Ch 2 - The Securities and Exchange Board of India Act, 1992

Question 1

How the establishment of the SEBI happens as per the SEBI Act,1992 and the management of the Board as per section 4 of the act and it’s composition?

Answer 1

The Chairman and the all the other members as referred in the section, shall be persons of ability, integrity and standing who have shown capacity in dealing with problems relating to securities market or have special knowledge or experience of law, finance; economics, accountancy, administration or in any other discipline which, in the opinion of the Central Government, shall be useful to the Board [Section 4(5)].

Question 2

What is the term of office and conditions of service of chairman and members of the board as per section 5?

Answer 2

Right to termination: The Central Government will have the right to terminate the services of the Chairman or the Members appointed in section 4(1)(d) (i.e., the 5 members appointed by Central Government) at any time before the expiry of their tenure

The Chairman and all the other members (not just the 5 members appointed by CG) shall have the right to relinquish office at any time before the expiry of their tenure by giving a notice of three months in writing to the Central Government

Term of office: As per the rules framed in this regard, the Chairman and Whole time Members shall hold office for such period, not exceeding 5 years, as many be specified in the order of his appointment; but he shall be eligible for reappointment

Provided that no person shall hold office as the Chairman or a Member after he attains the age of sixty-five years.

Question 3

What are the provisions regarding removal of the members of the board as per section 6?

Answer 3

The Central Government shall remove a member from office if he:

• at any time has been adjudicated as insolvent;
• has been declared by a competent court to be of unsound mind;
• has been convicted of an offence which in the opinion of the Central Government, involves a moral turpitude.
• has in the opinion of the Central Government so abused his position as to render his continuance in office detrimental to the public interest.

Provided that no member shall be removed under this clause unless he has been given a reasonable opportunity of being heard in the matter

Question 4

According to section 8, where there is any vacancy in the board which is not predicted, will the proceedings performed when there is a deficiency will be considered to be valid?

Answer 4

Any vacancy in the Board shall not invalidate any of the acts or proceeding of the Board. Similarly, the following events shall not invalidate any act or proceeding of the Board

Question 5

What are the provisions of section 11(4) with regard to passing of an order by Board which are in the interests of Investors or securities market?

Answer 5

The Board may, by an order, for reasons to be recorded in writing, in the interests of investors or securities market, take any of the following measures, either pending investigation or inquiry or on completion of such investigation or inquiry, namely:—
(a) suspend the trading of any security in a recognised stock exchange;
(b) restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities;
(c) suspend any office-bearer of any stock exchange or self-regulatory organization from holding such position;
(d) impound and retain the proceeds or securities in respect of any transaction which is under investigation;
3(e) attach, for a period not exceeding ninety days, bank accounts or other property of any intermediary or any person associated with the securities market in any manner involved in violation of any of the provisions of this Act, or the rules or the regulations made thereunder:
Provided that the Board shall, within ninety days of the said attachment, obtain confirmation of the said attachment from the Special Court, established under section 26A, having jurisdiction and on such confirmation,

such attachment shall continue during the pendency of the aforesaid proceedings and on conclusion of the said proceedings, the provisions of section 28A shall apply:
Provided further that only property, 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.

Question 6

What are the penalties for failure to furnish Information, return etc as per section 15A of the act?

Answer 6

on whom? - If any person, who is required under this Act or any rules or regulations made thereunder,—

Question 7

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

Answer 7

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.

Question 8

What is the Penalty for default in case of stock brokers [Section 15 F]?

Answer 8

Very important section - 3 times asked in exams

Question 9

What is the penalty for Insider trading as per the provisions of section 15G?

Answer 9

Very Important - Asked Many times in Exams

Question 10

What are the conditions for appeal to the Securities Appellate Tribunal as per the provisions of Section 15T? - Who may file an Appeal?

Answer 10

Question 11

What are the conditions for appeal to the Securities Appellate Tribunal as per the provisions of Section 15T? - Time period for Filing of an Appeal?

