1

Empirical Study on
Capital Market and its role and Significance regarding SEBI and Corporate Social
Responsibility

Acknowledgement
This project entitled Empirical Study on CAPITAL MARKET is submitted in fulfilment of
the requirement for the Project work for Corporate laws, DamoDaramSanjeevaya
National Law University.

This research work is done by M.Anudeep Reddy, VII Semester , .This research work
has been done only for LAW Project purpose only.
The assistance and help during the execution of the project has been fully
acknowledged. Very thankfultoMr.Prof.Dayanand Murthy, our teacher, for contributing
his efforts in building this wonderful piece.

Index
1.)Financial Markets:- -

2.)Types of Financial Markets:-

3.)Capital Markets:- -

4.)History:-

--

6.)Nature of Capital Markets:-

7.)Role of Capital Markets:-

8.)Significance of Capital markets:-

10.)Functions of capital market:- -

11.)Capital market Risks:- -

12.)Indian Capital Market -

13.)Chronology

14.)Factrors Affecting Capital Market in India- -

5.)Types of Capital Markets:-

9.)Why Capital Market exists:-

15.)Factors Contributing Growth to Indian Capital Market-`

16.)Concept of Mutual Funds-

17.)Law of Mutual Funds in Capital Market in India-

18.)Role of SEBI:- -

19.)SEBI reforms-

21.)Role of Corporate Social Responsibility(C.S.R) in Capital Market-

20.)Limitations of SEBI-

22.)C.S.R in India:- -

23.)C.S.R Philosophy:-

24.)Do Corporates have Responsibility towards Society :25.)Various Responsibilities of Components:-

26.)Case Laws-

27.)Findings:-

28.)Conclusion:-

29.)Citations:-

30.)Bibilography and References -

Since ages, the dependency of humans on goods and services has increased day by
day.Technology growth and necessity of products, goods etc have become daily part in
human life. Understanding the demand and necessity, people have splited into the
different business streams in producing the products and goods according to demand
and necessity of individuals in the society. This had led to profit gaining and acquiring
money bags simultaneously. Analaysing and understand the public demand privatization
and Government sectors have entered into business streams in providing the public
required goods and services with an competitive spirit. This led to the origin of
conducting the business competion in open competitive markets in society with
transperancy. This competive markets are nothing but financial markets which invites
the public to invest their deposits in desired companies for financial support to
companies and for also gain the profit when the company products goes in demand.
The place where this entire system or procedure takes place and provides securities for
their depositing in shares of public in company, is known as capital market.(financial
markets).

SCOPE OF THE STUDY This study was mainly planned to evaluate the performance
SEBI, relating to supervision of securities market of various intermediaries registered
with SEBI., and to know what kind of Investor Protection measures taken by SEBI for
the benefit/to safeguard the interest of investors in India in Capital Market.

OBJECTIVES OF THE STUDY The objectives of the study are:

To know the investor protection measures taken by SEBI since its inception;

To know whether the SEBI has been acting as independent organization to regulate the
securities markets properly or not;
To know the powers and functions implementing prop 1erly or not by SEBI;
To Know about the Capiatl Market in Detailed way.and its empherical study.
Finally to give findings and suggestions towards SEBI relating to its role in Indian
Capital Markets.

1.Financial Markets:A financial market is a market in which people and entities can trade financial securities,
commodities, and other fungible items of value at low transaction costs and at prices
that reflect supply and demand. Securities include stocks and bonds, and commodities
include precious metals or agricultural goods. 1
In simple words, Financial market is a market where financial instruments are
exchanged or traded and helps in determining the prices of the a 2ssets that are traded
in and is also called the price discovery process. 2
.
a).They are Organizations that facilitate the trade in financial products. For e.g. Stock
exchanges
1 Financial markets- Wikipedia(google)
2 Indian Capitam Market By-NidiBOthra and Payaljain3.Capital Market- By sheelaJumba,
Punjab Law University

(NYSE, Nasdaq) facilitate the trade in stocks, bonds and warrants.

b.) Place where Coming together of buyer and sellers at a common platform to trade
financial products is termed as financial markets, i.e. stocks and shares are traded
between buyers andsellers in a number of ways including: the use of stock exchanges;
directly between buyers and sellers etc.

2.Indian Financial Market consists of the following markets:

Capital Market/ Securities Market

Primary Market
Secondary market
Money Market
Debt Market

3.Capital Market:The capital market is the market for securities, where Companies and governments can
raise long-term funds. It is a market in which money is lent for periods longer than a
year.
In simple words, The market where investment instruments like bonds, equities and
mortgages are traded is known as the capital market. Capital market is a market for
long-term debt and equity shares. In thismarket, the capital funds comprising of both
equity and debt are issued and traded. This also includes private placement sources of
debt and equity as well as organized markets like stock exchanges. Capital market
includes financial instruments with more than one year maturity.3

10

4. History of Capital Market:The history of the capital market in India dates back to the eighteenth century when
East India Company securities were traded in the country. Until the end of the
nineteenth century securities trading was unorganized and the main trading centers
were Bombay (now Mumbai) and Calcutta (now Kolkata). Of the two, Bombay was the
chief trading center wherein bank shares were the major trading stock During the
American Civil War (1860-61). Bombay was an important source of supply for cotton.
Hence, trading activities flourished during the period, resulting in a boom in share
prices. This boom, the first in the history of the Indian capital market lasted for a half a
decade. The bubble burst on July 1, 1865 when there was tremendous slump in share
prices.
Trading was at that time limited to a dozen brokers; their trading place was under a
banyan tree in front of the Town hall in Bombay. These stock brokers organized informal
association in 1897 Native Shares and Stock Brokers Association, Bombay. The Stock
exchanges in Calcutta ad Ahmedabad also industrial and trading centers, came up later.
The Bombay Stock Exchange was recognized in May 1927 under the Bombay
Securities Contracts Control Act, 1925.
The capital market was not well organized and developed during the British rule
because the British government was not interested in the economic growth of the
country. As a result many foreign companies depended on the London capital market for
funds rather than in the Indian capital market.

