SEBI (Securities and Exchange Board of India)

In 1988 the Securities and Exchange Board of India (SEBI) was established by the Govern ent of India through an executive resolution! and was subse"uently u#graded as a fully autono ous body (a statutory Board) in the year 199$ with the #assing of the Securities and Exchange Board of India %ct (SEBI %ct) on &'th (anuary 199$) In #lace of Govern ent *ontrol! statutory and autono ous regulatory boards with defined res#onsibilities! to cover both develo# ent + regulation of the ar,et! and inde#endent #owers have been set u#) -aradoxically this is a of 199'.91) #ositive outco e of the Securities Sca

/he basic ob0ectives of the Board were identified as1 1) /o #rotect the interests of investors in securities2 $) /o #ro ote the develo# ent of Securities 3ar,et2 &) /o regulate the securities 4) 5or ar,et and

atters connected therewith or incidental thereto) 1

SEBI is head"uartered in the business district of Bandra.6urla co #lex in 3u bai! and has 7orthern! Eastern! Southern and 8estern regional offices in 7ew 9elhi! 6ol,ata! *hennai and %h adabad) *ontroller of *a#ital Issues was the regulatory authority before SEBI ca e into existence2 it derived authority fro the *a#ital Issues (*ontrol) %ct! 194:) Initially SEBI was a non statutory body without any statutory #ower) ;owever in 199<! the SEBI was given additional statutory #ower by the Govern ent of India through an a end ent to the securities and Exchange Board of India %ct 199$) In %#ril! 1998 the SEBI was constituted as the regulator of ca#ital ar,et in India under a resolution of the Govern ent of India) SEBI has three functions rolled into one body1 "uasi.legislative! "uasi.0udicial and "uasi. executive) It drafts regulations in its legislative ca#acity! it conducts investigation and enforce ent action in its executive function and it #asses rulings and orders in its 0udicial ca#acity) /hough this a,es it very #owerful! there is an a##eals #rocess to create accountability) /here is a Securities %##ellate /ribunal which is a three. e ber tribunal and is #resently headed by a for er *hief (ustice of a ;igh court . 3r) (ustice 76 Sodhi) % second a##eal lies directly to the Su#re e *ourt) SEBI has en0oyed success as a regulator by #ushing syste ic refor s aggressively and successively (e)g) the "uic, ove ent towards a,ing the ar,ets electronic and #a#erless rolling settle ent on /=$ basis)) SEBI has been active in setting u# the regulations as re"uired under law) SEBI has also been instru ental in ta,ing "uic, and effective ste#s in light of the global to be such eltdown and the Satya fiasco) It had increased the extent and "uantity of disclosures eltdown! it ?s 1 ade by Indian cor#orate #ro oters) 3ore recently! in light of the global

liberali>ed the ta,eover code to facilitate invest ents by re oving regulatory structures) In one ove! SEBI has increased the a##lication li it for retail investors to ?s $ la,h! fro la,h at #resent)

THE SECURITIES AND EXCHAN E B!ARD !" INDIA ACT# $%%& No.15 of 1992 [4th April, 1992.] 2

%n %ct to #rovide for the establish ent of a Board to #rotect the interests of Investors in securities and to #ro ote the develo# ent of! and to regulate! the Securities @ear of the ?e#ublic of India as follows1 *ha#ter I *ha#ter II *ha#ter III *ha#ter IC *ha#ter C *ha#ter C% *ha#ter CI . -reli inary . Establish ent of the Securities and Exchange Board Af India . /ransfer of %ssets! Biabilities! etc)! Af the Existing Securities %nd Exchange Board to the Board . -owers and 5unctions of the Board . ?egistration *ertificate . -rohibition of 3ani#ulative and 9ece#tive 9evices! Insider /rading and Substantial %c"uisition of Securities or *ontrol . 5inance! %ccounts and %udit ar,et and for atters connected therewith or incidental thereto) Be it enacted by -arlia ent in the 5orty.third

*ha#ter CI% . -enalties and %d0udication *ha#ter CIB . Establish ent! (urisdiction! %uthority and -rocedure of %##ellate /ribunal *ha#ter CII . 3iscellaneous

CHA+TER I

+RE,I-INAR. Short tit'e# extent ( co))ence)ent* 1) (1) /his %ct ay be called the Securities and Exchange Board of India %ct! 199$) ($) It extends to the whole of India) (&) It shall be dee ed to have co e into force on the &'th day of (anuary! 199$) Definitions* $) (1) In this %ct! unless the context otherwise re"uires! . (a) DBoardD eans the Securities and Exchange Board of India established under section &2 eans the *hair an of the Board2 (b) D*hair anD

1E(ba) "collective investment scheme" means an scheme or arran!ement "hich satisfies the con#itions specifie# in $ection 11AA%F (c) DExisting Securities and Exchange BoardD eans the Securities and Exchange Board of India constituted under the ?esolution of the Govern ent of India in the 9e#art ent of Econo ic %ffairs 7o)1 (44) SEG8H! dated the 1$th day of %#ril! 19882 (d) D5undD eans the 5und constituted under Section 142 eans a e ber of the Board and includes the *hair an2 ade under this %ct2 eans a notification #ublished in the Afficial Ga>ette2 eans #rescribed by rules eans the regulations ade by the Board under this %ct2 (e) D3e berD (f) D7otificationD (g) D-rescribedD (h) D?egulationsD

$E(ha) D?eserve Ban,D (i) DSecuritiesD has the

eans the ?eserve Ban, of India constituted under section & of the eaning assigned to it in section $ of the Securities *ontracts

?eserve Ban, of India %ct! 19&4($ of 19&4)2F (?egulation) %ct! 19<H (4$ of 19<H)) &E($) 8ords and ex#ressions used and not defined in this %ct! but defined in the Securities *ontracts (?egulation) %ct! 19<H(4$ of 19<H)! 4Eor the 1 Inserted by the Securities Baws (% end ent) %ct! &1 of 1999! S) 11 (w)e)f) $$.$.$''')) $ Inserted by the SEBI (% end ent) %ct! $''$! S) $ (w)e)f) $9.1'.$''$)) 9e#ositories %ct! 199HF! shall have the eanings res#ectively assigned to the in that %ct)

CHA+TER II

ESTAB,ISH-ENT !" THE SECURITIES AND EXCHAN E B!ARD !" INDIA

Esta/'ish)ent and incor0oration of Board* &) (1) 8ith effect fro such date as the *entral Govern ent ay! by notification! a##oint! there shall be established! for the #ur#oses of this %ct! a Board by the na e of the Securities and Exchange Board of India) ($) /he Board shall be a body cor#orate by the na e aforesaid! having #er#etual succession and a co on seal! with #ower sub0ect to the #rovisions of this %ct! to ac"uire! hold and ovable and i ovable! and to contract! and shall! by the said na e! dis#ose of #ro#erty! both sue or be sued) (&) /he head office of the Board shall be at Bo bay) (4) /he Board ay establish offices at other #laces in India)

-anage)ent of the Board* 4) (1) /he Board shall consist of the following (a) % *hair an2 (b) /wo (c) Ane e bers fro e ber fro a ongst the officials of the <E3inistryF of the *entral Govern ent dealing with 5inance HEand ad inistration of the *o #anies %ct! 19<H(1 of 19<H)F2 a ongst the officials of :Ethe ?eserve Ban,F2 at least three shall be the whole.ti e e bers!F to be 8E(d) five other e bers of who e bers! na ely1.

a##ointed by the central Govern ent) & Substituted by the Securities Baws (% end ent) %ct! 199<! w)e)f) $<.'1.199<) -rior to its substitution! sub.section ($) reads as under1 I($) 8ords and ex#ressions used and not defined in this %ct but defined in the *a#ital Issues (*ontrol) %ct! 194: or the Securities *ontracts ?egulation %ct! 19<H shall have the sa e res#ectively assigned to the in those %cts)J 4) Inserted by the de#ositories %ct! 199H! w)e)f) $'.'9.199<) < Substituted by the SEBI (% end ent) %ct! $''$! S) & (a) (i) (%) (w)e)f) $9.1'.$''$)! for I3inistriesJ) H Substituted by the SEBI (% end ent) %ct! $''$! S) & (a) (i) (B) (w)e)f) $9.1'.$''$)! for Iand BawJ eanings

: Substituted by the SEBI (% end ent) %ct! $''$! S) & (a) (ii) (w)e)f) $9.1'.$''$)! for Ithe ?eserve Ban, of India constituted under section & of the ?eserve Ban, of India %ct! 19&4 ($ of 19&4)J) 8 Substituted by the SEBI (% end ent) %ct! $''$! S) & (a) (iii) (w)e)f) $9.1'.$''$)! for I(d) two other e bersJ) anage ent of the affairs of the Board shall e bers! which ay exercise all #owers and do all acts and things which ($) /he general su#erintendence! direction and vest in a Board of ay be exercised or done by the Board) (&) Save as otherwise deter ined by regulations2 the *hair an shall also have #owers of general su#erintendence and direction of the affairs of the Board and #owers and do all acts and things which (4) /he *hair an and ay also exercise all ay be exercised or done by that Board) e bers referred to in clauses (b) and (c) of that

e bers referred to in clauses (a) and (d) of sub.section (1) shall be

a##ointed by the *entral Govern ent and the res#ectively) (<) /he *hair an and the other #roble s relating to securities

sub.section shall be no inated by the *entral Govern ent and the 9E?eserve Ban,F e bers referred to in clauses (a) and (d) of subsection ar,et or have s#ecial ,nowledge or ex#erience of law! finance!

(1) shall be #ersons of ability! integrity and standing who have shown ca#acity in dealing with econo ics! accountancy! ad inistration or in any other disci#line which! in the o#inion of the *entral Govern ent! shall be useful to the Board) Ter) of office and conditions of ser1ice of Chair)an and )e)/ers of the Board* <) (1) /he ter of office and other conditions of service of the *hair an and the e bers referred to in clause (d) of sub. section (1) of section 4 shall be such as the right to ter inate the services of the *hair an or a section (1)! by giving hi notice of not less than three ay be #rescribed)

($) 7otwithstanding anything contained in sub.section (1)! the *entral Govern ent shall have e ber a##ointed under clause (d) of onths in writing or three e ber! as the case onthsK salary sub.section (1) of section 4! at any ti e before the ex#iry of the #eriod #rescribed under sub. and allowances in lieu thereof! and the *hair an or a ay be! shall also onths

have the right to relin"uish his office! at any ti e before the ex#iry of the #eriod #rescribed under sub.section (1)! by giving to the *entral Govern ent notice of not less than three in writing)

Re)o1a' of )e)/er fro) office2 H) 1'E F /he *entral Govern ent shall re ove a (b) is of unsound Ban, of IndiaJ) 1' /he brac,ets and figure I(1)J o itted by %ct 9 of 199<! S) & (w)e)f) $<.1.199<) (c) has been convicted of an offence which! in the o#inion of the *entral Govern ent! involves a oral tur#itude2 11E(d) )))F (e) ;as! in the o#inion of the *entral Govern ent! so abused his #osition as to render his continuation in office detri ental to the #ublic interest1 -rovided that no e ber shall be re oved under this clause unless he has been given a atter) reasonable o##ortunity of being heard in the -eetings2 :) (1) /he Board shall eet at such ti es and #laces! and shall observe such rules of #rocedure eetings (including "uoru at such eetings) as in regard to the transaction of business at its ay be #rovided by regulations) ($) /he *hair an or! if for any reason! he is unable to attend a e ber chosen by the at the eeting) eeting of the Board shall be decided by a a0ority e bers #resent and voting! and! in the event of an e"uality of votes! the e bers #resent fro eeting of the Board! any other eeting shall #reside a ongst the selves at the e ber fro office if he . (a) is! or at any ti e has been! ad0udicated as insolvent2 ind and stands so declared by a co #etent court2 9 Substituted by the SEBI (% end ent) %ct! $''$! S) &(b) (w)e)f) $9.1'.$''$)! for I?eserve

(&) %ll "uestions which co e u# before any votes of the

*hair an! or in his absence! the #erson #residing! shall have a second or casting vote) -e)/er not to 0artici0ate in )eetings in certain cases* 1$ EI:%) %ny e ber! who is a director of a co #any and who as such director has any direct atter co ing u# for consideration at a eeting of the or indirect #ecuniary interest in any

Board! shall! as soon as #ossible after relevant circu stances have co e to his ,nowledge! disclose the nature of his interest at such #roceedings of the Board! and the decision of the Board with res#ect to that eeting and such disclosure shall be recorded in the atterJ)F e ber shall not ta,e any #art in any deliberation or

3acancies etc*# not to in1a'idate 0roceedings of Board2 8) 7o act or #roceeding of the Board shall be invalid erely by reason of . e ber of the Board2 or erits of the case) (a) %ny vacancy in! or any defect in the constitution of! the Board2 or (b) %ny defect in the a##oint ent of a #erson acting as a (c) %ny irregularity in the #rocedure of the Board not affecting the I(d) is a##ointed as a director of a co #anyJ) 1$ Inserted by %ct 9 of 199<! S) 4 (w)e)f)$<.1.199<)) !fficers and e)0'o4ees of the Board* 9) (1) /he Board ($) /he ter ay a##oint such other officers and e #loyees as it considers necessary for the efficient discharge of its functions under this %ct) and other conditions of service of officers and e #loyees of the Board a##ointed ay be deter ined by regulations) under sub. section (1) shall be such as

11 *lause (d) o itted by %ct 9 of 199<! S) & (w)e)f) $<.1.199<)) -rior to its o ission it read as!

