SEBI is the primary regulator of the Indian securities markets. It has wide-ranging powers to register and regulate intermediaries like stock exchanges, as well as protect investors through disclosures and preventing unfair practices. The key statutes governing the capital markets are the SEBI Act, SCRA, and Depositories Act. SEBI also has delegated powers under the Companies Act. It has established a framework of detailed rules and regulations on various aspects of the market. The document discusses the constitutional theme of regulators, interplay between corporate and securities laws, and provides an overview of principal statutes and regulatory framework.

1. INDIAN CORPORATE AND
SECURITIES LAWS
Sumit Agrawal
Partner, Suvan Law Advisors
Ex–Assistant Legal Advisor, SEBI
26.11.2016 @ Wellingakar Institute of
Management

2. DISCLAIMER
The views expressed, discussions generated, any
opinion expressed, or any analysis provided are personal
and for academic purposes alone.
This material is not intended to provide legal advice.

3. Overview
■ What and Who are Regulators?
■ Constitutional Theme of a Regulator vis-à-vis Characteristics of SEBI
■ Interplay of SEBI & Corporate Laws
 TATA versus Mistry: The Story So Far
 Insolvency & Bankruptcy Code
■ Principal Statutes governing the Capital and Commodities Market
■ Law of Insider Trading & Investigation by SEBI
■ Enforcement & Processes of SEBI
■ Appellate Mechanism in Securities Laws
■ General Readings & Books for Capital Market Lawyers

4. WHAT & WHO ARE REGULATORS?
Sectoral v/s Subject Matter Debate
Structure in the Government dealing with
Regulators

5. Important regulators in India
 SEBI
 Issuer
 Investor
 Intermediary
 RBI
 Banks, Financial Institutions
 NBFCs
 TRAI
 Licensed service providers
 IRDAI
 Insurers and Intermediary
 Insurance agents
 Loss assessors and surveyors etc.
5
 PFRDA
 Pension Funds
 Subscribers
 CCI
 Anti-competitive Agreements
 Abuse of dominant position
 Combinations
 IBBI
 Information Utilities (IUs)
 Insolvency professionals (IPs) &
Agencies (IPAs)
 RERA
Sectoral Regulators V/S. Subject-matter
Regulators

6. SEBI & RBI - A Snapshot
SEBI RBI
Stock/Com
modity
Exchanges
Clearing
Corporations Depositories
Mutual
Funds
Banks
Broker
Dealers
Merchant
Bankers
Depository
Participants
Registrar &
Transfer
Agents
Primary
Dealers

7. Government Structure to Regulatory Environment
Government of India
SEBI
Ministry of
Finance Ministry of
Corporate
Affairs
Ministry of
Commerce &
Industry
Ministry
of
Communi
cations &
IT
RBI
DEA / DFS
DIPP
ROC IBBI
PFRDA
IRDAI
CCI
TRAI

8. CONSTITUTIONAL Theme of a Regulator
VIS-À-VIS
CHARACTERISTICS OF SEBI
Constitution – Separation of Powers
Characteristics of a Regulator
Caveat Emptor & Caveat Venditor
Sunlight – Best Disinfectant

9. CONSTITUTION – SEPARATION OF POWERS
■ 3 Organs of the State:
– Legislature - To enact the law.
– Executive - To investigate the breach of law and implement / administer
the law.
– Judiciary – To interpret the law and to declare what the law is.
■ Statutory Regulators –
 Quasi-Legislative ;
 Quasi-Executive ; and
 Quasi-Judicial
(SEBI is an exception to “Separation of Powers” - With Statutory Checks
and Balances - Clariant International Ltd. vs. SEBI AIR 2004 SC 4236)

10.  Statutorily established and empowered
 Can you create a regulator through a Government Order or
Public Announcement?
 Strong legal backing (Federal in Nature)
 Can there be a SEBI for each State?
 Independence from the Executive
 Process of Appointment & Removal of Regulatory Boards /
Chairperson
 Financial & Operational Autonomy of Institution
 Accountability to Judicial Body or Parliament
Characteristics of a Regulator

