Date: 5th March 2021

VIRTUAL COACHING CLASSES

ORGANISED BY BOS (ACADEMIC), ICAI

FINAL LEVEL
PAPER 4: CORPORATE AND ECONOMIC LAWS

Faculty: CA Navin Khandelwal, DISA, Regd Valuer, Insolvency Professional

12 March 2021 © The Institute of Chartered Accountants of India 1

 SEBI 1992

12 March 2021 © The Institute of Chartered Accountants of India 2

FRAMEWORK
Issuers
Intermediaries
Investors

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 3

Intermediaries
Front End-NSE
Back End-Depositories

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Agenda
➢Composition and Administrative
➢Functions and Powers
◦ Investigation
◦ Power to Adjudicate
➢SAT
➢Misc Provisions
➢Offences
➢Recovery

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 To protect interest of
investor

To regulate intermediaries

To develop securities market

Any matter incidental or

PREAMBLE ancillary in nature

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 SEBI is established as a body corporate

having Head office at Mumbai

Perpetual succession Common seal

Power to acquire hold & dispose

property

Sue & be sued in name of SEBI

Establishment
of SEBI 4 regional offices – New Delhi,
Chennai, Kolkata, Ahmadabad

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 C-Constitution of Board
➢ Chairman (nominated by Union
Government of India)
➢ 2 Members (Officers from Union Ministry)
➢ 1 member (From RBI)
➢ 5 other members (nominated by
Union Government of India), out
of them at least 3 shall be whole-time
members

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 WHO is eligible

Person Eligible to Persons of

be NOMINATED Integrity
by CG Ability

Dealing in securities markets

Special knowledge & In opinion of
Experience of law, finance, CG; useful to
accounting, eco, board
administration

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 Management Superintendence, direction &
management of affairs vest in board of
members
Management
These powers also vest in & can be
exercised by chairman except otherwise
provided by regulations

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Section 5 –Terms

The Chairman and other

members shall have the right to
relinquish office at any time
5yrs subjected to max age of 65
before the expiry of their
yrs ;
tenure by giving a notice of
three months in writing to
the CentralGovernment

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 Section 6-Removal of Member

CG will remove when

✓Adjudicated Insolvent Declared by court
✓Unsound Mind
✓ Convicted by court involving moral turpitude
✓CG opinion Abuse power and continuation of office will
be detrimental in public interest
✓Before removal – opportunity of being heard

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EXAMPLE
A group of complainants have alleged that Mr. Mallya, a Member of the Securities and Exchange
Board of India (SEBI) has pecuniary interest in some of the cases that came up before the Board
and that he misused his position and therefore, he should be removed from his office. The
complainants seek your advice. Advise

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MCQ
SEBI was primarily set up to
◦regulate the activities of the merchant banks
◦to control the operations of mutual funds
◦to work as a regulator of the stock exchange
activities
◦all of the above
MCQ
The Board consists of ….. members from the RBI
◦3
◦2
◦1
◦5
MCQ
The Chairman and other members shall have the right to
relinquish office at any time before the expiry of their
tenure by giving a notice of months in writing to the
CentralGovernment.
◦5
◦4
◦3
◦2
MCQ
the Chairman and Whole time Members may hold office for
a period of …………..years
◦3
◦5
◦4
◦6
 Such times & places -shall observe such
rules & procedure -by regulations made
under sec 30 of act –
Meetings- In absence of chairman -any member can
Meetings of preside over meeting after the member is
board (Sec selected
7,7A) All matters shall & decide by majority vote
& chairman has casting vote
Members interested not to participate

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Sec 8-proceedings not to be impacted
Vacancies not to invalidate the acts of board
in the any irregularity in
any defect in the appointment of the procedure of
constitution of the any person or the Board not
Board or member of the affecting the
Board or merits of the case

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MCQ
Suppose SEBI has constituted its board as per requirements of section 4 of SEBI Act, 1992 with 3 whole
time members under Section 4(1)(d) of the SEBI Act, 1992, but one of them resigned and to refill his post,
it took 1 month. Examine acts done in between the vacancy period, as per SEBI Act 1992.

(a) All acts become void ab-initio as per section 8 of the SEBI Act, 1992.

(b) Only financial acts are void ab initio as per section 8 of the SEBI Act, 1992.

(c) All acts are valid as per section 8 of the SEBI Act, 1992.

(d) All acts should be rectified after composition of proper board as per section 8 of the SEBI Act,
1992.

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Powers and Functions of
SEBI
S E CT ION 11

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Powers
Additional
functions under
General Civil court powers Penalize SCRA1956 Regulate
prospectus

Cease & desist

Investigation Issue directions
proceedings

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Powers
registering and
Regulating Promoting
regulating
• regulating self-
• Intermediaries the business in stock regulatory
exchanges and any organisations;
other securities markets • investors‘ education
and training of
intermediaries of
•substantial acquisition securities markets
of shares and take over
of companies

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Powers
Calling for information Calling for information Calling for information from

• any person including any •or furnishing information • , undertaking inspection,

bank or any other to, other authorities, conducting inquiries and
authority or board or whether in India or outside audits of the [stock
corporation established or India, having functions exchanges, mutual funds,
constituted by or under similar to those of the other persons associated
any Central or State Act Board, in the matters with the securities
which, in the opinion of relating to the prevention market] intermediaries
the Board, shall or detection of violations in and self-regulatory
respect of securities laws, organisations in the
subject to the provisions of securities market
other laws for the time
being in force in this regard

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k)levying fees or other charges for carrying out the purposes of this
section;
(l) conducting research for the above purposes;
[(la) calling from or furnishing to any such agencies, as may be
specified by the Board, such information as may be considered
necessary by it for the efficient discharge of its functions;]
(m) performing such other functions as may be prescribed

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Power with respect to inspection of books and Documents:11(2A)

➢ Further, the Board may take measures to undertake inspection of any book, or
register, or other document or record of any listed public company or a public
company which intends to get its securities listed on any recognised stock exchange
where the Board has reasonable grounds to believe that
➢ such company has been indulging in insider trading or
➢ fraudulent and unfair trade practices relating to securities market.