CHA+TER III

TRANS"ER !" ASSETS# ,IABI,ITIES# ETC*# !" THE EXISTIN

SECURITIES AND

Transfer of assets# 'ia/i'ities# etc*# of existing Securities and Exchange Board to the Board* 1') (1) An and fro the date of establish ent of the Board!.

(a) %ny reference to the existing Securities and Exchange Board in any law other than this %ct or in any contract or other instru ent shall be dee ed as a reference to the Board2 (b) %ll #ro#erties and assets! ovable and i ovable! of! or belonging to! the existing Securities and Exchange Board! shall vest in the Board2 (c) %ll rights and liabilities of the existing Securities and Exchange Board shall be transferred to! and be the rights and liabilities of! the Board2 (d) 8ithout #re0udice to the #rovisions of clause (c)! all debts! obligations and liabilities incurred! all contracts entered into and all atters and things engaged to be done by! with or for the ediately before that date! for or in connection with existing Securities and Exchange Board i engaged to be done by! with for! the Board2 (e) %ll su s of oney due to the existing Securities and Exchange Board i ediately before that date shall be dee ed to be due to the Board2 (f) %ll suits and other legal #roceedings instituted or which could have been instituted by or against the existing Securities and Exchange Board i continued or i ay be instituted by or against the Board2 and ediately before that date ay be

the #ur#ose of the said existing Board shall be dee ed to have been incurred! entered into or

(g) Every e #loyee holding any office under the existing Securities and Exchange Board ediately before that date shall hold his office in the Board by the sa e tenure and u#on the sa e ter s and conditions of service as res#ects re uneration! leave! #rovident fund! retire ent and other ter inal benefits as he would have held such office if the Board had not been established and shall continue to do as so an e #loyee of the Board or until the ex#iry of the #eriod of six onths fro that date if such e #loyee o#ts not to be the e #loyee of the Board within such #eriod) ($) 7otwithstanding anything contained in the Industrial 9is#utes %ct! 194:(14 of 194:)! or in any other law for the ti e being in force! absor#tion of any e #loyee by the Board in its regular service under this section shall not entitle such e #loyee to any co #ensation under that %ct or other law and no such clai shall be entertained by any court! tribunal or other authority) 9

CHA+TER I3

+!5ERS AND "UNCTI!NS !" THE B!ARD

"unctions of Board* 11) (1) Sub0ect to the #rovisions of this %ct! it shall be the duty of the Board to #rotect the interests of investors in securities and to #ro ote the develo# ent of! and to regulate the securities therein ar,et! by such easures as it thin,s fit) easures referred to ar,ets2 erchant ban,ers! ay ($) 8ithout #re0udice to the generality of the foregoing #rovisions! the ay #rovide for . (a) ?egulating the business in stoc, exchanges and any other securities

(b) ?egistering and regulating the wor,ing of stoc, bro,ers! sub.bro,ers! share transfer agents! ban,ers to an issue! trustees of trust deeds! registrars to an issue! underwriters! #ortfolio be associated with securities ar,ets in any anner2 anagers! invest ent advisers and such other inter ediaries who

1&E(ba) registering and regulating the wor,ing of the de#ositories!14 E#artici#ants!F custodians of securities! foreign institutional investors! credit rating agencies and such other inter ediaries as the Board ay! by notification! s#ecify in this behalf2F utual funds2 ar,ets2 ar,ets2 (c) ?egistering and regulating the wor,ing of 1<Eventure ca#ital funds and collective invest ent sche esF! including (d) -ro oting and regulating self.regulatory organi>ations2 (e) -rohibiting fraudulent and unfair trade #ractices relating to securities 1& Inserted by %ct 9 of 199<! S) < (w)e)f)) $<.1.199< 14 Inserted by the 9e#ositories %ct! 199H! w)e)f) $'.9.199< 1< Substituted by %ct 9 of 199<! S) < (w)e)f) $<.1.199<)! for Icollective invest ent sche esJ (g) -rohibiting insider trading in securities2 (h) ?egulating substantial ac"uisition of shares and ta,e.over of co #anies2 (i) *alling for infor ation fro ! underta,ing ins#ection! conducting in"uiries and audits of the 1H Estoc, exchanges! utual funds! other #ersons associated with the securities ar,et2 ar,etF inter ediaries and self. regulatory organi>ations in the securities 1:EI(ia) calling for infor ation and record fro (f) -ro oting investorsL education and training of inter ediaries of securities

any ban, or any other authority or board or

cor#oration established or constituted by or under any *entral! State or -rovincial %ct in res#ect of any transaction in securities which is under investigation or in"uiry by the Board2JF

10

(0) -erfor ing such functions and exercising such #owers under the #rovisions of 18E)))F the Securities *ontracts (?egulation) %ct! 19<H(4$ of 19<H)! as *entral Govern ent2 (,) Bevying fees or other charges for carrying out the #ur#oses of this section2 (l) *onducting research for the above #ur#oses2 19EI(la) calling fro infor ation as or furnishing to any such agencies! as ay be #rescribed) ay ta,e ay be s#ecified by the Board! such ay be considered necessary by it for the efficient discharge of its functions2JF ay be delegated to it by the

( ) -erfor ing such other functions as

$'EI($%) without #re0udice to the #rovisions contained in sub.section ($)! the Board

easures to underta,e ins#ection of any boo,! or register! or other docu ent or record of any listed #ublic co #any or a #ublic co #any (not being inter ediaries referred to in section 1$) which intends to get its securities listed on any recogni>ed stoc, exchange where the Board has reasonable grounds to believe that such co #any has been indulging in insider trading or fraudulent and unfair trade #ractices relating to securities ar,et)JF $1E(&) notwithstanding anything contained in any other law for the ti e being in force while exercising the #owers under $$Eclause (i) or clause (ia) of sub.section ($) or subsection ($%)F! the Board shall have the sa e #owers as are vested in a civil court under 1H Substituted by %ct 9 of 199<! S) < (w)e)f) $<.1.199<) ! for Istoc, exchanges andJ 1: Inserted by the SEBI (% end ent) %ct! $''$! S) 4(a) (w)e)f) $9.1'.$''$)) 18 /he words Ithe *a#ital Issues (*ontrol) %ct! 194: ($9 of 194:) andJ o itted by %ct 9 of 199<! S) < (w)e)f) $<.1.199<) 19 Inserted by %ct 9 of 199< S) < (w)e)f) $<.1.199<) $' Inserted by the SEBI (% end ent) %ct! $''$! S) 4(b) (w)e)f) $9.1'.$''$)) $1 Inserted by %ct 9 of 199< S) < (w)e)f) $<.1.199<) $$ Inserted by the SEBI (% end ent) %ct! $''$! S) 4(c) (i) (w)e)f) $9.1'.$''$)) the *ode of *ivil -rocedure! 19'8 (< of 19'8)!while trying a suit! in res#ect of the following such ti e as (ii) Su ay be s#ecified by the Board2 on oath2 atters! na ely 1 (i) /he discovery and #roduction of boo,s of account and other docu ents! at such #lace and oning and enforcing the attendance of #ersons and exa ining the

(iii) Ins#ection of any boo,s! registers and other docu ents of any #erson referred to in section 1$! at any #lace2F $&E(iv) ins#ection of any boo,! or register! or other docu ent or record of the co #any referred to in sub.section ($%)2 (v) Issuing co issions for the exa ination of witnesses or docu ents)F 11

$4E(4) without #re0udice to the #rovisions contained in sub.sections (1)! ($)! ($%) and (&) and section 11B! the Board ay! by an order! for reasons to be recorded in writing! in the interests ar,et! ta,e any of the following easures! either #ending of investors or securities

investigation or in"uiry or on co #letion of such investigation or in"uiry! na ely1. (a) Sus#end the trading of any security in a recogni>ed stoc, exchange2 (b) ?estrain #ersons fro with securities accessing the securities ar,et and #rohibit any #erson associated ar,et to buy! sell or deal in securities2

(c) Sus#end any office.bearer of any stoc, exchange or self. regulatory organi>ation fro holding such #osition2 (d) I #ound and retain the #roceeds or securities in res#ect of any transaction which is under investigation2 (e) %ttach! after #assing of an order on an a##lication ade for a##roval by the (udicial onth! one or 3agistrate of the first class having 0urisdiction! for a #eriod not exceeding one ar,et in any regulations

ore ban, account or accounts of any inter ediary or any #erson associated with the securities anner involved in violation of any of the #rovisions of this %ct! or the rules or the ade thereunder1

-rovided that only the ban, account or accounts or any transaction entered therein! so far as it relates to the #roceeds actually involved in violation of any of the #rovisions of this %ct! or the rules or the regulations ade thereunder shall be allowed to be attached2 ar,et in any anner (f) 9irect any inter ediary or any #erson associated with the securities investigation1 $& Inserted by the SEBI (% end ent) %ct! $''$! S) 4(c) (ii) (w)e)f) $9.1'.$''$)) $4 Inserted by the SEBI (% end ent) %ct! $''$! S) 4(d) (w)e)f) $9.1'.$''$)) -rovided that the Board ay! without #re0udice to the #rovisions contained in subsection easures s#ecified in clause (d) or clause (e) or clause ($) or sub.section ($%)! ta,e any of the

not to dis#ose of or alienate an asset for ing #art of any transaction which is under

(f)! in res#ect of any listed #ublic co #any or a #ublic co #any (not being inter ediaries referred to in section 1$) which intends to get its securities listed on any recogni>ed stoc, exchange where the Board has reasonable grounds to believe that such co #any has been indulging in insider trading or fraudulent and unfair trade #ractices relating to securities o##ortunity of hearing to such inter ediaries or #ersons concerned)F $<EBoard to regu'ate or 0rohi/it issue of 0ros0ectus# offer docu)ent or ad1ertise)ent so'iciting )one4 for issue of securities* 12 ar,et1 -rovided further that the Board shall! either before or after #assing such orders! give an

11% (1) without #re0udice to the #rovisions of the *o #anies %ct! 19<H(1 of 19<H)! the Board ay! for the #rotection of investors! . (a) S#ecify! by regulations M (i) /he (ii) /he atters relating to issue of ca#ital! transfer of securities and other anner in which such atters shall be disclosed by the co #anies2 issuing #ros#ectus! any offer docu ent! or advertise ent atters incidental thereto2 and (b) By general or s#ecial orders M (i) -rohibit any co #any fro soliciting oney fro the #ublic for the issue of securities2 ay be issued) ay s#ecify the re"uire ents for listing and transfer of securities

(ii) S#ecify the conditions sub0ect to which the #ros#ectus! such offer docu ent or advertise ent! if not #rohibited! 19<H(4$ of 19<H)! the Board and other ($) 8ithout #re0udice to the #rovisions of section $1 of the Securities *ontracts (?egulation) %ct! atters incidental thereto)DF

&67Co''ecti1e In1est)ent Sche)e* 11%% (1) any sche e or arrange ent which satisfies the conditions referred to in subsection ($) Shall be a collective invest ent sche e) ($) %ny sche e or arrange ent ade or offered by any co #any under which! ... $< Substituted by the SEBI (% end ent) %ct! $''$ ! S) < (w)e)f) $9.1'.$''$) ! for S) 11%) -rior to this substitution! S) 11% read as under1. 11%) 3atters to be disclosed by the co #anies) . 8ithout -re0udice to the -rovisions of the *o #anies %ct ! 19<H (1 of 19<H)! the board regulations!. (a) /he (b) /he atters relating to issue of ca#ital! transfer of securities and other anner in which such atters! shall be disclosed by the co #anies) ade by the investors! by whatever na e called! are #ooled ade to such sche e or arrange ent by the investors ovable or i ovable fro atters incidental thereto2 and $H Inserted by %ct &1 of 1999! S) 11 (w)e)f) $$.$.$''')) N (i) /he contributions! or #ay ents and utili>ed solely for the #ur#oses of the sche e or arrange ent2 (ii) /he contributions or #ay ents are such sche e or arrange ent2 with a view to receive #rofits! inco e! #roduce or #ro#erty! whether ay ! for the #rotection of investors! s#ecify! by

