INTENSIVE STUDY COURSE ON

SEBI RULES AND REGULATIONS

LIABILITIES UNDER SECURITIES LAWS
Presented by:
Dipali Sheth, Partner, MDP & Partners
1
BACKGROUND
The Securities and Exchange
Board of India (SEBI) was
formed in the year 1992.
SEBI was formed to protect
the interests of investors in
securities and to regulate the
securities market.
SEBI has various departments
such as market intermediaries,
market regulation, investment
management, investigations,
enforcement, etc.
2
ACTS, RULES AND REGULATIONS
3
SEBI Act;
Securities Contract (Regulation) Act, 1956;
Depositories Act, 1996;
SEBI (Substantial Acquisition and Takeover) Regulations, 2011
(Takeover Code);
SEBI (Mutual Fund) Regulations, 1996;
SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992;
SEBI (Registrars to an Issue and Share Transfer Agents)
Regulations, 1993;
ACTS, RULES AND REGULATIONS (continued)
4
SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2009;
SEBI (Bankers to an Issue) Regulations,
1994;
SEBI (Buy-Back of Securities)
Regulations, 1998;
SEBI (Debenture Trustee) Regulations
1993;
SEBI (Foreign Institutional Investors)
Regulations, 1995;
SEBI (Venture Capital Funds)
Regulations 1996
ACTS, RULES AND REGULATIONS (continued)
SEBI (Prohibition of Insider Trading) Regulations, 1992;
SEBI (Informal Guidance) Scheme, 2003;
SEBI (Intermediaries) Regulations, 2008;
SEBI (Portfolio Managers) Regulations, 1993;
SEBI (Employee Stock Option Scheme and Employee Stock
Purchase Scheme) Guidelines, 1999;
SEBI (Issue of Sweat Equity) Regulations, 2002;
SEBI (Underwriters) Regulations, 1993;
5
ACTS, RULES AND REGULATIONS
(continued)
SEBI (Delisting of Equity
Shares) Regulations, 2009;
SEBI (Depositories and
Participants) Regulations,
1996;
SEBI (Collective Investment
Schemes) Regulations, 1999
6
VARIOUS INITIATIVES OF SEBI
7
SEBI had taken up with Press Council of India (PCI) its
concerns on practice of many media groups entering into
agreements, such as Private Treaties, with companies. In this
regard, PCI has mandated that all disclosures regarding stake
held by the media company should be made in the news
report and on the website of media group, including
disclosures regarding any potential conflict of interest for
media group.
In order to curb unauthenticated news related to various
scrips that are being circulated in blogs/chat forums/e-mail
etc., by employees of broking houses/other intermediaries,
SEBI registered market intermediaries were directed to
ensure that proper internal code of conduct and controls be
put in place.
VARIOUS INITIATIVES OF SEBI (continued)
8
SEBI issued a caution to investors on investment advice
offered by websites, advertisements, SMS, emails, astrology
etc. and investors were advised to take well informed
investment decisions.
The code of conduct for all intermediaries including portfolio
managers provides that the intermediary or any of his
employees shall not render, directly or indirectly any
investment advice about any security in the publicly
accessible media without specified disclosure.
ROLE OF SEBI
9
Securities Appellate Tribunal (SAT) is the appellate authority
constituted under the SEBI Act.
SAT had in its Order dated November 22, 2004 in JM Mutual
Fund and JM Capital Management Private Limited Vs. SEBI
Appeal No. 29-39A/2004 adversely commented on the duty of
SEBI and observed that Section 11 of the SEBI Act enjoins duty
on SEBI to protect the integrity of the securities market and this
duty makes it obligatory on SEBI to ensure that
tainted/unaccounted money does not enter securities market.
SAT has observed in JM matter (infra) that the expression due
diligence has not been defined but it means an obligation to
exercise reasonable care and no straight jacket method can be
applied with regard to due diligence.
ROLE OF SEBI
10
In Alka Synthetics Vs. SEBI (2005) 62 SCL 82, the Supreme
Court of India observed as follows:
the SEBI Act confers wide jurisdiction upon the SEBI. The
Board exercises its legislative power by making regulations,
executive power by administering the regulations framed by it
and taking action against any entity violating these
regulations and judicial power by adjudicating disputes in the
implementation thereof. The only check upon exercise of such
wide ranging power is that it must comply with the
Constitution and the Act.
