Prior to 1992, there were three Major Acts governing the securities markets were:

  1. The capital issue (Control) Act, 1947. [Its objective is to restrict issuers access to the securities market and controlled the pricing of issues.]
  2. The Companies Act, 1956. [Which has laid down the code of conduct for the corporate sector in relation to issue, allotment and transfer of securities, and disclosures to be made in public issues]
  3. The securities contract (Regulation) Act, 1956. [Which provides for regulation transactions in securities through control over stock exchanges]

Substantial part of the liberalization mechanism was the repeal of the Capital Issues (control) Act, 1947 in May 1992. With this, government’s control over issue of capital, pricing of issues, fixing of premia and rates of interest on debentures, etc. Ceased. The office which operates administration of the Act was dissolved and the market was allowed to allocate resources to competing uses.

However, to ensure constructive regulation of the market, SEBI Act, 1992. Was enacted to delegate SEBI with statutory powers for:

  • Protecting interest of investors in securities.
  • Nurture the development of the securities market.
  • Regulating securities market.

Its administrative jurisdiction extends over corporates in the issuance of capital and transfer of securities, in addition to all intermediaries and persons connected with securities market. SEBI can set down the matters to be disclosed and the criteria of disclosure required for the protection of investors in respect of issues; can provide directions to all intermediaries and other persons related with the securities market in the interest of investors or of orderly development for securities market; and can command enquiries, audits and inspection of all concerned and adjudicate offences under the Act. In conclusion, it has been given necessary autonomy and authority to regulate and develop an orderly securities market.

Chapter I of the Act describes the definitions of various terms under the Act, while Chapter II states establishment of SEBI and its management. As section 3 of the Act describes that, SEBI is a body corporate having perpetual succession and a common seal with power to acquire, hold and dispose of property, both movable and immovable and to contract, sue and be sued in companies own name. SEBI has its Head Quatres at Mumbai and has powers to establish its offices at various other places in India.

Powers of SEBI


In case of frauds and unethical practices in regards of the securities market, SEBI has power to adjudicate the matter and pass the order. It is to facilitate and maintain transparency in the securities market.


SEBI has the power to examine the Books of Accounts and other statutory documents to collect evidences against violation. If it came to notice that one violating the regulations, the SEBI has the power to impose rules, take legal action and to pass any appropriate judgements.


As the objective of the SEBI is to protect the interest of the investors, the authoritative body has been entrusted with the power to frame rules and regulations as may be necessary. These rules will tackle to get rid of malpractices that are prevalent in the securities market.

The Supreme Court of India and The Securities Appellate Tribunal tend to have a superior power when it comes to the powers and functions and SEBI. All its functions and related decisions have to undergo with these two apex bodies.

As prescribed in the section the Power of Securities and Exchange Board to regulate issue and transfer of securities

(1) The provisions prescribed in this Chapter, Chapter IV and in section 127 shall, –

 (a) Thus far they relate to–

 (I) Transfer and Issue of securities

 (ii) non-payment of dividend,

by listed companies or those companies which propose to get their securities listed on any recognised stock exchange in India, other than as provided under this Act, be regulated by the Securities and Exchange Board by framing regulations in this behalf;

 (b) in certain cases, be administered by the Central Government.

Explanation. – To weed out doubts, it is hereby acknowledged that all powers relating to all other matters such as prospectus, return of allotment, redemption of preference shares and any other matter explicitly provided in this Act, shall be exercised by the Central Government, the Tribunal or the Registrar.

 (2) The Securities and Exchange Board shall, in respect of the matters specified in subsection (1) and the matters delegated to it under proviso to sub-section (1) of section 458, exercise the powers delegated to it under sub-sections (1), (2A), (3) and (4) of section 11, sections 11A, 11B and 11D of the Securities and Exchange Board of India Act, 1992 (15 of 1992).

Where a dividend has been announced by a company but has not been paid or the warrant regarding such declaration has not been posted within 30 days from the date of announcement to any shareholder entitled to the payment of the dividend, each director of the company shall, if he is knowingly a party to the default, be punishable with.

Imprisonment of 2 Years Fine – 1000 Rupees for Every Day During Which Such Default Continues and Simple Interest @18% P.A During the Period for Which Such Default Continues.

Issue of Shares

The Securities and Exchange Board of India (SEBI) is the most crucial department which administers securities markets in India. SEBI is a regulatory body known worldwide. It has the power to impose fines on someone who has contravened guidelines. Now, let us know what is public issue/ offering. When a company issues securities to general public to invest in its share capital making them a part of companies share group it is known as Public Issue. If you have seen Shark Tank India you might have got an idea how companies get funding by proving their equity to shareholders. There are specified norms a company has to follow while issuing securities to the public which has been framed by regulatory authorities.


  • In case an organisation has changed its name in the last one year, then at least 50% of its revenue should come from the activities functioning under the new name of the organisation.
  • The issue size should not be more than five times the pre-issue net with as per the company’s audited balance sheet of the last fiscal year.


  • Directors, promoters, and other KMPs must not be associated with any other company in a similar role.
  • Directors, promoters and other members who are in controlling position of the company must be debarred from accessing the primary market.
  • The application to the list of company’s shares should be filed with a recognised stock exchange in India.
  • The entities must not get into legal contracts with a depository.
  • The equity shares that are partly paid-up must be fully paid up.
  • 50% of the Board of directors can be independent investors.
  • Directors or promoters must not be guilty of the economic offence.
  • The promoters or the company directors should not be wilful defaulters.
  • The issuer company should disclose the number of shares to SEBI by the time of issue of specified securities.
  • A company has to submit a draft offer document to the regional office of SEBI, in case a company wants to go for a public issue of more than 100 crore.

Important case law Sahara vs SEBI

This case concerns the Sahara group, Sahara work in multi segment like infrastructure, sports retail and finance. Under this case the two entities of Sahara group issued OFCD (optional fully convertible debenture) in public, in 2009 another company approached to SEBI for listing of shares. And after inspection of whole Sahara group the Sebi came to know regarding the two entities who issued optional fully convertible debenture and, on this SEBI, claimed jurisdiction as they issued securities without complying SEBI’s guidelines and regulations and in defence the companies claimed that the securities were issued with the compliance of the companies act and SEBI has no jurisdiction over it.

SEBI conflicts with the Sahara, as the Sahara violates the regulations of SEBI, the case under goes several rounds of stays, court proceedings and hearings etc and finally appeared before Supreme Court, which favoured the SEBI and ordered the Sahara company to repay the money raised by contradicting guidelines and regulations of SEBI.


[i] https://www.indiacode.nic.in/show-data?actid=AC_CEN_22_29_00008_201318_1517807327856&sectionId=207&sectionno=24&orderno=26



Companies Act 2013 Bare Act and Rules made thereunder

SEBI Circulars and Notifications

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