Most regulators punish. The Securities and Exchange Board of India, created by the SEBI Act 1992, does something more fundamental: it excludes. Its decisive instrument is not the fine, not the prosecution, and not the adverse finding after a long inquiry. It is the direction, issued by the regulator’s own order, that restrains a person from accessing the securities market or from buying, selling or dealing in securities at all, and that direction can be issued on an interim basis, before any final finding has been recorded against the person restrained. For a broker, a merchant banker, a listed company promoter or an investment adviser, exclusion from the market is not a sanction that follows the destruction of a business. It is the destruction of the business, administered in advance of adjudication and reviewed only afterwards. Understanding that single design choice, a power to exclude before adjudication, explains both why this regulator is regarded as the most effective in the Indian regulatory state and why every serious criticism of it concentrates on the same point.

The institution profile question for this series is what a body was designed to be able to do. SEBI was designed, across a decade of statutory construction between 1992 and 2014, to be able to do four things without asking a court first: to compel information from anyone, registered or not; to freeze a market participant out of the market while an investigation runs; to take away the profits of a violation and to fine the violator through its own adjudication; and to close a proceeding by settlement without ever deciding what happened. Each of those powers was conferred at a different moment, usually after a scandal exposed the absence of the power that was then supplied. The result is a body that began life in 1988 as an administrative arrangement with no statutory authority of any kind, a secretariat with a name, and became within a generation the regulator against which every other Indian regulator in this series is measured. The comparison is not accidental. Parliament kept returning to this statute and adding powers to it, because the market kept producing misconduct that moved at trading speed while the ordinary legal process moved at litigation speed, and the gap between those two speeds is the space this institution was built to occupy.

From an administrative arrangement to a statutory Board: the making of the SEBI Act 1992

The Securities and Exchange Board of India was constituted on 12 April 1988 by a resolution of the Government of India. It had a chairman, a small staff, an office, and no legal power to compel anyone to do anything. It could advise, it could persuade, it could draft guidelines that market participants observed because the government stood behind it, but it could not register an intermediary against his will, could not summon a document, could not punish a fraud. To understand why such a body was created at all, the reader has to see what it was created alongside. The Indian capital market of the 1980s was still governed by the logic of the Capital Issues (Control) Act, 1947, under which no company could issue capital except with the consent of the Central Government, exercised through the Controller of Capital Issues, and the government fixed not only whether shares could be issued but at what price and at what premium. A market in which the state sets the price of every issue does not need a conduct regulator. It needs a permissions office, and the Controller of Capital Issues was that office. SEBI in 1988 was a sign that the permissions model was expected to end: a regulator in waiting, built before the reform that would make it necessary.

The reform arrived with the economic liberalisation of 1991. Free pricing of share issues was incompatible with a control regime whose central function was to fix prices, so the control had to go, and a disclosure-based regulator had to stand in its place: instead of the state approving the price, the issuer would disclose everything material and the investor would decide, with a statutory regulator policing the honesty of the disclosure and the fairness of the trading that followed. On 30 January 1992 the President promulgated the Securities and Exchange Board of India Ordinance, and the Board became a statutory body on that date, the date to which the eventual Act was deemed to have come into force. Parliament then enacted the Securities and Exchange Board of India Act, 1992, Act 15 of 1992, replacing the ordinance. In May 1992 an ordinance repealed the Capital Issues (Control) Act, 1947, the office of the Controller of Capital Issues was abolished, and companies were freed to price their own issues subject to disclosure requirements that SEBI administered. The sequence matters and is worth stating precisely, because the standard account gets it backwards. The securities scam associated with the broker Harshad Mehta became public in April 1992, after the ordinance had already given SEBI statutory status and in the same season as the Act’s passage. The scam did not cause the statute. What the scam did was to destroy, within weeks of the regulator’s statutory birth, any political resistance to arming it: the exposure of a manipulation of the banking and securities markets on an enormous scale, conducted through instruments the new regulator had barely begun to oversee, shaped the powers conferred in the years that followed and the willingness of Parliament to confer them. The Act is a child of liberalisation. Its teeth are a child of the scam.

The scam deserves a paragraph of its own, because its mechanics explain the enforcement philosophy that followed. The manipulation of 1991 and 1992 was not principally a fraud on the stock exchange floor. It was a fraud on the banking system’s securities transactions, in which receipts for inter-bank securities deals were fabricated or left unbacked, and the funds released against them were channelled into the stock market to ramp up share prices. When the exposure came, in April 1992, the discovery was that the new disclosure-based market had been inflated with money diverted from the banking system itself, and a Joint Parliamentary Committee examined the failure across the Reserve Bank, the finance ministry and the market. Two lessons were institutionalised. The first was that securities misconduct and banking misconduct are one system, which is why the Board’s composition carries a central bank nominee and why its information powers run against banks and other non-market entities. The second was that dematerialisation and screen-based trading were enforcement measures as much as efficiency measures: the Depositories Act, 1996 created the electronic record of ownership that makes modern surveillance possible, and the National Stock Exchange’s screen-based order book, which began operations in the years immediately after the scam, replaced the open-outcry floor whose opacity had sheltered manipulation. The pattern repeated a decade later in the market manipulation associated with the broker Ketan Parekh, exposed in 2001, after which Parliament passed the Securities and Exchange Board of India (Amendment) Act, 2002, Act 59 of 2002, strengthening the investigation provisions, inserting the general anti-fraud prohibition in Section 12A and stiffening the penalty chapter. The institution’s statute is best read as a sediment of these episodes: each layer of power answers to a named failure that preceded it.

Those teeth were cut in stages. The original Act gave the Board the duty cast in its preamble and in Section 11, to protect the interests of investors in securities and to promote the development of and to regulate the securities market, and armed it with registration of intermediaries, inspection and inquiry, and a Securities Appellate Tribunal of a single presiding officer. The Securities Laws (Amendment) Act, 1995 inserted the two provisions on which the modern enforcement institution rests: Section 11B, the directions power, and Chapter VIA, the adjudication machinery for monetary penalties, so that within three years of its statutory birth the Board could both restrain and fine. The Depositories Act, 1996 then brought the dematerialised system of holding securities within the regulatory family. The Securities Laws (Second Amendment) Act, 1999 inserted the collective investment scheme chapter in Section 11AA after a wave of plantation and agro-bond schemes had collected money from small investors on promises no regulator had clearly owned, and it widened the appellate route against the Board’s orders. The amendment of 2002, Act 59 of 2002, rebuilt the tribunal as a three-member body, inserted the interim measures in Section 11(4), widened the penalty ladder, and inserted the general prohibition on manipulative and deceptive devices in Section 12A. The final and largest arming came through an ordinance first promulgated on 18 July 2013, after the collapse of large unregulated deposit and collective schemes had again exposed jurisdictional gaps, and then through the Securities Laws (Amendment) Act, 2014, which supplied search and seizure, an express recovery machinery, a statutory settlement provision, deemed collective investment schemes above a corpus threshold, and minimum penalties. By the end of that sequence the administrative secretariat of 1988 had become a body exercising investigative, prosecutorial and adjudicatory functions in one pair of hands, which is the structural fact the rest of this profile keeps returning to.

The mandate: three duties written as one

The preamble of the Act states the Board’s purpose in a single sentence: to protect the interests of investors in securities, and to promote the development of, and to regulate, the securities market. Section 11(1) converts that statement into a duty. The Board is not merely permitted to pursue those ends; it is charged with taking such measures as it thinks fit for them, and Section 11(2) then enumerates the fields in which the measures may operate, from regulating the business in stock exchanges and other securities markets, through registering and regulating stock brokers, merchant bankers, depositories, mutual funds, venture capital funds and collective investment schemes, to prohibiting insider trading, regulating substantial acquisition of shares and takeovers, calling for information from and inspecting intermediaries, and performing such other functions as may be prescribed. The enumeration is long, and its length is the point. Parliament did not create a narrow licensing authority. It created a market-wide regulator whose remit runs from the primary market, where capital is raised, through the secondary market, where securities are traded, to the conduct of every intermediary in between.

What does Section 11 of the SEBI Act require the Board to do?

Section 11 obliges the Board, subject to the Act, to protect the interests of investors in securities and to promote the development of and regulate the securities market by such measures as it thinks fit. The measures expressly include regulating stock exchanges and market intermediaries and prohibiting insider trading and fraudulent practices.

The full enumeration also runs to registering the market’s participants and to calling for information from, and undertaking inspections, inquiries and audits of, intermediaries and issuers, the functions examined in the sections that follow.

Beneath the enumerated list sits the provision that converts a mandate into a working regulator. Section 11(3) gives the Board, while exercising its powers of inspection and inquiry, the same powers as are vested in a civil court under the Code of Civil Procedure in respect of discovery and production of documents, summoning and enforcing the attendance of persons and examining them on oath, inspecting the books of intermediaries, and issuing commissions for the examination of witnesses. A body that can summon a person, put him on oath and require him to produce his books is no longer advising the market. It is sitting in judgment on it, at the investigative stage, before any question of sanction arises. The development limb of the mandate has its own record and should not be read as decoration. Acting under it, the Board built regulatory frameworks for products that did not exist when the Act was passed: real estate investment trusts and infrastructure investment trusts under regulations made in 2014, alternative investment funds, municipal debt securities, and a separate listing platform for small and medium enterprises and start-ups. Each framework is the development duty and the protection duty negotiated in a single document, since a new product class is simultaneously a widening of the market and a new surface for investor loss, and the conditions imposed at entry, on minimum investment size, sponsor commitment and disclosure, are the visible trace of that negotiation. The aspirant should note the analytical point: when the Board restricts a novel product to investors above a wealth threshold, it is not being inconsistent with market development; it is performing the statute’s instruction to hold development and protection together, and choosing protection at the margin where the two conflict.

The tension inside the mandate is also written into the text. Investor protection and market development pull in opposite directions whenever a novel product is both an opportunity and a risk, and the statute does not resolve that tension; it hands it to the Board and trusts the institution to hold the two duties together. Much of the criticism examined later in this article is, at root, an argument about which of the three duties the Board has privileged when they conflict.