11

In the post independence period also, the size the capital market remained small.
During the first and second five year plans, the governments emphasis was on the
development of the agricultural sector and public sector undertakings. The public sector
undertakings were healthier than the private undertakings in terms of paid up capital but
shares were not listed on the stock exchanges. Moreover, the Controller of Capital
Issues (CI) closely supervised and controlled the timing, composition, interest rates
pricing allotment and floatation consist of new issues. These strict regulations demotivated many companies from going public for almost four and a half decades.
In the 1950s,Century textiles, Tata Steel, Bombay Dyeing, National Rayon, Kohinoor
mills were the favorite scripts of speculators. As speculation became rampant, the stock
market came to be known as Satta Bazaar. Despite speculation non-payment or
defaults were very frequent. The government enacted the Securities Contracts
(regulation) Act in 1956 to regulate stock markets. The Companies Act, 1956 was also
enacted. The decade of the 1950s was also characterized by the establishment of a
network for the development of financial institutions and state financial corporations.
The 1960s was characterized by the wars and droughts in the country which led bearish
trends. These trends were aggravated by the ban in 1969 on forward trading and Badla
technically called contracts for clearing Badla provided a mechanism for carrying
forward positions as well as for borrowing funds. Financial institutions such as LIC and
GIC helped to revive the sentiment by emerging as the most important group of
investors. The first mutual fund of India, the Unit Trust of India (UTI) came into existence
in 1964.

12

In the 1970s Badla trading was resumed under the disguised forms of hand delivery
contracts A group. This revived the market. However, the capital market received
another severe setback on July 6, 1974, when the government promulgated the
Dividend Restriction ordinance, restricting the payment of dividend by companies to 12
per cent of the face value or one-third of the profit of the companies that can be
distributed as computed under section 369 of the Companies Act, whichever was lower.
This lead to a slump in market capitalism at the BSE by about 20 per cent overnight and
the stock market did not open for nearly a fortnight. Later came buoyancy in the stock
markets when the multinational companies (MNCs) were forced to dilute their majority
stocks in their Indian ventures in favor of the Indian public under FERA 1973. Several
MNCs opted out of India. One hundred and twenty three MNCs offered shares worth Rs
150 crore, creating 1.8 million shareholders within four years. The offer prices of FERA
shares were lower than their intrinsic worth. Hence, for the first the FERA dilution
created an equity cult in India. It was the spate of FERA issues that gave a real fillip to
the Indian stock markets. For the first time, many investors got an opportunity to invest
in the stocks of such MNCs as Colagte and Hindustan Liver Limited. Then in 1977, a
little known entrepreneur, DhirubhaiAmbani tapped the capital market. The scrip
Reliance Textiles is still a hot favorite and dominates trading at all stock exchanges. 4

5.Types of Capital Markets:

Primary market:-

13

It is that market in which shares, debentures and other securities are sold for the
first time for collecting long-term capital.This market is concerned with new
issues. Therefore, the primary market is also called NEW ISSUE MARKET. In
this market, the flow of funds is from savers to borrowers (industries), hence, it
helps directly in the capital formation of the country.The money 3 collected from
this market is generally used by the companies to modernize the plant,
machinery and buildings, for extending business, and for setting up new business
unit.

Features of Primary Market: It Is Related With New Issues

It Has No Particular Place

It Has Various Methods Of Float Capital: Following are the methods of raising
capital in the primary market:a.)Public Issue
b.)Offer For Sale
c.)Private Placement

3 Capital Market by aknshasingh-google4.History- by Sree Rama Rao.

14

d.)Initial Public Offer

It comes before Secondary Market

The Secondary Market:-

The secondary market is that market in which the buying and selling of the
previously issued securities is done.The transactions of the secondary market are
generally done through the medium of stock exchange.Secondary market connects
investors' favoritism for liquidity with the capital users' wishof using their capital for a
longer period. For example, in a traditional partnership, a partner cannot access the
other partner's investment but only his or her investment in that partnership, even on
an emergency basis. Then if he or she may breaks the ownership of equity into parts
and sell his or her respective proportion to another investor. This kind of trading is
facilitated only by the secondary market.

The chief purpose of the secondary market is to create liquidity in securities. The
secondary market handles the trading of previously-issued securities,
and must remain highly liquid in nature because most of the securities are sold
by investors. A capital market with high liquidity and high transparency is
predicated upon a secondary market with the same qualities.

15

Features of Secondary Market:a.)It creates Liquidity

b.)It comes after primary market
c)It encourages new investments

Difference between Primary and Secondary Markets:- 6

4

Primary market
Deals with new securities

Secondary Market
Market for existing securities, which are

Provides additional capital to issuer

already listed
No additional capital generated. Provides

Companies

liquidity to existing stock

6. Nature of Capital Markets:4Fininancial markets- Nivod Kothari

16

The nature of capital market is brought out by the following facts.