11. Theme of a Securities Regulator
 Caveat Emptor (the buyer takes on the risk regarding the quality
or condition of the thing purchased. Consumer is entitled to a refund,
an exchange or a credit for goods that are defective)
 Caveat Venditor (unless a seller explicitly disclaims liability for
something it will be held liable for any defective goods)
 Technology in market products, Trading, Clearing and Settlement
Houses
Disclosure mantra
 Publicity is justly commended as a remedy for social and industrial
diseases. Sunlight is said to be the best of disinfectants; electric light
the most efficient policeman. ~ US Supreme Court Justice
Louis Brandeis
11

12. INTERPLAY OF SEBI & CORPORATE LAWS
TATA – Mistry: The Story So Far

13. ■ Mr. Cyrus Mistry was a director on the board of Tata Sons
since 2006
■ In 2012, he was appointed as the Chairman of Tata Sons. He
was also the Chairman of several Tata companies that were
listed on stock exchanges.
■ Mr. Mistry’s family has held 18.5% of the stake of Tata Sons
since 1930s
■ On October 24 2016, Mr. Mistry was removed as the
Chairman of Tata Sons
■ Oct 25: Mr. Mistry sent an email to the Board of Tata Sons
which gets leaked to the media
■ Oct. 26: Stock exchanges ask Tata group companies such as
Indian Hotels Co. Ltd, Tata Steel Ltd and Tata Motors Ltd for a
clarification
■ Oct. 27: Tata group companies write back to Exchanges
assuring them that their accounts are in order.
TATA – Mistry: The Story So Far

14. TATA – Mistry: The Story So Far
■ Nov. 4: Independent directors of Indian Hotels unanimously
back Mistry as chairman of the company.
■ Nov. 10: Tata Sons replaces Mistry as chairman of TCS.
Separately, it calls for a shareholders’ meeting of Indian
Hotels to pass a resolution for the removal of Mistry as
director.
■ Nov. 10: Independent directors of Tata Chemicals, including
Nusli Wadia, back Mistry as chairman, citing their evaluation
of his performance for the past couple of years.
■ Nov. 11: Tata Sons moves resolutions to eject Mistry and
Wadia as directors of Tata Steel, Tata Chemicals and Tata
Motors.
■ Nov. 15: Tata Global Beverages says 7 out of 10 directors
voted for removal of Cyrus Mistry as chairman.
■ Nov. 21: TCS issues EGM notice, says company board agrees
with Tata Sons’ explanation seeking Mistry’s removal.

15. Tata- Mistry Debate: Food for
thought
■ Role and responsibility of independent
directors
– Duty to act in good faith
– What is true independence?
■ Sharing of price sensitive information on a
need-to-know basis
– Role of nominee directors
– Applicability of Companies Act or SEBI Act

16. Tata- Mistry Debate: Food for
thought
■ Rights of minority shareholders in unlisted
companies
■ Removal of directors by shareholders
– Who can call an EGM?
– PNJ – Reasonable opportunity of being heard
■ What can be done to promote corporate
governance in India?

17. The Insolvency and Bankruptcy Code, 2016
■ An Act which is going to be major interplay of SEBI & Corporate
Laws
■ The Insolvency and Bankruptcy Code, 2016 has various salient
features which makes the Act an important milestone in the field of
expeditious recovery of debts and ensuring the secured creditors
with successful credit recovery.
■ Insolvency Resolution Process
■ Priority under liquidation
■ Insolvency professionals and agencies
■ Insolvency Regulatory Board
■ Insolvency and Bankruptcy Fund
■ Adjudicatory Authorities
■ Moratorium
■ Offences

18. PrincipAL statutes governing
the capital and commodities
market
•Central Acts
•Rules Framed By Central Govt
•Regulations framed by SEBI
•Circulars, Guidelines, Schemes, clarifications, press
releases and bye-laws of SROs etc.