A regulator that also writes much of the law it enforces

Section 30 of the Act empowers the Board, with the previous approval of the Central Government and by notification, to make regulations consistent with the Act and the rules under it for carrying out the purposes of the Act, and Section 31 requires every rule and regulation to be laid before Parliament. In practice the operative law of the Indian securities market lives in those regulations, not in the parent Act. The issue of capital is governed by the Board’s issue of capital and disclosure requirements regulations; the continuing obligations of listed companies by its listing obligations and disclosure requirements regulations; insider trading by a self-contained code in the prohibition of insider trading regulations of 2015, which define unpublished price sensitive information, structure the defences and require trading plans and disclosure of trades; market abuse by the prohibition of fraudulent and unfair trade practices regulations of 2003; and each class of intermediary by its own registration and conduct regulations. The Board consults before it legislates, publishing consultation papers and draft regulations and considering the comments received, a practice that has become part of the institution’s working constitution even where the Act does not compel it in terms. The consequence for the reader is that a profile of this regulator drawn from the Act alone describes the skeleton. The flesh, the thresholds, the timelines, the disclosure formats and the compliance calendars that market participants actually live under, is subordinate legislation the Board writes, amends and enforces itself. That quasi-legislative breadth is the first of the concentrations examined in the criticism section, and it is also a large part of the institution’s effectiveness: a rule that a trading practice has outrun can be rewritten in months by the body that polices the practice, where an amendment to the Act would take a Parliament.

The Act the Board administers is not the only securities statute. The Securities Contracts (Regulation) Act, 1956 governs stock exchanges and the contracts traded on them, and the Depositories Act, 1996 governs the dematerialised holding of securities, and the Board exercises functions under both, alongside its powers under the companies legislation in respect of listed companies and public issues. That layering is why a description of SEBI’s powers drawn only from the SEBI Act understates the institution: the 1992 Act is the charter, but the working jurisdiction is assembled from three securities statutes and parts of a fourth, and the reader who wants the overlap with company law will find it taken up below where the regulator’s reach over unlisted fund-raising is examined.

Who sits on the Board, and who chooses them

Section 4 of the Act fixes the composition of the Board. It consists of a Chairman; two members drawn from among the officials of the Central Government ministries dealing with finance and with the administration of the companies legislation; one member drawn from among the officials of the Reserve Bank of India; and five other members, of whom at least three must be whole-time members. The Chairman and the five other members are appointed by the Central Government, the two ministry members are nominated by the Central Government, and the Reserve Bank member is nominated by the Reserve Bank. Section 4 requires the Chairman and the appointed members to be persons of ability, integrity and standing who have shown capacity in dealing with problems relating to the securities market or have special knowledge or experience of law, finance, economics, accountancy, administration or another discipline the government considers useful to the Board. Nine people, in other words, govern the institution: a chairman, at least three whole-time members who run it day to day, and a part-time contingent that includes the nominees of the Finance Ministry, the company-law administration and the central bank.

Beneath the Board sits a large professional secretariat organised by function: departments for market regulation, corporation finance, market intermediaries and supervision, investment management, enforcement, investigation, legal affairs and economic and policy analysis, among others, with the head office at Mumbai and regional offices at New Delhi, Kolkata, Chennai and Ahmedabad and local offices in a number of other cities. The structure matters to the profile for one reason. The institution’s powers are exercised through this machinery, and the quality of its enforcement is in practice the quality of its surveillance analysts, investigating officers and legal drafters, a permanent staff whose continuity across changes of chairman and members gives the regulator its institutional memory. When this article speaks of SEBI deciding, the literal truth is that a file moved through this secretariat to a whole-time member’s desk, and the distance between the statutory text and the working institution is the distance the reader should keep in mind throughout.

The design is a compromise, and it is worth seeing what it compromises between. The presence of serving government officials and a central bank nominee inside the Board room ties the regulator to the state and to the monetary authority, which matters when a market crisis is also a banking crisis. The whole-time members, appointed from outside the serving bureaucracy in the main, supply the professional core. Appointments are made by the Central Government, and since 2016 the selection for the top regulatory posts has run through the Financial Sector Regulatory Appointments Search Committee, a search mechanism the government constituted for the financial regulators. Section 5 governs the terms of office, and Section 6 empowers the Central Government to remove the Chairman or a member on grounds that include insolvency, conviction for an offence involving moral turpitude, physical or mental incapacity, acquisition of a financial or other interest likely to affect prejudicially the member’s functions, and abuse of position. The removal power is the formal limit on the institution’s independence: the Board’s members are secure against the market they regulate, but their tenure rests on an appointment the executive makes and, on stated grounds, can end.

What is the difference between a whole-time member and a part-time member of the SEBI Board?

A whole-time member is a full-time executive of the regulator who heads departments, conducts inquiries and passes the enforcement orders in the Board’s name, including directions restraining persons from the market. A part-time member attends Board meetings and joins in policy and regulation-making but runs no department and signs no enforcement order.

Enforcement in this institution is therefore the work of a handful of whole-time members, not of the Board in plenary session, and the disgorgement and debarment orders discussed in this article issue from those members acting under the Act and delegated authority.

That division of labour has a consequence the reader should register before reaching the enforcement sections. When this article says that SEBI debarred a person or directed disgorgement, the operative decision was taken by a whole-time member or the Chairman acting under delegated authority, in proceedings that are administrative rather than judicial in form, with the file built by departments answerable to the same institution. The Board as a nine-member collegium makes the regulations and sets policy; the coercive acts issue from individual members. Defenders of the design answer that this is true of every modern regulator and that the alternative, a full tribunal for every interim restraint, would restore the litigation speed the institution exists to escape. Critics answer that the concentration is not incidental but chosen, and that appeals after the event are a thin corrective when the order itself is commercially fatal. Both points return, in fuller form, in the criticism section below.

The registration gate: Section 12 and the licensed market

Before the powers of coercion, the Act builds the population over which coercion will operate. Section 12 provides that no stock broker, sub-broker, share transfer agent, banker to an issue, trustee of a trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser, depository, participant, custodian of securities, credit rating agency, or other intermediary associated with the securities market whom the Board specifies, shall buy, sell or deal in securities except under and in accordance with the conditions of a certificate of registration obtained from the Board under its regulations. A parallel clause forbids any person from sponsoring or operating a collective investment scheme, including a mutual fund, without registration. Registration is granted against criteria of fitness, capital, infrastructure and track record prescribed by the regulations for each class, is kept alive by continuing obligations and periodic fees, and can be suspended or cancelled by the Board under Section 12(3) where the intermediary contravenes the Act, the rules or the regulations, after inquiry and an opportunity of hearing, with the graver violations attracting the intermediary proceedings that end in suspension of the certificate itself.

The registration gate is easy to read as a bureaucratic preliminary, and that reading misses its function in the design. Registration converts market access from a liberty into a licence that the regulator grants, conditions and can withdraw, and every enforcement power in this article operates against the background of that conversion. The broker who is debarred is not merely fined; he is put outside a licensed population whose membership is the precondition of his trade. The same gate gives the Board its supervisory intelligence, because the registered population files returns, submits to inspection and audit, appoints compliance officers and answers to codes of conduct written into the regulations, so that by the time the Board investigates a person it ordinarily holds years of that person’s regulatory filings. Around the registered core the Act also builds a penumbra of recognised self-regulation: the Board promotes and regulates self-regulatory organisations under Section 11, the stock exchanges discipline their members under bye-laws the Board approves, and the depositories hold the dematerialised record of ownership on which the entire evidentiary system of modern enforcement depends. The licensed market is thus both the object of the powers that follow and the instrument through which they are exercised. One further layer of the architecture sits above the intermediaries. The stock exchanges themselves, on which the licensed population trades, are recognised under the Securities Contracts (Regulation) Act, 1956, and the administration of that recognition, together with approval of exchange bye-laws and rules, is exercised by the Board under powers delegated to it, so that the institution charters the venues as well as the traders. The exchanges in turn are organised as regulated entities with their own compliance obligations, and the largest of them are companies subject to the Board’s governance norms for market infrastructure institutions, a category the Board’s regulations developed to govern exchanges, depositories and clearing corporations as a class. The picture is of concentric circles of licence: the Board at the centre, the market infrastructure institutions recognised and supervised by it, the intermediaries registered under Section 12, and, at the perimeter, the issuers whose securities the whole structure exists to trade.

The Board and the executive: autonomy with a statutory leash

An institution profile must place the body in relation to the government that created it, and the Act does so in terms that are more qualified than the rhetoric of independent regulation suggests. The Board’s funds come in part from grants of the Central Government and in part from the fees it levies on the market, and its accounts are audited by the Comptroller and Auditor-General of India, with an annual report laid before Parliament. Section 16 empowers the Central Government to issue directions to the Board in writing on questions of policy, after giving the Board an opportunity to express its views where practicable, and the government’s decision on whether a question is one of policy is final; the Board is bound to comply. Section 17 goes further and empowers the Central Government, in stated contingencies that include the Board’s persistent default in complying with directions, a grave emergency, or circumstances in which the Board is unable to discharge its functions, to supersede the Board for a period not exceeding six months, whereupon its members vacate office and its powers are exercised by such person or authority as the government directs, subject to reconstitution. The supersession power has never been the working reality of the institution, and its significance is constitutional rather than operational: the regulator’s independence is a convention built inside a statute that reserves the last word, in form, to the executive. The working autonomy the institution enjoys rests on three less dramatic supports, its fee income, the professional standing of its whole-time members, and the political cost to any government of being seen to direct the market regulator in a live matter. Readers comparing this institution with the central bank profile in this series will recognise the pattern, since the Reserve Bank’s charter carries a cognate directions provision, and in both cases the provision’s importance lies less in its use than in the negotiation it structures between the regulator and the ministry that owns its statute.