Enforcement by SEBI
11
In view of the above, SEBI passed an ex-parte ad-interim
order dated February 02, 2011 inter-alia debarring thirty nine
entities from accessing the securities market and further
prohibited them from buying, selling or dealing in securities in
any manner whatsoever, till further directions.
Further, the National Stock Exchange of India Limited and the
Bombay Stock Exchange Limited were directed to examine the
role of the stock broker, Arcadia Shares and Stock Brokers
Private Limited, in respect of its trading for the entities in the
shares of the identified scrips mentioned in this Order and to
submit their respective reports within two months from the
date of this Order.
ROLE OF SEBI (continued)
In the above-quoted judgment SC had observed that our
constitution though does not incorporate the doctrine of
separation but does make horizontal division of powers
between Legislative, Executive and Judiciary.
Hence, it is pertinent to note that SEBI has the following three
powers:
Legislative;
Executive; and
Judicial
12
POWERS OF SEBI
SEBI is empowered to call for information, undertake inspection,
conduct inquiries and undertake audits of persons associated with
securities market. Persons associated with securities market as
interpreted judicially and subsequently noted is a wider term which
includes intermediaries and self regulatory organizations.
In Karnavati Fincap Ltd. and Alka Spinners Ltd. Vs. SEBI where in
Gujarat High Court held that persons associated with securities
market shall include all and sundry who have something to do with
the securities market. Further, all activities of selling and buying are
related to seller and buyer and hence, it is inconceivable to think
that buyer or seller is not person associated with securities market.
It was held that it would be defeating to hold investigation into
malpractice attached to any transaction or practice carried on in a
stock exchange can be made only upto intermediary but cannot
reach the primary source of transaction.
13
POWERS OF SEBI
Suspension of trading in any security listed on the stock exchange is
normally power exercised by stock exchange under the SCRA,
however, such power of stock exchange does not preclude SEBI
from resorting to such power which is often not taken up as it
creates illiquidity of the concerned scrip. SEBI has in past resorted
to such action in the interest of orderly development of securities
market and especially when it suspected that the trading is
conducted for manipulative purposes.
SEBI is also empowered to restrain persons from accessing
securities market and to prohibit any persons associated with
securities market to deal in securities. Normally, SEBI adopts such
measure at interim stage. SAT has in certain matters set aside such
orders on the grounds of it being penal in nature. This power of
SEBI is presumed to be with limitation of being imposed only as
remedial or preventive measure and not as a penalty.
14
POWERS OF SEBI
SEBI is empowered to suspend office bearers of stock exchange or
self regulatory organisations. In Anand Rathi Vs. SEBI [2002] 110
Comp Cas 837 (Bom), the Bombay High Court held that SEBI being
charged with the duty to protect the public and the integrity of the
capital markets and as a regulator, it is empowered to order
suspension as an interim measure pending investigation into
serious allegations including those of manipulations and insider
trading. The final restraint order passed by SEBI upon completion of
investigation was sustained but modified to restraint on holding
public position as a member of governing body or office bearer of
the exchange or any capital market related public institution. It is to
be noted that such order was sustained primarily on the ground of
violation of code of conduct and there was no finding of insider
trading or market manipulation.
15
POWERS OF SEBI
SEBI is also empowered to impound, attach and restraint against
alienation. In SEBI Vs. Alka Synthetics Ltd., the division bench of
Gujarat High Court held that measure taken by SEBI is a remedial
measure to preserve the subject matter of dispute till final decision
is taken .
Order of attaching bank accounts can however be passed by SEBI
only upon approval of the jurisdictional judicial magistrate.
Similarly SEBI is empowered to direct a person to not dispose off
shares or assets forming part of the transaction.
Only remedial and preventive measures can be undertaken by SEBI
under Section 11B of the SEBI Act. In Sterlite Industries Vs. SEBI it
was observed by SAT that Section 11B of the SEBI Act cannot be
interpreted to empower SEBI to issue directions which tantamount
to imposition of penalties.
16
LIABILITIES UNDER SECURITIES LAW
SEBI Act, 1992: (1/9)
Failure under this Act or any of the Regulations to:
furnish any document, return or report to SEBI, or to file any
return or furnish any information, books, etc. within the time
specified; or
maintain books of accounts or records
shall be liable to a penalty of Rs. 100,000 for each day during
which such failure continues or Rs. 10,000,000, whichever is less.
