Module 1: Introduction to Securities Law in India

BSE was established in 1875 as the Native Share and Stock Brokers' Association. It is Asia's oldest stock exchange.

The 1992 securities scam was masterminded by Harshad Mehta, who manipulated the stock market using bank receipts and interbank transactions.

SEBI was given statutory powers through the SEBI Act, 1992, enacted on January 30, 1992. Prior to this, SEBI was a non-statutory body.

UTI was established in 1963 as India's first mutual fund, playing a transformative role in bringing retail investors to capital markets through its US-64 scheme.

The US SEC was established in 1934 following the Great Depression and 1929 stock market crash through the Securities Exchange Act, 1934.

The CCI was abolished in April 1992 when SEBI took over primary market regulation after receiving statutory powers.

The Janakiraman Committee investigated the mechanics of the 1992 securities scam and banking sector complicity.

NSE was established in 1992 and became operational in 1994. It pioneered electronic screen-based trading in India.

LIC was established in 1956 by nationalizing the life insurance industry. It became a major institutional investor in Indian markets.

The UK's securities regulator is the Financial Conduct Authority (FCA), which replaced the FSA in 2013.

Article 19(1)(g) guarantees the right to practise any profession, or to carry on any occupation, trade or business. This is subject to reasonable restrictions under Article 19(6).

Section 11 is the core provision setting out SEBI's duty to protect investors, develop the market, and regulate securities markets.

The comprehensive definition of "securities" is in Section 2(h) of SCRA. This definition determines SEBI's jurisdictional reach.

Section 18A of SCRA gives legal validity to derivatives contracts traded on recognized stock exchanges, exempting them from being void as wagering contracts.

Stock exchanges and futures markets fall under Entry 48 of the Union List, giving Parliament exclusive legislative competence.

The Depositories Act was enacted in 1996, establishing the legal framework for dematerialization of securities.

Section 11B grants SEBI power to issue directions to any person associated with the securities market. This is frequently used for interim and final orders.

Section 11C grants SEBI power to order investigation, including search and seizure powers under Section 11C(8).

Listed companies must comply with both Section 188 of Companies Act and SEBI LODR Regulation 23 for related party transactions. SEBI requirements are typically more stringent.

Under Section 10 of Depositories Act, the Depository is the registered owner in company records, but the beneficial owner has all investor rights.

Bank fixed deposits are not securities - they are regulated by RBI, not SEBI.

FPI stands for Foreign Portfolio Investor. The FPI regime replaced the earlier FII regime in 2014.

AIF minimum investment is Rs. 1 crore for regular investors. Employees and directors can invest Rs. 25 lakhs.

Category III AIFs include Hedge Funds that employ leverage, short-selling, and complex trading strategies.

Derivative is defined in Section 2(ac) of SCRA as a security derived from underlying instruments.

India moved to T+1 (trade date plus one day) settlement in January 2023, among the fastest settlement cycles globally.

ISIN stands for International Securities Identification Number - a unique 12-character alphanumeric code identifying a security.

CIS stands for Collective Investment Scheme - where investors pool money with no day-to-day control over management.

Dematerialization is the process of converting physical certificates to electronic records held in a depository account.

The FPI regime replaced FII in 2014, creating a unified framework for foreign portfolio investors.

NSDL was established in 1996 as India's first depository, promoted by NSE, IDBI Bank, and UTI.

Nifty 50 is the benchmark index of NSE. BSE's benchmark index is the Sensex.

CDSL was promoted by BSE and established in 1999 as India's second depository.

A CCP guarantees settlement of trades by becoming buyer to every seller and seller to every buyer, eliminating counterparty risk.

AMFI provides AMFI Registration Number (ARN) for mutual fund distributors.

NISM (National Institute of Securities Markets) was established by SEBI in 2006 as a public trust for securities market education and certification.

NSE Clearing Limited (NCL) is the clearing corporation for NSE. ICCL serves BSE.

SEBI's settlement mechanism allows parties to settle without admission of guilt by paying settlement charges, enabling efficient resolution.

Individual investors cannot be DPs. DPs must be registered entities like banks, brokers, or custodians.

Corporation Finance Department (CFD) handles IPOs, FPOs, rights issues, and disclosure-related matters.

Satyam scandal involved accounting fraud including inflated cash, fictitious revenues, and fake employees.

The Supreme Court held OFCDs issued to 30+ million people were undoubtedly a public issue requiring SEBI compliance.

Subrata Roy, Sahara Group promoter, was held in contempt and detained for non-compliance with refund orders.

Tech Mahindra acquired Satyam after the scandal, renaming it Mahindra Satyam before merging it.

The gatekeeping role means lawyers must prevent and not facilitate securities fraud. They can face liability for aiding violations.

The first step is scoping - defining the scope of due diligence based on transaction type, risk profile, and client requirements.

Acquisition exceeding 25% triggers open offer obligation under SEBI (SAST) Regulations requiring an offer to acquire minimum 26% from public shareholders.

Trading window is typically closed before results announcement. If the promoter has UPSI (results), trading is prohibited under SEBI PIT Regulations.

Lawyers must maintain confidentiality for past completed fraud, but cannot assist in ongoing fraud and may need to withdraw if the fraud is continuing.

Satyam led to stricter auditor rotation, enhanced independent director norms, whistle-blower protections, and stronger governance under Companies Act 2013.