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 1. Production of books of Accounts & other
documents at such place & such time as may be
specified

2. Summoning & enforcing the attendance of

person’s
Civil court
powers 11(3)
3. Inspection of books, registers & other documents
of any person and listed co or to be listed co

4. Issuing commissions per examination of witness

or documents

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Passing Orders-11(4)
During inquiry the Board can pass orders in writing giving reason

1. Suspend trading of any security in RSE

2. Restrain persons from accessing of securities market
3. Suspend any office bearer of stock exchange
4. Impound & retain the proceeds or securities in respect of any transactions, which is under
investigation
5. Attach bank accounts for a period not exceeding 90 DAYS
6. Direct any intermediary of any person associated with securities market in any manner not to
dispose of or alienate a assets/transactions during investigations

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Orders-2
Provided further that only bank account or accounts or any transaction entered
therein, so far as it relates to the proceeds actually involved in violation of any of
the provisions of this Act, or the rules or the regulations made thereunder shall
be allowed to be attached.
The amount disgorged, pursuant to a direction issued, under the SEBI Act or the
Securities Contracts (Regulation) Act, 1956 or the Depositories Act, 1996, as the
case may be-
◦ shall be credited to the Investor Protection and Education Fund (IPEF)
established by the Board, and
◦ such amount shall be utilised by the Board in accordance with the regulations
made under this Act.’’.

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Example
SEBI received complaints from some investors
alleging that ABC Ltd. and some brokers are indulging
in price manipulation in the shares of ABC Ltd. Explain
the powers that can be exercised by SEBI under the
Securities and Exchange Board of India Act, 1992 in
case the allegations are found to be correct.

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EXAMPLE
Securities and Exchange Board of India (SEBI) has
undertaken inspection of books of accounts and records of
DON Ltd., a listed public company. Specify the measures
which may be taken by SEBI under the Securities and
Exchange Board of India Act, 1992 to protect the interest of
investors and securities market, on completion of such
inquiry

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MCQ
the Board may take measures to undertake inspection of
any book, or register, or other document or record of
◦all public companies
◦only listed companies
◦only unlisted companies
◦all listed public companies and public companies which
intend to get listed
 PROSPECTUS ]

(i) the matters relating to issue of capital,

transfer of securities and other matters
incidental thereto; and
specify, by
regulations (ii) the manner in which such matters shall
the Board may, for be disclosed by the companies
the protection of
investors

(i) prohibit any company from issuing prospectus, any offer

by general or document, or advertisement soliciting money from the public
special orders for the issue of securities; (ii) specify the conditions subject
to which the prospectus, such offer document or
advertisement, if not prohibited, may be issued.

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POWER TO ISSUE DIRECTIONS [SECTION 11B-INTERMEDIARY]

if after making or causing to be made an enquiry, the Board is

satisfied that it is necessary,—
➢(i) in the interest of investors, or orderly development of securities
market; or
➢ (ii) to prevent the affairs of any intermediary or other persons
referred to in section 12 being conducted in a manner detrimental to
the interest of investors or securities market; or
➢ (iii) to secure the proper management of any such intermediary or
person,

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 Directions

to any person or class of persons referred to in

section 12, or associated with the securities
market

it may issue such

directions

to any company in respect of matters specified in

section 11A, as may be appropriate in the
interests of investors in securities and the
securities market..

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Additional functions of SEBI under the Securities Contracts
(Regulation) Act, 1956:
Power to inspect
It shall be open to SEBI to inspect at all reasonable times books of accounts and other
documents to be maintained by the Stock Exchanges for periods not exceeding five years as
may be prescribed in the public interest and in the interest of trade by the Central Government.
Power of SEBI to call for information/ explanation relating to affairs of the stock
exchange

SEBI to appoint persons to make an inquiry

SEBI will bound the concerned persons to produce documents before himself /other
enquiry officer

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COLLECTIVE INVESTMENT SCHEME
Any scheme or arrangement made or offered by any person under which,—
(i) the contributions, or payments made by the investors, by whatever name called, are pooled
and utilized for the purposes of the scheme or arrangement;
(ii) the contributions or payments are made to such scheme or arrangement by the investors
with a view to receive profits, income, produce or property, whether movable or immovable,
from such scheme or arrangement;
(iii) the property, contribution or investment forming part of scheme or arrangement, whether
identifiable or not, is managed on behalf of the investors;
(iv) the investors do not have day-to-day control over the management and operation of the
scheme or arrangement

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DEEMED CIS
[
any pooling of funds under any scheme or arrangement, which is not
registered with the Board or is not covered under EXEMPTED ,
involving a corpus amount of one hundred crore rupees or more
shall be deemed to be a collective investment scheme
BLANKET CIS
Any scheme or arrangement made or offered by any person
satisfying the conditions as may be specified in accordance with the
regulations made under this Act

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CIS-EXEMPTED
(i) made or offered by a co-operative society registered under the Co-operative Societies Act,
1912 (2 of 1912) or a society being a society registered or deemed to be registered under any
law relating to co-operative societies for the time being in force in any State;
(ii) under which deposits are accepted by non-banking financial companies as defined in clause
(f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934);
(iii) being a contract of insurance to which the Insurance Act, 1938 (4 of 1938), applies;
(iv) providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the
Employees Provident Fund and Miscellaneous Provisions Act, 1952 (19 of 1952);

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CIS-EXEMPTED
(v) under which deposits are accepted under section 58A of the Companies Act, 1956 (1 of
1956); (vi) under which deposits are accepted by a company declared as a Nidhi or a mutual
benefit society under section 620A of the Companies Act, 1956 (1 of 1956);
(vii) falling within the meaning of Chit business as defined in clause (d) of section 2 of the Chit
Fund Act, 1982 (40 of 1982);
(viii) under which contributions made are in the nature of subscription to a mutual fund;
[(ix) such other scheme or arrangement which the Central Government may, in consultation with
the Board, notify,] shall not be a collective investment scheme

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INVESTIGATIONS
11C

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Grounds for issue of an order of investigation:
◦ Where the Board has reasonable ground to believe that—
◦ the transactions in securities are being dealt with in a manner detrimental to
the investors or the securities market; or
◦ any intermediary or any person associated with the securities market has
violated any of the provisions of this Act or the rules or the regulations
made or directions issued by the Board there under.
It may, at any time by order in writing, direct any person (hereafter in this
section referred to as the Investigating Authority) specified in the order to
investigate the affairs of such intermediary or persons associated with the
securities market and to report thereon to the Board.

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Furnishing of relevant documents to the
investigating authority
◦ : It shall be the duty of-
every manager, managing director, officer and other employee of the company
and every intermediary referred to in section 12, or
every person associated with the securities market to preserve, and
to produce to the Investigating Authority or any person authorised by it in this
behalf,
-all the books, registers, other documents and record of, or relating to, the
company or, as the case may be, of or relating to, the intermediary or such
person, which are in their custody or power.