17
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI Act, 1992: (2/9)
Failure to enter into an agreement with its client by any person,
who is registered as an intermediary where it is required under
this Act or any rules or regulations to enter into such
agreement, shall be liable to a penalty of Rs. 100,000 for each
day during which such failure continues or Rs. 10,000,000,
whichever is less.
If any listed company or any person who is registered as an
intermediary, after having been called upon by SEBI in writing,
to redress the grievances of investors, fails to redress such
grievances within the time specified by SEBI, such company or
intermediary shall be liable to a penalty of Rs. 100,000 for each
day during which such failure continues or Rs. 10,000,000,
whichever is less.
18
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI Act, 1992: (3/9)
If any person, who is required under this Act or any rules or
regulations to obtain a certificate of registration from the Board
for sponsoring or carrying on any collective investment scheme,
including mutual funds, sponsors or carries on any collective
investment scheme, including mutual funds, without obtaining
such certificate of registration, he shall be liable to a penalty of
Rs.100,000 for each day during which he sponsors or carries on
any such collective investment scheme including mutual funds, or
Rs. 10,000,000, whichever is less.
19
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI Act, 1992: (4/9)
If a registered collective investment scheme, including mutual
funds, for sponsoring or carrying on any investment scheme fails
to comply with any of the following, he shall be liable to a
penalty of Rs.100,000 for each day during which such failure
continues or Rs.10,000,000, whichever is less:
fails to comply with the terms and conditions of certificate of
registration; or
fails to make an application for listing of its schemes; or
fails to dispatch unit certificates of any scheme; or
fails to refund the application monies paid by the investors; or
fails to invest money collected by such collective investment
schemes;
20
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI Act, 1992: (5/9)
If any person, who is registered as a stock broker under this Act, -
fails to issue contract notes in the specified form he shall be
liable to a penalty not exceeding five times the amount for
which the contract note was required to be issued by that
broker;
fails to deliver any security or fails to make payment of the
amount due to the investor in the specified manner, he shall be
liable to a penalty of Rs. 100,000 for each day during which
such failure continues or Rs.10,000,000, whichever is less.
charges an amount of brokerage which is in excess of the
brokerage specified, he shall be liable to a penalty of
Rs.100,000 or five times the amount of brokerage charged in
excess of the specified brokerage, whichever is higher.
21
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI Act, 1992: (6/9)
If any insider indulges in any of the following activities, he shall be
liable to a penalty of Rs. 250,000,000 or three times the amount
of profits made out of insider trading, whichever is higher:
either on his own behalf or on behalf of any other person,
deals in securities of a listed company on any stock exchange
on the basis of any unpublished price sensitive information; or
communicates any unpublished price- sensitive information to
any person, with or without his request for such information
except as required in the ordinary course of business or under
any law; or
counsels, or procures for any other person to deal in any
securities of any body corporate on the basis of unpublished
price-sensitive information.
22
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI Act, 1992: (7/9)
If any person fails to do the following he shall be liable to a
penalty Rs. 250,000,000 or three times the amount of profits
made out of such failure, whichever is higher.
disclose the aggregate of his shareholding in the body
corporate before he acquires any shares of that body
corporate; or
make a public announcement to acquire shares at a minimum
price;
make a public offer by sending letter of offer to the
shareholders of the concerned company; or
make payment of consideration to the shareholders who sold
their shares pursuant to letter of offer.
23
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI Act, 1992: (8/9)
Where any asset management company of a mutual fund
registered under this Act, fails to comply with any of the
regulations providing for restrictions on the activities of the
asset management companies, such asset management
company shall be liable to a penalty of Rs. 100,000 for each
day during which such failure continues or Rs. 10,000,000,
whichever is less.
If any person indulges in fraudulent and unfair trade practices
relating to securities, he shall be liable to a penalty of
Rs.250,000,000 or three times the amount of profits made
out of such practices, whichever is higher.
24
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI Act, 1992: (9/9)
Whoever fails to comply
with any provision of this
Act, the rules or the
regulations made or
directions issued by SEBI
for which no separate
penalty has been
provided, shall be liable
to a penalty which may
extend to Rs. 10,000,000.