13

(iii) /he #ro#erty! contribution or invest ent for ing #art of sche e or arrange ent! whether identifiable or not! is anaged on behalf of the investors2 anage ent and o#eration of the (iv)/he investors do not have day to day control over the sche e or arrange ent) (&) 7otwithstanding anything contained in sub.section ($)! any sche e or arrange ent (i) 3ade or offered by a co.o#erative society registered under the coo#erative societies %ct! 191$($ of 191$) or a society being a society registered or dee ed to be registered under any law relating to coo#erative societies for the ti e being in force in any state2 (ii) Onder which de#osits are acce#ted by non.ban,ing financial co #anies as defined in clause (f) of section 4<.I of the ?eserve Ban, of India %ct! 19&4($ of 19&4)2 (iii) Being a contract of insurance to which the Insurance %ct!19&8(4 of 19&8)! a##lies2 (iv) -roviding for any sche e! -ension Sche e or the Insurance Sche e fra ed under the E #loyees -rovident 5und and 3iscellaneous -rovisions %ct! 19<$(19 of 19<$)2 (v) Onder which de#osits are acce#ted under section <8% of the *o #anies %ct! 19<H(1 of 19<H)2 (vi) Onder which de#osits are acce#ted by a co #any declared as a 7idhi or a society under section H$'% of the *o #anies %ct! 19<H(1 of 19<H)2 (vii) 5alling within the eaning of *hit business as defined in clause (d) of section $ of the *hit ade are in the nature of subscri#tion to a utual fund2 shall not 5und %ct! 198$(4' of 198$)2 (viii) Onder which contributions be a collective invest ent sche e)F &87+o9er to issue directions* 11B) Save as otherwise #rovided in section 11! if after en"uiry! the Board is satisfied that it is necessary!. (i) In the interest of investors! or orderly develo# ent of securities conducted in a directions!. (a) /o any #erson or class of #ersons referred to in section 1$! or associated with the securities ar,et2 or (b) /o any co #any in res#ect of atters s#ecified in section 11%! as ar,etF 14 ay be a##ro#riate in the interests of investors in securities and the securities ar,et2 or ar,et2 or ay issue such (ii) /o #revent the affairs of any inter ediary or other #ersons referred to in section 1$ being anner detri ental to the interest of investors or securities (iii) /o secure the #ro#er anage ent of any such inter ediary or #erson! it a,ing or causing to be ade an utual benefit

$8EIn1estigation* 11*) (1) 8here the Board has reasonable ground to believe that M (a) /he transactions in securities are being dealt with in a the securities ar,et2 or ar,et has violated any of the ade or directions issued by the Board anner detri ental to the investors or

(b) %ny inter ediary or any #erson associated with the securities #rovisions of this %ct or the rules or the regulations thereunder! It

ay! at any ti e by order in writing! direct any #erson (hereafter in this section referred to as ar,et and to re#ort thereon to the Board) anaging director! officer and other e #loyee of

the Investigating %uthority) s#ecified in the order to investigate the affairs of such inter ediary or #ersons associated with the securities 19<H)! it shall be the duty of every the securities ($) 8ithout #re0udice to the #rovisions of sections $&< to $41 of the *o #anies %ct! 19<H(1 of anager! the co #any and every inter ediary referred to in section 1$ or every #erson associated with ar,et to #reserve and to #roduce to the Investigating %uthority or any #erson ay be! of or relating to! the inter ediary or such #erson! which ay re"uire any inter ediary or any #erson associated with authori>ed by it in this behalf! all the boo,s! registers! other docu ents and record of! or relating to! the co #any or! as the case are in their custody or #ower) (&) /he Investigating %uthority securities ar,et in any anner to furnish such infor ation to! or #roduce such boo,s! or

registers! or other docu ents! or record before it or any #erson $: Inserted by %ct 9 of 199<! S) H(w)e)f) $<.1.199<) $8 Inserted by SEBI (% end ent) %ct ! $''$! w)e)f)$9.1'.$''$) authori>ed by it in this behalf as it ay consider necessary if the furnishing of such infor ation or the #roduction of such boo,s! or registers! or other docu ents! or record is relevant or necessary for the #ur#oses of its investigation) (4) /he Investigating %uthority ay ,ee# in its custody any boo,s! registers! other docu ents onths and thereafter shall ar,et by who and record #roduced under sub.section ($) or sub.section (&) for six

return the sa e to any inter ediary or any #erson associated with securities that the Investigating %uthority

or on whose behalf the boo,s! registers! other docu ents and record are #roduced1 -rovided ay call for any boo,! register! other docu ent and record if they are needed again1 -rovided further that if the #erson on whose behalf the boo,s! registers! other docu ents and record are #roduced re"uires certified co#ies of the boo,s! registers! other docu ents and record #roduced before the Investigating %uthority! it shall give certified co#ies of such boo,s! registers! other docu ents and record to such #erson or on whose behalf the boo,s! registers! other docu ents and record were #roduced) 15

(<) %ny #erson! directed to any anager! associated with securities a##ear before it #ersonally)

a,e an investigation under sub.section (1)! ar,et in any

ay exa ine on oath!

anaging director! officer and other e #loyee of any inter ediary or any #erson anner! in relation to the affairs of his business and ay re"uire any of those #ersons to

ay ad inister an oath accordingly and for that #ur#ose (H) If any #erson fails without reasonable cause or refuses M

(a) /o #roduce to the Investigating %uthority or any #erson authori>ed by it in this behalf any boo,! register! other docu ent and record which is his duty under sub.section ($) Ar sub.section (&) to #roduce2 or (b) /o furnish any infor ation which is his duty under sub.section (&) to furnish2 or (c) /o a##ear before the Investigating %uthority #ersonally when re"uired to do so under sub. section (<) or to answer any "uestion which is #ut to hi #ursuance of that sub.section2 or (d) /o sign the notes of any exa ination referred to in sub.section (:)! he shall be #unishable with i #rison ent for a ter which ay extend to one year! or with fine! which ay extend to one crore ru#ees! or with both! and also with a further fine which ay extend to five la,h ru#ees by the Investigating %uthority in

for every day after the first during which the failure or refusal continues) (:) 7otes of any exa ination under sub.section (<) shall be ta,en down in writing and shall be read over to! or by! and signed by! the #erson exa ined! and evidence against hi ) (8) 8here in the course of investigation! the Investigating %uthority has reasonable ground to believe that the boo,s! registers! other docu ents and record of! or relating to! any inter ediary or any #erson associated with securities ar,et in any anner! ay ay be destroyed! utilated! altered! falsified or secreted! the Investigating %uthority registers! other docu ents and record) (9) %fter considering the a##lication and hearing the Investigating %uthority! if necessary! the 3agistrate ay! by order! authori>e the Investigating %uthority M ay be re"uired! the #lace or #laces where such boo,s! anner s#ecified in the order2 and (a) /o enter! with such assistance! as a,e an a##lication to the (udicial ay thereafter be used in

3agistrate of the first class having 0urisdiction for an order for the sei>ure of such boo,s!

registers! other docu ents and record are ,e#t2 (b) /o search that #lace or those #laces in the

16

(c ) to sei>e boo,s! registers! other docu ents and record! it considers necessary for the #ur#oses of the investigation1 -rovided that the 3agistrate shall not authori>e sei>ure of boo,s! registers! other docu ents and record! of any listed #ublic co #any or a #ublic co #any (not being the inter ediaries s#ecified under section 1$) which intends to get its securities listed on any recogni>ed stoc, exchange unless such co #any indulges in insider trading or ani#ulation) (1') /he Investigating %uthority shall ,ee# in its custody the boo,s! registers! other docu ents and record sei>ed under this section for such #eriod not later than the conclusion of the investigation as it considers necessary and thereafter shall return the sa e to the co #any or the other body cor#orate! or! as the case any other #erson! fro ay be! to the anaging director or the anager or whose custody or #ower they were sei>ed and infor the 3agistrate of or any ar,et

such return1 -rovided that the Investigating %uthority #art thereof)

ay! before returning such boo,s! ar,s on the

registers! other docu ents and record as aforesaid! #lace identification (11) Save as otherwise #rovided in this section! every search or sei>ure of 19:4)! relating to searches or sei>ures Cease and desist 0roceedings* 119) If the Board finds! after causing an in"uiry to be ade under that *ode)

ade under this section

shall be carried out in accordance with the #rovisions of the *ode of *ri inal -rocedure! 19:&($

ade! that any #erson has violated! or is ade thereunder! it ay co itting or causing such

li,ely to violate! any #rovisions of this %ct! or any rules or regulations #ass an order re"uiring such #erson to cease and desist fro

violation1 -rovided that the Board shall not #ass such order in res#ect of any listed #ublic co #any or a #ublic co #any (other than the inter ediaries s#ecified under section 1$) which intends to get its securities listed on any recogni>ed stoc, exchange unless the Board has reasonable grounds to believe that such co #any has indulged in insider trading or ani#ulation)F ar,et

17

CHA+TER 3

RE ISTRATI!N CERTI"ICATE

Registration of stoc: /ro:ers# su/;/ro:ers# share transfer agents# etc* 1$) (1) 7o stoc,.bro,er! sub. bro,er! share transfer agent! ban,er to an issue! trustee of trust deed! registrar to an issue! erchant ban,er! underwriter! #ortfolio anager! invest ent adviser ar,et shall buy! sell or ade under this %ct1 and such other inter ediary who registration obtained fro ay be associated with securities

deal in securities exce#t under! and in accordance with! the conditions of a certificate of the Board in accordance with the $9EregulationsF -rovided that a #erson buying or selling securities or otherwise dealing with the securities ar,et as a stoc,. bro,er! sub.bro,er! share transfer agent! ban,er to an issue! trustee of trust deed! registrar to an issue! erchant ban,er! underwriter! #ortfolio ay be associated with securities onths fro anager! invest ent adviser ar,et i ediately before and such other inter ediary who establish ent! he has

the establish ent of the Board for which no registration certificate was necessary #rior to such ay continue to do so for a #eriod of three such establish ent or! if onths! till the ade an a##lication for such registration within the said #eriod of three

dis#osal of such a##lication) &'E-rovided further that any certificate of registration! obtained i co obtained fro ediately before the ence ent of the Securities Baws (% end ent) %ct! 199<! shall be dee ed to have been the Board in accordance with the regulations #roviding for such registration) ar,et as the Board ay

(1%) 7o de#ository! &1E#artici#ant!F custodian of securities! foreign institutional investor! credit rating agency or any other inter ediary associated with the securities by notification in this behalf s#ecify! shall buy or sell or deal in securities exce#t under and in accordance with the conditions of a certificate of registration obtained fro accordance with the regulations ade under this %ct1 the Board in

-rovided that a #erson buying or selling securities or otherwise dealing with the securities ar,et as a de#ository! E#artici#ant!F custodian of securities! foreign $9 Substituted by %ct 9 of 199<! S): (a) (i) (w)e)f) $<.1.199<)! for IrulesJ) &' Inserted by %ct 9 of 199<! S) : (w)e)f)$<.1.199<)) &1 Substituted by %ct $$ of 199H (w)e)f) $'.9.199<)

18

Institutional investor or credit rating agency i #rior to such co securities section &') ence ent!

ediately before the co

ence ent of the

Securities Baws (% end ent) %ct! 199<! for which no certificate of registration was re"uired ay continue to buy or sell securities or otherwise deal with the ade under clause (d) of sub.section ($) of ar,et until such ti e regulations are

(1B) 7o #erson shall s#onsor or cause to be s#onsored or carry on or cause to be carried on any venture ca#ital funds or collective invest ent sche es including obtains a certificate of registration fro utual funds! unless he the Board in accordance with the regulations1 -rovided ar,et

that any #erson s#onsoring or causing to be s#onsored! carrying on or causing to be carried on any venture ca#ital funds or collective invest ent sche es o#erating in the securities i ediately before the co which no certificate of registration was re"uired #rior to such co o#erate till such ti e regulations are ay be deter ined by regulations) (&) /he Board ay! by order! sus#end or cancel a certificate of registration in such anner as ade ay be deter ined by regulations) -rovided that no order under this sub.section shall be unless the #erson concerned has been given a reasonable o##ortunity of being heard) ($) Every a##lication for registration shall be in such ence ent! ence ent of the Securities Baws (% end ent) %ct! 199<! for ay continue to ade under clause (d) of sub.section ($) of section &')F anner and on #ay ent of such fees as