19. Statutory Framework
■ SEBI Act, 1992
■ Securities Contracts (Regulation) Act, 1956
■ Depositories Act, 1996
■ Delegated powers under the Companies Act, 2013
(Section 24 & Section 458)
■ Ancillary Laws to Securities Laws
■ Rules by Central Govt. and Regulations by SEBI
■ Circulars, clarifications, press releases and bye-
laws of self regulatory organizations

20. Principal Statutes
– SEBI Act, 1992
■ Incorporates SEBI and vests it with executive, quasi-
legislative and quasi-judicial powers & functions
■ Primary authority for regulating the Indian securities
markets
■ Power to register and regulate working of stock exchanges
and other intermediaries involved in the securities
markets
■ Power to protect interests of investors through ensuring
prompt disclosures, preventing market manipulation,
unfair trade practices, insider trading, etc.
■ Power to conduct inquiries and investigations, debar from
capital market, levy penalties and prosecute
■ Power to do search and seize, attach properties and make
recoveries

21. Principal Statutes
■ Securities Contracts (Regulation) Act, 1956
– How a special contract in securities is to be governed?
– What are different kinds of securities?
– Regulates contracts relating to trading in securities
– Requires companies to comply with listing agreement
– Gives the government (now majorly SEBI) regulatory
jurisdiction and supervisory control over stock exchanges
– SEBI to supersede the governing body of any recognized
stock exchange and to suspend its business.

22. Principal Statutes
■ Depositories Act, 1996
– Regulation of Depositories in securities by SEBI
– Securities held and transferred in dematerialized
(electronic) form
– Clearing and settlement processes on stock exchanges
simplified and speedier
– Greater convenience to investors and brokers – speed, ‘bad
deliveries’, no dealing with and storing heaps of paper, theft
and forgery
– Lower costs (no stamp duty) in securities trading

23. Delegation to SEBI under Companies Act,
2013
■ Companies Act, 2013 (Section 24 & Section 458)
– The primary statute dealing with Indian company law
– Regulates the issue, allotment and transfer of securities,
and aspects relating to company management
– Also specifies standards of disclosure to be made in public
issues of capital
– SEBI to deal with various aspects under Company law
relating to listed companies or those companies which
intend to get their securities listed
– issue and transfer of securities;
– non-payment of dividend; and
– Forward dealing and insider trading
Principal Statutes

24. Ancillary laws to Securities Laws
 Prevention of Money Laundering Act, 2002
 Requires securities market intermediaries to maintain records of
transactions and verify and maintain records of client identities
 Benami Transactions (Prohibition) Act, 1988
 Prohibits any transaction in which property is transferred to one
person for a consideration paid or provided by another person;
Prohibits the right to recover properly held benami & provides for
acquisition of benami property.
 Indian Contract Act, 1872
 Codifies the law of contract in India, deals with valid, void and voidable
contracts, manner of entering into, performing and enforcing
contracts
 Indian Penal Code, 1860
 Some securities related actions can also result in criminal offences,
such as breach of trust, cheating and forgery
 Foreign Exchange Management Act, 1999
 Relevant for non-residents investing in Indian securities– regulates
types of investors, manner of investing, purchase and sale price, etc.

25.  Central Govt. has framed detailed rules covering a wide
range:
 TOTAL of 13 Rules as on November 2016 :-
1. Securities Contracts (Regulation) Rules, 1957
2. SEBI (Annual Report) Rules, 1994
3. SEBI (Form of Annual Statement of Accounts and Records)
Rules, 1994
4. SEBI (Procedure For Holding Inquiry And Imposing
Penalties By Adjudicating Officer) Rules, 1995
5. SEBI (Terms and Conditions of Service of Chairman And
Members) Rules, 1992
6. SAT (Procedure) Rules, 2000
7. SAT (Recruitment) Rules, 2001
Rules – Securities Laws

26. 8. SAT (Salaries And Allowances And Other Conditions Of Service
Of The Officers And Employees) Rules, 1997
9. SAT (Salaries, Allowances And Other Terms And Conditions Of
Presiding Officer And Other Members) Rules, 2003
10. Securities Contracts (Regulation) (Appeal To Securities Appellate
Tribunal) Rules, 2000
11. Securities Contracts (Regulation) (Procedure For Holding Inquiry
And Imposing Penalties By Adjudicating Officer) Rules, 2005
12.Depositories (Appeal To Securities Appellate Tribunal)
Rules, 2000
13.Depositories (Procedure For Holding Inquiry And Imposing
Penalties By Adjudicating Officer) Rules, 2005
Rules – Securities Laws
Contd..