Answer 11

Every appeal 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:

Question 12

What are the conditions for appeal to the Securities Appellate Tribunal as per the provisions of Section 15T? - Condonation of Delay and Order Passed by SAT?

Answer 12

• Condonation of delay: 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.
• Order passed by SAT: On receipt of an appeal, 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.

Question 13

What are the conditions for appeal to the Securities Appellate Tribunal as per the provisions of Section 15T? - Forwarding copy of order to the parties and the time period for disposal of the appeal as per 15T?

Answer 13

• Forwarding of copies of order to the parties: 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.
• Time period for disposal of appeal: The appeal filed before the Securities Appellate Tribunal 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.

Question 14

Who has the power to grant immunity from prosecution based on the provisions of section 24B?

Answer 14

The Central Government may, on recommendation by the Board, if the Central Government is satisfied, that any person, who is alleged to have violated any of the provisions of this Act or the rules or the regulations made thereunder, has made a full and true disclosure in respect of the alleged violation,

• grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act, or the rules or the regulations made thereunder or also from the imposition of any penalty under this Act with respect to the alleged violation.

Exception: Provided that no such immunity shall be granted by the Central Government in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of application for grant of such immunity.
Provided further that recommendation of the Board under this sub-section shall not be binding upon the Central Government.

Question 15

When is the central government allowed to withdraw the immunity granted under section 24B? what circumstances shall warrant the withdrawal of the same?

Answer 15

An immunity granted to a person above may, at any time, be withdrawn by the Central Government, if it is satisfied that:
• such person had, in the course of the proceedings, not complied with the condition on which the immunity was granted or
• had given false evidence,
and thereupon such person may be tried for the offence with respect to which the immunity was granted or for any other offence of which he appears to have been guilty in connection with the contravention and shall also become liable to the imposition of any penalty under this Act to which such person would have been liable, had not such immunity been granted.
Explanation – In case where the immunity is withdrawn on account of non-compliance with the conditions or false evidence, the CG or Board shall proceed with the prosecution (against which immunity was given and withdrawn) and may also impose penalty as may be required.

Question 16

What are the provisions of section 28A regarding recovery of amounts by the recovery office on failure to pay any penalties under the act as the case may be?

Answer 16

If a person fails to pay the penalty imposed under this Act 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 may draw up under his signature a statement in the specified form specifying the amount due from the person (such statement being hereafter in this Chapter referred to as certificate) and shall proceed to recover from such person the amount specified in the certificate by one or more of the following modes, namely:—

(a) attachment and sale of the person’s movable property;
(b) attachment of the person’s bank accounts;
(c) attachment and sale of the person’s immovable property;
(d) of the person and his detention in prison;

(e) appointing a receiver for the management of the person’s movable and immovable properties

Question 17

How the recovery under the provisions of section 28A will occur in cases where the person transfers the movable or immovable properties directly or indirectly after which they have become due under the act for recovery by the recovery officer?

Answer 17

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(sister is not included here), 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.

The Recovery Officer shall be empowered to seek the assistance of the local district administration while exercising the powers under sub-section (1).

Question 18

What are the provisions regarding continuance of proceedings as per section 28B of the act on the legal representative after the death of the person on whom the recovery is being made?

Answer 18

(1) Where a person dies, his legal representative shall be liable to pay any sum which the deceased would have been liable to pay, if he had not died, in the like manner and to the same extent as the deceased:
Provided that, in case of any penalty payable under this Act, a legal representative shall be liable only in case the penalty has been imposed before the death of the deceased person.

any proceeding for disgorgement, refund or an action for recovery before the Recovery Officer under this Act, except a proceeding for levy of penalty, initiated against the deceased before his death shall be deemed to have been initiated against the legal representative, and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased and all the provisions of this Act shall apply accordingly

any proceeding for disgorgement, refund or an action for recovery before the Recovery Officer under this Act, except a proceeding for levy of penalty, which could have been initiated against the deceased if he had survived, may be initiated against the legal representative and all the provisions of this Act shall apply accordingly

(3) Every legal representative shall be personally liable for any sum payable by him in his capacity as legal representative if, while his liability for such sum remains undischarged, he c_reates a charge on or disposes of or parts with any assets of the estate of the deceased_, which are in, or may come into, his possession, but such liability shall be limited to the value of the asset so charged, disposed of or parted with.

