The Securities and Exchange Board of India (SEBI) Act, 1992, was created to set up a regulatory body to safeguard investors, promote the growth of the securities market, and ensure it operates fairly. Section 11, found in Chapter IV of the Act which outlines the key responsibilities and powers of SEBI. This article explains Section 11 in simple terms, breaking down its provisions and their significance for anyone interested in understanding how SEBI regulates India’s securities market.
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What is Section 11 of the SEBI Act, 1992?
Section 11 of the SEBI Act, 1992, lays out the duties and powers of SEBI. Its goals are to protect investors, encourage the development of the securities market and regulate it in order to ensure fairness and efficiency. Section 11 is vital because it defines how SEBI works to maintain a trustworthy and well-functioning securities market in India.
Below, we’ll explore the details of Section 11, its subsections, and what they mean in clear, easy-to-understand language.
Detailed Breakdown of Section 11
Section 11 is divided into several subsections, each explaining specific roles and powers SEBI has to carry out its mission. Here’s what each part covers:
Section 11(1): SEBI’s Core Responsibilities
This part establishes SEBI’s primary role, which is to:
Protect the interests of investors in securities (stocks, bonds, etc.).
Promote the growth and development of the securities market.
Regulate the market using measures SEBI considers appropriate.
This gives SEBI a broad mandate to act as a guardian of the market and ensuring that it works fairly for everyone involved.
Section 11(2): Specific Measures SEBI Can Take
Section 11(2) lists the actions that SEBI can take to achieve its goals. These include:
(a) Overseeing the operations of stock exchanges and other securities markets to ensure they function properly.
(b) Registering and regulating intermediaries like stockbrokers, sub-brokers, share transfer agents, merchant bankers, portfolio managers, and others who play a role in the securities market.
(ba) Registering and regulating additional entities like depositories (which hold securities electronically), custodians, foreign institutional investors, and credit rating agencies, as notified by SEBI.
(c) Managing venture capital funds and collective investment schemes, such as mutual funds, to protect investors.
(d) Supporting the creation and regulation of self-regulatory organizations, which are industry groups that help enforce rules.
(e) Preventing fraudulent and unfair practices in the securities market to maintain trust.
(f) Promoting investor education and training for intermediaries to improve knowledge and participation in the market.
(g) Banning insider trading, where people use confidential information to trade securities unfairly.
(h) Regulating major share acquisitions and company takeovers to ensure transparency when control of a company changes.
(i) Requesting information and records from banks or other authorities during investigations to uncover wrongdoing.
(ia) Sharing or receiving information with other regulatory authorities, both in India and abroad, to cooperate on global market issues.
(j) Carrying out tasks assigned under the Securities Contracts (Regulation) Act, 1956, as directed by the Central Government.
(k) Collecting fees or charges to fund its operations.
(l) Conducting research to support its regulatory decisions with evidence.
(la) Requesting or providing information to specific agencies to perform its duties efficiently.
(m) Handling any additional responsibilities assigned to SEBI.
Section 11(2A): Interim Actions During Investigations
Section 11(2A) allows SEBI to take temporary actions to protect investors or the securities market while an investigation is ongoing or after it is completed. These actions include:
(a) Halting trading of a specific security on a stock exchange.
(b) Preventing certain individuals from accessing the securities market or trading securities.
(c) Suspending officials of stock exchanges or self-regulatory organizations.
(d) Holding onto proceeds or securities involved in an investigation.
(e) Freezing bank accounts of intermediaries or individuals involved in violations for up to one month, with approval from a Judicial Magistrate. Only funds related to the violation are frozen, and personal funds are protected.
(f) Ordering intermediaries or individuals not to sell or transfer assets linked to an investigation.
These measures apply to listed companies or those planning to list, especially if they’re suspected of insider trading or fraudulent practices. SEBI ensures fairness by giving affected parties a chance to be heard.
Section 11(3): SEBI’s Court-Like Powers
When carrying out certain tasks under Sections 11(2)(i), 11(2)(ia), or 11(2A), SEBI has powers similar to a civil court under the Code of Civil Procedure, 1908. These include:
Ordering the discovery and production of documents.
Summoning people and questioning them under oath.
Inspecting books, registers, and documents of intermediaries or companies.
Issuing commissions to examine witnesses or collect documents.
These legal powers strengthen SEBI’s ability to investigate and enforce regulations effectively.
Why Section 11 Matters
Section 11 creates a strong framework for SEBI to protect investors, grow the securities market and keep it fair. By addressing issues like insider trading, fraudulent practices, and major corporate transactions, SEBI ensures the market operates transparently. Its ability to investigate, inspect, and work with international regulators makes it more effective, especially in today’s global financial world.
Also, Learn about Deductions under Section 80C of Income Tax Act, 1961.
Summary
Section 11 of the SEBI Act, 1992, defines the extensive powers and responsibilities of SEBI. It focuses on protecting investors, promoting market growth and regulating the securities market to ensure fairness. The section provides SEBI with tools to oversee intermediaries, prevent malpractices, conduct investigations and take interim actions when needed. With legal powers similar to a civil court, SEBI can enforce its regulations effectively, making it a key player in maintaining a trustworthy securities market in India.
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Section 11 of SEBI: FAQs
Q1. What is the main purpose of Section 11 of the SEBI Act, 1992?
Section 11 outlines SEBI’s role in protecting investors, promoting the growth of the securities market and regulating it to ensure fairness and efficiency through various measures.
Q2. What kinds of intermediaries does SEBI regulate under Section 11?
SEBI oversees intermediaries like stockbrokers, mutual funds, depositories, custodians, merchant bankers, portfolio managers, credit rating agencies, and others to ensure they follow rules and protect investors.
Q3. How does Section 11 help SEBI stop market malpractices?
Section 11 allows SEBI to ban fraudulent and unfair practices, stop insider trading, and regulate major share acquisitions and company takeovers to maintain market integrity.
Q4. What temporary actions can SEBI take under Section 11(2A)?
SEBI can pause trading, restrict market access, suspend officials, hold onto proceeds or securities, freeze bank accounts, or prevent asset sales during investigations to protect investors and the market.
Q5. Does SEBI have powers like a court under Section 11?
Yes, under Section 11(3), SEBI has powers similar to a civil court, such as summoning people, inspecting documents, and issuing commissions during investigations to enforce its regulations effectively.