The directions power: exclusion as the decisive sanction

Section 11B is the centre of the Act’s enforcement design. Where, after making or causing an inquiry, the Board is satisfied that it is necessary in the interests of investors or the orderly development of the securities market, or to prevent the affairs of an intermediary being conducted in a manner detrimental to investors, or to secure the proper management of an intermediary, it may issue such directions as it considers appropriate to any person associated with the securities market, and to any company in respect of the matters covered by Section 11A, the provision dealing with the issue of capital and the transfer of securities. The directions the Board has built on that foundation include restraining a person from accessing the securities market, prohibiting a person from buying, selling or dealing in securities, suspending the registration of an intermediary, and directing a person who made a profit or averted a loss by a contravention to disgorge an amount equivalent to the wrongful gain. An Explanation to Section 11B declares that the power to issue directions includes, and has always been deemed to include, the power to direct disgorgement, a clarification Parliament supplied after the reach of the power had been litigated. Alongside Section 11B stands Section 11D, under which the Board may order a person to cease and desist from committing or causing the violation in question.

Section 11(4) then supplies the interim armoury, and its text deserves close attention because it is the provision that operates before any finding. Without prejudice to the rest of Section 11 and to Section 11B, the Board may by order, for reasons recorded in writing and in the interests of investors or the securities market, take any of a list of measures either pending investigation or inquiry or on its completion. The measures are: suspending the trading of any security in a recognised stock exchange; restraining persons from accessing the securities market and prohibiting any person associated with the market from buying, selling or dealing in securities; suspending an office-bearer of a stock exchange or self-regulatory organisation; impounding and retaining the proceeds or securities in respect of a transaction under investigation; attaching, with the approval of the Judicial Magistrate of the first class having jurisdiction, for a period not exceeding one month, one or more bank accounts of an intermediary or person associated with the market involved in the violation, limited to the proceeds actually involved; and directing an intermediary or associated person not to dispose of or alienate an asset forming part of a transaction under investigation. Two adjacent powers complete the directions picture. Section 11(2A) authorises the Board to inspect the books, registers, documents and records of any listed public company, or of a public company that intends to get its securities listed, where it has reasonable grounds to believe that the company has been indulging in insider trading or fraudulent and unfair trade practices, extending the inspection power beyond intermediaries to issuers themselves. Section 11A arms the Board over the primary market, empowering it to specify the matters relating to the issue of capital and the transfer of securities and the manner of their disclosure, and to restrain the issue of offer documents that do not comply, which is why the directions power in Section 11B expressly runs to companies in respect of Section 11A matters. And in the field of substantial acquisition of shares and control, the Board’s takeover regulations made under the Act convert the same directions architecture into the discipline of open offers, so that a change of control of a listed company proceeds on terms the regulator prescribes and can enforce by direction.

Read the list again and notice the grammar. These are not penalties for a proved wrong. They are measures available pending investigation, on the Board’s own recorded satisfaction, restraining a person from the market in which his livelihood sits.

This is the article’s namable claim, and it can be stated plainly: debarment is the sanction. A monetary penalty under this Act is capped, as the next sections show, at amounts a large market participant can treat as a cost. A prosecution under Section 24 requires a criminal trial the Board does not control. But a direction under Section 11B or a measure under Section 11(4) removes the person from the market altogether, takes effect on the Board’s own order, and can be framed on an interim basis while the inquiry continues. For an intermediary, whose entire business is market access, the interim order is not a preliminary skirmish before the real punishment. It is the punishment, delivered at the stage when the allegations are least tested, and the final order, when it comes, frequently matters less than the months or years of exclusion that preceded it. No other Indian regulator examined in this series holds an equivalent instrument in equivalent form: the power to exclude first and adjudicate afterwards, in the regulator’s own forum, by the regulator’s own members.

The courts have not left the power unbounded, and the discipline they have imposed is itself part of the design as it operates. Ex parte interim orders, passed without hearing the person restrained, are expected to be followed by a post-decisional hearing and a confirmatory process, and the Securities Appellate Tribunal has set aside interim orders where urgency was asserted but not demonstrated. In SEBI v. Udayant Malhoutra, decided in 2020, the Supreme Court affirmed a tribunal order setting aside such an ex parte order on the facts before it, holding that the tribunal was correct to find no urgency sustaining the order, while directing that the tribunal’s broader reading of the powers in Section 11(4) was not to be cited as precedent in other cases. The disposition is characteristic of the judicial treatment of this regulator: the specific order falls for want of demonstrated urgency, the power itself survives, and the institution is reminded that the justification must be in the order rather than in the institution’s general sense of its mission. The registration sanction should be distinguished from debarment, because respondents and reports habitually confuse them. Suspension or cancellation of a certificate of registration under Section 12(3) is a licensing act directed at the intermediary’s status, taken after inquiry into contraventions of the conditions of registration; debarment under Sections 11B and 11(4) is a market-access restraint that can reach any person associated with the market, registered or not, and can be framed on an interim basis. The two overlap in effect, since a suspended broker cannot trade either, but they differ in reach, in timing and in the findings each requires, and the institution deploys them in combination in serious intermediary cases, cancelling the licence with one hand while restraining the individuals behind the firm with the other so that the exclusion survives the firm’s dissolution or reconstitution under a new name.

Proportionality supplies a second discipline. The tribunal and the courts have repeatedly treated the length of a debarment as reviewable against the gravity of the conduct established, reducing periods of exclusion that overshot the violation proved, which converts debarment from an unreviewable exclusion into a sanction whose measure can be contested, though only in appeal, after it has begun to bite.

Investigation: information from anyone, search under a magistrate’s warrant

The investigative chapter of the Act is Section 11C. Where the Board has reasonable grounds to believe that the transactions in securities are being dealt with in a manner detrimental to investors or the securities market, or that any intermediary or person associated with the market has violated the Act, the rules or the regulations, it may direct an investigating authority to investigate and report. The investigating authority may require any intermediary, any person associated with the market, and crucially any other person or entity it has reason to believe is connected with the matter, to furnish information, books, accounts and documents, and may keep them for a stated period. Every person so required is bound to preserve and produce the material and to render assistance. Two features of this power explain why the institution’s investigations reach as far as they do. The first is that the information power is not confined to the registered. Registration under Section 12 is the gateway to the Board’s supervisory jurisdiction over intermediaries, but Section 11C is written around transactions and violations, so a person who never sought registration, a financier behind a scheme, a tipper who never traded, a company that raised money outside the listing system, can be called upon to produce records and answer. The second is that the Board’s summons carries the civil court powers described earlier, so refusal and evasion are not merely regulatory discourtesies; they carry penal consequences and the penalty ladder applies to failures to furnish information as well.

The 2013 ordinance and the Securities Laws (Amendment) Act, 2014 completed the investigative design in two respects. The first was information at a distance: the Board’s power to call for information and records was extended expressly to any person, and the power to call for information from intermediaries and persons associated with the market was reinforced, including records of communication. The second was physical: the Board acquired the power of search and seizure. Where the Board has reasonable grounds to believe that books and documents relevant to an investigation are likely to be destroyed, mutilated, altered or falsified, it may apply to the Magistrate or the Judge designated for the purpose within whose jurisdiction the search is to be made, and on authorisation its officers may enter and search premises and seize books and documents. The warrant requirement is the deliberate safeguard in the provision: the regulator that can exclude on its own order cannot enter premises on its own order, and Parliament placed a judicial officer between the Board’s suspicion and the citizen’s door. The distinction is principled and it is also revealing, because it shows the legislature calibrating the institution’s powers by the kind of intrusion involved, administrative restraint by the Board itself, physical intrusion only with outside authorisation.

An investigation inside this institution generates a paper record of a particular kind, and the reader who wants to understand how these cases are actually proved should picture it. The core of a manipulation or insider trading file is not testimony but data: trading records across exchanges, order logs, bank statements tracing the movement of funds, and the annexures in which the investigating authority sets out the arithmetic of the alleged scheme. SEBI’s orders characteristically annex tables of trades and transfers running to many pages. A reader studying a long order alongside its annexures can open and read the document and spreadsheet annexures in the ReportMedic office file viewer and work through that arithmetic directly, which is where the real contest in these cases is usually found, in whether the numbers show the pattern the order says they show. The investigation ends, where it ends in action, in one or more of three channels: directions under Section 11B or measures under Section 11(4), adjudication for monetary penalty, or prosecution. The next section takes the second and third.

The prohibition code: Section 12A and the charges an investigation must fit

Investigation finds facts; a prohibition converts facts into a charge. The Act’s general prohibition is Section 12A, inserted by the amendment of 2002, and it forbids any person, directly or indirectly, from using or employing, in connection with the issue, purchase or sale of securities listed or proposed to be listed on a recognised stock exchange, any manipulative or deceptive device or contrivance in contravention of the Act, the rules or the regulations; from employing any device, scheme or artifice to defraud in connection with dealing in such securities; and from engaging in any act, practice or course of business which operates or would operate as fraud or deceit upon any person in connection with dealing in securities. The drafting is deliberately derivative of the anti-fraud tradition of the United States securities laws, and its breadth is the point: manipulation, deception and fraud are prohibited as a class, so that a novel scheme does not escape merely because no specific rule anticipated its mechanics. The detail beneath the prohibition sits in the regulations. The prohibition of fraudulent and unfair trade practices regulations of 2003 define fraud expansively, to include acts and omissions and even a course of conduct that induces dealing on the basis of a false picture, and enumerate prohibited practices from circular trading and price rigging to the dissemination of information designed to move a price. The insider trading regulations of 2015 prohibit trading on the basis of unpublished price sensitive information and its communication, building defences for legitimate purposes and requiring listed companies to maintain codes of conduct, disclosure of trades by insiders, and, under later amendments, a structured digital database recording the nature of the information shared and the persons with whom it was shared.

The relationship between the prohibition and the standard of proof examined later should be registered here, because together they explain the shape of modern enforcement. A prohibition drafted at the level of fraud and deception, applied on the preponderance of probabilities through circumstantial inference, gives the institution a charge that fits almost any dishonest market conduct it can document. Respondents and their advisers answer that the same combination gives the institution an uncomfortable discretion to characterise aggressive but lawful trading as manipulation after the event, and the tribunal’s insistence on a coherent circumstantial case is the counterweight. The prohibition code is also where the Act reaches conduct by persons who hold no licence at all. Section 12A binds any person, and the penalty and directions provisions that enforce it are not confined to the registered population, which is the statutory root of the jurisdiction over outsiders, tipsters, financiers and scheme promoters that the collective investment and Sahara sections of this article describe.