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Period of custody
◦ : The Investigating Authority may keep in its custody any books, registers, other documents and record
produced for six months and thereafter shall return the same to any intermediary or any person
associated with securities market by whom or on whose behalf the books, registers, other documents
and record are produced:

The Investigating Authority may call for any book, register, other document and record if t are
needed again.
If the person on whose behalf the books, registers, other documents and record are produced
requires certified copies of the books, registers, other documents and record produced before
the Investigating Authority, it shall give certified copies of such books, registers, otherdocuments
and record to such person or on whose behalf the books, registers, other documents and record
were produced.

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OATH
Examination on oath: Any person, directed to make an investigation, may
examine on oath, any manager, managing director, officer and other employee
of any intermediary or any person associated with securities market in any
manner, in relation to the affairs of his business and may administer an oath
accordingly and for that purpose may require any of those persons to appear
before it personally.
Notes of examination to be used as examination: Notes of any examination
shall be taken down in writing and shall be read over to, or by, and signed by, the
person examined, and may thereafter be used in evidence against him.

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Consequences on Failure of Compliance
Failure in compliance
to produce to the Investigating Authority or any person authorised by it in this
behalf any book, register, other document and record which is his duty to
produce; or
to furnish any information which is his duty to furnish; or
to appear before the Investigating Authority personally or to answer any
question which is put to him by the Investigating Authority in pursuance of that
sub-section; or
to sign the notes of any examination,

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Punishment

Person shall be punishable with-

imprisonment for a term which may extend to one year, or
with fine, which may extend to one crore rupees, or
with both, and
also with a further fine which may extend to five lakh rupees for
every day after the first during which the failure or refusal continues.

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Impounding( Seizure ) of Documents
◦ Impounding of documents : Where in the course of investigation,
the Investigating Authority has reasonable ground to believe that
the books, registers, other documents and record of, or relating
to, any intermediary or any person associated with securities
market in any manner, may be destroyed, mutilated, altered,
falsified or secreted, the Investigating Authority may make an
application to the Magistrate or Judge of such designated court in
Mumbai, as may be notified by the Central Government for an
order for the seizure of such books, registers, other documents
and record.

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Impounding( Seizure ) of Documents
◦ Demand of services of other officers: The authorized officer may
requisition the services of any police officer or any officer of the
Central Government, or of both, to assist him for all or any of the
purposes as specified above with respect to impounding of
documents and it shall be the duty of every such officer to comply
with such requisition.
◦ to enter, with such assistance, as may be required, the place or places
where such books, registers, other documents and record are kept;

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Impounding( Seizure ) of Documents
Order of court: After considering the application and hearing the Investigating
Authority, if necessary, the Magistrate or Judge of the Designated Court may, by order,
authorise the Investigating Authority –
to enter, with such assistance, as may be required, the place or places where such
books, registers, other documents and record are kept;
to search that place or those places in the manner specified in the order; and
to seize books, registers, other documents and record, it considers necessary for the
purposes of the investigation:
Exemptions: Provided that the Magistrate or Judge of the Designated Court shall not
authorise seizure of books, registers, other documents and record, of any listed public
company or a public company (not being the intermediaries specified under section 12)
which intends to get its securities listed on any recognised stock exchange unless such
company indulges in insider trading or market manipulation.

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Impounding( Seizure ) of Documents
◦ Impounded documents will remain in the custody of investigating
authority: The Investigating Authority shall keep in its custody the
books, registers, other documents and record seized under this
section for such period not later than the conclusion of the
investigation as it considers necessary and thereafter shall return
the same to the company or the other body corporate, or, as the
case may be, to the managing director or the manager or any
other person, from whose custody or power t were seized and
inform the Magistrate or Judge of the Designated Court of such
return:

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CEASE AND DESIST PROCEEDINGS [SECTION 11D]

If the Board finds, after causing an inquiry to be made, that any person has
violated, or is likely to violate, any provisions of this Act, or any rules or
regulations made there under, it may pass an order requiring such person to
cease and desist from committing or causing such violation:
Provided that the Board shall not pass such order in respect of any listed public
company or a public company (other than the intermediaries specified under
section 12) which intends to get its securities listed on any recognised stock
exchange unless the Board has reasonable grounds to believe that such
company has indulged in insider trading or market manipulation.”

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Prohibition of manipulative and deceptive
devices, insider trading and substantial
acquisition of securities or control 12 A
No person shall directly or indirectly—
(a) use or employ, in connection with the issue, purchase or sale of any
securities listed or proposed to be listed on a recognized stock exchange, any
manipulative or deceptive device or contrivance in contravention of the
provisions of this Act or the rules or the regulations made thereunder;
(b) employ any device, scheme or artifice to defraud in connection with issue or
dealing in securities which are listed or proposed to be listed on a recognised
stock exchange;

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Prohibition of manipulative and deceptive
devices, insider trading and substantial
acquisition of securities or control 12 A
C)engage in any act, practice, course of business which operates or would
operate as fraud or deceit upon any person, in connection with the issue,
dealing in securities which are listed or proposed to be listed on a recognised
stock exchange, in contravention of the provisions of this Act or the rules or the
regulations made thereunder;
(d) engage in insider trading;
(e) deal in securities while in possession of material or non-public information
or communicate such material or non-public information to any other person, in
a manner which is in contravention of the provisions of this Act or the rules or
the regulations made thereunder;

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F) acquire control of any company or securities more than the percentage of
equity share capital of a company whose securities are listed or proposed to be
listed on a recognised stock exchange in contravention of the regulations made
under this Act.]

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REGISTRATION OF IM
S E C 12

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FINANCE ACCOUNTS
AUDIT
S E CT ION 13 TO 15

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 FINANCE, ACCOUNTS AND AUDIT

Grants by the Central Government [Section 13]

The Central Government may, after due appropriation made by Parliament by law in this
behalf, make to the Board grants of such sums of money as that Government may think fit for
being utilized for the purposes of this Act.
Fund [Section 14]
(1)There shall be constituted a Fund to be called the Securities and Exchange Board of
India General Fund and there shall be credited thereto-
• all grants, fees and charges received by the Board under this Act;
• all sums received by the Board from such other sources as may be decided upon by
the Central Government.
(2) The Fund shall be applied for meeting—
• the salaries, allowances and other remuneration of the members, officers and other
employees of the Board;
• the expenses of the Board in the discharge of its functions under section 11;
• the expenses on objects and for purposes authorised by this Act.