It Has Two Segments

It Deals In Long-Term Securities
It Performs Trade-off Function
It Creates Dispersion In Business Ownership
It Helps In Capital Formation
It Helps In Creating Liquidity.

7. Role of Capital Market:-

Mobilization of Savings & acceleration of Capital Formation

Promotion of Industrial Growth

Raising of long term Capital

Ready & Continuous Markets

Proper Channelisation of Funds

Provision of a variety of Services.

Let us get acquainted with the important functions and role of the capital market.

17

Mobilization of Savings :

Capital market is an important source for mobilizing idle savings from the
economy. It mobilizes funds from people for further investments in the productive
channels of an economy. In that sense it activate the ideal monetary resources
and puts them in proper investments.

Capital Formation :

Capital market helps in capital formation. Capital formation is net addition to the
existing stock of capital in the economy. Through mobilization of ideal resources
it generates savings; the mobilized savings are made available to vari 5ous
segments such as agriculture, industry, etc. This helps in increasing capital
formation.
Provision of Investment Avenue :
Capital market raises resources for longer periods of time. Thus it provides an
investment avenue for people who wish to invest resources for a long period of
time. It provides suitable interest rate returns also to investors. Instruments such
as bonds, equities, units of mutual funds, insurance policies, etc. definitely
provides diverse investment avenue for the public.

Speed up Economic Growth and Development :

5 Role- Financial markets- Vinod Kothari

18

Capital market enhances production and productivity in the national economy. As

it makes funds available for long period of time, the financial requirements of
business houses are met by the capital market. It helps in research and
development. This helps in, increasing production and productivity in economy by
generation of employment and development of infrastructure.
Proper Regulation of Funds :
Capital markets not only helps in fund mobilization, but it also helps in proper
allocation of these resources. It can have regulation over the resources so that it
can direct funds in a qualitative manner.
Service Provision :
As an important financial set up capital market provides various types of
services. It includes long term and medium term loans to industry, underwriting
services, consultancy services, export finance, etc. These services help the
manufacturing sector in a large spectrum.

Continuous Availability of Funds :

Capital market is place where the investment avenue is continuously available for
long term investment. This is a liquid market as it makes fund available on continues
basis. Both buyers and seller can easily buy and sell securities as they are
continuously available. Basically capital market transactions are related to the stock
exchanges. Thus marketability in the capital market becomes easy.
8. Significance of Capital Markets :-

19

A well functioning stock market may help the development process in an economy
through the following channels,:-

a.) Growth of savings,

b.) Efficient allocation of investment resources.
c.) Better utilization of the existing resources.
In market econom6y like India, financial market institutions provide the avenue by
whichlong-term savings are mobilized and channelled into investments. Confidence of
the investors in the market is imperative for the growth and development of the market.
Forany stock market, the market Indices is the barometer of its performance and
reflects theprevailing sentiments of the entire economy. Stock index is created to
provide investors with the information regarding the average share price in the stock
market(capital market). The ups and downs in the index represent the movement of the
equity market.(in Capital market).

9. Why Capital Market Exists:-

Capital markets facilitate the transfer of capital (i.e. financial) assets from one
owner to another.

They provide liquidity.

6 Significance- Notes of Financial Market

20

Liquidity refers to how easily an asset can be transferred without loss of

value.

A side benefit of capital markets is that the transaction price provides a measure
of the value of the asset.

10. Functions of Capital Markets:-

Disseminate information efficiently

Enable quick valuation of financial instruments both equity and debt

Provide insurance against market risk or price risk

Enable wider participation

Provide operational efficiency through

-simplified transaction pro7cedure

- lowering settlement timings and
- lowering transaction costs

Develop integration among

-real sector and financial sector

-equity and debt instruments
-long term and short term funds
-Private sector and government sector and
-Domestic funds and external funds

Direct the flow of funds into efficient channels through

7 Functions- by Akanshasingh8.Risks- By Akansha Singh

21

-investment
-disinvestment
-reinvestment

11. Capital Market Risks:-

Investment in long term financial instruments is accompanied by high capital market

risks. Since there are two types of capital markets- the stock market and the bond
market.
So risks are present in both the market.

a.)Stock market:-

A stock market or equity market is a public entity (a loose network of economic

transactions, not a physical facility or discrete entity) for the trading of

company stock (shares)

and derivatives at

an

agreed

price;

these

are securities listed on a stock exchange as well as those only traded privately.11

Risk in Stock Market:-

22

Stock prices keep fluctuating over a wide range unlike the bank deposits or
government bonds.The efficient market hypothesis shows the effect of
fundamental factors in changing the price of the stock market.
The Efficient Market Hypothesis shows that all price movements are random
whereas there are plenty of studies that reflect the fact that there is a specific
trend in the stock market prices over a period of time.Research has shown that
there are certain psychological factors that shape the stock market prices.
Sometimes the market behaves illogically to any economic news. The stock
market prices can be diverted in any direction in response to press releases,
rumors and mass panic. The stock market prices are also subject to speculation.
In the short run the stock market prices may be very volatile due to the
occurrences of the fast market changing events.
b.)Bond Market:The bond market11 (also known as the credit, or fixed income market) is a
financial market where participants can issue new debt, known as the primary
market, or buy and sell debt securities, known as the Secondary market, usually
in the form of bonds. The primary goal of the bond market is to provide a
mechanism for long term funding of public and private expenditures. Traditionally,
the bond market was largely dominated by the United States, but today the US is
about 44% of the market.[1] As of 2009, the size of the worldwide bon d market
(total debt outstanding) is an estimated $82.2 trillion,[2] of which the size of the
outstanding U.S. bond market debt was $31.2 trillion according to Bank for
International Settlements (BIS), or alternatively $35.2 trillion as of Q2 2011
according to Securities Industry and Financial Markets Association (SIFMA)