19

CHA+TER 3A

+R!HIBITI!N !" -ANI+U,ATI3E AND DECE+TI3E DE3ICES# INSIDER TRADIN AND SUBSTANTIA, AC=UISIT!N !" SECURITIES !R C!NTR!,

+rohi/ition of )ani0u'ati1e and dece0ti1e de1ices# insider trading and su/stantia' ac<uisition of securities or contro'* 1$%) 7o #erson shall directly or indirectly M (a) Ose or e #loy! in connection with the issue! #urchase or sale of any securities listed or #ro#osed to be listed on a recogni>ed stoc, exchange! any thereunder2 (b) E #loy any device! sche e or artifice to defraud in connection with issue or dealing in securities which are listed or #ro#osed to be listed on a recogni>ed stoc, exchange2 &$ *ha#ter C% inserted by the SEBI (% end ent) %ct! $''$! S) :(w)e)f) $9.1'.$''$)) (c) Engage in any act! #ractice! course of business which o#erates or would o#erate as fraud or deceit u#on any #erson! in connection with the issue! dealing in securities which are listed or #ro#osed to be listed on a recogni>ed stoc, exchange! in contravention of the #rovisions of this %ct or the rules or the regulations (d) Engage in insider trading2 (e) 9eal in securities while in #ossession of such aterial or non.#ublic infor ation or co unicate aterial or non.#ublic infor ation to any other #erson! in a anner which is in ade thereunder2 ade thereunder2 ani#ulative or dece#tive device or ade contrivance in contravention of the #rovisions of this %ct or the rules or the regulations

contravention of the #rovisions of this %ct or the rules or the regulations (f) %c"uire control of any co #any or securities exchange in contravention of the regulations

ore than the #ercentage of e"uity share

ca#ital of a co #any whose securities are listed or #ro#osed to be listed on a recogni>ed stoc, ade under this %ct)F

20

CHA+TER 3I

"INANCE# ACC!UNTS AND AUDIT

rants /4 the Centra' behalf!

o1ern)ent2 ay! after due a##ro#riation ade by -arlia ent by law in this ay thin, fit for oney as that Govern ent

1&) /he *entral Govern ent

a,e to the Board grants of such su s of

being utili>ed for the #ur#oses of this %ct) "und2 14) (1) /here shall be constituted a 5und to be called the Securities and Exchange Board of India General 5und and there shall be credited thereto. (a) %ll grants! fees and charges received by the Board under this %ct2 &&EPPPF &4EPPPF (b) %ll su s received by the Board fro *entral Govern ent) ($) /he 5und shall be a##lied for eeting . && /he word IandJ o itted by %ct 9 of 199<! S)8 (w)e)f) $<.1.199<)) &4 *l) (aa) o itted by the SEBI (% end ent) %ct! $''$! S) 8 (w)e)f) $9.1'.$''$))-rior to its o ission! *l) (aa) reads as under1. I(aa) all su s reali>ed by way of -enalties under this %ct 2 and J) E/his clause had been inserted by %ct 9 of 199<! S) 8! (w)e)f) $<.1.199<) F) (a) /he salaries! allowances and other re uneration of of the Board2 (b) /he ex#enses of the Board in the discharge of its functions under section 112 (c) /he ex#enses on ob0ects and for #ur#oses authori>ed by this %ct) Accounts and Audit2 1<) (1) /he Board shall aintain #ro#er accounts and other relevant records and #re#are an as ay be #rescribed by the *entral Govern ent in annual state ent of accounts in such for e bers! officers and other e #loyees such other sources as ay be decided u#on by the

consultation with the *o #troller and %uditor. General of India)

21

($) /he accounts of the Board shall be audited by the *o #troller and %uditor. General of India at such intervals as ay be s#ecified by hi and any ex#enditure incurred in connection with in such audit shall be #ayable by the Board to the *o #troller and %uditor.General of India) (&) /he *o #troller and %uditor.General of India and any other #erson a##ointed by hi connection with the audit of the accounts of the Board shall have the sa e rights and #rivileges and authority in connection with such audit as the *o #troller and %uditor.General generally has in connection with the audit of the Govern ent accounts and! in #articular! shall have the right to de and the #roduction of boo,s! accounts! connected vouchers and other docu ents and #a#ers and to ins#ect any of the offices of the Board) (4) /he accounts of the Board as certified by the *o #troller and %uditor. General of India or any other #erson a##ointed by hi in this behalf together with the audit re#ort thereon shall be forwarded annually to the *entral Govern ent and that Govern ent shall cause the sa e to be laid before each ;ouse of -arlia ent)

22

CHA+TER 3I A

+ENA,TIES AND ADAUDICATI!N

$>A* +ena't4 for fai'ure to furnish infor)ation# return# etc* ? If any #erson! who is re"uired under this %ct or any rules or regulations ade thereunder!. (a) /o furnish any docu ent! return or re#ort to the Board! fails to furnish the sa e! he shall be liable to &HEa #enalty of one la,h ru#ees for each day during which such failure continues or one crore ru#ees! whichever is lessF2 &< *ha#ters CI % and CI B containing Ss) 1<% to 1<( and 1<6 to 1<Q res#ectively! inserted by %ct 9 of 199< ! S) 9 (w)e)f) $<.1.199<)) &H Substituted by the SEBI (% end ent) %ct! $''$! S) 9 (i) (w)e)f) $9.1'.$''$)! for Ia #enalty not exceeding one la,h and fifty thousand ru#ees for each such failureJ) (b) /o file any return or furnish any infor ation! boo,s or other docu ents within the ti e s#ecified therefore in the regulations! fails to file return or furnish the sa e within the ti e s#ecified therefore in the regulations! he shall be liable to &:Ea #enalty of one la,h ru#ees for each day during which such failure continues or one crore ru#ees! whichever is lessF2 (c) /o aintain boo,s of accounts or records! fails to aintain the sa e! he shall be liable to &8Ea #enalty of one la,h ru#ees for each day during which such failure continues or one crore ru#ees! whichever is less)F $>B* +ena't4 for fai'ure /4 an4 0erson to enter into agree)ent 9ith c'ients* ? If any #erson! who is registered as an inter ediary and is re"uired under this %ct or any rules or regulations ade thereunder to enter into an agree ent with his client! fails to enter into such agree ent! he shall be liable to &9Ea #enalty of one la,h ru#ees for each day during which such failure continues or one crore ru#ees! whichever is less)F $>C*+ena't4 for fai'ure to redress in1estors@ grie1ances*; 4'EIf any listed co #any or any #erson who is registered as an inter ediary! after having been called u#on by the Board in writing! to redress the grievances of investors! fails to redress such grievances within the ti e s#ecified by the Board! such co #any or inter ediary shall be liable to a #enalty of one la,h ru#ees for each day during which such failure continues or one crore ru#ees! whichever is less)F

23

$>D*+ena't4 for certain defau'ts in case of )utua' funds*;If any #erson! who is . (a) ?e"uired under this %ct or any rules or regulations registration fro including ade thereunder to obtain a certificate of the Board for s#onsoring or carrying on any collective invest ent sche e!

utual funds! s#onsors or carries on any collective invest ent sche e! including

utual funds! without obtaining such certificate of registration! he shall be liable to 41Ea #enalty of one la,h ru#ees for each day during which he s#onsors or carries on any such collective invest ent sche e including utual funds! or one crore ru#ees! whichever is less)F &: Substituted by the SEBI (% end ent) %ct! $''$! S) 9 (ii) (w)e)f) $9.1'.$''$)! for Ia #enalty not exceeding five thousand ru#ees for every day during which such failure continuesJ) &8 Substituted by the SEBI (% end ent) %ct! $''$! S) 9 (iii) (w)e)f) $9.1'.$''$)! for Ia #enalty not exceeding ten thousand ru#ees for every day during which the failure continuesJ) &9 Substituted by the SEBI (% end ent) %ct! $''$! S) 1' (w)e)f) $9.1'.$''$)! for Ia #enalty not exceeding five la,h ru#ees for every such failureJ) 4' Substituted by the SEBI (% end ent) %ct ! $''$ ! S) 11 (w)e)f) $9.1'.$''$)! for IIf any #erson! who is registered as an inter ediary! after having been called u#on by the Board in writing to redress the grievances of investors! fails to redress such grievances! he shall be liable to a #enalty not exceeding ten thousand ru#ees for each such failure)J 41 Substituted by the SEBI (% end ent) %ct ! $''$ ! S) 1$ (i) (w)e)f) $9.1'.$''$)! for Ia #enalty not exceeding ten thousand ru#ees for each day during which he carries on any such collective invest ent sche e including utual funds! or ten la,h ru#ees whichever is higher)J utual funds! for (b) ?egistered with the Board as a collective invest ent sche e! including

s#onsoring or carrying on any invest ent sche e! fails to co #ly with the ter s and conditions of certificate of registration! he shall be liable to 4$Ea #enalty of one la,h ru#ees for each day during which such failure continues or one crore ru#ees! whichever is less)F (c) ?egistered with the Board as a collective invest ent sche e! including utual funds! fails to a,e an a##lication for listing of its sche es as #rovided for in the regulations governing such listing! he shall be liable to 4&Ea #enalty of one la,h ru#ees for each day during which such failure continues or one crore ru#ees ! whichever is less)F (d) ?egistered as a collective invest ent sche e including certificates of any sche e in the utual funds fails to dis#atch unit anner #rovided in the regulation governing such dis#atch! he

shall be liable to 44Ea #enalty of one la,h ru#ees for each day during which such failure continues or one crore ru#ees! whichever is less)F

24

(e) ?egistered as a collective invest ent sche e! including a##lication

utual funds! fails to refund the

onies #aid by the investors within the #eriod s#ecified in the regulations! he shall

be liable to #ay 4<Ea #enalty of one la,h ru#ees for each day during which such failure continues or one crore ru#ees! whichever is less)F (f) ?egistered as a collective invest ent sche e! including collected by such collective invest ent sche es in the utual funds! fails to invest oney anner or within the #eriod s#ecified in

the regulations! he shall be liable to 4HEa #enalty of one la,h ru#ees for each day during which such failure continues or one crore ru#ees! whichever is less)F $>E* +ena't4 for fai'ure to o/ser1e ru'es and regu'ations /4 an asset )anage)ent co)0an4* ; 8here any asset anage ent co #any of a utual fund registered under this %ct! fails to co #ly with any of the regulations #roviding for restrictions on the activities of the asset anage ent co #anies! such asset whichever is less)F $>"* +ena't4 for fai'ure in case of stoc: /ro:ers* ; If any #erson! who is registered as a stoc, bro,er under this %ct! . 4$ Substituted by the SEBI (% end ent) %ct ! $''$ ! S) 1$ (ii) (w)e)f) $9.1'.$''$)! for Ia #enalty not exceeding ten thousand ru#ees for each day during which such failure continues or ten la,h ru#ees! whichever is higherJ) 4& Substituted by the SEBI (% end ent) %ct ! $''$ ! S) 1$ (iii) (w)e)f) $9.1'.$''$)! for Ia #enalty not exceeding five thousand ru#ees for each day during which such failure continues or five la,h ru#ees! whichever is higherJ) 44 Substituted by the SEBI (% end ent) %ct! $''$ ! S) 1$ (iv) (w)e)f) $9.1'.$''$)! for Ia #enalty not exceeding five thousand ru#ees for each day during which such failure continuesJ) 4< Substituted by the SEBI (% end ent) %ct! $''$! S) 1$ (v) (w)e)f) $9.1'.$''$)! for Ia #enalty not exceeding one thousand ru#ees for each day during which such failure continuesJ) 4H Substituted by the SEBI (% end ent) %ct! $''$! S) 1$ (vi) (w)e)f) $9.1'.$''$)! for Ia #enalty not exceeding five la,h ru#ees for each such failureJ) 4: Substituted by the SEBI (% end ent) %ct! $''$! S) 1& (w)e)f) $9.1'.$''$)! for Ia #enalty not exceeding five la,h ru#ees for each such failureJ) anage ent co #any shall be liable to 4:Ea #enalty of one la,h ru#ees for each day during which such failure continues or one crore ru#ees!