25
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI (Substantial Acquisition of Shares and Takeover)
Regulations, 2011: (1/5)
SEBI may without prejudice to its powers under the SEBI Act,
in the interest of investors in securities and the securities
market, issue such directions, including,
directing divestment of shares acquired in violation of
these regulations, whether through public auction or in
the open market, or through an offer for sale under the
SEBI(Issue of Capital and Disclosure Requirements)
Regulations, 2009, and directing the appointment of a
merchant banker for such divestiture;
26
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI (Substantial Acquisition of Shares and Takeover)
Regulations, 2011: (2/5)
directing transfer of the shares, or any proceeds of a
directed sale of shares acquired in violation of these
regulations to the Investor Protection and Education Fund
established under the SEBI (Investor Protection and
Education Fund) Regulations, 2009;
directing the target company or any depository not to give
effect to any transfer of shares acquired in violation of
these regulations;
directing the acquirer or any person acting in concert, or
any nominee or proxy not to exercise any voting or other
rights attached to shares acquired in violation of these
regulations;
27
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI (Substantial Acquisition of Shares and Takeover)
Regulations, 2011: (3/5)
debarring any person who has violated these regulations from
accessing the capital market or dealing in securities for certain
period;
directing the acquirer to make an open offer for acquiring
shares of the target company at such offer price as determined
by SEBI;
directing the acquirer not to cause, and the target company
not to effect, any disposal of assets of the target company or
any of its subsidiaries contrary to the contents of the letter of
offer, where the conditions specified pertaining to alienation of
assets in the proviso to Regulation 25(2) are not met;
28
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI (Substantial Acquisition of Shares and Takeover)
Regulations, 2011: (4/5)
directing the acquirer who has failed to make an open offer or
has delayed the making of an open offer, to make the open offer
and to pay interest at such rate as prescribed by SEBI along with
the offer price;
directing the acquirer who has failed to make payment of the
open offer consideration to shareholders, not to make any open
offer or enter into any transaction that would attract the
obligation to make an open offer in respect of shares of any target
company for specified period;
directing the acquirer who has made an open offer but has
delayed making payment of the open offer consideration to
shareholders, to pay interest at such rate specified by SEBI;
29
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI (Substantial Acquisition of Shares and Takeover)
Regulations, 2011: (5/5)
directing any person to cease and desist from exercising
control acquired over any target company without complying
with the requirements under these regulations;
directing divestiture of such number of shares as would
result in the shareholding of an acquirer and persons acting
in concert with him being limited to the maximum
permissible non-public shareholding or below.
SEBI is required to comply with principles of natural justice
before issuing directions to any person in any such proceeding.
30
LIABILITIES UNDER SECURITIES LAW (continued)
DEPOSITORIES ACT, 1996 (1/2):
Any person who fails to do the following shall be liable to a
penalty of Rs. 100,000 for each day during which such failure
continues or Rs. 10,000,000, whichever is less for each such
failure:
furnish information, books, return, etc., or fails to file any
return, or fails to maintain books of accounts or records;
or
As registered as an intermediary fails to enter into
agreement; or
As an intermediary fails to redress grievances within the
time specified by SEBI; or
31
LIABILITIES UNDER SECURITIES LAW (continued)
DEPOSITORIES ACT, 1996 (2/2):
delays in dematerialisation or issue of certificate of
securities; or
reconcile the records of dematerialised securities with all
the securities issued by the issuer; or
fails to comply with the directions issued by SEBI under
Section 19 of this Act.
SAT observed in National Securities Depository Ltd. Vs.
SEBI that failure of depository participant of its
responsibility to verify applicants identity cannot lead to
liability on the depository on the ground that it is an agent
of the depository. The regulations clearly specified the role
of each intermediary .
32
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI (Registrar to an Issue and Share Transfer Agents)
Regulations, 1993:
The obligation of Registrar to an Issue (RTA) and Share
Transfer Agents (STA) is to deal with requests for
dematerialisation of shares, resolution of queries, transfer of
securities, distribution and allotment of shares. RTA and STA
are required to maintain records pertaining to allotment of
securities, applications received from investors, reasons of
applications rejected, refund orders, etc.
SEBI vide its circular of December 27, 2002 cancelled the RTA
registration of Pinnacle Shares Registry for delaying
dematerialisation requests and for rejecting applications of
shareholders on improper, false and misleading reasons.
33
LIABILITIES UNDER SECURITIES LAW
Securities Contracts (Regulation) Act, 1956.
Any person who fails to comply with any requisition made under
this Act (eg: produce books of accounts or other documents at
the time of enquiry by competent authority) or enters into any
contract in contravention of any of the provisions under this Act
(eg: when contracts in notified areas declared as illegal by the
Government or certain contracts are prohibited), shall on
conviction, be punishable with imprisonment for a term which
may extend to ten years or with fine, which may extend to
twenty-five crore rupees, or with both.