23

Risk in the Bond Market:Capitalmarket risk in the bond market arises due to interest rate changes. There
is an inverse relationship existing between the interest rate and the price of the
bond. Hence the bond prices are sensitive to the monetary policy of the country
as well as economic changes.11
12. Indian Capital Market:Since12 2003, Indian capital markets have been receiving global attention, especially
from sound investors, due to the improving macroeconomic fundamentals. The
presence of a great pool of skilled labour and the rapid integration with the world
economy increased Indias global competitiveness. No wonder, the global ratings
agencies Moodys and Fitch have awarded India with investment grade ratings,
indicating comparatively lower sovereign risks.
The Securities and Exchange Board of India (SEBI), the regulatory authority for Indian
securities market, was established in 1992 to protect investors and improve the
microstructure of capital markets. In the same year, Controller of Capital Issues (CCI)
was abolished, removing its administrative controls over the pricing of new equity
issues. In less than a decade later, the Indian financial markets acknowledged the use
of technology (National Stock Exchange started online trading in 2000), increasing the
trading volumes by many folds and leading to the emergence of new financial
instruments. With this, market activity experienced a sharp surge and rapid progress
was made in further strengthening and streamlining risk management, market
regulation, and supervision.12

24

Broad Constituents in the Indian C8apital Markets

Fund Raisers are companies that raise funds from domestic and foreign
sources, both public and private. The following sources help companies
raise funds:
Fund Providers are the entities that invest in the capital markets. These
can be categorized as domestic and foreign investors, institutional and
retail investors. The list includes subscribers to primary market issues,
investors who buy in the secondary market, traders, speculators, FIIs/ sub
accounts, mutual funds, venture capital funds, NRIs, ADR/GDR investors,
etc.
Intermediaries are service providers in the market, including stock
brokers,

sub-brokers,

financiers,

merchant

bankers,

underwriters,

depository participants, registrar and transfer agents, FIIs/ sub accounts,

mutual Funds, venture capital funds, portfolio managers, custodians, etc.
Organizations include various entities such as BSE, NSE, other regional
stock exchanges, and the two depositories National Securities Depository
Limited (NSDL) and Central Securities Depository Limited (CSDL).
Market Regulators include the Securities and Exchange Board of India
(SEBI), the Reserve Bank of India (RBI), and the Department of Company
Affairs (DCA).

8 Indian Capital market-Knowledge of markets-google

25

13. Indian Capital markets Chronology

The Indian Capital Market is one of the oldest capital markets in Asia which
evolved around 200 years ago.13
Chronology of the Indian capital markets 14
1830s: Trading of corporate shares and stocks in Bank and cotton Presses
in Bombay.
1850s: Sharp increase in the capital market brokers owing to the rapid
development of commercial enterprise.
1860-61: Outbreak of the American Civil War and ' Share Mania ' in India.
1894: Formation of the Hamada Shares and Stock Brokers Association.
1994-Equity Trading commences on NSE14
1994-Equity Trading commences on NSE
1995-All Trading goes Electronic
1996- Depository comes in to existence
1908: Formation of the Calcutta Stock Exchange Association
1999- FIIs Participation- Globalisation
2000- over 80% trades in Demat form
2001- Major Stocks move to Rolling Set
2003 - Demutualisation of Exchanges

14.) Factors affecting Capital Market in India:-

26

The capital market is affected by a range of factors . Some of the factors which
influence capital
market are as follows: Performance of domestic companies:The performance of the companies or rather corporate earnings is one of the factors
which has direct impact or effect on capital market in a country. Weak corporate
earnings
indicate that the demand for goods and services in the economy is less due to slow
growth in
per capita income of people . Because of slow growth in demand there is slow
growth in
employment which means slow growt 9h in demand in the near future. Thus weak
corporate
earnings indicate average or not so good prospects for the economy as a whole in
the near term.In such a scenario the investors ( both domestic as well as foreign
would be vary to invest in the capital market and thus there is bear market like
situation.15

The corporate earnings for the April June quarter for the current fiscal has been
good.

913.By Akansha Sigh14. By Aknsha Singh

27

The

companies

like

TCS,

Infosys,Maruti

Suzuki,

BhartiAirtel,

ACC,

ITC,

Wipro,HDFC,Binani cement, IDEA, Marico Canara Bank, Piramal Health, India

cements , Ultra Tech, L&T, Coca-Cola, Yes Bank, Dr. Reddys Laboratories, Oriental
Bank of Commerce, Ranbaxy, Fortis, ShreeCement ,etc have registered growth in
net profit compared to the corresponding quarter a year ago. Thus we see
companies from Infrastructure sector, Financial Services, Pharmaceutical sector, IT
Sector, Automobile sector, etc. doing well . This across the sector growth indicates
that the Indian economy is on the path of recovery which has been positively
reflected in the stock market( rise in sensex& nifty) in the last two weeks. (July 13July 24 ,2011) ,(Entrprenure magazine.)16.10

Environmental Factors:Environmental Factor in Indias context primarily means- Monsoon . In India around
60 % ofagricultural production is dependent on monsoon. Thus there is heavy
dependence on monsoon.The major chunk of agricultural production comes from the
states of Punjab , Haryana & Uttar Pradesh. Thus deficient or delayed monsoon in
this part of the country would directly affect the agricultural output in the country.
Apart from monsoon other natural calamities like Floods,tsunami, drought,
earthquake, etc. also have an impact on the capital market of a country.

