The Securities and Exchange Board of India Act, 1992

What it does

The Act establishes the Securities and Exchange Board of India as a body corporate and states its duty in one line: to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market. Everything else in the Act is an instrument of that duty. The Board registers and regulates intermediaries, including stock brokers, merchant bankers, registrars, depository participants, investment advisers and portfolio managers; it regulates collective investment schemes and mutual funds; it prohibits insider trading and fraudulent and unfair trade practices; and it is given powers of inspection, investigation and adjudication to make those prohibitions mean something.

Two features of the Act decide how it is read. It is deliberately broad: the duty is stated at the level of purpose, and the specific measures are listed as measures the Board may take, not as the only ones. And it is enabling: the substance of market regulation is left to regulations the Board makes, which is where a practitioner spends almost all of the time.

Three layers, and only one of them is the Act

An obligation in the Indian securities market usually sits in the third layer, and a question answered from the first layer alone is answered wrongly.

The Act is the first layer. It confers the power and sets the outer limit of what may be done under it.

Regulations made under the Act are the second. The listing obligations and disclosure requirements, the regime for a public issue, the prohibition of insider trading, the takeover code, the mutual fund regulations and the intermediary regulations are each a set of regulations, laid before Parliament and amended often. They are subordinate legislation, which has a practical consequence: a regulation that goes beyond what the Act authorises is open to challenge, and the question of whether a regulation is within power is a real one rather than a formality.

Circulars, master circulars and informal guidance are the third. They are issued under the Board's general power and they carry the operative detail: formats, timelines, computation, the content of a disclosure. A master circular consolidates what is in force on a subject, which is where to start, and the circular issued after it is what changes the answer. A position taken from a regulation without checking the circulars under it is usually out of date.

Enforcement, and the route out of it

The enforcement powers run in a sequence. The Board may call for information and conduct an inspection; it may order an investigation and appoint an investigating authority with powers to require documents and examine persons on oath; it may, pending or on an investigation, direct a person to cease and desist, suspend trading, impound proceeds or restrain a person from accessing the securities market; and it may direct disgorgement of wrongful gain or avoided loss.

Separately, a monetary penalty is imposed by an adjudicating officer in a proceeding of its own, under the penalty provisions for the particular default, with the quantum guided by the stated factors: the disproportionate gain or unfair advantage, the loss caused to investors and the repetitive nature of the default. A proceeding other than one for certain specified defaults may be settled on terms the Board accepts, which is a settlement of the proceeding and not a finding. Recovery of a penalty or a disgorgement order is itself provided for, with the Board's recovery officer given the powers of a tax recovery officer.

The appeal lies to the Securities Appellate Tribunal, and from the Tribunal to the Supreme Court on a question of law. Two timing points matter more than they look. An interim direction bites while it is in force whatever the eventual outcome, so the application to vacate it is often the real contest. And the limitation for an appeal is short, with the Tribunal's power to condone delay exercised on cause shown rather than as a matter of course.

Where it meets the rest of the statute book

The Act does not stand alone, and the overlap is where most of the difficulty lies.

The Securities Contracts (Regulation) Act, 1956 governs contracts in securities and the recognition of stock exchanges, and the question of whether a particular contract in securities is lawful is answered there rather than here, as the treatment of options over shares shows. The Companies Act, 2013 governs the company, while the issue and transfer of securities of a listed company and non-payment of dividend by it are for this Board, so a single corporate action can answer to two regulators with different timelines. The Depositories Act, 1996 supplies the holding and transfer mechanics the regulations assume. And where the investor is a non-resident, the Foreign Exchange Management Act, 1999 decides whether the investment and the exit are permissible at all, a question the securities regulations do not answer.

For a board or a promoter, the practical ordering is therefore: find the regulation that applies, read the master circular under it, check whether the Companies Act, 2013 imposes a parallel obligation on the same facts, and only then ask what the Act itself says. The Act is where the power comes from. It is almost never where the answer is.