25

(a) 5ails to issue contract notes in the for of which such bro,er is a

and in the

anner s#ecified by the stoc, exchange

e ber! he shall be liable to a #enalty not exceeding five ti es the a,e #ay ent of the a ount due to the investor in the

a ount for which the contract note was re"uired to be issued by that bro,er2 (b) 5ails to deliver any security or fails to anner within the #eriod s#ecified in the regulations! he shall be liable to 48Ea #enalty of one la,h ru#ees for each day during which such failure continues or one crore ru#ees! whichever is less)F (c) *harges an a ount of bro,erage which is in excess of the bro,erage s#ecified in the regulations! he shall be liable to 49Ea #enalty of one la,h ru#eesF or five ti es the a ount of bro,erage charged in excess of the s#ecified bro,erage! whichever is higher) $> *+ena't4 for insider trading* ; If any insider who!. (i) Either on his own behalf or on behalf of any other #erson! deals in securities of a body cor#orate listed on any stoc, exchange on the basis of any un#ublished #rice sensitive infor ation2 or (ii) *o unicates any un#ublished #rice. sensitive infor ation to any #erson! with or without his re"uest for such infor ation exce#t as re"uired in the ordinary course of business or under any law2 or (iii) *ounsels! or #rocures for any other #erson to deal in any securities of any body cor#orate on the basis of un#ublished #rice.sensitive infor ation! shall be liable to a #enalty <'Eof twenty. five crore ru#ees or three ti es the a ount of #rofits higher)F $>H*+ena't4 for non;disc'osure of ac<uisition of shares and ta:e;o1ers*; If any #erson! who is re"uired under this %ct or any rules or regulations shares of that body cor#orate2 or (ii) 3a,e a #ublic announce ent to ac"uire shares at a <1E(iii) co #any2 or 48 Substituted by the SEBI (% end ent) %ct! $''$! S) 14 (i) (w)e)f) $9.1'.$''$)! for Ia #enalty not exceeding five thousand ru#ees for each day during which such failure continuesJ) 49 Substituted by the SEBI (% end ent) %ct! $''$! S) 14(ii) (w)e)f) $9.1'.$''$)! for Ia #enalty not exceeding five thousand ru#eesJ) 26 ini u #rice2 a,e a #ublic offer by sending letter of offer to the shareholders of the concerned ade thereunder! fails to!. (i) 9isclose the aggregate of his shareholding in the body cor#orate before he ac"uires any ade out of insider trading! whichever is

<' Substituted by the SEBI (% end ent) %ct! $''$! S) 1< (w)e)f) $9.1'.$''$)! for Inot exceeding five la,h ru#eesJ) <1 Inserted by the SEBI (% end ent) %ct! $''$! S) 1H (a) (w)e)f)$9.1'.$''$)) (iv) 3a,e #ay ent of consideration to the shareholders who sold their shares #ursuant to letter of offer)F he shall be liable to a #enalty <$E twenty.five crore ru#ees or three ti es the a ount of #rofits ade out of such failure! whichever is higher)F

>B7$>HA*+ena't4 for fraudu'ent and unfair trade 0ractices*; If any #erson indulges in fraudulent and unfair trade #ractices relating to securities! he shall be liable to a #enalty of twenty.five crore ru#ees or three ti es the a ount of #rofits whichever is higher) $>HB*+ena't4 for contra1ention 9here no se0arate 0ena't4 has /een 0ro1ided*; 8hoever fails to co #ly with any #rovision of this %ct! the rules or the regulations shall be liable to a #enalty which ay extend to one crore ru#ees)F ade or directions issued by the Board thereunder for which no se#arate #enalty has been #rovided! ade out of such #ractices!

$>I*+o9er to adCudicate*; (1) 5or the #ur#ose of ad0udging under sections 1<%! 1<B! 1<*! 1<9! 1<E! 1<5! 1<G! <4E1<;! 1<;% and 1<;BF ,the Board shall a##oint any of its officers not below the ran, of a 9ivision *hief to be an ad0udicating officer for holding an in"uiry in the #rescribed anner after giving any #erson concerned a reasonable o##ortunity of being heard for the #ur#ose of i #osing any #enalty) ($) 8hile holding an in"uiry! the ad0udicating officer shall have #ower to su on and enforce ay be the attendance of any #erson ac"uainted with the facts and circu stances of the case to give evidence or to #roduce any docu ent which in the o#inion of the ad0udicating officer! useful for or relevant to the sub0ect section (1)! he atter of the in"uiry and if! on such in"uiry! he is satisfied

that the #erson has failed to co #ly with the #rovisions of any of the sections s#ecified in sub. ay i #ose such #enalty as he thin,s fit in accordance with the #rovisions of any of those sections) $>A*"actors to /e ta:en into account /4 the adCudicating officer*; 8hile ad0udging "uantu of #enalty under section 1< I! the ad0udicating officer shall have due regard to the following factors! na ely1

27

(a) /he a ount of dis#ro#ortionate gain or unfair advantage! wherever "uantifiable! result of the default2

ade as a

(b) /he a ount of loss caused to an investor or grou# of investors as a result of the default2 (c) /he re#etitive nature of the default) <$ Substituted by the SEBI (% end ent) %ct! $''$! S) 1H (b) (w)e)f)$9.1'.$''$)! for Inot exceeding five la,h ru#eesJ) <& Inserted by the SEBI (% end ent) %ct! $''$! S) 1: (w)e)f)$9.1'.$''$)) <4 Substituted by the SEBI (% end ent) %ct! $''$! S) 18 (w)e)f)$9.1'.$''$)! for Iand 1<;J) >>7$>AA*Crediting su)s rea'iDed /4 9a4 of 0ena'ties to Conso'idated "und of India*; %ll su s reali>ed by way of #enalties under this %ct shall be credited to the *onsolidated 5und of India)F

28

CHA+TER 3I B

ESTAB,ISH-ENT# AURISDICTI!N# AUTH!RIT. AND +R!CEDURE !" A++E,,ATE TRIBUNA,

$>E*Esta/'ish)ent of Securities A00e''ate Tri/una's*; (1) /he *entral Govern ent shall! by notification! establish one or ore %##ellate /ribunals to be ,nown as the Securities %##ellate /ribunal to exercise the 0urisdiction! #owers and authority conferred on such /ribunal by or under this %ct <HEor any other law for the ti e being in force F ($) /he *entral Govern ent shall also s#ecify in the notification referred to in sub.section (1) the atters and #laces in relation to which the Securities %##ellate /ribunal ay exercise 0urisdiction) <:E$>,*Co)0osition of Securities A00e''ate Tri/una'* % Securities %##ellate /ribunal shall consist of a -residing Afficer and two other 3e bers! to be a##ointed! by notification! by the *entral Govern ent1 -rovided that the Securities %##ellate /ribunal! consisting of one #erson only! established before the co ence ent of the Securities and Exchange Board of India (% end ent) %ct! $''$! shall continue to exercise the 0urisdiction! #owers and authority conferred on it by or under this %ct or any other law for the ti e being in force till two other 3e bers are a##ointed under this section) $>-*=ua'ification for a00oint)ent as +residing !fficer or -e)/er of the Securities A00e''ate Tri/una'* (1) % #erson shall not be "ualified for a##oint ent as the -residing Afficer of a Securities %##ellate /ribunal unless he is a sitting or retired (udge of the Su#re e *ourt or a sitting or retired *hief (ustice of a ;igh *ourt1 << Inserted by the SEBI (% end ent) %ct! $''$! S)19 (w)e)f) $9.1'.$''$)) <H Inserted by the SEBI (% end ent) %ct &$ of 1999! S)8 (w)e)f)1H.1$.1999)) <: Substituted by the SEBI (% end ent)%ct! $''$! S)$' (w)e)f) $9.1'.$''$)! for Sections 1<B and 1<3) -rior to their substitution! Section 1<B and 1<3 read as under1. I1<.B) *o #osition of securities %##ellate /ribunal) M % Securities %##ellate /ribunal shall consist of one #erson only (hereinafter referred to as the -residing Afficer of the Securities %##ellate /ribunal) to be a##ointed! by notification! by the central Govern ent)

29

1<3) Rualifications for a##oint ent as -residing Afficer of the Securities %##ellate /ribunal) M % #erson shall not be "ualified for a##oint ent as the -residing Afficer of a Securities %##ellate /ribunal unless he. (a) Is! or has been! or is "ualified to be! a (udge of a ;igh *ourt2 or (b) ;as been a e ber of the Indian Begal Service and has held a #ost in Grade I of that service for at least three years) (c) ;as held office as the -residing Afficer of a tribunal for at least three years)J -rovided that the -residing Afficer of the Securities %##ellate /ribunal shall be a##ointed by the *entral Govern ent in consultation with the *hief (ustice of India or his no inee) ($) % #erson shall not be "ualified for a##oint ent as 3e ber of a Securities %##ellate /ribunal unless he is a #erson of ability! integrity and standing who has shown ca#acity in dealing with #roble s relating to securities ar,et and has "ualification and ex#erience of cor#orate law! e ber of the Board or anage ent level e"uivalent to Executive 9irector in the the date on which securities laws! finance! econo ics or accountancy1 -rovided that a any #erson holding a #ost at senior

Board shall not be a##ointed as -residing Afficer or 3e ber of a Securities %##ellate /ribunal during his service or tenure as such with the Board or within two years fro he ceases to hold office as such in the Board)F <8E$>N* Tenure of office of +residing !fficer and other -e)/ers of Securities A00e''ate Tri/una'* /he -residing Afficer and every other 3e ber of a Securities %##ellate /ribunal shall hold office for a ter of five years fro the date on which he enters u#on his office and shall be eligible for re.a##oint ent1 -rovided that no #erson shall hold office as the -residing Afficer of the Securities %##ellate /ribunal after he has attained the age of sixty.eight years1 -rovided further that no #erson shall hold office as 3e ber of the Securities %##ellate /ribunal after he has attained the age of sixty.two years)F $>!*Sa'ar4 and a''o9ances and other ter)s and conditions of ser1ice of +residing !fficers*; /he salary and allowances #ayable to and the other ter s and conditions of service (including #ension! gratuity and other retire ent benefits) of the <9E-residing Afficer and any other 3e ber of a Securities %##ellate /ribunalF shall be such as ay be #rescribed1 -rovided that neither the salary and allowances nor the other ter s and conditions of service of the H'E-residing Afficer and other 3e bers of a Securities %##ellate /ribunalF shall be varied to their disadvantage after a##oint ent)

30

$>+*"i''ing u0 of 1acancies* . If! for reason other than te #orary absence2 any vacancy occurs in H1Ethe office of the -residing Afficer or any other 3e berF of a Securities <8 Substituted by the SEBI (% end ent)%ct! $''$! S)$1 (w)e)f) $9.1'.$''$)! for Sections 1<7) -rior to their substitution! Section 1<7 read as under1. I1<7) /er a ter of office). /he -residing officer of a Securities %##ellate /ribunal shall hold office for the date on which he enters u#on his office or until he attains the age of five years fro

of sixty.five years! whichever is earlier)J <9 Substituted by the SEBI (% end ent) %ct! $''$! S)$$ (a) (w)e)f) $9.1'.$''$)! for I-residing Afficer of a Securities %##ellate /ribunalJ) H' Substituted by the SEBI (% end ent) %ct! $''$! S)$$ (b) (w)e)f) $9.1'.$''$)! for Ithe said -residing AfficersJ) H1 Substituted by the SEBI (% end ent) %ct! $''$! S)$& (w)e)f) $9.1'.$''$)! for Ioffice of the -residing AfficerJ) %##ellate /ribunal! then the *entral Govern ent shall a##oint another #erson in accordance with the #rovisions of this %ct to fill the vacancy and! the #roceedings the Securities %##ellate /ribunal fro ay be continued before the stage at which the vacancy is filled)

$>=*Resignation and re)o1a'* . (1) H$E/he -residing Afficer or any other 3e ber of a Securities %##ellate /ribunalF ay! by notice in writing under his hand addressed to the *entral Govern ent! resign his office1 -rovided that H&Ethe -residing Afficer or any other 3e berF shall! unless he is #er itted by the *entral Govern ent to relin"uish his office sooner! continue to hold office! until the ex#iry of three office! whichever is the earliest) ($) /he H4E-residing Afficer or any other 3e berF of a Securities %##ellate /ribunal shall not be re oved fro his office exce#t by an order by the *entral Govern ent on the ground of #roved ade by a (udge of the Su#re e *ourt! in which the isbehavior or inca#acity after in"uiry hi onths fro the date of recei#t of such notice or until a of #erson duly a##ointed as his successor enters u#on his office or until the ex#iry of his ter

H<E-residing Afficer or any other 3e berF concerned has been infor ed of the charges against and given a reasonable o##ortunity of being heard in res#ect of these charges) ay! by rules! regulate the #rocedure for the investigation of isbehavior or inca#acity of the HHEthe -residing Afficer or any other 3e berF) (&) /he *entral Govern ent

31

$>R*!rders constituting A00e''ate Tri/una' to /e fina' and not to in1a'idate its 0roceedings* .7o order of the *entral Govern ent a##ointing any #erson as the H:E-residing Afficer or a 3e berF of a Securities %##ellate /ribunal shall be called in "uestion in any anner! and no act or #roceeding before a Securities %##ellate /ribunal shall be called anner on the ground erely of any defect in the constitution of a Securities in "uestion in any %##ellate /ribunal) $>S*Staff of the Securities A00e''ate Tri/una'* . (1) /he *entral Govern ent shall #rovide the Securities %##ellate /ribunal with such officers and e #loyees as that Govern ent thin, fit) ($) /he officers and e #loyees of the Securities %##ellate /ribunal shall discharge their functions under general su#erintendence of the -residing Afficer) H$ Substituted by the SEBI (% end ent)%ct! $''$! S)$4(a) (i) (w)e)f) $9.1'.$''$)! for I -residing Afficer of a Securities %##ellate /ribunalJ) H& Substituted by the SEBI (% end ent)%ct! $''$! S)$4 (a) (ii) (w)e)f) $9.1'.$''$)! for I the said -residing AfficerJ) H4 Substituted by the SEBI (% end ent)%ct! $''$! S)$4 (b) (w)e)f) $9.1'.$''$)! for I -residing AfficerJ) H< Substituted by the SEBI (% end ent)%ct! $''$! S)$4 (b) (w)e)f) $9.1'.$''$)! for I -residing AfficerJ) HH Substituted by the SEBI (% end ent)%ct! $''$! S)$4 (c) (w)e)f) $9.1'.$''$)! for I the aforesaid -residing AfficerJ) H: Substituted by the SEBI (% end ent)%ct! $''$! S)$< (w)e)f) $9.1'.$''$)! for I -residing AfficerJ) (&) /he salaries and allowances and other conditions of service of the officers and e #loyees of the Securities %##ellate /ribunal shall be such as ($)! any #erson aggrieved!. (a) By an order of the Board (b) By an order ade! on and after the co ence ent of the Securities Baws ade thereunder2 or ay #refer an a##eal to a adeSS (Second % end ent) %ct! 1999! under this %ct! or the rules or regulations ade by an ad0udicating officer under this %ct! atter) an order Securities %##ellate /ribunal having 0urisdiction in the ay be #rescribed) $>T*A00ea' to the Securities A00e''ate Tri/una'* M H8E(1) Save as #rovided in subsection ay