1015.google-Punjab Law University- by Sheela

28

The Indian Met Department (IMD) on 24th June stated that India would receive only
93 %
rainfall of Long Period Average (LPA). This piece of news directly had an impact on
Indian
capital market with BSE Sensex falling by 0.5 % on the 25th June of 2011 . The
major losers wereautomakers and consumer goods firms since the below normal
monsoon forecast triggeredconcerns that demand in the crucial rural heartland
would take a hit. This is because a deficient monsoon could seriously squeeze rural
incomes, reduce the demand for everything from motorbikes to soaps and worsen a
slowing economy.16

Macro Economic Numbers:The Macro Economic numbers also influence the capital market. It includes Index of
Industrial Production (IIP) which is released every month, annual Inflation number
indicated by Whole salePrice Index (WPI) which is released every week, Export
Import numbers which are declared every month, Core Industries growth rate ( It
includes Six Core infrastructure industries Coal, Crude oil, refining, power, cement
and finished steel) which comes out every month, etc.

17

29

Global Cues :In this world of globalization various economies are interdependent and
interconnected. An
event in one part of the world is bound to affect other parts of the world , however
the
magnitude and intensity of impact would vary.Thus capital market in India is also
affected by developments in other parts of the world i.e. U.S. , Europe, Japan , etc.

Global cues includes corporate earnings of MNCs, consumer confidence index in

developed
countries, jobless claims in developed countries, global growth outlook given by
various
agencies like IMF, economic growth of major economies, price of crude oil,
An obvious example at this point in time would be that of subprime crisis &
recession.
Recession started in U.S. and some parts of the Europe in early 2008 .Since then it
has impacted all the countries of the world- developed, developing, less- developed
and even emerging economics.18

Political Stability and Government Policies:-19

30

For any economy to achieve and sustain growth it has to have political stability and
pro- growth government policies. This is because when there is political stability
there is stability and consistency in governments attitude which is communicated
through variousgovernment policies. The vice- versa is the case when there is no
political stability .So capital market alsoreacts to the nature of government, attitude
of government, and various policies of the government.

15. Factors contributing to growth of Indian Capital Market:- 20

Establishment of Development banks & Industrial financial institution.

Legislative measures
Growing public confidence
Increasing awareness of investment opportunities
Growth of underwriting business
Setting up of SEBI
Mutual Funds
Credit Rating Agencies.

16. Concept of Mutual Funds:-

Mutual fund is a trust that pools the savings of a number of investors who share a
commonfinancial goal. This pool of money is invested in accordance with a stated
objective. The jointownership of the fund is thus Mutual, i.e. the fund belongs to all

31

investors. The money thus collected is then invested in capital market instruments such
as shares, debentures and other securities. The income earned through these
investments and the capital appreciations realized are shared by its unit holders in
proportion the number of units owned by them. Thus a Mutual Fund is the most suitable
investment for the common man as it offers an opportunity to invest in a diversified,
professionally managed basket of securities at a relatively low cost. A Mutual Fund
is an investment tool that allows small investors access to a well-diversified portfolio of
equities,
bonds and other securities. Mutual fund issues units to the investors in accordance with
quantum of money invested by them. Investors of mutual funds are known as unit
holders.21

17. Law of Mutual Funds in Indian Capital Market:-

The mutual funds are externa11lly managed. They do not have employees
of their own. Also there is no specific law to supervise the mutual funds
in India. There are multiple regulations. While UTI is governed by its
own regulations, the banks are supervised by Reserved Bank of India,
the Central Government and insurance company mutual regulations funds
are regulated by Central Government
Many small companies did very well last year, by schemes without
adequate imbalance in the market but mutual funds can not reap their
benefits because they are not allowed to invest in smaller companies.
Not only this, a mutual fund is allowed to hold only a fixed maximum
percentage of shares in a particular industry.22

1121. Financia India- Vol march 199622.Mutual Fund IN India- by Nalini(google)

32

18. Role of SEBI in Indian Capital Market:-23

The securities market is regulated by various agencies, such as the Department of

Economics Affairs (DEA), the Department of Company Affairs (DCA), the Reserve Bank
of India (RBI) and the SEBI. The Activities of these agencies are coordinated by a high
level committee on capital and financial markets.The SEBI got legal teeth through an
ordinance issued on 30 January 1992. The ordinance conferred wide- ranging powers
on the SEBI, including the authority to prohibit insider trading and regulate
substantial acquisition of shares and takeover of business. The function of market
development includes containing risk, board basing, maintaining market integrity and
promoting long-term investment. The SEBI Act, 1992 which establishes the SEBI with
four-fold objectives of protection of the interests of investors in securities, development
of the securities market, regulation of the securities market and matters connected
therewith and incidental thereto.

The capital market, i.e., the market for equity and debt securities is regulated by the
Securities and Exchange Board of India (SEBI). The SEBI has full autonomy and
authority to regulate and develop the capital market.