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Accounts and audit [Section15]

(1) Preparation of annual financial statement of Board in consultation with CAG of

India: The Board shall maintain proper accounts and other relevant records and
prepare an annual statement of accounts in such form as may be prescribed by the
Central Government in consultation with the Comptroller and Auditor-General of
India.
(2) Audit of accounts of Board: The accounts of the Board shall be audited by the
Comptroller and Auditor-General of India at such intervals as may be specified by
him and any expenditure incurred in connection with such audit shall be payable by
the Board to the Comptroller and Auditor-General of India

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 (3) Right and Privileges: The Comptroller and Auditor-General of India and any other person appointed
by him in connection with the audit of the accounts of the Board shall have the same rights and privileges
and authority in connection with such audit as the Comptroller and Auditor-General generally has in
connection with the audit of the Government accounts and, in particular, shall have the right to demand
the production of books, accounts, connected vouchers and other documents and papers and to inspect
any of the offices of the Board.
(4) Certified Accounts and Audit reports to be forwarded to the Central Government: The accounts
of the Board as certified by the Comptroller and Auditor-General of India or any other person appointed
by him in this behalf together with the audit report thereon shall be forwarded annually to the Central
Government and that Government shall cause the same to be laid before each House of Parliament.

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PENALTIES and
ADJUDICATION
S E CT ION 15 A TO 15JB

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 PENALTY CONTAVENTION SECTION
Min Rs 1L A. Failure to furnish documents/return/report Failure to file return, books, other documents 15A
Max Rs 1L/p Failure to maintain books & records cr
-Subjected to Rs 1 CR

Min Rs 1L -Max Rs 1L/p -Subjected to Rs 1 cr B .Failure by intermediary to enter into an agreement with his client - 15B

Min Rs 1L -Max Rs 1L/p -Subjected to Rs 1 cr C. Failure to redress grievance of investors within time specified by SEBI 15C

-Min Rs 1L -Max Rs 1L/p -Subjected to Rs 1 cr D. Collective investment scheme without obtaining certificate of registration Failure to comply 15D
with terms of certificate of registration (investment scheme) Failure to make application for
listing Failure to dispatch certificate Failure to invest money collected
-Min Rs 1L -Max Rs 1L/p -Subjected to Rs 1 CR 1 E. Failure by any AMC of MF to comply with provisions 15E

Min Rs 1L -Max Rs 1L/p -Subjected to Rs 1 CR 1 F. Registered stock broker fails to deliver security or make payment - 15F

-Min: 1L -Max:5 times F. Registered stock broker fails to issue contract note AND 15F

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-Min: 1L -Max:5 times [Link] stock broker changes excess brokerage then specified 15F

Min 10L -Max 25 crs Or 3 times WIH G. Insider deals, communicates, counsels on price sensitive info - 15G

H. Failure to Disclose aggregate of Shares already held before he 15H

-Min 10L acquires more Make public announcement to acquire shares at min
-Max 25 crs price Make a public offer by sending letter of offer to SH’s Make
Or 3 times WIH payments of consideration to SH’s who sold their shares
-Min: 5L HA. Person indulges in fraudulent & unfair trade practices relating to 15HA
-Max: 25cr securities
-Or 3 times WIH
-Min-1L HB Any person fails to comply with any provisions of act, rules, 15HB
-Max-1Cr regulations made there under -Min-1L -Max-1Cr
Impr 1m, 10yrs -Fine upto 2 crs or both Fails to pay penalty imposed by AO or directions imposed - Sec 24

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15 A
If any person, who is required under this Act or any rules or
regulations made thereunder,—
to furnish any document, return or report to the Board, fails to
furnish the same :
he shall be liable to a penalty which shall not be less than one lakh
rupees but which may extend to one lakh rupees for each day during
which such failure continues subject to a maximum of one crore
rupees

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 64

15 A
to file any return or furnish any information, books or other
documents within the time specified therefor in the regulations,
fails to file return or furnish the same within the time specified
therefor in the regulations,:
he shall be liable to a penalty which shall not be less than one
lakh rupees but which may extend to one lakh rupees for each
day during which such failure continues subject to a maximum
of one crore rupees

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 65

15 A
to maintain books of account or records, fails to maintain
the same
he shall be liable to a penalty which shall not be less than
one lakh rupees but which may extend to one lakh rupees
for each day during which such failure continues subject to
a maximum of one crore rupees

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 66

Penalty for failure by any person to enter into
agreement with clients [Section 15B]

If any person, who is registered as an intermediary and is required

under this Act or any rules or regulations made thereunder to enter
into an agreement with his client, fails to enter into such
agreement,:
he shall be liable to a penalty which shall not be less than one lakh
rupees but which may extend to one lakh rupees for each day during
which such failure continues subject to a maximum of one crore
rupees.

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 67

Penalty for failure to redress investors’
grievances [Section 15C]

If any listed company or any person who is registered as an

intermediary, after having been called upon by the Board in writing,
to redress the grievances of investors, fails to redress such
grievances within the time specified by the Board,
such company or intermediary shall be liable to a penalty which shall
not be less than one lakh rupees but which may extend to one lakh
rupees for each day during which such failure continues subject to a
maximum of one crore rupees.

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 68

 Penalty for certain defaults in case of mutual funds [Section 15D]

If any person, who is—

required under this Act or any rules or regulations made there under 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 which shall not be less than one lakh rupees but which may extend
to one lakh rupees for each day during which he sponsors or carries on any such collective
investment scheme including mutual funds subject to a maximum of one crore rupees;

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 69

Collective Investment Scheme
registered with the Board as a collective investment scheme,
including mutual funds, for sponsoring or carrying on any investment
scheme, fails to comply with the terms and conditions of certificate
of registration
he shall be liable to a penalty which shall not be less than one lakh
rupees but which may extend to one lakh rupees for each day during
which such failure continues subject to a maximum of one crore
rupees;

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 70

Asset Management Co
Penalty for failure to observe rules and regulations by an asset management company [Section
15E]
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 which shall not be less than one
lakh rupees but which may extend to one lakh rupees for each day during which such failure
continues subject to a maximum of one crore rupees

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 71

Penalty for default in case of stock brokers [Section 15 F]

Person, registered as a stock broker fails to issue contract

notes in the form and manner
specified by the stock exchange of which such broker is a
member,
he shall be liable to a penalty of more than 1 lakh but which
may extend to for which the contract note was required to
be issued by that broker

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 72

Penalty for default in case of stock brokers
[Section 15 F]

fails to deliver any security or

fails to make payment of the amount due to the investor in the manner within the period
specified in the regulations
he shall be liable to a penalty of more than 1 lakh but which may extend to one lakh rupees for
each day during which he sponsors or carries on any such collective investment scheme
including mutual funds subject to a maximum of one crore rupees
Charges an amount of brokerage which is in excess of the brokerage specified in the regulations
he shall be liable for more than 1 lakh but which may extend to five times the amount of
brokerage charged in excess of the specified brokerage, whichever is higher