27.  SEBI has framed detailed regulations covering a wide range:
 TOTAL of 44 Regulations as on November 2016, such as:-
 Regulations dealing with Registration of Market Intermediaries.
 Intermediaries Regulations, 2008
 SECC Regulations, 2012
 Regulations dealing with Funds like CIS, MF, AIFs, FIIs.
 Regulations prohibiting/regulating Market Conduct
 Insider Trading Regulations, 2015
 PFUTP, 2003
 Takeover Code, 2011
 Regulations dealing with Capital (issuances, buy-back etc)
 ICDR Regulations
 Buy Back Regulations
 ILDS Regulations
Regulations – Securities Laws

28. 1. SEBI (Alternative Investment Fund) Regulations, 2012.
2. SEBI (Bankers to an Issue) Regulations, 1994.
3. SEBI (Buy-Back of Securities) Regulations, 1998.
4. SEBI (Central Database of Market Participants) Regulations, 2003.
5. SEBI (Certification of Associated Persons in the Securities Markets)
Regulations, 2007.
6. SEBI (Collective Investment Schemes) Regulations, 1999.
7. SEBI (Credit Rating Agencies) Regulations, 1999.
8. SEBI (Custodian of Securities) Regulations, 1996.
9. SEBI (Debenture Trustees) Regulations, 1993.
10. SEBI (Delisting of Equity Shares) Regulations, 2009.
Slide 28
Regulations – Securities Law Contd…

29. 11. SEBI (Depositories and Participants) Regulations, 1996.
12. SEBI (Employee Service) Regulations, 2001.
13. SEBI (Foreign Venture Capital Investors) Regulations, 2000.
14. SEBI (Infrastructure Investment Trusts) Regulations, 2014.
15. SEBI (Intermediaries) Regulations, 2008.
16. SEBI (Investment Advisers) Regulations, 2013.
17. SEBI (Investor Protection and Education Fund) Regulations, 2009.
18. SEBI (Issue and Listing of Debt Securities) Regulations, 2008.
19. SEBI (Issue and Listing of Debt Securities by Municipality) Regulations,
2015
20. SEBI (Issue and Listing of Non-Convertible Redeemable Preference
Shares) Regulations, 2013.
21. SEBI (Issue of Capital and Disclosure Requirements) Regulations,
2009.
Slide 29
Regulations – Securities Law Contd…

30. 22. SEBI (Issue of Sweat Equity) Regulations, 2002.
23. SEBI (Merchant Bankers) Regulations, 1992.
24. SEBI (Mutual Funds) Regulations, 1996.
25. SEBI (Ombudsman) Regulations, 2003.
26. SEBI (Portfolio Manager) Regulations, 1993.
27. SEBI (Procedure for Board Meetings) Regulations, 2001.
28. SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to
Securities Market) Regulations, 2003.
29. SEBI (Prohibition of Insider Trading) Regulations, 2015.
30. SEBI (Public offer and Listing of Securitized Debt Instruments)
Regulations, 2008.
31. SEBI (Real Estate Investment Trusts) Regulations, 2014.
Slide 30
Regulations – Securities Law Contd…

31. 32. SEBI (Registrars to an Issue and Share Transfer Agents) Regulations,
1993.
33. SEBI (Regulatory Fee on Stock Exchanges) Regulations, 2006.
34. SEBI (Research Analysts) Regulations, 2014.
35. SEBI (Self Regulatory Organizations) Regulations, 2004.
36. SEBI (Settlement of Administrative and Civil Proceedings) Regulations,
2013.
37. SEBI (Share Based Employee Benefits) Regulations, 2014.
38. SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992.
39. SEBI (Substantial Acquisition of Shares and Takeover) Regulations,
2011.
40. SEBI (Underwriters) Regulations, 1996.
41. SEBI {KYC (Know Your Client) Registration Agency} Regulations, 2011.
Slide 31
Regulations – Securities Law Contd…

32. Regulations – Securities Law Contd…
42. SEBI (Foreign Portfolio Investors) Regulations, 2014.
43. Securities Contracts (Regulation) (Stock Exchanges and Clearing
Corporations) Regulations, 2012.
44. SEBI (Listing Obligations and Disclosure Requirements) Regulations,
2015
Slide 32

33. Insider Trading
Difference in Companies Act & SEBI
Laws
Bar on Communication
Bar on Trading
Examples to understand Concepts
Tools for Detection or Investigation