Penalties, adjudication and the road to prosecution

Chapter VIA of the Act, Sections 15A to 15HB, contains the penalty code. It is a ladder of specific penalties for specific defaults rather than a single general fine. Section 15A penalises failures to furnish information, returns and reports, attaching a penalty that accrues for each day of continuing failure up to a ceiling. Separate provisions penalise the defaults of particular participants: a stock broker or other intermediary failing to enter into agreements with clients, mutual funds and asset management companies failing to observe the regulations, persons dealing in securities on the basis of unpublished price sensitive information, and so on through the chapter. Two provisions carry the heaviest ceilings and deserve to be named. Section 15G penalises insider trading with a penalty of not less than ten lakh rupees extending to twenty-five crore rupees or three times the amount of profits made out of the dealing, whichever is higher. Section 15HA penalises fraudulent and unfair trade practices relating to securities with a penalty extending to the same ceiling of twenty-five crore rupees or three times the amount of profits made, whichever is higher, and the 2014 amendment added statutory minimum penalties across the chapter, of one lakh rupees at the general level, so that adjudication under the chapter operates within a floor as well as below a ceiling. Section 15EB extends the penalty regime to investment advisers and research analysts. A residuary provision, Section 15HB, penalises contraventions for which no separate penalty is provided, up to one crore rupees.

Can SEBI enhance a penalty that its own adjudicating officer has already imposed?

Yes. Section 15-I empowers the Board to call for and examine the record of an adjudication proceeding and, where it considers the adjudicating officer’s order erroneous or prejudicial to the interests of the securities market, to enhance the penalty after a fresh inquiry and an opportunity of hearing.

The power must be exercised within three months of the order, and it does not survive the disposal of an appeal. The regulator is thus not only prosecutor and first adjudicator in this scheme; within limits, it is also its own revising authority.

Penalties under Chapter VIA are imposed by an adjudicating officer appointed under Section 15-I, an officer of the Board not below a stated rank, after an inquiry conducted in the prescribed manner and an opportunity of hearing. Section 15J disciplines the discretion: in adjudging the quantum of penalty, the adjudicating officer must have due regard to the amount of disproportionate gain or unfair advantage made as a result of the default, the amount of loss caused to an investor or group of investors, and the repetitive nature of the default. The factors matter because they convert the penalty from a tariff into an assessment tied to the economics of the violation, and because appellate scrutiny of quantum, by the tribunal and the courts, habitually tests an order against precisely those three considerations. The penalty track is deliberately separated from the directions track: the adjudicating officer fines, the whole-time member directs and debars, and the two proceedings against the same person for the same conduct can run in parallel, a feature of the scheme that respondents have challenged and the courts have sustained on the ground that the two tracks serve different purposes and carry different consequences.

Behind the civil ladder stands the criminal offence. Section 24 provides that whoever contravenes or attempts to contravene or abets the contravention of the Act or the rules or regulations made under it shall be punishable with imprisonment for a term which may extend to ten years, or with fine which may extend to twenty-five crore rupees, or with both, and a companion provision in the same section punishes a failure to pay a penalty imposed by an adjudicating officer, or to comply with a direction or order of the Board, with imprisonment carrying a minimum term of one month. Section 24A permits the composition of offences, and Section 26 bars any court from taking cognizance of an offence under the Act except on a complaint made by the Board. That cognizance bar is a small provision with large significance: the criminal process under this statute cannot be set in motion by a private complainant or by the police on their own motion, so the decision to convert a regulatory file into a prosecution is the institution’s own, and the record shows the institution uses it sparingly compared with its civil powers, reserving prosecution for the cases it regards as the most serious. The 2014 amendment added machinery for the trial of these offences by designated special courts, addressing the complaint that securities prosecutions in ordinary courts moved too slowly to matter. A reader should also register where the criminal law of another statute takes over from this one: the prohibition on manipulative and deceptive devices and insider trading in Section 12A, read with Section 24, is a scheduled offence under the Prevention of Money-Laundering Act 2002, so the profits of a serious market offence can expose the offender not only to this Act’s penalties and prosecution but to attachment and confiscation proceedings by the Enforcement Directorate directed at the proceeds of crime. The general account in this article is legal information about the statute’s design; it is not advice on any individual matter, and anyone facing proceedings under this Act needs representation on their own facts, because limitation periods, appeal windows and forum rules under it are short and unforgiving.

How an enforcement file actually moves

The powers read differently once their sequence is understood, so the working of a typical serious file is worth stating as a narrative. Detection is ordinarily institutional rather than complainant-driven: the Board’s surveillance of exchange data flags anomalous trading, an inspection of an intermediary surfaces a diversion, or a reference arrives from an exchange, a depository or another agency. A preliminary examination decides whether the material justifies a formal investigation, and Section 11C then supplies the compulsion: summonses for records and for persons, statements recorded on oath, bank and depository data requisitioned, and the documentary spine of the case assembled before the respondent knows its full shape. Where the material discloses an ongoing risk, the interim stage follows: an ex parte order under Section 11(4) or Section 11B restrains the persons concerned, impounds identified proceeds and freezes the position, and a post-decisional hearing then tests whether the restraint should continue while the inquiry completes. On the completed investigation the Board frames a show cause notice setting out the allegations and the material relied on, receives the respondent’s reply and a personal hearing, and decides. The decision may run on two tracks at once: a whole-time member passes the final order on the directions track, debarring, disgorging and directing refunds, while an adjudicating officer on the penalty track quantifies the monetary penalty against the factors in Section 15J. At defined points the settlement window stands open, and a respondent may close the file under Section 15JB instead of contesting it. An aggrieved respondent appeals to the Securities Appellate Tribunal within forty-five days, and the tribunal’s order is then final on the facts, subject to the Supreme Court on a question of law. If the money ordered is not paid, the file passes to the Recovery Officer under Section 28A, and the paper liability becomes attachment of accounts and sale of property. Every stage after the summons is conducted inside the one institution until the tribunal stage is reached, which is the procedural fact underneath the structural criticism: the file changes desks, but until appeal it does not change buildings. One procedural feature of the scheme surprises respondents and should be stated plainly: the Act prescribes no general limitation period within which the Board must begin its civil proceedings. Challenges founded on delay alone have ordinarily failed where the record shows the matter was under examination, since market misconduct is frequently reconstructed from old data and the statute’s silence has been read as deliberate. The tribunal has nonetheless treated unexplained and prejudicial delay as a factor that can soften or defeat an order, and the prudent respondent raises it early, because it is an argument about fairness in the particular case rather than a bar the statute supplies.

Recovery, disgorgement and settlement: closing the loop

A direction or a penalty that cannot be collected is a press release, and for much of the institution’s first two decades that weakness was real: orders directed refunds and imposed penalties, and recovery depended on the ordinary machinery of execution through courts. The 2014 amendment closed the loop with Section 28A. Where a person fails to pay a penalty imposed by an adjudicating officer, fails to comply with a direction of the Board for refund of monies, fails to comply with a direction of disgorgement under Section 11B, or fails to pay fees due to the Board, the Board’s Recovery Officer draws up a certificate specifying the amount due and proceeds to recover it by one or more of the modes the section lists: attachment of the defaulter’s bank accounts, attachment and sale of movable property, attachment and sale of immovable property, appointment of a receiver for the management of the defaulter’s properties, and arrest of the defaulter and his detention in prison. The model is the recovery of arrears of land revenue translated into a securities statute, and it changed the practical meaning of every other power in the Act, because the refund direction, the disgorgement direction and the penalty all became executable by the regulator’s own officer without a fresh suit. The recovery chapter also carries its own discipline, because execution against property is the point at which regulatory power meets the citizen’s assets most directly. The certificate procedure gives the defaulter notice and an opportunity to object, the modes of recovery are graduated from bank accounts through movable and immovable property to the appointment of a receiver, and arrest and detention stand at the end of the list as the mode of last resort, available against the defaulter who will not pay rather than the defaulter who cannot. In the large collective scheme matters the recovery machinery has been supplemented by court-supervised asset disposal, since the scale of the claimant body and the dispersal of the assets exceeded what a recovery officer could administer, and the honest summary of the recovery record is the one already given in this profile: the machinery works against identified assets of identified persons and struggles, as every legal system struggles, against money that has been spent, layered or moved abroad in the years an investigation requires.

Disgorgement deserves separate attention because it is the remedy that fits securities fraud best and the one whose legal basis took longest to settle. A penalty punishes; disgorgement restores the arithmetic, stripping the violator of the profit made or the loss averted by the violation so that the contravention does not pay even where the penalty is negotiated down or the offender is judgment-proof against a fine in the colloquial sense. SEBI exercised the power under Section 11B for years, the tribunal and the courts considered whether a directions power framed around investor protection could sustain a money direction of that kind, and the Explanation inserted into Section 11B, declaring that the power to issue directions includes and shall always be deemed to have included the power to direct disgorgement of an amount equivalent to the wrongful gain made or loss averted, put the basis beyond argument. The 2014 amendment added Section 11(5), under which amounts disgorged pursuant to directions under the securities statutes are credited to the Investor Protection and Education Fund established by the Board.

Where does the money from a SEBI disgorgement order go?

Amounts disgorged under the securities laws are credited to the Investor Protection and Education Fund that the Board maintains, under a provision the 2014 amendment inserted into Section 11 of the Act. Money recovered as a penalty, by contrast, goes to the Consolidated Fund of India as sovereign revenue.

The distinction matters: disgorgement is measured by the violator’s gain and is designed to feed investor-facing purposes, while a penalty is measured by the gravity of the default and is punishment rather than restitution.