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 73

 Penalty for insider trading [Section 15G]

Any insider shall be liable to a penalty of more than ten lakh rupees extending upto twenty-five
crore rupees / three times the amount of profits made out of insider trading, whichever is
higher, who-
either on his own behalf or on behalf of any other person
communicates any unpublished price-sensitive information to any person, with or without his
request for such information counsels, or procures for any other person to deal in any securities
of any body corporate on the basis of unpublished price-sensitive information
deals in securities of a body corporate listed on any stock exchange on the basis of any
unpublished price-sensitive information; or except as required in the ordinary course of business
or under any law, or

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 74

 Penalty for non-disclosure of acquisition of shares and takeovers [Section
15 H]

If any person, who is required under this Act or any rules or regulations made thereunder, fails
to,—
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; or
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,
he shall be liable to a penalty which shall not be less than ten lakh rupees but which may extend
to twenty-five crore rupees or three times the amount of profits made out of such failure,
whichever is higher.

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 75

Penalty for fraudulent and unfair trade practices [Section 15HA]

If any person indulges in fraudulent and unfair trade practices relating to

securities, he shall be liable to a penalty which shall –
not be less than five lakh rupees but
which may extend to twenty-five crore rupees or
three times the amount of profits made out of such practices,.
Which ever is higher

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 76

Penalty for contravention where no separate penalty has been provided [Section
15HB]

Whoever fails to comply with any provision of this Act, the rules or the
regulations made or directions issued by the Board thereunder for which no
separate penalty has been provided, shall be liable to a penalty which shall not
be less than one lakh rupees but which may extend to one crore rupees.

Crediting sums realised by way of penalties to Consolidated Fund of India

[Section15JA]
All sums realised by way of penalties under this Act shall be credited to the
Consolidated Fund of India.

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 77

15HHA
•As per the Finance Bill, 2019, a new section — 15HAA — has been inserted in the
SEBI Act.

•According to it, if a person tampers with information to obstruct an investigation or

destroys regulatory data then the entity could be penalised up to ₹10 crore or three
times the unlawful gains, whichever is higher.

•SEBI can now also impose penalties of up to ₹1 crore on brokers for certain violations.

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 78

Adjudicating Power

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 79

 Power to adjudicate [Section 15-I]

For the purpose of adjudging under sections 15A, 15B, 15C, 15D,
15E, 15F, 15G ,15H, 15HA and 15HB :
Board shall appoint any officer not below the rank of a Division Chief
to be an adjudicating officer for holding an inquiry in the prescribed
manner after giving any person concerned a reasonable opportunity
of being heard for the purpose of imposing any penalty.

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 80

On holding of an inquiry:
The adjudicating officer shall have power to summon and enforce the
attendance of any person acquainted with the facts and circumstances of the
case to give evidence or to produce any document which in the opinion of the
adjudicating officer, may be useful for or relevant to the subject-matter of the
inquiry and if, on such inquiry, he is satisfied that the person has failed to comply
with the provisions of any of the sections specified in subsection (1), he may
impose such penalty as he thinks fit in accordance with the provisions of any of
those sections

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 81

Order passed by adjudicating officer is not
justified :
The Board may call for and examine the record of any proceedings and if it considers that the order
passed by the adjudicating officer is erroneous to the extent it is not in the interests of the securities
market, it may, after making or causing to be made such inquiry as it deems necessary, pass an order
enhancing the quantum of penalty, if the circumstances of the case so justify:
Provided that no such order shall be passed unless the person concerned has been given an
opportunity of being heard in the matter:
Limitation period: Provided further that nothing contained in this sub-
section shall be applicable after an expiry of a period of three months
from the date of the order passed by the adjudicating officer or disposal
of the appeal under section 15T, whichever is earlier.

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 82

Factors to be taken into account by the
adjudicating officer [Section 15J]

While adjudging quantum of penalty under section

15-I, the adjudicating officer shall have due regard to
the following factors, namely:—
◦ the amount of disproportionate gain or unfair
advantage, wherever quantifiable, made as a
result of the default;
◦ the amount of loss caused to an investor or group
of investors as a result of the default;
◦ the repetitive nature of the default.

© THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 12 March 2021 83

Example
SEBI received complaints from some investors alleging that
ABC Ltd. and some brokers are indulging in price
manipulation in the shares of ABC Ltd. Explain the powers
that can be exercised by SEBI under the Securities and
Exchange Board of India Act, 1992 in case the allegations
are found to be correct. State the penalty to be imposed

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 84

ABC & Co., Chartered Accountants, is a partnership firm, who is auditor of one of the listed company
Z ltd. for the financial year 2018-19. Mr. B is engaging partner of that audit with a team of 15
members. While doing audit of the financial statement of the company, two members of the team,
who are chartered accountant, passed the information to their friends and relatives that this year
company’s profit is increasing by 25% as compared to last audited financial year, before this
information came in to public domain through the company. They made profit from this information
by purchase at low price and after financial statements came in public domain and share prices
raised, they sold shares at enhanced price. Please state whether it is a case of insider trading. If yes,
then how much penalty for this act, under SEBI Act, 1992.

(a) No, it is not insider trading, because that these persons are not restricted to use the
information to benefit themselves.
(b) No, it is not insider trading, because it is not price sensitive information.

(c) Yes, it is insider trading and penalty u/s 15G would be minimum Rs. 10 lacs which may extend
upto Rs. 25 cr. or 3 times of profit derived, whichever is higher.

(d) Yes, it is insider trading and penalty u/s 12A would be Rs. 25 cr. or 3 times of profit derived,
whichever is lower.