34. Difference in Companies Act & SEBI
Laws
■ Section 195 – Companies Act, 2013
■ Section 12A (d) & (e), Section 15G of SEBI Act,
1992
■ SEBI (Prohibition of Insider Trading)
Regulations, 2015
Slide 34

35. Bar on Communication
• No insider shall communicate, provide, or
allow access to any unpublished price sensitive
information,
▫ relating to a company or
▫ securities listed or proposed to be listed,
to any person including other insiders except where such
communication is:
▫ in furtherance of legitimate purposes, performance of duties
or discharge of legal obligations.
▫ For certain transactions approved by Board (due diligence)

36. Bar on Trading
■ No insider shall trade in securities that are listed or
proposed to be listed on a stock exchange when in
possession of unpublished price sensitive information.

37. Situation 1
■ Karan is a mid-level employee of a company who
overhears a board meeting where the CFO is talking
about how the company is going to be driven into
bankruptcy as a result of severe financial problems.
■ Karan has a friend, Ankit, who owns shares of the
company. Karan warns Ankit that he needs to sell his
shares right away.
■ Ankit ignores the advice, and does not sell.
■ Is there a violation of the insider trading regulations?

38. Situation 2
■ Pooja, a lawyer representing the CEO of a company,
learns in a confidential meeting that the CEO is going
to be indicted for accounting fraud the next day.
■ Pooja shorts 1,000 shares of the company because
he knows that the stock price is going to go way down
on news of the indictment.
– Is there an insider trading?

39. Situation 3
■ Rajeev is standing outside the gates of the factories of L&T Ltd., a
listed company.
■ He wishes to determine the movement and quantum of goods by
counting the trucks entering and exiting the factory gates to analyze
and assess the company’s performance beyond what the company
usually state in production numbers in quarterly results.
■ According to his counting, the company is going to announce profits in
the company, so he prepares a research report.
■ Such research report is available to clients inasmuch as any client
having a certain risk profile may acquire that research report, with a
price of 10,000 Rupees.
■ Divya bought the report and relying on it bought shares and earned
profits.
– Is there an insider trading?

40. Situation 4
• Ashwat, CEO of Microsoft, gets on an elevator accompanied by
his co-worker, Natasha, riding along with them is Vani.
• Vani does not work for Microsoft. However, she recognizes that
Ashwat and Natasha work for Microsoft. Ashwat & Natasha are
well-known in their field.
• Ashwat tells Natasha about the impending bonus issue. Vani
overheard their conversation.
• Vani traded based on the information, but just before placing the
buy order, posted on her blog which is on internet and is in public
domain.
• Is There an Insider Trading?

41. Situation 5
• Munaf found a folder left behind at Coffee Shop in Four
Seasons.
• With the intention of returning, he opens it to see the details of
owner.
• While doing so, he reads monthly unaudited sales of Reliance
Publications Ltd.
• Based on the contents, Munaf traded in the scrip.
▫ Is there an Insider Trading by Munaf?
▫ Is this an unpublished price sensitive information?
▫ Can the person who left the folder behind be proceeded
for communicating?

42. Tools for Detecting A Violation
■ IMSS/DWBIS
■ Order Log / Trade Log Analysis
■ KYC Analysis
■ Call Data Records (CDRs) – Whether SEBI
Empowered?
■ Public Announcements / News Reports
■ Search and Seizure
– Power of search and seizure with permission from Designated
court
– Only for insider trading and market manipulation

43. Regulatory framework
Kinds of Enforcement And
Processes by SEBI

44. Regulatory framework – Kinds of Enforcement And
Processes by SEBI
 Enforcement Actions:
 Directions by the Board [Such as under Section 11,
11B, 11D]
 (Disgorgement –a new feature explicit under 2014 amendment)
 Enquiry (Suspension/cancellation of certificate
of registration)
 Adjudication (Monetary penalties)
 Prosecution (fine, Jail term or both)
An Alternate Enforcement Action:
 Consent / Compounding - Settlement
 Caution to Investing Public through a Press
Release
44