34
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI (Merchant Bankers) Regulations, 1992:
SEBI may, on failure of the merchant banker to comply with the
obligations or failing to observe due diligence, initiate action
against the merchant banker in terms of SEBI(Merchant Bankers)
Regulations, 1992. Such action may include but not limited to
cancellation or suspension of registration, prohibition to take up
new assignment for specified period, debarring principal officer
from being employed with any registered intermediary or other
registered person for specified period, debarring branch or office
from undertaking any activities for specified period, etc.
35
LIABILITIES UNDER SECURITIES LAW (continued
SEBI (Merchant Bankers) Regulations, 1992:
These Regulations provides that no merchant banker or any of
its directors, partner or manager or principal officer shall directly
or through their associates or relatives enter into any
transaction in securities of companies on the basis of
unpublished price sensitive information to which it has access
due to its professional assignment. Any default of such
obligation may attract any of the actions provided in SEBI
(Intermediaries) Regulations, 2008.
Merchant Bankers are very vital to an issue. As per SEBI (ICDR)
Regulations, 2009, other intermediaries to an issue can be
appointed only in consultation with merchant banker. Merchant
banker is obliged to independently assess the capabilities of
other intermediaries before recommending them.
36
LIABILITIES UNDER SECURITIES LAW (continued
SEBI (Underwriters) Regulations, 1993:
An underwriter who contravenes any of the provisions of the
Act, Rules or regulations framed thereunder shall be liable for
one or more actions specified therein including the action
under Chapter V of the SEBI (Intermediaries) Regulations, 2008.
The underwriter cannot derive any direct or indirect benefit
from underwriting the issue other than the commission or
brokerage payable under the agreement. The maximum
obligation under all underwriting agreements of an
underwriter cannot exceed 20 times his networth.
Underwriters have to subscribe for securities under the
agreement within 45 days of receipt of intimation from the
issuer.
37
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI (Intermediaries) Regulations 2008
Where any intermediary fails to comply with any conditions
specified in its a certificate of registration or contravenes any of
the provisions of the securities laws or directions, instructions or
circulars issued, SEBI may, without prejudice to any action under
the securities laws or directions, instructions or circulars issued,
by order take such action in the manner provided under:
suspension of certificate of registration for a specified period;
continued
38
LIABILITIES UNDER SECURITIES LAW (continued)
cancellation of certificate of registration;
prohibiting the notice to take up any new assignment or
contract or launch a new scheme for the period specified in
the order;
debarring a principal officer of the notice from being
employed or associated with any registered intermediary or
other registered person for the period specified in the order;
debarring a branch or an office of the notice from carrying out
activities for the specified period;
warning the noticee.
39
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI (COLLECTIVE INVESTMENT SCHEME) REGULATIONS,
1999:
In case of failure to refund the application money within a
period of six (6) weeks from the date of closure of
subscription list, the Collective Investment Management
Company shall be liable to pay interest to the applicants at a
rate of 15% per annum on the expiry of six (6) weeks from the
date of closure of the subscription list.
40
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI (FOREIGN VENTURE CAPITAL INVESTOR) REGULATIONS
2000
Under regulation 20 of these regulations, SEBI has the right to
suspend or cancel certificate of registration if the provisions of
the SEBI Act or these regulations are not complied with, fails to
furnish any information to SEBI or does not submit any periodic
returns or reports or does not co-operate in any inquiry.
41
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI (Debenture Trustees) Regulations, 1993:
Every applicant eligible for grant or renewal of a certificate shall pay
the fees in such a manner and within the period as prescribed.
Where the Debenture Trustee fails to pay the fees the Board may
suspend the certificate, whereupon the Debenture Trustee shall
cease to act as a debenture trustee.
SEBI has initiated action in past against debenture trustees for their
failure to convey accurate information to investors, delay in taking
steps to secure the assets of the defaulting companies, failure to
monitor default and taking remedial steps
42
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI (Mutual Funds) Regulations, 1996 (1/3)
SEBI may not permit a mutual fund who has not paid service fee to
launch any scheme
The mutual fund and asset management company shall be liable to
refund the application money to the applicants,
if the mutual fund fails to receive the minimum subscription
amount specified;
if the moneys received from the applicants for units are in excess
of subscription as specified.