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 85

MCQ
If any person fails without reasonable cause or refuses to produce to the Investigating Authority
any record, he shall be punished with
◦ imprisonment for a term which may extend to two years
◦ with fine, which may extend to ten crore rupees
◦ a further fine which may extend to five lakh rupees for every day after the first during which the failure
or refusal continues.
◦ All of the above
MCQ
If any person, who is required under this Act or any rules or regulations made
thereunder fails to………. shall be liable to a penalty which shall not be less
than one lakh
rupees but which may extend to one lakh rupees for each day during which such
failure continues subject to a maximum of one crore rupees
◦ furnish any document, return or report to the Board
◦ file any return or furnish any information, books or other documents within
the time specified therefor in the regulations
◦ maintain books of account or records
◦ all of the above
MCQ
If any listed company or any person who is registered as an intermediary fails to redress the
grievances of investors in…………. , they shall be liable to a penalty
◦ Five months
◦ Six months
◦ One month
◦ Time specified by the Board
MCQ
If a person registered as a stock broker fails to deliver any security,
he is liable to a penalty of
◦ More than Rs. 1 lakh
◦ Upto Rs. 1 lakh
◦ More than Rs. 10 lakh
◦ he shall be liable to a penalty of more than 1 lakh but which may
extend to one lakh rupees for each day
Settlement Proceedings
Settlement of administrative and civil proceedings [Section 15 JB]
Filing of an application: Any person, against whom any proceedings have been initiated or may be
initiated under section 11, section 11B, section 11D, sub-section (3) of section 12 or section 15-I,
may file an application in writing to the Board proposing for settlement of the proceedings initiated
or to be initiated for the alleged defaults.
Board may consider for settlement of defaults: The Board may, after taking into consideration the
nature, gravity and impact of defaults, agree to the proposal for settlement, on payment of such sum
by the defaulter or on such other terms as may be determined by the Board in accordance with the
regulations made under this Act.
Mode of settlement proceedings: The settlement proceedings under this section shall be conducted
in accordance with the procedure specified in the regulations made under this Act.
No appeal preferred: No appeal shall lie under section 15T against any order passed by the Board or
adjudicating officer, as the case may be, under this section.]

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SAT-Securities Appellate
Tribunal
15K TO 15 Z

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ESTABLISHMENT, JURISDICTION, AUTHORITY AND PROCEDURE OF SECURITIES
APPELLATE TRIBUNAL (SAT) [Section 15K]

The Central Government shall, by notification, establish a Tribunal to

be known as the Securities Appellate Tribunal to exercise the
jurisdiction, powers and authority conferred on it by or under this
Act or any other law for the time being in force.

The Central Government shall also specify in the notification referred

to in sub-section (1), the matters and places in relation to which the
Securities Appellate Tribunal may exercise jurisdiction.

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 92

 Composition of SAT

a Presiding Officer

The Securities
Appellate Tribunal

such number of Judicial Members and Technical

Members as the Central Government may
determine

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BENCH OF SAT

Subject to the provisions of this Act,—

◦ the jurisdiction of the Securities Appellate Tribunal may be exercised by Benches thereof;
◦ a Bench may be constituted by the Presiding Officer of the Securities Appellate Tribunal with
two or more Judicial or Technical Members as he may deem fit:
Provided that every Bench constituted shall include at least one Judicial Member and one
Technical Member;
◦ the Benches of the Securities Appellate Tribunal shall ordinarily sit at Mumbai and may also
sit at such other places as the Central Government may, in consultation with the Presiding
Officer, notify.
The Presiding Officer may transfer a Judicial Member or a Technical Member of the Securities
Appellate Tribunal from one Bench to another Bench.

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 Qualification for appointment as Presiding Officer or Member of Securities Appellate
Tribunal [Section 15M]

A person shall not be qualified for appointment as the Presiding Officer or a Judicial Member or a Technical Member of
the Securities Appellate Tribunal, unless he—
◦ is, or has been, a Judge of the Supreme Court or a Chief Justice of a High Court or a Judge of High Court for at least
seven years, in the case of the Presiding Officer; and
◦ is, or has been, a Judge of High Court for at least five years, in the case of a Judicial Member; or
◦ in the case of a Technical Member––
◦ is, or has been, a Secretary or an Additional Secretary in the Ministry or Department of the Central Government
or any equivalent post in the Central Government or a State Government; or
◦
is a person of proven ability, integrity and standing having special knowledge and professional experience, of not less
than fifteen years, in financial sector including securities market or pension funds or commodity derivatives or
insurance.

Appointment of judicial member [Section 15MA]

The Presiding Officer and Judicial Members of the Securities Appellate Tribunal shall be appointed by the Central
Government in consultation with the Chief Justice of India or his nominee.

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Appointment of technical member [Section 15MB]

The Technical Members of the Securities Appellate Tribunal shall be appointed by the Central
Government on the recommendation of a Search-cum-Selection Committee consisting of the
following, namely:––
◦ Presiding Officer, Securities Appellate Tribunal—Chairperson;
◦ Secretary, Department of Economic Affairs—Member;
◦ Secretary, Department of Financial Services—Member; and
◦ Secretary, Legislative Department or Secretary, Department of Legal Affairs— Member.
The Secretary, Department of Economic Affairs shall be the Convener of the Search-cum
Selection Committee.
The Search-cum-Selection Committee shall determine its procedure for recommending the
names of persons to be appointed under sub-section (1).

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 96

Tenure of office of Presiding Officer and other Members of
Securities Appellate Tribunal [Section 15N]

The Presiding Officer or every Judicial or Technical Member of the

Securities Appellate Tribunal shall hold office for a term of five years
from the date on which he enters upon his office, and shall be
eligible for reappointment for another term of maximum five years:
Provided that no Presiding Officer or the Judicial or Technical
Member shall hold office after he has attained the age of seventy
years.

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 97

DISQUALIFICATION
Disqualification of members: A member or part time member of the
Board or the Insurance Regulatory and Development Authority or the
Pension Fund Regulatory and Development Authority, or any person at
senior management level equivalent to the Executive Director in the
Board or in such Authorities, shall not be appointed as Presiding Officer or
Member of the Securities Appellate Tribunal, during his service or tenure
as such with the Board or with such Authorities, as the case may be, or
within two years from the date on which he ceases to hold office as such
in the Board or in such Authorities.

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Resignation and removal [section 15Q]
Resignation by notice in writing: The Presiding Officer or any other Member of a Securities
Appellate Tribunal may, by notice in writing under his hand addressed to the Central
Government, resign his office.
Provided that the Presiding Officer or any other Member shall, unless he is permitted by the
Central Government to relinquish his office sooner, continue to hold office-
◦
until the expiry of three months from the date of receipt of such notice or
◦ until a person duly appointed as his successor enters upon his office or
◦ until the expiry of his term of office,

which ever is the earliest

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 99

Removal of Presiding officer/Judicial
member/ Technical member:
The Central Government may, after an inquiry made by the Judge of the Supreme Court, remove the
Presiding Officer or Judicial Member or Technical Member of the Securities Appellate Tribunal, if he—
is, or at any time has been adjudged as an insolvent;
has become physically or mentally incapable of acting as the Presiding Officer, Judicial or Technical
Member;
has been convicted of any offence which, in the opinion of the Central Government, involves moral
turpitude;
has, in the opinion of the Central Government, so abused his position as to render his continuation in
office detrimental to the public interest; or
has acquired such financial interest or other interest as is likely to affect prejudicially his functions as
the Presiding Officer or Judicial or Technical Member:
Provided that he shall not be removed from office under clauses (d) and (e), unless he has been given
a reasonable opportunity of being heard in the matter.