The third closing mechanism is settlement. For most of the institution’s statutory life, cases were compromised under an administrative consent process the Board ran under a circular of 20 April 2007, under which a person could settle enforcement proceedings by paying a sum and accepting terms, without admitting or denying the findings. The practice was efficient and was also criticised as resting on a circular where a power of that consequence should rest on statute. The Securities Laws (Amendment) Act, 2014 supplied the statute. Section 15JB empowers the Board, where an applicant makes full and true disclosures, to settle any pending proceeding or a proceeding that may be initiated, on payment of such sum and on such terms as the Board imposes, having regard to the factors the section and the settlement regulations prescribe; the settlement provision was given retrospective operation from 20 April 2007, the date of the original circular, so that the consent orders of the intervening years stand validated. Board regulations made in 2018 govern the procedure and the computation of settlement amounts. Two features of the mechanism carry the whole debate about it. Section 15JB provides that no appeal lies against an order passed in settlement proceedings, so the settlement is genuinely final for both sides. And a settlement decides nothing: the order records terms without a determination of the allegations, so the public record contains a payment and a prohibition in some cases, but no finding of what was done. The settlement regulations of 2018 discipline the bargain: the settlement amount is computed from an indicative base figure related to the default alleged, adjusted for the applicant’s conduct, the stage at which settlement is sought and other aggravating and mitigating factors, and the terms may include non-monetary elements such as a period of voluntary restraint from the market or compliance undertakings, so that a settlement can reproduce much of a final order’s practical effect while omitting its findings. Certain categories are excluded from settlement altogether, including defaults the Board regards as having market-wide impact or involving repeat and wilful conduct of the gravest kind, and the Board retains a discretion to refuse settlement even in an eligible case. The institution gains closure, throughput and money for the exchequer or the fund without litigation risk. The market loses the precedent, the victim loses the vindication of a finding, and the scholar of this regulator must treat a large and growing share of its enforcement output as deliberately unexplained. Whether that trade is worth making is taken up in the criticism section.

The reach beyond listed securities: collective schemes and unlisted fund-raising

The institution’s jurisdiction was designed around the listed market and its registered intermediaries, but the money it has spent its hardest years chasing was raised outside both. The plantation schemes of the 1990s, in which companies collected deposits from small investors against promises of returns from teak trees and orchards that existed mainly in brochures, exposed the gap: the instruments were not conventional securities, the issuers were not listed, and no regulator clearly owned the problem. The Securities Laws (Amendment) Act, 1999 answered with Section 11AA, which defines a collective investment scheme by its substance: a scheme or arrangement under which contributions are pooled, the contributions are managed as a whole by or on behalf of the scheme, the contributors do not have day-to-day control over management, and the object is to enable the contributors to receive profits, income, produce or property from the arrangement. A scheme answering that description must be registered with the Board and must comply with the Board’s collective investment scheme regulations, whatever label its promoters attach to it, and the 2014 amendment added a deeming rule under which any pooling of funds under an unregistered scheme or arrangement involving a corpus of one hundred crore rupees or more is deemed to be a collective investment scheme, closing the argument that a very large scheme could stand outside the definition on a technicality.

The same substance-over-label logic carried the Board into unlisted fund-raising generally, and it is here that the overlap with company law becomes structural. A public offer of securities by an unlisted company engages the prospectus and allotment provisions of the companies legislation, and the boundary between the two regulators was tested to destruction in the Sahara litigation. Two companies of the Sahara group had raised very large sums, running to tens of thousands of crore of rupees, from millions of investors through optionally fully convertible debentures issued on private placement documents that claimed exemption from the public issue regime. SEBI held that an issue to more than fifty persons was a public issue in law, that the instruments were securities, and that the issues fell within its jurisdiction. In Sahara India Real Estate Corporation Limited v. Securities and Exchange Board of India, decided in 2012, the Supreme Court upheld the regulator on the substance: an ostensibly private placement made to millions of persons is a public issue, the debentures were securities subject to the Board’s jurisdiction, and the companies were directed to refund the money collected with interest. The judgment is the high-water mark of the purposive reading the brief for this article identifies: the courts read the statute by the economic character of the fund-raising rather than by the label the issuer chose, and in doing so extended this regulator’s effective jurisdiction to any scheme that raises money from the public at large. The reader tracing the statutory overlap will find the companies side of the boundary in the series treatment of the Companies Act 2013, whose public issue and private placement provisions supply the other half of the framework the Sahara companies attempted to navigate between.

The enforcement record in this territory is sobering in a way that sharpens rather than blunts the analysis. In the PACL matter, the Board found that a company had run an unregistered collective investment scheme over many years, mobilising sums on the scale of tens of thousands of crore of rupees from investors across the country, and directed refunds and debarment; the recovery of money actually collected, years later and against dissipated assets, has been a fraction of the sums raised, administered through court-supervised processes. The pattern repeats the institution’s central limitation, and honest treatment requires stating it in the regulator’s own profile: SEBI’s powers are formidable against participants who wish to remain in the market, and weak against promoters who treat exclusion as an acceptable cost and convert the proceeds before the machinery arrives. The deemed collective investment scheme rule, the recovery officer and the search power are all, in part, Parliament’s responses to that asymmetry.

The record: the design in operation

A profile that described only powers would flatter the institution, because powers are cheap to confer and the Indian statute book is full of armed bodies that seldom move. The record of this one, stated in patterns rather than in the disposal statistics that shift from year to year and are best read in the Board’s own annual reports, supports three conclusions. The first is that its routine output is disciplinary and continuous rather than episodic: registration actions, inspections, deficiency letters, directions and penalties against intermediaries form the bulk of the output, punctuated by the large matters that reach the newspapers, and the market’s compliance culture, its codes, manuals and compliance officers, is substantially a response to that routine pressure. The second is that detection has become data-led. The co-location matter, in which the Board investigated preferential access to the trading systems of the country’s largest stock exchange and directed disgorgement measured in hundreds of crore of rupees against the exchange itself, is the emblematic case: the violation was invisible to any individual investor, existed only in server logs and latency records, and could be established only by an institution that held the data and the expertise to read it. The third conclusion concerns administration after victory. In the Sahara matter the Supreme Court placed the refund of the collected sums under a process the Board administered with the assistance of a retired judge of the Court appointed to oversee it, and the exercise consumed years against incomplete records and crores of claimants, which is the standing reminder that an order directing repayment and the repayment are different events.

One further feature of the operating record is the delegation of first-line discipline. Much of the routine enforcement of the listing regulations against listed companies is administered by the stock exchanges themselves under a standard operating procedure the Board prescribes, under which exchanges levy fines for defined disclosure and compliance defaults on a published scale and escalate persistent defaulters, reserving the Board’s own proceedings for the graver matters. The arrangement multiplies the institution’s reach without multiplying its files, and it explains a feature of the record that puzzles outside observers: the very large number of small, mechanical penalties in the system is mostly exchange-administered discipline under the Board’s framework, while the orders that bear the Board’s name are the selected, argued cases. Both layers are the design working as intended, the centre setting the standard and the periphery applying it at volume.

The institution’s softer instruments belong in the record as well, because they are part of what the design produces. The Board maintains an online grievance redress platform on which investors lodge complaints against intermediaries and listed companies and track their disposal, operates investor education programmes funded through the same Investor Protection and Education Fund that receives disgorged amounts, and issues the cautionary public communications, lists of unregistered entities and warnings against unauthorised schemes that are its only weapon against operators who never enter the licensed market at all. None of this appears in the Act’s coercive chapters, but it follows from the mandate’s first duty, and a measure of the institution is that the retail investor who will never read a SEBI order encounters the regulator mainly through these channels. Set against that, the honest entry on the other side of the ledger is the recovery gap documented in the collective scheme matters: identification of the violation has repeatedly outrun restoration of the money, and the institution’s own reports record long tails of unpaid penalties and unexecuted refund directions being worked through the recovery machinery the 2014 amendment created.

Proof without a smoking gun: the evidentiary standard

Market offences are almost never documented by their perpetrators. Insider trading and manipulation are proved, if they are proved at all, from patterns: the timing of trades against the timing of information, the connection between accounts, the concentration of orders, the movement of funds. If this regulator had to prove its civil cases to the criminal standard, beyond reasonable doubt, on direct evidence, the enforcement scheme described above would be decorative. It does not. The Supreme Court settled the standard in SEBI v. Kishore R. Ajmera in 2016, holding that proceedings under this Act of the kind involved there are governed by the preponderance of probabilities, that the inference of insider trading or manipulation may be drawn from circumstantial evidence and from the pattern of human conduct in the circumstances of the case, and that insistence on direct evidence would defeat the statutory purpose. The tribunal jurisprudence applying Ajmera adds a qualification the reader should hold alongside the holding: where the allegation is fraud, the preponderance standard is applied with a high degree of probability, so that the graver the charge the stronger the circumstantial case must be before the inference is drawn. The resulting position is a deliberate middle station. The Board need not prove its case as a prosecutor must, which is what makes debarment and penalty practically available; but an inference built on coincidence alone will not survive appeal, which is what keeps the middle station from becoming mere suspicion. In a prosecution under Section 24, by contrast, the criminal standard applies in full, and that difference in the burden explains much of the institution’s revealed preference for its civil instruments.

Appeals: the tribunal, and one narrow door above it

Every coercive act described in this article is appealable, and the appeal route is part of the institution’s design rather than an external check upon it. Chapter VI of the Act constitutes the Securities Appellate Tribunal. Under Section 15L the tribunal consists of a Presiding Officer and two other members appointed by the Central Government, and Section 15M requires the Presiding Officer to be a sitting or retired judge of the Supreme Court or a sitting or retired Chief Justice of a High Court, a composition that deliberately places a senior judicial figure between the regulator and the person it has acted against. A person aggrieved by an order of the Board, or by an order of an adjudicating officer, may appeal to the tribunal under Section 15T within forty-five days of the communication of the order, and the tribunal, after hearing the parties, may confirm, modify or set aside the order. The tribunal in practice does all three with some frequency: it confirms the bulk of what reaches it, it reduces debarment periods and penalty quanta it considers disproportionate, and it sets aside orders, interim orders prominently among them, where the reasoning or the urgency will not bear scrutiny. Its docket is the working record of the limits of this regulator’s powers, and an aspirant who reads only the Act will systematically overstate those powers, because the tribunal’s corrections are where the boundaries are actually surveyed. The tribunal’s jurisdiction has also grown beyond this statute: appeals against orders of the insurance regulator and of the pension fund regulator lie to the same tribunal under their respective Acts, which makes the Securities Appellate Tribunal in substance the appellate forum of the financial regulatory state for much of its territory, a consolidation the Srikrishna Commission’s proposal for a single financial appellate tribunal anticipated in part and which arrived by accretion rather than by enactment of its code.