Such amounts are refundable within a period of 5 working days from
the date of closure of subscription list failing which the asset
management company shall be liable to pay interest to the applicants
at a rate of fifteen per cent per annum from the expiry of [five working
days] from the date of closure of the subscription list.
43
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI (Mutual Funds) Regulations, 1996 (2/3)
Every mutual fund and asset management
company shall:
despatch to the unit holders the dividend warrants within 30
days of the declaration of the dividend and despatch the
redemption or repurchase proceeds within 10 working days
from the date of redemption or repurchase;
in the event of failure to despatch the redemption or
repurchase proceeds within specified period, the asset
management company shall be liable to pay interest to the
unit holders at such rate as may be specified by SEBI;
44
LIABILITIES UNDER SECURITIES LAW (continued)
SEBI (Mutual Funds) Regulations, 1996 (3/3)
Notwithstanding payment of such interest to the unit-holders, the
asset management company may be liable for penalty for failure to
despatch the redemption or repurchase proceeds within the
stipulated time.
A mutual fund contravenes any of the provisions of the SEBI Act
and these regulations or fails, to furnish any information or
furnishes wrong information relating to its activity as a mutual fund
as required under these regulations or to submit periodical returns
or does not co-operate in any inquiry or inspection or to resolve
the complaints of the investors or indulges in unfair trade practices
in securities, etc. shall be liable to action provided under the SEBI
(Intermediaries) Regulations, 2008.
45
RECENT IMPORTANT DECISIONS
In Price Waterhouse & Co. and Others Vs. SEBI
[2010] 103 SCL 96 (Bom)
The Bombay High Court . it is true that the petitioners may
not have any direct association with he securities market since
they were performing their duties as an auditor of the company
and preparing balance sheet. It is however required to be noted
that normally an investor would invest monies after assessing
the financial health of the company on the basis of balance
sheet. .Further, the investor may consider to invest if the
balance sheet is certified by reputed CAs and reflects that the
financial position is sound.
continued
46
RECENT IMPORTANT DECISIONS
In Price Waterhouse & Co. and Others Vs. SEBI [2010] 103
SCL 96 (Bom) continued
Considering the said aspect even though the petitioners may
not have direct association in the share market activities, yet
the statutory duty regarding auditing the accounts of the
company and preparation of balance sheets may have direct
bearing in connection with the interests of the investors and
the stability of the securities market. In our view, the
petitioners in their capacity as auditors of the company
Satyam which was at one point of time considered to be a
blue chip company who had a defining influence on the
securities market can be said to be persons associated with
the securities market within the meaning of the provisions of
the SEBI Act.
47
RECENT IMPORTANT DECISIONS
In SEBI Vs. Shriram Mutual Fund AIR 2006 SC 2287 , a mutual
fund conducted business through brokers associated with its
sponsors in excess of permissible limits. The mutual fund also
failed to comply with the terms and conditions of certificate
of registration. The question had arisen before SC was
whether the imposition of penalty becomes sine qua non of
violation and intention of the parties committing violation
becomes irrelevant or not, once it is established that the
mutual fund has violated terms of certificate of registration.
The SC held that mens rea is not essential in imposing liability
for breach of civil obligation as opposed to criminal
obligation. Hence, once contravention is established then
penalty is to follow.
48
RECENT IMPORTANT DECISIONS
In Ranjana Kothari Vs. SEBI Appeal No. 125 of 2001 , SAT Order
dated August 26, 2011, SAT observed as follows:
Before concluding, we may observe that the SEBI only initiated
adjudication proceedings against the appellants and was
satisfied by imposing small amounts of penalties on the
delinquents (appellants). The appellants who purchased shares
while in possession of unpublished price sensitive information are
still continuing to enjoy the fruits of the ill-gotten gains that they
have made.This was a fit case where SEBI also should have
initiated proceedings under Section 11 and 11B of the SEBI Act
for issuing appropriate directions to the appellants and other
insiders to ensure that they do not take advantage of their wrong
doing. It is only through such directions that they could have
been directed to disgorge their ill-gotten gains
49
THANK YOU
Presented by:
Dipali Sheth
Partner
MDP & PARTNERS
Advocates & Solicitors
1st floor, Udyog Bhavan,
29, Walchand Hirachand Marg,
Ballard Estate, Mumbai 400001
Tel: - +91 22 6686 8900 I Fax: - +91 22 6686 8989
Email:- dipali@mdppartners.com
Website: - http://www.mdppartners.com
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