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 100

Appeal to the Securities Appellate Tribunal
[Section 15T]

Any person aggrieved, —

◦ by an order of the Board made, or
◦ by an order made by an adjudicating officer under this Act; or
◦ by an order of the Insurance Regulatory and Development
Authority or the Pension Fund Regulatory and Development
Authority, may prefer an appeal to a Securities Appellate
Tribunal having jurisdiction in the matter.

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 101

APPEALS
Every appeal under sub-section (1) shall be filed within a period of forty-five days from the date
on which a copy of the order made by the Board or the Adjudicating Officer or the Insurance
Regulatory and Development Authority or the Pension Fund Regulatory and Development
Authority, as the case may be, is received by him and it shall be in such form and be
accompanied by such fee as may be prescribed:
Provided that the Securities Appellate Tribunal may entertain an appeal after the expiry of the
said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within
that period.

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APPEALS
On receipt of an appeal under sub-section (1), the Securities Appellate Tribunal may, after giving
the parties to the appeal, an opportunity of being heard, pass such orders thereon as it thinks
fit, confirming, modifying or setting aside the order appealed against.
The Securities Appellate Tribunal shall send a copy of every order made by it to the Board, or
the Insurance Regulatory and Development Authority or the Pension Fund Regulatory and
Development Authority, as the case may be the parties to the appeal and to the concerned
Adjudicating Officer.
The appeal filed before the Securities Appellate Tribunal under sub-section (1) shall be dealt
with by it as expeditiously as possible and endeavor shall be made by it to dispose of the appeal
finally within six months from the date of receipt of the appeal.

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Procedure and powers of the Securities
Appellate Tribunal [ Section 15U]

The Securities Appellate Tribunal shall not be bound by the procedure laid down by the Code of
Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice and, the
Securities Appellate Tribunal shall have powers to regulate their own procedure including the
places at which t shall have their sittings.
◦ summoning and enforcing the attendance of any person and examining him on oath;
◦ requiring the discovery and production of documents;
◦ receiving evidence on affidavits;
◦ issuing commissions for the examination of witnesses or documents;
◦ reviewing its decisions;
◦ dismissing an application for default or deciding it ex parte;
◦ setting aside any order of dismissal of any application for default or any order passed by it ex parte;
◦ any other matter which may be prescribed.

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JUDICIAL PROCEEDINGS
Every proceeding before the Securities Appellate Tribunal shall be deemed to be a judicial
Where Benches are constituted, the Presiding Officer of the Securities Appellate Tribunal may, from
time to time make provisions as to the distribution of the business of the Securities Appellate Tribunal
amongst the Benches and also provide for the matters which may be dealt with, by each Bench.
On the application of any of the parties and after notice to the parties, and after hearing such of them
as he may desire to be heard, or on his own motion without such notice, the Presiding Officer of the
Securities Appellate Tribunal may transfer any case pending before one Bench, for disposal, to any
other Bench.
If a Bench of the Securities Appellate Tribunal consisting of two members differ in opinion on any
point, t shall state the point or points on which t differ, and make a reference to the Presiding Officer
of the Securities Appellate Tribunal who shall either hear the point or points himself or refer the case
for hearing only on such point or points by one or more of the other members of the Securities
Appellate Tribunal and such point or points shall be decided according to the opinion of the majority
of the members of the Securities Appellate Tribunal who have heard the case, including those who
first heard it.

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Civil Court not to have jurisdiction [Section
15Y]

No civil court shall have jurisdiction to entertain any suit or

proceeding in respect of any matter which an adjudicating officer
appointed under this Act or a Securities Appellate Tribunal
constituted under this Act is empowered by or under this Act to
determine and no injunction shall be granted by any court or other
authority in respect of any action taken or to be taken in pursuance
of any power conferred by or under this Act.

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 106

Appeal to Supreme Court [Section 15Z]

Any person aggrieved by any decision or order of the

Securities Appellate Tribunal may-
file an appeal to the Supreme Court within sixty days from
the date of communication of the decision or order to him
on any question of law arising out of such order:
Allow after 60 days also but max 60 days

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 107

EXAMPLE
STUPID who is registered as an Intermediary fails to
enter into an agreement with his client and hence
penalised by SEBI under section 15B of the SEBI Act.
Advise Mr. STUPID as to what remedies are available
to him against the order of SEBI.

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 108

. SEBI has imposed a penalty on Hotel Leel Ventures Ltd. for violation of Takeover Code. The
directors of Management is seeking your advice to apprise them with the time period for filling an
appeal with SAT and Supreme Court? Suggest what will be the time period for filing appeal with SAT
and Supreme Court?

(a) In case of filing appeal with SAT: Within 45 days from the date of order of the copy made by
SEBI or adjudicating officer and in case of filing appeal with Supreme Court: Within 60 days from the
date of communication of the decision or order of SAT.
(b) In case of filing appeal with SAT: Within 60 days from the date of order of the copy made by
SEBI or adjudicating officer and in case of filing appeal with Supreme Court: Within 60 days from the
date of communication of the decision or order of SAT.
In case of filing appeal with SAT: Within 30 days from the date of order of the copy made by SEBI or
adjudicating officer and in case of filing appeal with Supreme Court: Within 60 days from the date of
communication of the decision or order of SAT.

(d) In case of filing appeal with SAT: Within 60 days from the date of order of the copy made by
SEBI or adjudicating officer and in case of filing appeal with Supreme Court: Within 45 days from the
date of communication of the decision or order of SAT.

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 109

MCQ
The Securities Appellate Tribunal shall consist of…………….
to exercise the powers and discharge the functions
conferred
◦a Presiding Officer
◦Judicial Members
◦Technical Members
◦All of the above
MCQ
every Bench constituted shall include at least
◦one Presiding officer
◦one Judicial Member and one Technical Member
◦one Judicial Member
◦Presiding and one Judicial
MCQ
Supreme Court may, if it is satisfied that the applicant was
prevented by sufficient cause from filing the appeal within the said
period, allow it to be filed within a further period not exceeding
days.
◦ 30
◦ 45
◦ 60
◦ No extension allowed
MCQ
Any person aggrieved by any decision or order of the
Securities Appellate Tribunal may file an appeal to the
within sixty days from the date of communication of
the decision
◦High court
◦Supreme court
MISCELLANEOUS
PROVISIONS
S E C 16 TO S E C 26

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 114

MISCELLANEOUS
Power of Central Government to issue directions [Section 16]
Without prejudice to the foregoing provisions of this Act or the Depositories Act, 1996, the
Board shall, in exercise of its powers or the performance of its functions under this Act, be
bound by such directions on questions of policy as the Central Government may give in writing
to it from time to time.
Provided that the Board shall, as far as practicable, be given an opportunity to express its views
before any direction is given under this sub-section.
The decision of the Central Government whether a question is one of policy or not shall be final.
Power of Central Government to supersede the Board [Section 17]
If at any time the Central Government is of opinion that Board unable to perform its functions, it
may by notification, supersede the Board for such period, not exceeding six months.