4) The liability of a legal representative under this section shall be limited to the extent to which the estate of the deceased is capable of meeting the liability.
Explanation.–For the purposes of this section ‘‘Legal representative” means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased and where a party sues or is sued in a representative character, the person on whom the estate devolves on the death of the party so suing or sued.

Question 19

What are the regulations of LODR in relation to the board of directors as per Regulation 17 of the act?

Answer 19

(1) Composition of Board: The composition of board of directors (BOD) of the listed entity shall be as follows:
a. BOD shall have an optimum combination of executive and non-executive directors with at least one-woman director and not less than 50% of the BOD shall comprise of non-executive directors.
Provided that the BOD of the top 1000 listed entities (determined on the basis of market capitalisation, as at the end of the immediate previous financial year) shall have at least one independent woman director by April 1, 2020

where the c_hairperson of the BOD is a non-executive director, at least one-third of the BOD shall comprise of independent director_s and where the chairperson of the BOD is not a regular non-executive chairperson, at least half of the BOD shall comprise of independent directors.
Provided that where the regular non-executive chairperson is a promoter of the listed entity or is “related to any promoter” or person occupying management positions at the level of BOD or at one level below the BOD - at least half of the BOD of the listed entity shall consist of independent directors

For the purpose of this clause, “related to any promoter” means:
(i) If the promoter is a listed entity, its directors other than the independent directors, its employees or its nominees shall be deemed to be related to it;
(ii) If the promoter is an unlisted entity, its directors, its employees or its nominees shall be deemed to be related to it.
Provisions relating to independent directors are not applicable to section 8 (licensed i.e. non-profit) companies [MCA Notification dated 5-6-2015 issued under section 462 of Companies Act, 2013].

The BOD of the top 2000 listed entities (with effect from April 1, 2020) shall comprise of not less than six directors.
Age limit: No listed entity shall appoint a person or continue the directorship of any person as a non-executive director who has attained the age of seventy-five years unless a special resolution is passed to that effect, in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such a person.

Question 20

What is the corporate governance requirement with respect to subsidiary companies of listed company as per Regulation 24 of LODR rules?

Answer 20

(1) At least one independent director on the board of directors of the listed entity** **shall be a director on the board of directors of an unlisted material subsidiary, whether incorporated in India or not.

The term “material subsidiary” shall mean a subsidiary, whose income or net worth exceeds twenty percent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year.

(2) The Audit Committee of the listed company shall also review the financial statements, in particular the investments made by the subsidiary company
(3) The minutes of the Board meetings of the unlisted subsidiary shall be placed at the meeting of the BOD of the listed entity.

(4) The Management of the unlisted subsidiary should bring to notice of Board of listed entity, a statement of all significant transactions and arrangements entered into by unlisted subsidiary.
Explanation.- For the purpose of this regulation, the term “significant transaction or arrangement” shall mean any individual transaction or arrangement that exceeds or is likely to exceed 10% of the total revenues or total expenses or total assets or total liabilities, as the case may be, of the unlisted subsidiary for the immediately preceding accounting year.

A listed entity shall not dispose of shares in its material subsidiary resulting in reduction of its shareholding (either on its own or together with other subsidiaries) to less than 50% or cease the exercise of control over the subsidiary without passing a special resolution in its General Meeting(Even where percentage is less than 50%, if control is not lost, it will be continued to be material subsidiary.
However, no such special resolution would be required in cases where:
• such divestment is made under a scheme of arrangement duly approved by a Court/Tribunal or under a resolution plan duly approved under section 31 of the Insolvency Code and
• such an event is disclosed to the recognized stock exchanges within one day of the resolution plan being approved.

(6) Selling, disposing and leasing of assets amounting to more than 20% of the assets of the material subsidiary on an aggregate basis during a financial year shall require prior approval of shareholders by way of special resolution - The same point regarding resolution under section 31 shall apply

Where a listed entity has a listed subsidiary, which is itself a holding company, the provisions of this regulation shall apply to the listed subsidiary in so far as its subsidiaries are concerned.