The character of the tribunal’s appellate power deserves emphasis, because it is wider than the judicial review a constitutional court exercises over an administrative body. An appeal under Section 15T is a statutory appeal on the merits: the tribunal may re-examine the findings, test the evidence on which the Board acted, and substitute its own conclusion on quantum or even on liability, and it routinely stays the operation of orders, including interim restraints, while appeals are heard, so that the commercially fatal character of a debarment is in practice filtered through an early application for interim relief before a judicially headed forum. That filter is the working answer to much of the process criticism in this article. It does not cure the structural objection, since the respondent must still apply for mercy against an order already in force, but it means the exclusion power operates inside an appellate discipline that is specialised, comparatively swift and unafraid of the regulator, and the reported corrections, of disproportionate debarment periods, of penalties untested against the Section 15J factors, of interim orders passed without demonstrated urgency, are the jurisprudence by which the institution’s effective powers are defined. A lawyer advising in this field reads the Act for the powers and the tribunal’s orders for their limits, and treats the second reading as the operative one.

Above the tribunal there is one door, and it is narrow by design. Section 15Z allows a person aggrieved by a decision or order of the tribunal to appeal to the Supreme Court within sixty days of the communication of the decision, on any question of law arising out of that order, with the Court empowered to condone a further delay of up to sixty days for sufficient cause. There is no appeal on the facts, no second appreciation of the trading data, and no general power in the Supreme Court to redo the tribunal’s assessment of quantum except insofar as a question of law can be framed from it. Two exclusions from the route deserve note. An order passed in settlement proceedings under Section 15JB is not appealable at all, by express provision. And the writ jurisdiction of the High Courts, though never ousted, is exercised sparingly in this field because the statute supplies its own appellate forum, so the practical map for any respondent is: hearing before the Board or its adjudicating officer, appeal to the tribunal at Mumbai within forty-five days, and the Supreme Court on a question of law alone.

Three regulators compared

Set this institution beside the other two regulators the series profiles and the distinctiveness of its design comes into focus. The Reserve Bank of India, acting as banking regulator under its own Act and the Banking Regulation Act, 1949, supervises institutions whose failure threatens the payment system, and its characteristic instruments are licensing, prudential norms, directions to banks and, at the extreme, the supersession of a bank’s board and reconstruction or amalgamation under statutory schemes. The Competition Commission of India, under the Competition Act, 2002, polices agreements and abuse of dominance across the whole economy, investigating through its Director General and fining in proportion to turnover. SEBI differs from both in the combination it assembles: a subject matter defined by a transaction type rather than an industry, a sanction of exclusion that neither of the others possesses in interim form, adjudication inside the institution, and an appellate tribunal shared with no other regulator’s subject except the adjacent fields later added to the same tribunal’s docket. The fourth member of the financial regulatory family, the insurance regulator constituted under the Insurance Regulatory and Development Authority Act 1999, is the useful control case: a younger statutory regulator with registration, directions and penalty powers of the ordinary kind, whose absence of an interim exclusion instrument of this force shows, by contrast, exactly what Parliament chose to give the securities regulator and to withhold elsewhere.

Feature	Securities and Exchange Board of India	Reserve Bank of India as banking regulator	Competition Commission of India
Statutory basis	SEBI Act, 1992 (15 of 1992), with the Securities Contracts (Regulation) Act, 1956 and the Depositories Act, 1996	Reserve Bank of India Act, 1934 and Banking Regulation Act, 1949	Competition Act, 2002
Power to act without a court	Directions restraining market access and dealing, interim and final; suspension of registration; cease and desist orders	Directions to banking companies; cancellation of licence; supersession of a bank board through statutory process	Interim orders restraining a practice; cease and desist and behavioural orders after inquiry
Search and seizure	Yes, on the warrant of a Magistrate or designated Judge, under the investigation provisions as amended in 2014	Inspection and scrutiny of banks under the Banking Regulation Act; no equivalent general search and seizure charter	Investigation by the Director General, with search under a warrant issued by the Chief Metropolitan Magistrate
Penalty ceiling	Twenty-five crore rupees or three times the profits made, whichever is higher, for insider trading and fraudulent trade practices	Monetary penalties under the banking statutes with ceilings fixed by those Acts; the graver sanctions are licence and board action	Up to ten per cent of the average turnover of the preceding three financial years for cartel and abuse cases
Appeal route	Securities Appellate Tribunal, then the Supreme Court on a question of law only	No dedicated appellate tribunal for most regulatory orders; challenge lies in the constitutional courts	Appellate tribunal for competition matters, then the Supreme Court on a question of law
Standard of proof	Preponderance of probabilities, applied with a high degree of probability in fraud cases	Administrative satisfaction governed by natural justice and judicial review	Preponderance of probabilities on the civil standard
Settlement mechanism	Statutory settlement under Section 15JB without admission or denial, with no appeal against a settlement order	Compounding of exchange-control offences under the foreign exchange statute is the nearest analogue	Settlement and commitment mechanisms introduced by the 2023 amendment to the Competition Act

Why did the securities regulator, alone of the three, receive the interim exclusion instrument in this strength? The comparison suggests an answer grounded in the character of the underlying harm. A failing bank is handled by resolution, amalgamation or reconstruction because its depositors must be protected inside the institution’s continuation, and exclusion of a bank from the system is a contradiction; the banking regulator’s ultimate weapon is therefore substitution of management and ownership rather than restraint of access. Competition harm, an exclusionary agreement or an abuse of dominance, ordinarily accumulates over quarters and years and can be arrested by an order at the end of an inquiry without the market being destroyed in the interval, interim relief being the exception. Securities fraud is different in kind: it is consummated in the trading itself, the injured investors are the counterparty side of transactions that cannot be unwound trade by trade, and each additional session of trading by a manipulator multiplies the class of the injured. A legislature confronting that asymmetry reaches for a power that stops the trading first, which is what Sections 11(4) and 11B supply. The distinctiveness of SEBI is therefore not an accident of drafting energy. It is the regulatory form of a judgment about the speed of the harm, and the criticism of the institution is most persuasive when it accepts that judgment and contests the process safeguards, and least persuasive when it pretends the speed is imaginary.

The table also discloses what the three share, and the sharing is instructive. All three proceed on the civil standard of proof. All three were given, at different times, a mechanism for closing cases without a full determination, the competition regime acquiring its settlement and commitment provisions only in 2023, three decades after the securities regulator’s design made negotiated closure an ordinary feature of enforcement. And all three concentrate investigation and adjudication within one institution, which is why the structural criticism examined next is a criticism of the Indian regulatory state in general that happens to bite hardest here, where the interim sanction is the sharpest.

The family’s youngest member confirms the pattern from the other direction. For the international financial services centres, Parliament enacted the International Financial Services Centres Authority Act, 2019, creating a single unified regulator for financial products, services and institutions in those centres and transferring to it, within the centres, the powers the domestic regulators including this Board had exercised there. The significance for this profile is the template the 2019 statute chose: a unified authority armed with the full regulatory cycle of licensing, rule-making, supervision and enforcement over its territory, modelled on the consolidated design that the securities regulator’s growth had normalised. The Indian regulatory state, having spent three decades discovering that fragmented jurisdiction fails against integrated markets, has learned to build new regulators whole.

Does SEBI regulate commodity derivatives as well as shares?

Yes. Commodity derivatives are treated as securities for the purposes of the securities laws, and the Forward Markets Commission, which had regulated commodity futures under separate legislation, was merged into SEBI in September 2015 under amendments carried by the Finance Act of that year.

The merger made this Board the single regulator of exchange-traded derivatives in both securities and commodities, and ended the anomaly under which economically similar contracts answered to two different regulators with unequal powers.

The merger is a fitting bridge to the criticism, because it shows the direction of travel. Each time a gap in the financial regulatory map has produced a visible failure, the response of the Indian state has been to move the territory into this institution and to arm it further, rather than to build a new body of the older, weaker kind. That is a verdict of experience on the design of 1992 and its sequels. It is not the only verdict available, and the opposing one deserves to be stated at full strength.

The case against the design, and the case for it

The strongest case for the powers has never been theoretical. Securities fraud moves at the speed of a trading terminal. A manipulation that will take a civil court a decade to try can be completed in a fortnight of trading sessions, and the proceeds can leave the jurisdiction before a plaint is verified. A regulator confined to filing suits would be a spectator with a seal. On that reasoning, the interim direction is not an excess of the design but its essence: the restraint holds the ring while the inquiry proceeds, the impounding holds the money while liability is decided, and the debarment removes a participant whose continued presence is itself the risk. U. K. Sinha, who chaired the Board through the years in which the 2013 ordinance and the 2014 Act armed it further, defended the enforcement model on precisely this ground in his account of his tenure: a regulator slower than the market it polices protects no one, and the investors the statute exists to protect are harmed in the interval between violation and judgment, not at the judgment. The disclosure philosophy reinforces the point. A market in which issuers price their own securities, as India chose in 1992, works only if lying in the disclosure document and cheating in the secondary market are met by consequences quick enough to be feared, and deterrence arithmetic favours the swift interim order over the distant conviction.