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 115

Reasons to supersede the Board-
Central government may supersede the Board-
on account of grave emergency, the Board is unable to discharge the functions and duties under
the provisions of this Act; or
that the Board has persistently made default in complying with any direction issued by the
Central Government under this Act or
default in the discharge of the functions and duties imposed under the provisions of this Act and
as a result of such default the financial position of the Board or the administration of the Board
has deteriorated; or
that circumstances exist which render it necessary in the public interest so to do

12 March 2021 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 116

Effect of publication of notification of superseding the Board:
Upon the publication of a notification of superseding the Board,—
all the members shall, as from the date of supersession, vacate their offices as such;
all the powers, functions and duties which may, by or under the provisions of this Act, be
exercised or discharged by or on behalf of the Board, shall until the Board is reconstituted, be
exercised and discharged by such person or persons as the Central Government may direct; and
all property owned or controlled by the Board shall, until the Board is reconstituted vest in the
Central Government.

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Reconstitution of Board on the expiration of the period of
supersession:
On the expiration of the period of supersession specified in the
notification, the Central Government may reconstitute the Board by
a fresh appointment and in such case any person or persons who
vacated their offices, shall not be deemed disqualified for
appointment:
Provided that the Central Government may, at any time, before the
expiration of the period of supersession, take action.

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SPECIAL COURT
S E C 26

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 Special Courts [Section 26A]

Establishment of Special Court: The Central Government may, for the

purpose of providing speedy trial of offences under this Act, by
notification, establish or designate as many Special Courts as may be
necessary.
Composition: A Special Court shall consist of a single judge who shall be
appointed by the Central Government with the concurrence of the Chief
Justice of the High Court within whose jurisdiction the judge to be
appointed is working.
Qualification for appointment: A person shall not be qualified for
appointment as a judge of a Special Court unless he is, immediately before
such appointment, holding the office of a Sessions Judge or an Additional
Sessions Judge, as the case may be.

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Application of Code to proceedings before
Special Court [Section 26D]

Save as otherwise provided in this Act, the provisions of the Code of Criminal Procedure, 1973
shall apply to the proceedings before a Special Court and for the purposes of the said provisions,
the Special Court shall be deemed to be a Court of Session and the person
conducting prosecution before a Special Court shall be deemed to be a Public Prosecutor within
the meaning of clause (u) of section 2 of the Code of Criminal Procedure, 1973.
The person conducting prosecution referred to in sub-section (1) should have been in practice as
an advocate for not less than seven years or should have held a post, for a period of not less
than seven years, under the Union or a State, requiring special knowledge of law.

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OFFENCES BY
COMPANIES
S E C 27

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Offences by companies [Section 27]

Where an offence under this Act has been committed by

a company -every person who at the time the offence
was committed was in charge of, and was responsible to,
the company for the conduct of the business of the
company, as well as the company, shall be deemed to be
guilty of the offence and shall be liable to be proceeded
against and punished accordingly:

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Offences
Exemption: This sub-section shall not render any such person liable to any punishment provided
in this Act, if he proves that the offence was committed without his knowledge or that he had
exercised all due diligence to prevent the commission of such offence.
Notwithstanding anything contained in sub-section (1), where an offence under this Act has
been committed by a company and it is proved that the offence has been committed with the
consent or connivance of, or is attributable to any neglect on the part of, any director, manager,
secretary or other officer of the company, such director, manager, secretary or other officer shall
also be deemed to be guilty of the offence and shall be liable to be proceeded against and
punished accordingly.
Explanation: For the purposes of this section,—
◦ company means any body corporate and includes a firm or other association of individuals;
and
◦ director, in relation to a firm, means a partner in the firm.

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RECOVERY
S E C 28A

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If a person fails to pay the
➢penalty imposed by the adjudicating officer or
➢fails to comply with any direction of the Board for refund of monies
or
➢fails to comply with a direction of disgorgement order or
➢fails to pay any fees due to the Board,
the Recovery Officer shall proceed to recover from such person the
amount specified in the certificate

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SEQUENCE OF ATTACHMENT
◦ attachment and sale of the person's movable property;
◦ attachment of the person's bank accounts;
◦ attachment and sale of the person's immovable property;
◦ arrest of the person and his detention in prison;
◦ appointing a receiver for the management of the person's movable
and immovable properties,

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Explanation 1— For the purposes of this sub-section, the person's movable or immovable
property or monies held in bank accounts shall include any property or monies held in bank
accounts which has been transferred directly or indirectly on or after the date when the amount
specified in certificate had become due,
by the person to his spouse or minor child or son's wife or son's minor child,
otherwise than for adequate consideration,
and which is held by, or stands in the name of, any of the persons aforesaid;
and so far as the movable or immovable property or monies held in bank accounts so
transferred to his minor child or his son's minor child is concerned,
it shall, even after the date of attainment of majority by such minor child or son's minor child,
as the case may be, continue to be included in the person's movable or immovable property or
monies held in bank accounts for recovering any amount due from the person under this Act.

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LIABILITY OF LEGAL REPRESENTATIVE
Where a person dies his legal representative shall be liable to pay
any sum which the deceased would have been liable to pay

The liability of deceased shall be payable only when penalty imposed

before the death

The liability will be levied to the extent the value of property

transferred to him

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EXAMPLE
Harish he failed to pay the penalty imposed by AO for an
offence committed under SEBI ACT 1992 . after the penalty
was imposed harish transferred his residential property to
his sister and fixed deposit in the bank to his minor son.
The minor son has become major and deposits continue to
be held by son. Discuss whether the residential property
and fixed deposits can be attached by the recovery officer.

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EXAMPLE
Mr. ISHAN, a member of DREAM Ltd., obtained an
order from the Securities and Exchange Board of
India (SEBI) against the company. But the company
failed to redress the grievance of Mr. ISHAN within
the time fixed. Consequently, SEBI imposed penalty
on the company. The company, however, did not pay
the penalty also. State how the penalty can be
recovered from the company?

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 THANK YOU

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