($) 7o a##eal shall lie to the Securities %##ellate /ribunal fro

32

(a) By the Board on and after the co %ct! 19992

ence ent of the Securities Baws (Second % end ent)

(b) By an ad0udicating officer! with the consent of the #arties)F (&) Every a##eal under sub.section (1) shall be filed within a #eriod of forty.five days fro date on which H9Ea co#y of the order ay be!Fis received by hi be #rescribed1 -rovided that the Securities %##ellate /ribunal that #eriod) (4) An recei#t of an a##eal under sub.section (1)! the Securities %##ellate /ribunal thin,s fit! confir ing! odifying or setting aside the order a##ealed against) ade by it to the ay! after giving the #arties to the a##eal! an o##ortunity of being heard! #ass such orders thereon as it (<) /he Securities %##ellate /ribunal shall send a co#y of every order :'EBoard! the #artiesF to the a##eal and to the concerned %d0udicating Afficer) H8 Substituted by the %ct &$ of 1999! S) 9 (w)e)f) 1H.1$.1999)! for Sub.sec (1) + ($)) -rior to their substitution! Sub.sec were read as under1 (1) Save as #rovided in sub.section ($)! any #erson aggrieved by any order %d0udicating Afficer under this %ct! having 0urisdiction in the atter) an order ade by an ade by ade by any ay #refer an a##eal to a Securities %##ellate /ribunal ay entertain an a##eal after the ex#iry of the said #eriod of forty.five days if it is satisfied that there was sufficient cause for not filing it within and it shall be in such for and be acco #anied by such fee as the ay ade by the Board or the ad0udicating officer! as the case

($) 7o a##eal shall lie to the Securities %##ellate /ribunal fro %d0udicating Afficer with the consent of the #arties)

H9 Substituted by the %ct &$ of 1999! S) 9 (w)e)f) 1H.1$.1999)! for Ia co#y of the order the ad0udicating officerJ :' Substituted by the %ct &$ of 1999! S) 9(w)e)f) 1H.1$.1999)! for I#artiesJ

(H) /he a##eal filed before the Securities %##ellate /ribunal under sub.section (1) shall be dealt with by it as ex#editiously as #ossible and endeavor shall be finally within six onths fro the date of recei#t of the a##eal) ade by it to dis#ose of the a##eal

33

$>U*+rocedure and 0o9ers of the Securities A00e''ate Tri/una'* . (1) /he Securities %##ellate /ribunal shall not be bound by the #rocedure laid down by the *ode of *ivil -rocedure! 19'8(< of 19'8)! but shall be guided by the #rinci#les of natural 0ustice and! sub0ect to the other #rovisions of this %ct and of any rules! the Securities %##ellate /ribunal shall have #owers to regulate their own #rocedure including the #laces at which they shall have their sittings) ($) /he Securities %##ellate /ribunal shall have! for the #ur#oses of discharging their functions under this %ct! the sa e #owers as are vested in a civil court under the *ode of *ivil -rocedure! 19'8(< of 19'8)! while trying a suit! in res#ect of the following (a) Su (b) ?e"uiring the discovery and #roduction of docu ents2 (c) ?eceiving evidence on affidavits2 (d) Issuing co issions for the exa ination of witnesses or docu ents2 (e) ?eviewing its decisions2 (f) 9is issing an a##lication for default or deciding it e& parte2 (g) Setting aside any order of dis issal of any a##lication for default or any order #assed by it e& parte2 (h) %ny other atter which ay be #rescribed) (&) Every #roceeding before the Securities %##ellate /ribunal shall be dee ed to be a 0udicial #roceeding within the eaning of sections 19& and $$8! and for the #ur#oses of section 19H of the Indian -enal *ode(4< of 18H')! and the Securities %##ellate /ribunal shall be dee ed to be a civil court for all the #ur#oses of section 19< and *ha#ter TTCI of the *ode of *ri inal -rocedure! 19:&($ of 19:4)) 8$7$>3*Right to 'ega' re0resentation* . /he a##ellant authori>e one or /ribunal) :1 Substituted by the %ct &$ of 1999! S) 9(w)e)f) 1H.1$.1999)! for S) 1<C) #rior to their substitution! S) 1<C read as under1. I1<C) /he a##ellant ay either a##ear in #erson or authorise one or ore legal #ractitioners or any of its officers to #resent his or its case before the Securities %##ellate /ribunal) Ex#lanation1. 5or the #ur#oses of this section!.. ay either a##ear in #erson or atters! na ely1 on oath2 oning and enforcing the attendance of any #erson and exa ining hi

ore chartered accountants or co #any secretaries or cost accountants or

legal #ractitioners or any of its officers to #resent his or its case before the Securities %##ellate

34

(a) D*hartered accountantD

eans a chartered accountant as defined in clause (b) of sub.

section (1) of section $ of the *hartered %ccountants %ct! 1949(&8 of 1949) and who has obtained a certificate of #ractice under sub.section (1) of section H of that %ct2 (b) D*o #any secretaryD eans a co #any secretary as defined in clause(c) of subsection (1) of section $ of the *o #any Secretaries %ct!198'(<H of 198') and who has obtained a certificate of #ractice under sub.section (1) of section H of that %ct2 (c) D *ost accountantD eans a cost accountant as defined in clause(b) of subsection(1) of section $ of the *ost and 8or,s %ccountants %ct! 19<9($& of 19<9) and who has obtained a certificate of #ractice under sub.section (1) of section H of that %ct2 (d) DBegal #ractitionerD eans an advocate! va,il or any attorney of any ;igh *ourt! and includes a #leader in #ractice)F $>5*,i)itation* ./he #rovisions of the Bi itation %ct! 19H& (&H of 19H&)! shall! as far as be! a##ly to an a##eal ade to a Securities %##ellate /ribunal) ay

:$E$>X*+residing !fficer# -e)/ers and staff of Securities A00e''ate Tri/una's to /e 0u/'ic ser1ants* . /he -residing Afficer! 3e bers and other officers and e #loyees of a Securities %##ellate /ribunal shall be dee ed to be #ublic servants within the section $1 of the Indian -enal *ode(4< of 18H'))F $>.*Ci1i' Court not to ha1e Curisdiction* ; 7o civil court shall have 0urisdiction to entertain any suit or #roceeding in res#ect of any atter which an %d0udicating Afficer a##ointed under this %ct or a Securities %##ellate /ribunal constituted under this %ct is e #owered by or under this %ct to deter ine and no in0unction shall be granted by any court or other authority in res#ect of any action ta,en or to be ta,en in #ursuance of any #ower conferred by or under this %ct) :&E$>F*A00ea' to Su0re)e Court*. %ny #erson aggrieved by any decision or order of the Securities %##ellate /ribunal ay file an a##eal to the Su#re e *ourt within sixty :$ Substituted by the SEBI (% end ent) %ct! $''$! S)$H (w)e)f) $9.1'.$''$)! for S) 1<T) -rior to its substitution! it read as under1 . I1<T) /he -residing Afficer and other officers and e #loyees of a Securities %##ellate /ribunal shall be dee ed to be #ublic servants within the *ode( 4< of 18H')J) eaning of section $1 of the Indian #enal eaning of

35

:& Substituted by the SEBI (% end ent)%ct! $''$! S)$: (w)e)f) $9.1'.$''$)! for S) 1<Q) -rior to its substitution ! it was read as under1. 1<Q) %##eal to ;igh *ourt). %ny #erson aggrieved by any decision or order of the Securities %##ellate /ribunal co ay file an a##eal to the ;igh *ourt within sixty days fro the date of on any unication of the decision or order of the Securities %##ellate /ribunal to hi

"uestion of fact or law arising out of such order1 -rovided that the ;igh *ourt cause fro exceeding sixty days fro %##ellate /ribunal to hi sufficient cause fro ay! if it is satisfied that the a##ellant was #revented by sufficient unication of the decision or order of the Securities filing the a##eal within the said #eriod! allow it to be filed within a further #eriod not the date of co on any "uestion of law arising out of such order1 ay! if it is satisfied that the a##licant was #revented by

-rovided that the Su#re e *ourt #eriod not exceeding sixty days)F

filing the a##eal within the said #eriod! allow it to be filed within a further

36

CHA+TER 3II

-ISCE,,ANE!US

+o9er of Centra'

o1ern)ent to issue directions*

1H)(1) 8ithout #re0udice to the foregoing #rovisions of :4Ethis %ct or the 9e#ositories %ct! 199HF! the Board shall! in exercise of its #owers or the #erfor ance of its functions under this %ct! be bound by such directions on "uestions of #olicy as the *entral Govern ent to it fro ay give in writing ti e to ti e1 -rovided that the Board shall! as far as #racticable! be given an

o##ortunity to ex#ress its views before any direction is given under this sub.section) ($) /he decision of the *entral Govern ent whether a "uestion is one of #olicy or not shall be final) +o9er of Centra' o1ern)ent to su0ersede the Board2

1:) (1) If at any ti e the *entral Govern ent is of o#inion. (a) /hat on account of grave e ergency! the Board is unable to discharge the functions and duties i #osed on it by or under the #rovisions of this %ct2 or (b) /hat the Board has #ersistently ade default in co #lying with any direction issued by the *entral Govern ent under this %ct or in the discharge of the functions and duties i #osed on it by or under the #rovisions of this %ct and as a result of such default the financial #osition of the Board or the ad inistration of the Board has deteriorated2 or (c) /hat circu stances exist which render it necessary in the #ublic interest so to do! the *entral Govern ent onths! as ay! by notification! su#ersede the Board for such #eriod! not exceeding six ay be s#ecified in the notification)

($) O#on the #ublication of a notification under sub.section (1) su#erseding the Board!. :4 Substituted by %ct $$ of 199H! S) &'(w)e)f) $'.9.199<)! for Ithis %ctJ (a) %ll the e bers shall! as fro the date of su#ersession! vacate their offices as such2 ay! by or under the S#rovisions of this %ct! be (b) %ll the #owers! functions and duties which

exercised or discharged by or on behalf of the Board! shall until the Board is reconstituted under sub.section (&)! be exercised and discharged by such #erson or #ersons as the *entral Govern ent ay direct2 Sand (c) %ll #ro#erty owned or controlled by the Board shall! until the Board is reconstituted under sub.section (&)! vest in the *entral Govern ent)

37

(&) An the ex#iration of the #eriod of su#ersession s#ecified in the notification issued under sub. section (1)! the *entral Govern ent ay reconstitute the Board by a fresh a##oint ent and in such case any #erson or #ersons who vacated their offices under clause (a) of sub.section ($)! shall not be dee ed dis"ualified for a##oint ent1 -rovided that the *entral Govern ent ay! at any ti e! before the ex#iration of the #eriod of su#ersession! ta,e action under this sub.section) (4) /he *entral Govern ent shall cause a notification issued under sub.section (1) and a full re#ort of any action ta,en under this section and the circu stances leading to such action to be laid before each ;ouse of -arlia ent at the earliest) Returns and re0orts* 18) (1) /he Board shall furnish to the *entral Govern ent at such ti e and in such for anner as ay be #rescribed or as the *entral Govern ent state ents and such #articulars in regard to any #ro#osed or existing #rogra #ro otion and develo# ent of the securities to ti e! re"uire) ($) 8ithout #re0udice to the #rovisions of sub.section (1)! the Board shall! within :<Eninety daysF after the end of each financial year! sub it to the *entral Govern ent a re#ort in such for ! as ay be #rescribed! giving a true and full account of its activities! #olicy and #rogra the #revious financial year) (&) % co#y of the re#ort received under sub.section ($) shall be laid! as soon as is received! before each ;ouse of -arlia ent) De'egation2 19) /he Board ay! by general or s#ecial order in writing delegate to any e ber! officer of the ay Board or any other #erson sub0ect to such conditions! if any! as dee necessary) ay be s#ecified in the order! ay be after it es during ar,et! as the *entral Govern ent and ay direct! such returns and e for the ay! fro ti e

such of its #owers and functions under this %ct (exce#t the #owers under section $9) as it

