SEBI as a Pillar of Corporate Governance: An Indian Perspective

Abstract

Corporate governance is a fundamental mechanism for ensuring transparency, accountability, and ethical conduct in corporate entities. In India, the Securities and Exchange Board of India (SEBI) plays a pivotal role in shaping and enforcing corporate governance standards, particularly for listed companies. This article examines the role of SEBI as a regulatory authority in strengthening corporate governance through its legislative framework, policy initiatives, and enforcement mechanisms. It analyses key regulations such as the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and highlights SEBI’s emphasis on disclosure norms, board composition, protection of minority shareholders, and corporate accountability. The study further explores SEBI’s contribution to promoting investor confidence and market integrity by ensuring compliance and addressing corporate misconduct. By evaluating SEBI’s evolving regulatory approach, the article underscores its significance in fostering a transparent, fair, and efficient corporate environment in India.

Introduction

Corporate governance is simply about how a company is run the right way. It ensures that those in charge act honestly, responsibly, and transparently, while keeping the interests of shareholders and other stakeholders in mind.

In essence, corporate governance builds trust—by making sure decisions are fair, information is shared openly, and accountability is maintained at every level of the company.The Securities and Exchange Board of India (SEBI) was established as a statutory body under the Securities and Exchange Board of India Act, 1992, which is deemed to have come into force on January 30, 1992.

SEBI

A. Composition

The Board responsible for its management consists of:

• A Chairman.
• Two members from the Ministry of Finance and administration of the Companies Act.
• One member from the Reserve Bank.
• Five other members, at least three of whom must be whole-time members.

B. Functions

The primary duty of the Board is to protect the interests of investors and to promote and regulate the development of the securities market. Its key functions include:

• Regulating Stock Exchanges: Overseeing the business operations of securities markets.
• Intermediary Oversight: Registering and regulating the working of stockbrokers, merchant bankers, underwriters, investment advisers, and other market participants.
• Market Integrity: Prohibiting fraudulent and unfair trade practices and insider trading.
• Investment Schemes: Registering and regulating mutual funds, venture capital funds, and collective investment schemes.
• Takeovers: Regulating the substantial acquisition of shares and company takeovers.

C. Powers of Investigation and Enforcement

To fulfill its duties, the sources state that SEBI is granted significant authority:

• Civil Court Powers: While holding inquiries, the Board has the same powers as a civil court regarding the discovery of documents and summoning of witnesses.
• Investigation and Seizure: It can appoint an Investigating Authority to look into transactions detrimental to investors and, with judicial authorization, can search premises and seize records.
• Directives: SEBI may issue cease and desist orders or directions for “disgorgement” (returning wrongful gains).
• Penalties: The Act provides for heavy penalties for various defaults, such as insider trading (up to 25 crore rupees or three times the profit) and failure to redress investor grievances.

Caselaws

1. Sahara India Real Estate Corp. Ltd. v. SEBI (2012)

Facts: Sahara raised huge funds through optionally fully convertible debentures (OFCDs) without complying with SEBI disclosure norms.
Held: SEBI has jurisdiction over unlisted companies issuing securities to the public.
Significance: Strengthened SEBI’s power to protect investors and regulate public issues.

2. SEBI v. Rakhi Trading Pvt. Ltd. (2018)

Facts: Parties engaged in synchronized and structured trades to manipulate the market.
Held: Such trades, even without direct loss, amount to market manipulation.
Significance: Expanded the scope of “fraudulent and unfair trade practices”.

3. SEBI v. Shri Ram Mutual Fund (2006)

Facts: Mutual fund violated SEBI regulations unintentionally.
Held: Mens rea (intention) is not required for civil liability under SEBI Act.
Significance: Strict liability applies to regulatory violations.

Conclusion

SEBI acts as the “Police Force and Judge” of the financial highway. It sets the speed limits (regulations), licenses the drivers (intermediaries), monitors for reckless driving (fraud/insider trading), and has the power to issue tickets (penalties) or impound vehicles (seizure) to ensure that the road remains safe for all travelers (investors).