19. SEBIS Capital Market Reforms:-

33

Clearly the most extensive set of capital market reforms in recent years, SEBI
announced a series of measures following its board meeting last week. These are
intended to boost the capital markets in India (both primary and secondary), and also to
streamline various process. The principal recommendations have been divided into the
following categories (in the words used in SEBIs board meeting press release): 24
- steps to re-energise mutual fund industry;
- reforms in the primary market;
- regulations on investment advisors; and
- amendment of SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

20. Limitation of SEBI :Finally, in our observation as regulator SEBI has playing immense role for development
of capital market from the last more than one and half decade as a genuine
autonomous body. Though it has started as a watchdog in protecting investors
interests, regulating the working of Stock Exchanges and promoting capital market, still
it faces a number of problems/ limitations. Some of the these are as follows: 25

The Centra12l Govt. has authorized SEBI to frame its rules and regulations for
actifely monitoring capital markets. These rules and regulations will have to be

1223.,24, 25Guide lines Of SEBI- Google

34

approved by the government first. This will cause unnecessary delays and
interference by the Ministry of Finance. The bureaucratic delays in clearing the
rules will hamper the working of SEBI. The government should direct SEBI to
frame or change the rules as per the demand of the situation so that it is able to
achieve professional efficiency.

Sometimes SEBI will have to get prior approval for filing criminal complaints for
violations of the regulations. This will again cause delays at government level.

The SEBI, as a regulator, proved to be ineffective in the series of scams that took
place in the last decade. The SEBI has been accused of shutting the stable door
after the horse had bolted. For instance, the SEBI had occasions to review the
affairs of CRB capital markets but took a lenient view and as a result, huge
investors lost crores of rupees.

21. Role of Corporate Social responsibility in Capital Market:-( CSR )

Corporate social Responsibility:- Corporate Social Responsibility indirectly affects of
Capital Markets. In my words,CSR is a concept that an Enterprise is accountable for its
impact on all relevant Stakeholders. It is a continuing commitment by Business to
behave fairly and responsibly and contribute to Economic Development while improving

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the Quality of life of the workforce and their families as well as of the local community
and society at large. It Plays a good role in attracting the Share and Stake holders in
investing in the company shares not only with the intent of profit motto but also with an
idea of social genuine responsibility in developing the company status in capital market.
It is help ful to the company in capital markets.
By Michael Hopkins CSR is concerned with treating the Stakeholders of the Firm
Ethically or in a socially responsible manner. Consequently, behaving socially
responsibly will increase the human development of Stakeholders both within and
outside the Corporation.
Broadly speaking, CSR has three key components:

the basic values, ethics, policies, and practices of a companys business;

the voluntary contributions made by a company to community development;

The management of environmental and social issues within the value chain by
the company and its business partnersfrom the acquisition and production of
raw materials, through the welfare of staff, to product sale, use, and disposal.

Approaches of CSR
There are two basic approaches to CSR: Traditional Approach and Modern Approach
Traditional Approach, Under the traditional/classical operation of the corporate
enterprises, societys basic demands upon the business were to produce goods and

36

services efficiently and the responsibility of business enterprises was to use resources
and engage in activities designed to increase profits and size of enterprises.

The Modern Approach, New social pressures have changed the objectives of business
enterprises. There is growing public demand for corporate involvement in solving many
social practices so that social responsibility becomes a standard by which business
practices are evaluated. It is opined that business houses should formulate financial
goals for the shareholders and social goals like pollution abatement, minority
employment and related corporate activities.
13

22. Corporate Social Responsibility in India:As I observe, Corporate Social Responsibility Practices in India sets a realistic agenda
of grassroots development through alliances and partnerships with sustainable
development approaches. At the heart of solution lies intrinsic coming together of all
stakeholders in shaping up a distinct route for an equitable and just social order.
According to Professor A. Quartz of Luxembourg University defined Corporate
Social Responsibility in India as a concept whereby companies voluntarily decide to
respect and protect the interest of a broad range of stakeholders and share holders to
contribute to a cleaner environment and a better society through active interaction.
23. CSR Philosophies in India.:Model

Focus

1326. corporate social Responsibility- Google

Philosopher

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ETHICAL

Voluntarily commitment by M K Gandhi

STATISTT

companies to public welfare

State ownership and legal Jawaharlal Nehru
requirements

LIBERAL

corporate responsibilities
Corporate responsibilities Milton Friedman
limited

STAKEHOLDER

determine

to

private

owners(Shareholders)
Companies respond to the R Edward Freeman
needs

of

Stakeholders-

Customers,

employees,

communities etc.

24.Do Corporates have a responsibility towards society?

As we know that the traditional role of a corporation is to generate income, to employ

people and to earn profit. Therefore traditional goals of corporation have been profits,
sales and wealth maximization. Now, profit is still the main motive of the corporation but
it is not the sole motive as the role of contemporary corporations has been to serve the
society at large, since it uses societal resources, namely man power and raw material.
Since a company operates within the society, it affects the society. Therefore there is a
need to regulate the corporate power to get optimum societal benefits. Justice P. N.
Bhagwati has aptly remarked in this connection that maximization of social welfare
should be the legitimate goal of a company. Originally, a company has been considered

38

an artificial person, though having a legal entity apart from its members, yet could not
enjoy rights like human beings. But with the advent of organic theory, a company or
corporation is considered a living organism, is entitled to rights and also liable for duties,
and the same has been declared by the Apex Court time and again. The corporation is
viewed as a central institution within a dynamic economy. The term social responsibility
emphasizes the intimacy of the relationship between the corporation and society. It is
not a philosophy, but a goal. This goal is accepted by business in response to demands
of the society for an improved standard of living. It means that business should oversee
the operation of an economic system that fulfils the expectations of the public at large.