Question 21

What are the common obligations of listed entities as per the Regulation 5,6 and 7 of the act?

Answer 21

Question 22

What are the list of quarterly compliance that a listed entity shall make the following filing with RSE on a quarterly basis?

Answer 22

• Regulation 13(3): Grievance Redressal Mechanism
• Regulation 27(2):- Other Corporate Governance Requirements
• Regulation 31(1): Holding of Specified Securities and Shareholding Pattern.
• Regulation 32(1): Statement of Deviation(S) Or Variation(S)
• Regulation 33(3): Financial Results

Question 23

What are the provisions in relation to prior intimation to the stock exchange of the board meeting regarding certain matters to be moved at the board meeting?

Answer 23

• *Prior Intimation of Board Meetings [Regulation 29(1) and 29(2)] - At least 5 days in advance (excl**uding date of meeting and date of intimation) in which the financial results viz. quarterly, half yearly, or annual, as the case may be, is due to be considered.
  b. At least 2 working days in advance, excluding the date of the intimation and date of the meeting in case where any of the following proposal is due to be considered:

Prior Intimation for alteration of securities [Regulation 29(3)] - The listed entity shall give intimation to the stock exchange(s) at least 11 working days before any of the following proposal is placed before the board of directors:

Record Date or Date of Closure of Transfer Books [Regulation 42(2)] - The listed entity shall give notice in advance of at least 7 working days (excluding the date of intimation and the record date) to stock exchange(s) of record date specifying the purpose of the record date.

Regulation 42(3): Dividend - A listed entity shall recommend or declare all dividend and/or cash bonuses at least 5 working days (excluding the date of intimation and the record date) before the record date.

Regulation 46(3):- Website - A listed entity shall update any change in the content of its website Within 2 working days from the date of such change in content.

Question 24

What are the annual / Yearly compliances as per the LODR regulations?

Answer 24

A. Regulation 33(3): Financial Results: The listed entity shall submit annual audited standalone financial results for the financial year, along with the audit report and Statement on Impact of Audit Qualifications (applicable only for audit report with modified opinion), w_ithin 60 days from the end of Financial Year._

B. Regulation 34: Annual Report: 21The listed entity shall submit to the stock exchange and publish on its website:

(a) a copy of the annual report sent to the shareholders along with the notice of the annual general meeting not later than the day of commencement of dispatch to its shareholders;
(b) in the event of any changes to the annual report, the revised copy along with the details of and explanation for the changes shall be sent not later than 48 hours after the annual general meeting.

Regulation 36(2): Documents & Information to Shareholders: A listed entity shall send annual report to the holders of securities not less than 21 days before the Annual General Meeting.

Question 25

What are the corporate governance requirements and what are the requirements in relation to quarterly and annual compliance reports?

Answer 25

• Approval for related party transactions through a resolution [As per Clause 49 of Listing Agreement, it was Special Resolution]
• All existing material related party contracts / arrangements, prior to the date of notification of these Regulations, and which may continue beyond, to be placed for approval of the shareholders in first General Meeting subsequent to notification of these Regulations.
Compliance Report on Corporate Governance
The following reports are submitted to Stock Exchange:-
• Quarterly Compliance Report – to be submitted within 15 days from end of quarter
• Annual Compliance Report to be submitted within 6 months from the end of financial year – may be submitted along with second quarter report.

Question 26

What is the requirement of formation of Audit committee as per Regulation 18 and it’s comparison with section 177 of the companies act, 2013?

Answer 26

Question 27

What are the other requirements of committees in relation to Nomination and remuneration committee as per regulation 19 and Stakeholder relationship committee as per Regulation 20 and Risk management committee as per the LODR regulations?

Answer 27

See Textual provisions in 2.60 and 2.65 of ICAI module

Question 28

All the unmarked portions has to be read carefully from the ICAI module, which has the high potential as a new question being asked this time or be part of the MCQ