SEBI: the Board and Its Powers

In one line

The Board is a statutory corporation with a single sentence of purpose and a very long list of powers: it registers and regulates every intermediary, prohibits insider trading and unfair practices, regulates the issue and listing of securities, investigates with civil court powers, and may pass interim and final orders including restraint, attachment, impounding, disgorgement and penalty.

In exam wording: under section 11(1) of the Securities and Exchange Board of India Act 1992, subject to the provisions of the Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market, by such measures as it thinks fit.

Why the law has this at all

Before 1992 the securities market in India was regulated by the Capital Issues (Control) Act 1947, under which the Controller of Capital Issues approved issues and their pricing, and by the Central Government under the Securities Contracts (Regulation) Act 1956. That system had three defects that the 1992 Act was designed to cure.

It regulated merit rather than disclosure. The Controller decided whether an issue should be made and at what price, which is the model abandoned in 1992 for the reasons set out in [Investor Protection: the Design].

It had no continuous supervision. Approval of an issue said nothing about what happened afterwards, and there was no body responsible for the market as an ongoing institution.

And it had no independent enforcement. Regulation was a function of a government department, subject to the ordinary political and administrative pressures, and it could not build the specialised capacity a securities market needs.

The 1992 Act creates a body corporate, gives it a general duty with an open-ended power to take measures, lists particular measures without prejudice to that generality, and then equips it with investigative powers of a civil court, interim powers over trading, assets and persons, and final powers of direction, disgorgement and penalty.

The design point worth making in an LL.M. answer is that s.11 is drafted outwards from a duty, not inwards from a list. The Board's powers are those necessary to protect investors, develop and regulate the market, and the enumerations are illustrations. That drafting is what has allowed the same section to reach instruments, practices and intermediaries that did not exist in 1992.

Sections 3 and 4: the Board itself

3(1): with effect from the date the Central Government appoints by notification, there shall be established, for the purposes of this Act, a Board by the name of the Securities and Exchange Board of India.

3(2): the Board shall be a body corporate, having perpetual succession and a common seal, with power, subject to the Act, to acquire, hold and dispose of property, both movable and immovable, and to contract, and it may sue or be sued in that name.