38

A00ea's* :< Substituted by %ct 9 of 199<! S) 1' (w)e)f) $<.1.199<)! for Isixty daysJ $')(1) %ny #erson aggrieved by :HEan order of the Board ade thereunder #rescribed) ($) 7o a##eal shall be ad itted if it is #referred after the ex#iry of the #eriod #rescribed therefore1 -rovided that an a##eal ay be ad itted after the ex#iry of the #eriod #rescribed therefore if the a##ellant satisfies the *entral Govern ent that he had sufficient cause for not #referring the a##eal within the #rescribed #eriod) (&) Every a##eal ade under this section shall be ade in such for and shall be acco #anied by a co#y of the order a##ealed against and by such fees as (4) /he #rocedure for dis#osing of an a##eal shall be such as o##ortunity of being heard) 887&GA*Bar of Curisdiction ; 7o order #assed by the :8EBoard or the ad0udicating officerF under this %ct shall be a##ealable exce#t as #rovided in :9Esection 1</ or section $'F and no *ivil *ourt shall have 0urisdiction in res#ect of any atter which the 8'EBoard or the ad0udicating officerF is e #owered by! or under! this %ct to #ass any order and no in0unction shall be granted by any court or other authority in res#ect of any action ta,en or to be ta,en in #ursuance of any order #assed by the 81EBoard or the ad0udicating officeF by! or under! this %ct)F Sa1ings* $1) 7othing in this %ct shall exe #t any #erson fro a#art fro this %ct! be brought against hi ) any suit or other #roceedings which ight! ay be #rescribed) ay be #rescribed1 ade! before the co ence ent of ay be Securities Baws (Second % end ent) %ct! 1999!F under this %ct! or the rules or regulations ay #refer an a##eal to the *entral Govern ent within such ti e as

-rovided that before dis#osing of an a##eal! the a##ellant shall be given a reasonable

-e)/ers# !fficers and e)0'o4ees of the Board to /e 0u/'ic ser1ants* $$) %ll the e bers! officers and other e #loyees of the Board shall be dee ed! when acting or #ur#orting to act in #ursuance of any of the #rovisions of this %ct! to be #ublic servants within eaning of section $1 of the Indian -enal *ode (4< of 18H')) adeJ :H Substituted by %ct &$ of 1999! S) 11 (w)e)f) 1H.1$.1999)! for Ian order of the Board :: Inserted by %ct 9 of 199<! S) 11 (w)e)f) $<.1.199<)) 39

:8 Substituted by %ct &$ of 1999! S) 1$ (w)e)f) 1H.1$.1999)) 5or IBoardJ :9Substituted by %ct &$ of 1999! S) 1$ (w)e)f) 1H.1$.1999)) 5or ISection $'J 8' Substituted by %ct &$ of 1999! S) 1$ (w)e)f) 1H.1$.1999)) 5or IBoardJ 81 Substituted by %ct &$ of 1999! S) 1$ (w)e)f) 1H.1$.1999)) 5or IBoardJ

+rotection of action ta:en in good faith* $&) 7o suit! #rosecution or other legal #roceedings shall lie against the *entral Govern ent 8$Eor BoardF or any officer of the *entral Govern ent or any rules or regulations ade thereunder) e ber! officer or other e #loyee of the Board for anything which is in good faith done or intended to be done under this %ct or the

HB7&I*!ffences* .(1) 8ithout #re0udice to any award of #enalty by the %d0udicating Afficer under this %ct! if any #erson contravenes or atte #ts to contravene or abets the contravention of the #rovisions of this %ct or of any rules or regulations #unishable with i #rison ent for a ter which ay extend to twenty.five crore ru#ees or with both)F ($) If any #erson fails to #ay the #enalty i #osed by the %d0udicating Afficer or fails to co #ly with any of his directions or orders! he shall be #unishable with i #rison ent for a ter shall not be less than one onth! but which extend to twenty.five crore ru#ees or with bothF)F 8HECo)0osition of certain offences* $4%) 7otwithstanding anything contained in the *ode of *ri inal -rocedure! 19:&($ of 19:4)! any offence #unishable under this %ct! not being an offence #unishable with i #rison ent only! or with i #rison ent and also with fine! #roceedings are #ending) ay either before or after the institution of any #roceeding! be co #ounded by a Securities %##ellate /ribunal or a court before which such which ay ay extend to 8<Eten years or with fine! which ade thereunder! he shall be ay extend to 84Eten years! or with fine! which

40

+o9er to grant i))unit4* $4B) (1) /he *entral Govern ent ay! on reco endation by the Board! if the *entral ade a full and true disclosure ay Govern ent is satisfied! that any #erson! who is alleged to have violated any of the #rovisions of this %ct or the rules or the regulations thin, fit to i #ose! i regulations unity fro ade thereunder! has in res#ect of the alleged violation! grant to such #erson! sub0ect to such conditions as it ade thereunder or also fro

#rosecution for any offence under this %ct! or the rules or the the i #osition of any #enalty under this %ct with

res#ect to the alleged violation1 8$Inserted by %ct 9 of 199<! S) 1$ (w)e)f) $<.1.199<)) 8& Substituted by %ct 9 of 199<! S)1& (w)e)f) $<.1.199<)! for S) $4) -rior to its substitution the section was read as under1 $4) -enalty). 8hoever contravenes or atte #ts to contravene or abets the contravention of the #rovisions of this %ct or of any rules or regulations i #rison ent for a ter which ade thereunder! shall be #unishable with ay extend to one year! or with fine! or with both)

84 Substituted by the SEBI (% end ent) %ct! $''$! S) $8(a) (w)e)f) $9.1'.$''$)! for Ione year! or with fine! or with bothJ) 8< Substituted by the SEBI (% end ent) %ct! $''$! S) $8(a) (w)e)f) $9.1'.$''$)! for Ithree years or with fine which shall not be less than two thousand ru#ees but which thousand ru#ees or with bothJ) 8H Inserted by the SEBI (% end ent) %ct! $''$! S) $9 (w)e)f) $9.1'.$''$)) -rovided that no such i unity shall be granted by the *entral Govern ent in cases where the unity1 #roceedings for the #rosecution for any such offence have been instituted before the date of recei#t of a##lication for grant of such i -rovided further that reco ($) %n i u#on the *entral Govern ent) unity granted to a #erson under sub.section (1) ay! at any ti e! be withdrawn by the *entral Govern ent! if it is satisfied that such #erson had! in the course of the #roceedings! not co #lied with the condition on which the i and thereu#on such #erson unity was granted or had given false evidence! unity was ay be tried for the offence with res#ect to which the i endation of the Board under this sub.section shall not be binding ay extend to ten

granted or for any other offence of which he a##ears to have been guilty in connection with the contravention and shall also beco e liable to the i #osition of any #enalty under this %ct to which such #erson would have been liable! had not such i unity been granted)F

41

Exe)0tion fro) tax on 9ea'th and inco)e2 $<) 7otwithstanding anything contained in the 8ealth /ax %ct! 19<:($: of 19<:)! the Inco e /ax %ct! 19H1(4& of 19H1) or any other enact ent for the ti e being in force relating to tax on wealth! inco e! #rofits or gains . (a) /he Board2 (b) /he existing Securities and Exchange Board fro the date of its constitution to the date of establish ent of the Board shall not be liable to #ay wealth.tax! inco e.tax or any other tax in res#ect of their wealth! inco e! #rofits or gains derived) CogniDance of offences /4 courts2 $H) (1) 7o court shall ta,e cogni>ance of any offence #unishable under this %ct or any rules or regulations %ct) !ffences /4 co)0anies* $:)(1) 8here an offence under this %ct has been co the ti e the offence was co itted by a co #any! every #erson who at itted was in charge of! and was res#onsible to! the co #any for ade thereunder! save on a co #laint ade by the Board) 8:E F ($) 7o court inferior to that of 88Ea *ourt of SessionF shall try any offence #unishable under this

the conduct of the business of the co #any! as well as the co #any! shall be dee ed to be guilty of the offence and shall be liable to be #roceeded against and #unished accordingly1 8: /he words Iwith the #revious sanction of the *entral Govern entJ o itted by %ct 9 of 199<! S) 14 (w)e)f) $<.1.199<)) 88 Substituted by the SEBI (% end ent) %ct! $''$! S) &' (w)e)f) $9.1'.$''$)! for Ia 3etro#olitan 3agistrate or a 0udicial 3agistrate of the first classJ) -rovided that nothing contained in this sub.section shall render any such #erson liable to any #unish ent #rovided in this %ct! if he #roves that the offence was co ,nowledge or that he had exercised all due diligence to #revent the co been co itted without his ission of such offence) itted with the anager!

($) 7otwithstanding anything contained in sub.section (1)! where an offence under this %ct has itted by a co #any and it is #roved that the offence has been co consent or connivance of! or is attributable to any neglect on the #art of! any director! secretary or other officer of the co #any! such director! #unished accordingly)

anager! secretary or other officer shall

also be dee ed to be guilty of the offence and shall be liable to be #roceeded against and

42

'&planation.( 5or the #ur#oses of this section! . (a) D*o #anyD individuals2 and (b) D9irectorD in relation to a fir ! +o9er to exe)0t* $8) EA itted by the Securities Baws (% end ent) %ct! 199<(9 of 199<)! S)1< (w)e)f) $<.1. 199<))F +o9er to )a:e ru'es* $9) (1) /he *entral Govern ent of this %ct) ($) In #articular! and without #re0udice to the generality of the foregoing #ower! such rules #rovide for all or any of the following (a) /he ter sub.section (1) of section <2 (b) /he additional functions that (c) 89EPPPPF (d) /he anner in which the accounts of the Board shall be aintained under section 1<2 9'E(da) the anner of in"uiry under sub.section (1) of section 1<.I2 89 *lause (c) o itted by %ct ay be #erfor ed by the Board under section 112 atters! na ely1. e bers under of office and other conditions of service of the *hair an and the ay ay! by notification! a,e rules for carrying out the #ur#oses eans a #artner in the fir ) eans any body cor#orate and includes a fir or other association of

9 of 199<! S) 1H (w)e)f) $<.1.199<)) -rior to its o ission it read as Ithe conditions sub0ect to which registration certificate is to be issued under sub.section (1) of section 1$J) 9' Inserted by %ct 9 of 199<! S) 1H (w)e)f) $<.1.199<)) (db) the salaries and allowances and other ter s and conditions of service of the 91E-residing Afficers! 3e bersF and other officers and e #loyees of the Securities %##ellate /ribunal under section 1<.A and sub.section (&) of section 1<S2 (dc) the #rocedure for the investigation of (dd) the for (e) /he for in which an a##eal and the isbehavior or inca#acity of the 9$E-residing Afficers! or other 3e bersF of the Securities %##ellate /ribunal under sub.section (&) of section 1<R2 ay be filed before the Securities %##ellate /ribunal under ade to the *entral Govern ent section 1< ./ and the fees #ayable in res#ect of such a##eal2F anner in which returns and re#ort to be under section 182

43

(f) %ny other be! or ay be!

atter which is to be! or ade by rules)

ay be! #rescribed! or in res#ect of which #rovision is to

+o9er to )a:e regu'ations* &') (1) /he Board rules ay! 9&EPPPF by notification! a,e regulations consistent with this %ct and the ade thereunder to carry out the #ur#oses of this %ct) atters! na ely1. necessary for the transaction of

($) In #articular! and without #re0udice to the generality of the foregoing #ower! such regulations ay #rovide for all or any of the following (a) /he ti es and #laces of business2 (b) /he ter s and other conditions of service of officers and e #loyees of the Board under sub. section ($) of section 92 94E(c) the atters relating to issue of ca#ital! transfer of securities and other anner in which such atters incidental thereto and the section 11%2 (d) /he conditions sub0ect to which certificate of registration is to be issued! the a ount of fee to be #aid for certificate of registration and the (w)e)f) $9.1'.$''$)! for I-residing AfficersJ 9$ Substituted by the SEBI (% end ent) %ct! $''$! S) &1(ii) (w)e)f) $9.1'.$''$)! for I-residing AfficersJ 9& /he words Iwith the #revious a##roval of the *entral Govern entJ o itted by %ct 9 of 199<! S) 1: (w)e)f) $<.1.199<)) 94 Substituted by the %ct 9 of 199<! S) 1: (w)e)f) $<.1.199<)! for the existing clause (c)) -rior to its substitution this clause read as under1 (c) /he a ount of fee to be #aid for registration certificate and anner of sus#ension or cancellation of registration certificate under sub.section ($) and (&) of section 1$) anner of sus#ension or cancellation of certificate of registration under section 1$)F 91 Substituted by the SEBI (% end ent) %ct! $''$! S) &1(i) atters shall be disclosed by the co #anies under eetings of the Board and the #rocedure to be followed at such

eetings under sub.section (1) of section : including "uoru

44

Ru'es and regu'ations to /e 'aid /efore +ar'ia)ent* &1) Every rule and every regulation is which ade under this %ct shall be laid! as soon as ay be after it ade! before each ;ouse of -arlia ent! while it is in session! for a total #eriod of thirty days ay be co #rised in one session or in two or a,ing any odified for ore successive sessions! and if! before ediately following the session or the successive sessions odification in the rule or regulation or both ade! the rule or regulation shall ay be2 so! or be of no effect! as the case

the ex#iry of the session i

aforesaid! both ;ouses agree in thereafter have effect only in such however! that any such