25.VARIOUS RESPONSIBILITIES OF CORPORATES

Responsibility towards itselfIt is the duty of each corporate entity to do business and stay in the business. It has
to work towards growth, expansion and stability and thus earn enough profits. If the
corporation is to achieve social and economic ends, it has to give enough
importance to the efficiency factor.

Responsibility towards shareholders-

39

The main responsibility of corporate entity is to secure and safeguard the

shareholders investment and endeavour to provide a reasonable return on their
money. At the same time, a careful balance must be maintained between the long
term needs of business enterprises and a need to pay current dividends. If the
corporation behaves in a manner which is prejudicial to the interest of the
shareholders, then the shareholders are free to take action against the corporation.

Responsibility towards state-

It has undoubtedly been settled that the business sector is the major source of
income in every economy, whether capitalist or socialist. Thus, out of the profit
available, the state is entitled to a definite to definite share as per the income tax
laws and this commitment has therefore to be performed at priority.

Responsibility towards consumersThe company should maintain high quality standards at reasonable prices. It is the
consumer who decides the fate of every business institution. Therefore it is
imperative for every corporate entity to fulfill its contractual obligations to its
customers.

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26. Case Laws: Central Consumer Cooperation Stores Limited v Vipin Kumar and another
Allahabad High Court, 9 October 2012.
In this case, court held that "Public sector corporation" means any corporation
owned or controlled by the Government and includes any company as defined in
S. 3 of the Companies Act, 1956, in which not less than fifty percent of the paid
up share capital is held by the Government."
Subsequentlsy petition was dismissed.
CIT RAO Vs Rio Tinto Private Ltd company:-

The Allahabad court concluded as follows:

The submissions of the assessee were considered. The assessee itself had submitted
that such a heavy expenditure was incurred as the year under consideration is the first
year of operations of the assessee and that the company had to prove in the market
that it had sufficient infrastructure to provide services. From the reply of the assessee, it
is inferred that such expenditure was incurred primary to kick start the business, hence,
benefit of enduring nature was likely to be obtained. Therefore, such expenditure cannot
be allowed as a revenue expenditure as such expenditure has been incurred by the
assessee to create an infrastructure for facilitation of future business, hence, benefit of
enduring nature was imposed to be derived. However, it cannot be denied that some
expenses would be required under the stated heads for running the day to day business
of the company.

41

Therefore, 20% of these sums of (total Rs.3,77,15,537/ ) i.e. Rs.5,43,707/ is allowed

while computing the total income of the assessee company. The balance amount of
Rs.3,01,74,830/ is disallowed as expenses of capital nature.".
The question of law is accordingly answered in favour of the assessee and against the
revenue. The appeals are consequently dismissed.
In Re : India Yamaha Motor Private limited
By this petition, the petitioner company proposes as under:"The paid up Equity Share capital of the company be and is hereby reduced from
Rs.1710,00,00,000/- divided into 171,00,00,000 Equity Shares of Rs.10/- each to
Rs.660,00,00,000/- divided into 66,00,00,000 Equity shares of Rs.10/- each by
cancelling 105,00,00,000 Equity Shares of Rs.10/- each .
That the Deponent craves leave to submit that as per Art. 4.1 of Articles of
Association of the Company permits that Company for Reduction of Capital.
That the Deponent craves leave to submit that the proposed Reduction of Share
Capital has been consented by the equity Shareholders of the Company by a
Special Resolution duly passed at the AGM held on 20.7.2012".
The petition is all14owed in the above terms.
AppuGharBulid Tech amd Infra structure Private Limited:-

1425,26,27Legal Sutra.com

42

It is pertinent to mention here that all the transferor companies are

associate/group companies of International Amusement Limited, a subsidiary of
"AppuGhar Entertainment Private Limited", the ultimate Holding Company, which
has established the first world class Amusement Park known as "APPU GHAR"
and accordingly established its brand value in the market and among its
customers.
The prospective investors have subscribed to the equity share capital of the
transferor companies at premium keeping in mind its brand value in the market
apart from factors like net assets, reserve and surplus etc. The Petition is allowed
in the above terms.
KapilWadhwa and others vs Samsung Electronics Company Limited Delhi
High Court, 3 October 2012:The grievance of the respondents is that the appellants are purchasing, from the
foreign market, printers manufactured and sold by respondent No.1 under the
Trade Mark 'SAMSUNG/Samsung' and after importing the same into India are
selling

the

product

in

the

Indian

market

under

the

Trade

Mark

'SAMSUNG/Samsung' and are thereby infringing the registered Trade Mark of

the respondents in India. Respondents allege that the appellants operate their
website by meta-tagging the same to the website of the respondents.
Respondents allege that not only this constitutes an infringement of their
registered Trade Mark in India, but also allege injury caused to the consumer in
India who may be paying less for the printers in question, but are misled to

43

believe that they are purchasing an authorized Samsung product in India sold
with the permission of the respondents, in ignorance of the fact that the printers
imported and sold by the respondents are materially different to the ones which
are sold in the Indian market by the respondents.
The rival version pleaded by the appellants is that the act of importation and sale
of printers in India is authorized and the sale in the Indian market is legal and
valid inasmuch as the appellants sell the product as it is. The respondents
highlight that their act of import and sale is beneficial to the Indian public
evidenced by the fact that the respondents are able to sell the product at prices
less than 30% to 50% of the compatible product sold by the appellants in India.
Parties shall bear their own costs all throughout. Appeal partly allowed.