The case against begins at the same place. An ex parte interim order restraining market access can destroy a business before any finding is made against it, and the destruction is not undone by a favourable final order two years later, because clients, lenders and counterparties do not return on the strength of an appellate vindication. The advocate Somasekhar Sundaresan, whose columns on securities regulation have made the process critique a speciality, has argued the point in its sharpest form: where an interim restraint is passed without demonstrated urgency and the post-decisional hearing drifts, the interim order becomes the operative punishment, and the respondent is made to serve the sentence in advance of the trial. The tribunal’s own record lends the argument weight, since interim orders have repeatedly been set aside or cut down for want of the urgency the statute’s design presupposes. A second objection concerns settlement. A mechanism that closes proceedings without admission, denial or determination is efficient, and it is also a standing invitation to treat enforcement as a revenue negotiation: the serious matter ends, the money is paid, and the record of what happened is never established, so the next market participant cannot read the precedent and the defrauded investor cannot point to a finding. A third objection is structural and general. The institution investigates through its departments, prosecutes through its officers, adjudicates through its whole-time members and adjudicating officers, and revises penalties through its Board, and although each stage has a different name, the respondent faces one organisation from summons to sanction. That concentration applies to every regulator in this series, but it applies most acutely here because this one’s sanction bites fastest and its interim form bites before the merits are heard.

The most considered institutional response to the structural objection came from the Financial Sector Legislative Reforms Commission, chaired by Justice B. N. Srikrishna, which reported in 2013. The Commission did not propose weakening this regulator. It proposed re-founding the financial regulatory architecture on a draft Indian Financial Code, merging the appellate forums of the financial regulators into a single Financial Sector Appellate Tribunal and writing governance, accountability and process obligations for regulators into the statute itself, on the premise that bodies exercising legislative, executive and judicial functions together require their process discipline to be legislated rather than assumed. The Code was not enacted, and the architecture remains the one assembled statute by statute, but the Commission’s premise has been absorbed into the argument: even defenders of the powers increasingly defend them in the Commission’s vocabulary, as powers that are necessary and that therefore need visible process around them, statements of urgency in the order, prompt post-decisional hearings, reasoned quantum, and consistency across like cases.

A fourth objection is quieter and constitutional in character. Section 30 makes the Board a legislator for its market, and the regulations it writes are not technical schedules but substantive law: they define the offences of insider trading in operative detail, prescribe the disclosures on which criminal and civil liability can turn, fix the terms on which control of a listed company may change hands, and are amended by the same body that investigates and adjudicates breaches of them. Parliamentary laying under Section 31 is a real but weak control, since regulations take effect on notification and are rarely disturbed on the floor of either House. The objection is not that the power is abused in any particular instance; it is that a design which unites rule-making, investigation, prosecution and adjudication in one institution asks that institution to supply, from its own culture, the separations that other legal systems build into structure. The institution’s developed practices, consultation before legislation, reasoned orders, a tribunal that reverses it in public, are its answer, and they are practices rather than guarantees, which is why the debate about codifying them recurs whenever the powers are enlarged.

There remains the governance question, which concerns the regulator rather than the regulated. A body that demands disclosure, conflict management and governance standards from every listed company must expect the same standards to be demanded of it, and the debate about the institution’s own disclosure obligations, the interests of its senior office-holders, and the transparency of its Board’s functioning has surfaced repeatedly, most sharply in 2024, when conflict-of-interest allegations reaching the office of the Chairperson were aired in public controversy and answered by the institution and by the government in Parliament and in the press. The allegations and answers are not the subject of this profile. Their existence is, because it demonstrates the terms on which the regulator’s legitimacy is held: an institution armed to exclude others from the market on its own satisfaction will be judged, and will demand to be judged, by whether its own house meets the standards it enforces. That is a healthy discipline, and the statute’s design, which left the Board’s internal governance largely to the institution itself, is the part of the 1992 settlement that wears least well.

On the honest question this article was asked to address, whether the expansion into unlisted fund-raising through judicial interpretation is a proper reading of a securities statute or a rescue operation dressed as interpretation, the record supports a verdict with two halves. The reading was proper. Section 11AA defines the collective investment scheme by economic substance, the Sahara instruments were securities offered to the public on any honest use of those words, and a construction that allowed an issuer to escape the Act by calling a public issue a private placement to millions would have made the statute optional. But the expansion was also a rescue operation, performed because Parliament had left mass deposit-taking by unlisted companies in a thicket divided among company law, state deposit legislation and the central bank’s powers over non-banking finance, with no owner for the whole problem. The proof is what happened afterwards: Parliament eventually legislated a general prohibition on unregulated deposit schemes in the Banning of Unregulated Deposit Schemes Act, 2019, allocating the territory by statute rather than leaving it to a securities regulator’s purposive reach. SEBI’s expansion held the line for two decades in which the alternative was nobody holding it. A profile that praised that without noting the cost, a generation of investors in schemes like PACL whose money the strongest regulator in the country could identify but could not restore, would be the endorsement the brief for this article warned against.

Verdict

The SEBI Act 1992 is the rare Indian statute whose subject outgrew its text in the direction the text intended. It created an administrative body, then a statutory regulator, then an enforcement institution of a kind no other Indian statute had built, and it did so by returning to the same well: whenever the market demonstrated a harm the Board could see and could not reach, Parliament extended the reach. The reader who has followed the design to this point holds the institution’s real constitution: a mandate of three duties in one sentence, a nine-member Board appointed by the executive, an investigative power that runs against anyone, a sanction of exclusion that operates before adjudication, a penalty ladder capped in money and disciplined by three statutory factors, a recovery machinery that executes the institution’s own orders, a settlement power that closes cases without deciding them, and a tribunal above it all that trims the excesses without questioning the armament. Whether that constitution is a triumph of regulatory design or a standing temptation to administrative shortcuts depends, in the end, on the discipline of the few whole-time members who wield it, which is perhaps the most Indian feature of the entire arrangement: a statute that trusts an institution, and an institution whose record is the biography of the people who ran it.

For the reader who came to this profile with an examination or a brief to prepare, the examinable skeleton is short enough to state in a breath and should be held exactly: a body constituted without statutory power on 12 April 1988 and made statutory by an Act of 1992 deemed in force from 30 January of that year; a mandate of protection, development and regulation in Section 11; a nine-member Board composed under Section 4 and appointed by the Central Government; a licensed population created by Section 12; investigation under Section 11C with search on a magistrate’s warrant; directions and interim exclusion under Sections 11B and 11(4); penalties adjudicated under Chapter VIA against the three factors in Section 15J; disgorgement into the Investor Protection and Education Fund; recovery by the Board’s own officer under Section 28A; settlement without a finding under Section 15JB; and an appeal that runs to the Securities Appellate Tribunal within forty-five days and from there to the Supreme Court on a question of law alone. Every debate in this article is a debate about one of those load-bearing members, and a reader who can say which member a controversy hangs on has understood the institution.

Frequently Asked Questions

Q: When did SEBI become a statutory regulator?

SEBI was constituted on 12 April 1988 by a resolution of the Government of India as a non-statutory body, which meant it could advise and persuade but could not compel anyone, issue binding directions or punish a violation. It became a statutory regulator on 30 January 1992, when the Securities and Exchange Board of India Ordinance was promulgated. Parliament then enacted the Securities and Exchange Board of India Act, 1992, Act 15 of 1992, and the Act was deemed to have come into force on 30 January 1992, the date of the ordinance. The securities scam that became public in April 1992 therefore followed, and did not cause, the grant of statutory status, though it strongly influenced the enforcement powers added afterwards.

Q: What powers does SEBI have to investigate?

Under Section 11C of the SEBI Act, where the Board has reasonable grounds to believe that transactions in securities are being dealt with in a manner detrimental to investors or the securities market, or that an intermediary or associated person has violated the securities laws, it may direct an investigating authority to investigate. The investigating authority can require intermediaries, persons associated with the market and other connected persons to furnish information, books, accounts and documents, and can examine persons on oath, exercising the powers of a civil court in matters of discovery, production and summoning of witnesses. Failures to furnish information attract penalties under the Act’s penalty chapter, and the investigation may lead to directions, adjudication for penalty, or prosecution.

Q: Can SEBI search premises and seize records?

Yes, but not on its own authority alone. The Securities Laws (Amendment) Act, 2014 armed the Board with search and seizure powers within its investigation provisions: where SEBI has reasonable grounds to believe that books or documents relevant to an investigation are likely to be destroyed, mutilated, altered or falsified, it applies to the Magistrate or the Judge designated for the purpose within whose jurisdiction the search is to be conducted, and on that authorisation its officers may enter and search the premises and seize books and documents. Parliament deliberately placed a judicial officer between the regulator’s suspicion and the citizen’s premises, even though the same regulator can restrain a person from the securities market by its own order.

Q: What does the Securities Appellate Tribunal hear?

The Securities Appellate Tribunal hears appeals by persons aggrieved by orders of the Board and by orders of adjudicating officers under the SEBI Act, including directions restraining a person from the market, orders of disgorgement, suspensions of registration and monetary penalties. An appeal must be filed within forty-five days of the communication of the order under Section 15T. The tribunal sits in Mumbai, consists of a Presiding Officer and two members, and its Presiding Officer must be a sitting or retired judge of the Supreme Court or a sitting or retired Chief Justice of a High Court. It may confirm, modify or set aside the order appealed against. Orders passed in settlement proceedings are expressly excluded from appeal.

Q: Can a SEBI order be appealed to the Supreme Court?

Not directly, and not on the facts. The appeal route is two-tiered: first to the Securities Appellate Tribunal under Section 15T, and then, under Section 15Z, a person aggrieved by the tribunal’s decision may appeal to the Supreme Court within sixty days, but only on a question of law arising out of the tribunal’s order. The Supreme Court may condone a further delay of up to sixty days for sufficient cause. There is no second appeal on findings of fact or on the tribunal’s appreciation of trading data, and descriptions of the route that present the Supreme Court appeal as unrestricted misstate the statute. An order made in settlement proceedings under Section 15JB cannot be appealed at all.

Q: How does a SEBI settlement or consent order work?

Settlement began as an administrative consent process under a Board circular of 20 April 2007 and received statutory footing in Section 15JB, inserted by the Securities Laws (Amendment) Act, 2014 with retrospective operation from that 2007 date. An applicant facing pending or proposed proceedings may apply, making full and true disclosures, and the Board may settle the matter on payment of a sum and on terms it imposes, computed under the settlement regulations by reference to the nature and gravity of the default, the gains made and other factors. The proceeding closes without admission or denial of the allegations and without a finding on them, and by express provision no appeal lies against a settlement order. The mechanism trades a determination of the record for finality and speed.

