, 1956. Both HLL and BBLIL are deemed to be under the same management HLL stance • No company can be an insider to itself. The transnational's knowledge of the merger was because it was a primary party to the process, and not because BBLIL was an associate company.
- 13. Was HLL connected? SEBIargument • SEBI took stance that both are under a common management. Thus, HLL and its directors had prior knowledge of the merger. • Under Section 370 (1)(b) of the Companies Act, 1956. Both HLL and BBLIL are deemed to be under the same management HLL stance • No company can be an insider to itself. The transnational's knowledge of the merger was because it was a primary party to the process, and not because BBLIL was an associate company.
- 14. Was the premerger information HLL had ‘Unpublished’? SEBI’s Argument • Information about merger was speculative & only HLL could sufficiently understand the technicality involve or can use the information HLL’S Argument • Merger was generally known information : HLL defended that before transaction took place, price of BBLIL moved from Rs.242 to Rs. 320 • It was not possible that UTI to remain ignorant about widespread speculation in the market
- 15. Was the premerger information HLL had ‘Unpublished’? SEBI’s Argument • Information about merger was speculative & only HLL could sufficiently understand the technicality involve or can use the information HLL’S Argument • Merger was generally known information : HLL defended that before transaction took place, price of BBLIL moved from Rs.242 to Rs. 320 • It was not possible that UTI to remain ignorant about widespread speculation in the market
- 16. Did HLL hadany price sensitive information? SEBI argument As per SEBI merger is a price sensitive information & HLL had information of merger HLL argument HLL argued that merger itself was not a price sensitive information untill the swap ratio is known HLL did not know the swap ratio
- 17. Price sensitive informationdon’t have any material effect? HLL and BBLIL • are sister concerns • having common board of directors • Under same holding company Would not create any ripples across the market. It would not create excessive trading on part of investors However market would certainly react if SWAP ratio is favourable to one company
- 18. Did HLL hadgained any unfair advantage out of transaction? SEBI’ argument • Making profit or not is a legal requirement under regulation to establish insider trading HLL’s argument • As per HLL all the shares purchased were cancelled plus they have paid 10% premium to UTI for sharers & • Their ULTIMATE GOAL was to consolidate shareholdings of uniliver i.e. 51% in both companies
- 19. SEBI action SEBI penalizedHLL by Rs. 34 crores & initiated criminal proceedings against directors of HLL & BBLIL
- 20. HLL appealed toSAT • SEBI’s findings on insider trading were set aside by the Securities’ Appellate Tribunal (SAT), which held that there was no trade involved, based on inside information, not being price sensitive, as it was available in the public domain.
- 21. • The definitionof ‘Insider’ was subsequently amended and the Regulations re-vamped to include any person who “has received or has had access to such unpublished price sensitive information”, and not just a person who is or was connected with the company. A criterion of “deemed connected person” was introduced to include relatives of the connected person(s).
- 22. • Inability ofSEBI in proving its cases. • Wide definition of Insider Trader as defined in the 1992 Act. • Proving Insider Trading – a bizarrely difficult task. • Lack of assistance from Central Economic Intelligence Bureau (CEIB) to investigate the cases. • Absence of an adequate remedy available to the investors at large SEBI has come with more specific revised regulations in 2015 regarding Insider Trading
- 23. SEBI – NSECircuit Breaker Case
- 24. Overview • On October2012, the benchmark NSE Nifty had crashed 920 points. Nifty was crashed by 16% in 15 minutes • NSE was found failing to meet Sebi requirements, as the trading didn't halt at the 10 per cent circuit limit, the order
- 25. SEBI findings • FoundNSE Liable • NSE failed to follow regulator rules • Ordered an independent comprehensive review of its processes and systems to ensure overall market stability • Told Exchanges have systems which are robust enough to withstand individual failures
- 26. Request of EmkayGlobal for annulment of trades • SAT rejected the request as trades are executed due to negligence or breach of duty they cannot be considered material mistake and therefore not qualify for annulment
- 27. Outcome of case •SEBI prescribes rules for annulment of trades
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- 30. Overview • Non disclosureof material information to the stock exchanges. • This happened in February 2014 • Failed to comply with clause 36 of the listing agreement • Case filed in May 2014
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- 32. • The companyhad raised about Rs 22.21 crore by way of issuance of Redeemable Preference Shares (RPS) to more than 8,000 investors between 2008-09 and 2012-13, without complying with the public issue norms. • Sebi has ordered Sarada Pleasure & Adventure Ltd and its directors to refund the money collected through issuance of preference shares to the investors. • Sebi also directed the company to pay 15 per cent interest annually along with the refund amount.
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Editor's Notes
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