45. Appellate Mechanism in
Securities Laws
•Securities Appellate Tribunal (SAT)
•Supreme Court
•High Court

46. Appellate Mechanism in Securities Laws
Review of AO by
SEBI [Sec. 15 I
(3)]

47. Appellate Mechanism in Securities Laws
■ Jurisdiction of Civil Courts Barred (Section 15Y
& 20A)
– Suresh Gupta v. SEBI, W.P. (C) No. 5666 of 2014, Delhi
High Court Order dated September 01, 2014.
■ Securities Appellate Tribunal (SAT) / Supreme
Court
– SEBI orders can be appealed before the SAT
– Appeals from SAT orders lie to the Supreme Court of India
■ Companies Act, 2013
– Matters arising under the Companies Act are principally heard
by the Company Law Board (now Tribunal)
– Appeals from Company Law Board orders lie to the relevant
High Court (Now NCLAT)

48. Appellate Mechanism in Securities Laws
• Appeal to the Securities Appellate Tribunal (SAT):
• Any Person Aggrieved
– By Any Order of the Board
– By an Order made by an Adjudicating Officer
i. Appeal to SAT in 45 days from SEBI/AO Order
ii. Condonation of delay by SAT (any time but reasonable)
iii. SAT should make efforts to dispose of the appeal within 6
months of receipt of the appeal.
iv. SAT can confirm, modify or set-aside the order. [15T(4)]
v. SAT can review its own decisions. [15U(2)]
48

49. Appellate Mechanism in Securities Laws
■ Appeal to Supreme Court (“SC”)
 From SAT to SC by invoking Statutory Appeal u/Section 15 Z.
 Only on “Questions of Law”
 Appeal has to be within 60 days
 60 days has to be calculated from the date of the
communication of the Order of SAT to party
 Supreme Court can condone delay “not exceeding 60 days”.
■ Writ jurisdiction of the SC under Article 32, challenging the
policy or constitutional validity of a section in a Statute; or the
jurisdiction of SEBI/SAT
■ Special Leave Petition under Article 136

50. Appellate Mechanism in Securities Laws
■ Appeal to High Court (“HC”)
 From SEBI to HC by invoking Writ Jurisdiction under
Section 226
 Videocon International Ltd. v. SEBI, (2015 SC)
 Rose Valley v. SEBI – Calcutta High Court (2011)
 L. Chandra Kumar v. Union of India - SC (1997) - A
Seven-Judge Bench Judgment
 Law Commission of India Report No. 215 referring L.
Chandra Kumar’s case to a Larger Bench of the
Supreme Court

51. General Readings for
Corporate Lawyers
•Newspaper Columns, Balwgs
•Government Websites, Press Releases, FAQs
•Google Alerts
•TV Channel Programmes & Discussions
•Books in Securities & Corporate Lawyer’s Library

52. General Readings for Corporate Lawyers
– SEBI Annual Reports – New Laws and Important Rulings of the Year
– Basic Reading - Various Modules of NISM, NCFM, BSE
– Blawgs like India Corporate Law, barandbench.com
– Newswire of Law Firms and Audit Firms, like:
 Suvan Law - SuvanLight; Khaitan & Co. – Ergo ; etc.
– Key terms like “SEBI” “Ministry of Finance” on Google Alerts for collated
news and monitoring the web for updated information.
– Certain Newspaper Columns like:
 Livemint – In the Money
 Business Standard - Without Contempt
– CNBC TV18's 'The Firm' - Fri:10.30 pm/Sat:11.30 am/Sun:9:30am, 11.00pm
– SEBI Press Releases and FAQs on SEBI Websites
 www.sebi.gov.in/
 http://investor.sebi.gov.in/

53. Books in Securities & Corporate Lawyer’s Library
■ A Ramaiya’s Guide to Companies Act 2013, 18th Edition,
LexisNexis Butterworths
■ Shishir Jose Vayttaden on SEBI's Takeover Regulations,
LexisNexis Butterworths
■ Sumit Agrawal & Robin Baby’s Commentary on SEBI Act, 1992,
Taxmann Publications
■ Kaushik Laik on Unfair Trade Practices in Securities Market,
Taxmann Publications
■ Anil Choudhary & Rajneesh Deka, Securities Regulation -
Primary Market Offerings in India, CCH Wolters Kluwer
■ Sandeep Parekh on Fraud, Manipulation and Insider Trading in
the Indian Securities Market, CCH Wolters Kluwer

54. Thank You
sumit@suvanlaw.com
www.suvanlaw.com