;ouses agree that the rule or regulation should not be

odification or annul ent shall be without #re0udice to the validity of

anything #reviously done under that rule or regulation) A00'ication of other 'a9s not /arred* &$) /he #rovisions of this %ct shall be in addition to! and not in derogation of! the #rovisions of any other law for the ti e being in force) %>7A)end)ent of certain enact)ents* &&) E?e#ealed F +o9er to re)o1e difficu'ties* &4)(1) If any difficulty arises in giving effect to the #rovisions of this %ct! the *entral Govern ent ay! by order! #ublished in the Afficial Ga>ette! #rovisions of this %ct as co -rovided that no order shall be ence ent of this %ct) ade under this section shall be laid! as soon as ay be after it is ade! before ($) Every order a,e such #rovisions not inconsistent with the the ay a##ear to be necessary for re oving the difficulty1 ade under this section after the ex#iry of five years fro

each ;ouse of -arlia ent) Re0ea' and sa1ing* &<) (1) /he Securities and Exchange Board of India Ardinance! 199$ (Ard) < of 199$)! is hereby re#ealed) ($) 7otwithstanding such re#eal! anything done or any action ta,en under the said Ardinance! shall be dee ed to have been done or ta,en under the corres#onding #rovisions of this %ct)

45

A-END-ENTS !" CERTAIN ENACT-ENTS +ART I A)end)ent to the Ca0ita' Issues (Contro') Act# $%I8 (&% of $%I8) In section 1' for Ito that Govern entJ substitute Ito that Govern ent or the Securities and Exchange Board of IndiaJ) +ART II A)end)ents to the Securities Contracts (Regu'ation) Act# $%>6 (I& of $%>6) 1* Section $ in clause (h) for s ub;clause (ii)! substitute the following1 M )(ii) Govern ent securities2 (iia) such other instru ents as andJ) $* Section H!U (i) In sub ;section (1)! for I*entral Govern entJ! substitute ISecurities and Exchange Board of IndiaJ2 (ii) In sub ;section ($) for Iby the *entral Govern entJ! substitute Iby the Securities and Exchange Board of IndiaJ * (iii) In sub .section (&)! for I*entral Govern entJ! wherever it occurs! substitute ISecurities and Exchange Board of IndiaJ2 &) Section 9! for I*entral Govern entJ wherever it occurs2 substitute ISecurities and Exchange Board of IndiaJ2 4) Section 1'! for I*entral Govern entJ wherever it occurs2 substitute ISecurities and Exchange Board of IndiaJ2 <* Section 1:! in sub.section (1)! for Ilicense granted by the *entral Govern entJ! substitute Ilicense granted by the Securities and Exchange Board of IndiaJ2 H* Section $1 for I*entral Govern entJ! substitute ISecurities and Exchange Board of IndiaJ2 :* Section $$%! in sub ;section (&)! for clause (b)! substitute the followingU I(b) /hat the transfer of the securities is in contravention of any law or rules laws and rules *D2 8* In sub;section ($) of section $&! for I*entral Govern ent under section $1 or section $$J! substitute ISecurities and Exchange Board of India under section 46 ade thereunder or any ad inistrative instructions or conditions of listing agree ent laid down in #ursuance of such ay be declared by the *entral Govern ent to be securities2

$1 or the *entral Govern ent under section $$J2 9* %fter section $9 insert the following1 J$9%)-ower to delegate) U /he *entral Govern ent Ga>ette! direct that the #owers exercisable A)end)ent of Certain Enact)ents E?e#ealed by ?e#ealing + % ending %ct! $''1F By it under any #rovision of this %ct shall! in relation to such conditions! if any as Exchange Board of IndiaJ atters and sub0ect to such ay be s#ecified in order! be excusable also by the Securities and ay! by order #ublished in the Afficial

47

SCA-S ; CASE STUD. !N SEBI ACT $%%& EETAN +AREEH SCAIntroduction2 6etan -are,h is a for er stoc, bro,er fro 3u bai! India! who was convicted in $''8! for involve ent in the Indian stoc, ar,et ani#ulation sca in late 1999.$''1) *urrently he has been debarred fro stoc, exchanges till $'1:) -are,h is alleged to have been involved in circular trading throughout the ti e #eriod and with a variety of co #anies! including Global /rust Ban, and 3adhav#ura 3ercantile *o.o#erative Ban,) -are,hLs sole conviction! which carried a one year sentence! ca e as a result of a transaction he conducted involving a unit of *anara Ban, in 199$) /hough -are,h is currently barred fro -are,h2 $H entities were banned fro stoc, trading! in $''9! the Securities and Exchange trading in the Indian

Board of India (SEBI) alleged a variety of co #anies and other actors were trading on behalf of trading as a result of that investigation) a well.to.do Gu0arati of $'''.$''1 on

Ear'4 ,ife2 6etan -are,h was a 3u bai.based stoc, bro,er) ;e hails fro the Indian Stoc, 3ar,et)

fa ily involved in share trading! and 6etan was involved in the shares sca

Stoc: -ar:et Sca)2 6etan -are,h can best be described as the -ied -i#er of 9alal Street) 5or two years! ar,et en followed his every action because all he touched turned to gold) Better illenniu bash that agnates and fil stars) % chartered accountant by create a trading ring of his ,nown as the -entafour Bull! he ,e#t a low #rofile! exce#t when he threw a was attended by #oliticians! business training! -are,h ca e fro stoc, a fa ily of bro,ers! which hel#ed hi

own) Between 1999 and $'''! as the technology bubble was engulfing the rest of the world! the ar,et in India s#rang to life too) ostly controlled by #ro oters of listed co #anies! overseas cor#orate oney to -are,h! which he used to rig ?s 48

Be it invest ent fir s! u# stoc, #rices by

bodies or coo#erative ban,s! all were ready to hand the

a,ing his interest a##arent) In no ti e! scri#s li,e Cisualsoft rose fro

H$< to ?s 8!448 #er share and Sonata Software fro fraud did not end with #rice rigging)

?s 9' to ?s $!1<') But the vicious cycle of

/he inflated stoc,s had to be du #ed onto so eone in the end! for which -are,h used financial institutions li,e the O/I) But the #arty ended rather abru#tly a day after the Onion Budget was #resented in 5ebruary $''1) % bear cartel started disru#ting -are,hLs #arty by ha #rices of the 6.1' stoc,s! #reci#itating a #ay ent crisis in 6ol,ata) %s SEBI investigated! it was evident that ban, and #ro oter funds were used to rig the sca ! fro any ga#ing loo#holes in the ar,ets) ering

-are,h was arrested in 3arch that year and was in custody for <& days) In the after ath of the ar,et were #lugged) /he trading cycle was now reduced of exchange.traded ar,ets are today ar,ets through one wee, to one day) Badla was banned and o#erators could not carry forward trade in its ar,et) Bro,er control over stoc, exchanges was

#ri itive for ) 5orward trading was for ally introduced in the for derivatives to ensure a well.regulated futures

de olished) ItLs #erha#s than,s to the -entafour Bull that IndiaLs stoc, the financial syste ) ;e is! however! now sus#ected to be o#erating in the conduits) -are,h will re ain a wor,.in.#rogress for regulators)

considered safe) %nd to his credit! -are,h forced lethargic #olicy. a,ers to institute refor s in

49

HARSHAD -EHTA SCAIntroduction2 Harshad Shanti'a' -ehta was an Indian stoc,bro,er) ;e is alleged to have engineered the rise in the BSE stoc, exchange in 199$) Ex#loiting several loo#holes in the ban,ing syste ! 3ehta and his associates si#honed off funds fro ban, transactions and bought shares heavily at a #re iu was ex#osed! ban,s started de anding their inter. across

any seg ents! triggering a rise in the Sensex) 8hen the sche e oney bac,! causing any litigations the colla#se) ;e was later charged with :$ cri inal offenses! and ore than H'' civil action suits were filed against hi ) 3ehta died in $''$ with still #ending against hi ) Ear'4 'ife2 ;arshad Shantilal 3ehta was born on $9 (uly 19<4 in a Gu0arati (ain fa ily of odest eans) ;is early childhood was s#ent in 3u bai (6andivali)! where his father was a oved to ?ai#ur in *hattisgarh after doctors advised ove to a drier #lace on account of his health) 3ehta studied in ;oly *ross ;igher s all.ti e business an) Bater! the fa ily his father to Secondary School! Byron Ba>ar! ?ai#ur) Stoc: -ar:et Sca)2 3ehta gradually rose to beco e a stoc, bro,er on the Bo bay Stoc, Exchange and had an ex#ensive lifestyle) ;e lived in a 1<!''' s"uare feet (1!4'' a#art ent! which had a swi to #ro inence in the stoc,
$

ing #ool as well as a golf #atch) By 199'! 3ehta had risen ar,et) ;e was buying shares heavily) /he shares which

attracted attention were those of %ssociated *e ent *o #any (%**)) /he #rice of %** was bid u# to ?s 1'!''') 8hen as,ed! 3ehta used the re#lace ent cost theory as an ex#lanation) /hrough the second half of 1991 3ehta had earned the sobri"uet of the VBig BullK! because he was said to have started the Bull ?un) An %#ril $&! 199$! 0ournalist Sucheta 9alal ex#osed 3ehtaLs illegal ban,ing syste which the sca short.ter ethods in a colu n in /he /i es of India) 3ehta was di##ing illegally into the to finance his buying) /he authors ex#lain1 I/he crucial echanis through was affected was the ready forward (?5) deal) /he ?5 is in essence a secured one ban, to another) *rudely #ut! the ban, lends 50

(ty#ically 1<.days) loan fro

against govern ent securities 0ust as a #awnbro,er lends against 0eweler)

/he borrowing ban, actually sells the securities to the lending ban, and buys the that 3ehta and his acco #lices used with great success to channel syste ) oney fro

bac, at the the ban,ing

end of the #eriod of the loan! ty#ically at a slightly higher #rice)J It was this ready forward deal

% ty#ical ready forward deal involved two ban,s brought together by a bro,er in lieu of a co were ission) /he bro,er handles neither the cash nor the securities! though that wasnKt the case ade through the bro,er) /hat is! the seller handed over the securities to the bro,er! who to the buyer! while the buyer gave the che"ue to the bro,er! who then ade the ight not even ,now in the lead.u# to the sca ) IIn this settle ent #rocess! deliveries of securities and #ay ents #assed the who

#ay ent to the seller) In this settle ent #rocess! the buyer and the seller anage #ri arily because by now they had beco e transactions on behalf of a ban,) ar,et

they had traded with! either being ,nown only to the bro,er)J /his the bro,ers could a,ers and had started trading on

their account) /o ,ee# u# a se blance of legality! they #retended to be underta,ing the

%nother instru ent used was the ban, recei#t (B?)) In a ready forward deal! securities were not oved bac, and forth in actuality) Instead! the borrower! i)e)! the seller of securities! gave the buyer of the securities a B?) %s the authors write! a B? Iconfir s the sale of securities) It acts as a recei#t for the oney received by the selling ban,) ;ence the na e . ban, recei#t) It ean ti e! the seller #ro ises to deliver the securities to the buyer) It also states that in the holds the securities in trust of the buyer)J ;aving figured out his sche e! 3ehta needed ban,s which issued fa,e B?s! or B?s not bac,ed by any govern ent securities) I/wo s all and little ,nown ban,s . the Ban, of 6arad (BA6) and the 3etro#olitan *o.o#erative Ban, (3*B) . ca e in handy for this #ur#ose) /hese ban,s were willing to issue B?s as and when re"uired! for a fee!J the authors #oint out) Ance these fa,e B?s were issued! they were #assed on to other ban,s and the ban,s in turn gave the case) /his oney was used to drive u# the #rices of stoc,s in the stoc, oney to 3ehta! assu ing that they were lending against govern ent securities when this was not really ar,et) 8hen ti e oney ca e to return the oney! the shares were sold for a #rofit and the B? was retired) /he

due to the ban, was returned) /he ga e went on as long as the stoc, #rices ,e#t going u#! and no one had a clue about 3ehtaKs odus o#erandi) Ance the sca was ex#osed! though! a lot of ban,s were left holding 51

B?s which did not have any value . the ban,ing syste 4!''' crore) 8hen the sca by 0u #ing fro

had been swindled of a who##ing ?s itted suicide

was revealed! the *hair an of the Ci0aya Ban, co

the office roof) ;e ,new that he would be accused if #eo#le ca e to ,now

about his involve ent in issuing che"ues to 3ehta) 3ehta and reco ade a brief co ebac, as a stoc, ar,et guru! giving ti#s on his own website as well as

a wee,ly news#a#er colu n) /his ti e around! he was wor,ing with owners of a few co #anies ended only the shares of those co #anies) /his ga e! too! did not last long) By the any cases filed against hi ) ti e he died! 3ehta had been convicted in only one of the

52