Q: Does SEBI have jurisdiction over unlisted companies?

In defined circumstances, yes. The Board’s core jurisdiction covers listed companies, companies intending to list, intermediaries and market transactions, but Parliament extended its reach to unlisted fund-raising in two ways. Section 11AA requires any collective investment scheme, judged by the substance of pooled contributions managed for investors who lack day-to-day control, to be registered with the Board, whatever the issuer’s listing status, and an unregistered pooling arrangement with a corpus of one hundred crore rupees or more is deemed to be such a scheme. And in the Sahara case in 2012 the Supreme Court upheld SEBI’s jurisdiction over debentures issued by unlisted companies to millions of persons, holding that an issue on that scale is a public issue governed by the securities laws.

Q: Which body did SEBI replace?

Functionally, SEBI replaced the Controller of Capital Issues, the government office that administered the Capital Issues (Control) Act, 1947. Under that regime no company could issue capital without the Central Government’s consent, and the government fixed the price and premium of share issues, a system of prior permission rather than regulation. The change was deliberate: the 1947 Act was repealed in May 1992, the Controller’s office was abolished, and pricing was freed, with SEBI, given statutory status in January 1992, installed as a disclosure-based regulator in its place. The replacement changed a philosophy as much as an office: merit control by the state gave way to disclosure policed by a regulator.

Q: What is debarment by SEBI and why is it treated as the regulator’s most serious sanction?

Debarment is a direction, issued under Section 11B or as a measure under Section 11(4) of the Act, restraining a person from accessing the securities market or from buying, selling or dealing in securities for a stated period. It is treated as the most serious sanction because of when and how it operates. A monetary penalty is capped by statute and can be absorbed as a cost; a prosecution belongs to a criminal court and takes its own course. Debarment, by contrast, is imposed by the regulator’s own order, can be imposed on an interim basis pending investigation, and for an intermediary whose livelihood is market access it is commercially fatal from the day it takes effect, subject only to appeal afterwards to the Securities Appellate Tribunal.

Q: What is disgorgement and how is it different from a penalty?

Disgorgement is a direction requiring a person who made a profit, or averted a loss, by contravening the securities laws to pay over an amount equivalent to that wrongful gain. It differs from a penalty in both measure and purpose. A penalty is measured by the gravity of the default, within the ceilings in the Act’s penalty chapter, and is imposed through adjudication as a punishment; it is sovereign revenue. Disgorgement is measured by the gain itself, strips the violator of the benefit of the violation so that the contravention does not pay, and the amounts disgorged are credited to the Investor Protection and Education Fund. An Explanation to Section 11B declares that the directions power includes, and has always included, the power to direct disgorgement.

Q: How does SEBI decide how large a monetary penalty to impose?

Penalties under Chapter VIA of the Act are imposed by an adjudicating officer after inquiry and hearing, and Section 15J of the Act disciplines the quantum. The adjudicating officer must have due regard to three factors: the amount of disproportionate gain or unfair advantage made as a result of the default, the amount of loss caused to an investor or group of investors, and the repetitive nature of the default. The provision converts penalty from a fixed tariff into an assessment tied to the economics of the violation, and appellate bodies test penalty orders against those factors. Ceilings still apply: for insider trading and for fraudulent and unfair trade practices, the maximum is twenty-five crore rupees or three times the profits made, whichever is higher.

Q: Can SEBI prosecute a person in a criminal court?

Yes. Section 24 of the Act makes contravention of the Act, the rules or the regulations punishable with imprisonment extending to ten years, or a fine extending to twenty-five crore rupees, or both, and a related provision punishes failure to pay an adjudicated penalty or to comply with the Board’s directions with imprisonment carrying a minimum term. Two features shape the power in practice. A court may take cognizance of an offence under the Act only on a complaint made by the Board, under Section 26, so the decision to prosecute is the regulator’s own and cannot be set in motion by a private complainant. And offences are tried by designated special courts, a machinery added by the amendment of 2014. Prosecution remains the exception beside the civil instruments, which carry the bulk of enforcement.

Q: What counts as a collective investment scheme under the SEBI Act?

Section 11AA of the Act defines a collective investment scheme by the substance of the arrangement rather than its name. The contributions or payments made by investors are pooled and used for the purposes of the scheme; the contributions are managed as a whole by or on behalf of the scheme’s manager; the investors do not exercise day-to-day control over the management and operation of the scheme; and the arrangement exists to enable the contributors to receive profits, income, produce or property generated by it. A scheme answering that description must register with the Board and comply with its collective investment scheme regulations. The definition was inserted in 1999 after plantation and agro-based schemes had collected money from small investors outside any regulator’s clear jurisdiction, and an unregistered pooling arrangement with a corpus of one hundred crore rupees or more is deemed to be such a scheme.

Q: What did the Supreme Court hold in the Sahara case?

In Sahara India Real Estate Corporation Limited v. Securities and Exchange Board of India, decided in 2012, two Sahara group companies had raised sums running to tens of thousands of crore of rupees from millions of investors through optionally fully convertible debentures, structured as private placements that claimed to stand outside the public issue regime and outside SEBI’s jurisdiction. The Supreme Court rejected that structure. It held that an issue of securities to more than fifty persons is in law a public issue, that the debentures were securities within the securities laws, that the Board had jurisdiction over the issues, and that the companies must refund the amounts collected to the investors with interest. The decision established that the character of a fund-raising is determined by its economic substance and the number of persons approached, not by the label the issuer places on it.

Q: How is insider trading proved when there is no direct evidence?

On circumstantial evidence assessed on the preponderance of probabilities. In SEBI v. Kishore R. Ajmera, decided in 2016, the Supreme Court held that proceedings of this kind under the Act are not governed by the criminal standard of proof beyond reasonable doubt, that insider trading and manipulation may be inferred from the surrounding circumstances and the pattern of conduct, including the timing of trades against the availability of unpublished price sensitive information, the relationships between the persons trading, and trading behaviour that departs from the normal course. Direct evidence, such as a recording of the tip, is not required. The qualification developed in the jurisprudence is that where fraud is alleged, the inference must rest on a high degree of probability drawn from a coherent body of circumstances, not on coincidence or suspicion alone.

Q: What is the difference between SEBI and a stock exchange?

SEBI is the statutory regulator of the entire securities market; a stock exchange is a regulated market institution that SEBI recognises, supervises and can direct. The exchange operates the trading platform, admits securities to listing, surveils trading on its floor in the first instance and disciplines its own members under its bye-laws. SEBI stands above that structure: it recognises and can withdraw recognition of exchanges under the Securities Contracts (Regulation) Act, 1956, registers and regulates the brokers who trade on them, inspects them, issues directions to them, and can suspend an office-bearer of an exchange or halt trading in a security. An investor’s complaint about a trade therefore meets the exchange first and the regulator behind it; the exchange is a front-line self-regulatory body exercising delegated discipline, while the coercive powers described in this profile, debarment, penalty and prosecution, belong to SEBI alone.

Q: Does SEBI approve or fix the price of an IPO?

No, and the refusal to do so is the founding philosophy of the institution. Under the Capital Issues (Control) Act, 1947, the government approved whether capital could be issued and fixed the price and premium; that regime was repealed in 1992 precisely to end merit approval by the state. Under the disclosure-based framework that replaced it, the issuer and its merchant bankers set the issue price, and SEBI’s role is to police the completeness and honesty of the disclosure: the draft offer document is filed with the Board, which issues observations on it, and the prospectus must disclose the material facts and risk factors on the basis of which investors decide for themselves. SEBI does not certify that an issue is fairly priced or that an investment is sound, a distinction investors who treat regulatory observation of an offer document as an endorsement habitually misunderstand.

Q: Can SEBI pass an order against a person without hearing them first?

Yes, in the form of an ex parte ad interim order, and the power is one of the most contested features of the statute. Under Section 11(4) the Board may take measures pending investigation, and under Section 11B it may issue interim directions, in each case by an order recording reasons, where it is satisfied that investor interests or the market require immediate restraint. The design assumes urgency: the order operates at once, and the person restrained receives a hearing afterwards, in the post-decisional process, and may appeal to the Securities Appellate Tribunal. The tribunal has set aside interim orders where urgency was asserted without being demonstrated, and in SEBI v. Udayant Malhoutra in 2020 the Supreme Court affirmed the setting aside of such an order on its facts. The power survives; its casual use does not.

Q: Who appoints the Chairman and members of the SEBI Board?

The Central Government. Section 4 of the Act composes the Board of a Chairman, two members drawn from the officials of the Central Government ministries dealing with finance and with the administration of the companies legislation, one member drawn from the officials of the Reserve Bank of India, and five other members of whom at least three are whole-time members. The Chairman and the five other members are appointed by the Central Government, the two ministry members are nominated by the Central Government, and the Reserve Bank member is nominated by the Reserve Bank. Appointments to the senior posts of the financial regulators have, since 2016, been processed through the Financial Sector Regulatory Appointments Search Committee. Section 6 empowers the Central Government to remove the Chairman or a member on stated grounds, including insolvency, conviction for an offence involving moral turpitude and abuse of position.

Q: What protection does an investor actually have when an unregulated scheme collapses?

Less than the investor usually assumes, and the honest answer turns on a distinction the statute draws sharply. Money placed in a regulated product, a mutual fund, a listed security bought through a registered broker, sits inside a framework of registration, segregation of assets, disclosure and a regulator able to act against identified intermediaries. Money placed in an unregistered pooling scheme sits outside that framework until a regulator establishes jurisdiction over it, which SEBI can do where the scheme is in substance a collective investment scheme, and action then follows: investigation, restraint, refund directions and recovery proceedings. The practical limit is arithmetic and time. By the stage a fraudulent scheme collapses, the money has commonly been spent or moved, and the recovery machinery, however strong on paper, cannot restore funds that no longer exist. The statutory protection is real against the market’s registered participants and genuinely thin against the unregistered scheme that was never inside the gate.