Almondz Global Securities Limited, New Delhi v Securities and Exchange

Board of India, Mumbai Securities Appellate Tribunal, 12 September 2012:The appeal has been filed against the ex-parte ad interim order passed by the
whole time member of the Securities and Exchange Board of India (the Board)
on December 28, 2011 whereby the appellant, alongwith some other entities,
was prohibited from taking up any new assignment or involvement in any new
issue of capital including IPO, follow on issue etc. from the securities market in

44

any manner whatsoever from the date of the order till further directions. The said
order was also treated as show cause notice to the appellant.
The grievance of the appellant is that inspite of its reply to the show cause notice
and later personal hearing on May 7, 2012, the Board has failed to pass any final
order and the appellant is being deprived of carrying out its business activities.
The appellant, therefore, prays that the impugned order be set aside.The
miscellaneous application as well as the appeal are dismissed as infructuous.
Appeal dismissed.

27. Findings:Throughout its eighteen-year existence as a statutory body, SEBI has sought to
balance the two objectives by constantly reviewing and reappraising its existing
policies and programmes, formulating new policies and crafting new regulations
in areas hitherto unregulated, and implementing them to ensure growth of the
market. From the above analysis and interpretation as well as other keen
observation details, the researchers find out the following facts about SEBI, and
its role also explained in our Indian capital market
The SEBI has introduced an array of reforms in the primary and secondary
markets and catalysed modernization of the market infrastructure to prepare the
market for the twenty-first century .

45

Dematerialisation has pushed the process further. SEBI has taken several steps
for the smooth-cum-speedy development of both primary and secondary markets
from time to time for the development of all areas.

The SEBI is trying to bring down various forms of risk (structural, systematic and
operational) that are there in the securities market.
Capital Market Role and significance
Its Importance in securities to the share holders
Why Capital Market exists.?
Factors affecting Capital market in India.
Learning Mutual funds concept
Corporate social responsibility in bringing demand to capital market
CSR Contributions.
Analyzing the capital market scenario from different case laws.

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28. Conclusion and Final Glance:-

Running

successful

Capital

market

requires

complete

understanding

of

thepeculiarities of the Indian Stock Market and also the psyche of the small investors.
This study has made an attempt to understand the financial behavior of Mutual Fund
investors. One must have proper awrness regarding to capital markets for securities of
their investment in companies in form of shares.
Capital Markets have spread its wings in every corner of dealing and transactions of
shares in individuals daily life. I also personally believe that The lack of an advanced
and vibrant capital market can lead to underutilization of financial resources. SEBI has
also contributed its role in development of Capital Markets with help new regulations
and guide lines. Corporate Social Responsibility must also be followed by companies in
capital market to maintain the statsics of capital markets at peak level. This could be
one good way the good way to attract share holders to invest in the companies of

48

capital market.

The developed capital market also provides access to the foreign

capital for domestic industry. Thus capital market definitely plays a constructive role in
the over all development of an economy.

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29. More citation Case Laws: PlercyvsMillscsi& co (1920) 1 h 77

Kobian (p) lit vsKobian India Ltd (2005) 64 CLA 281

Amison Foods ltd Vs Registrar of Companies (1999) ker 2001 103

Moseley VS Koffyfartein Mines (1910) 2 Ch 382.

TonYfrancisGinisses VS Indekka Soft Ware (p) ltd (2006) 73

I.T Cube India (p) ltd Vs I.T Cube Inc (2006) 69 s.c.c 319

JoHn Smith tad custerBrewry Co Ltd (1953) 1 AIR

Mac Council VsE.prill& Co lTd (1916) 2 ch

Shree Gopal Paper Mills Ltd & Lit AIR !(&) S.C 17 50, 1950

Morricevsalyerner (1875) Hc 717

Scottish Insurance corp Ltd Vs Wilson & Clyde Coul Ltd All ER (H.C)

Mc lead & Co VsGanguy (1975) 45 cas 563

50

British & American trustee & finance Corporation vs Copper (1894)A.C 399.

ShyampadaChakrabortyvs Controller of Insurance A S.C IR 1962 1355.

51

30.) BiBILOGRAPHY AND REFERENCES

Links

1. http://en.wikipedia.org/wiki/Bond_market
2. http://www.linkedin.com/skills/skill/Capital_Raising
3. http://www.arbitragemagazine.com/topics/finance/is-the-stock-market-really-justa-casino
4. http://en.wikipedia.org/wiki/Financial_market
5. http://finance.mapsofworld.com/secondary-market/
6. http://www.sebi.gov.in/cms/sebi_data/attachdocs/1347602019873.pdf
7. http://www.slideshare.net/dhavaldedhia3/financial-markets
8. http://www.digplanet.com/wiki/Bond_market
9. http://www.amfiindia.com/
10. http://wiki.answers.com/Q/Why are financial markets important.
11. www.indiankanoon .com
12. Www. Westlaw.com

References:-

1.Ramaya- on company law

2.Sethans- on Company Law
3.Bharats- on Company law
4.Nut shell on Shares
5.Lawmagazine
6.Avtarsingh- corporate law

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Subject: Corporate Law

Topic:-Empirical Study on Capital Markets

Submitted by:-M.Anudeep Reddy

Roll No:- 200905,VII SEM

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