The history of Indian stock market dates back to 1875 when the Native Share and Stock Broker's Association was formed. But it was only in 1992, with the incorporation of the National Stock Exchange and the Securities and Exchanges Board of India, that professionalisation of stock markets began in earnest.

The rules and regulations governing equity market and the market regulator were packed within the SEBI Act, 1992. While the Act is appreciated for promoting autonomy in the regulating body, it is criticised for ambiguity in defining the extent and nature of the regulator's powers.

The point to be noted is that this body of rules is still evolving. Even core issues such as the instruments under its overview, powers it can exercise, and so on, are being debated and settled in the Securities Appellate Tribunal (SAT), High Courts and the Supreme Court.

The book, SEBI Act, A legal commentary on Securities & Exchanges Board of India Act, 1992 , written by Sumit Agrawal and Robin Joseph Baby, has recognised this fact. The book, besides containing the Act and commentary on each section, also contains judicial decisions taken by SAT and various Courts concerning the Act. The book also deals with certain decisions taken by SEBI in its quasi-judicial capacity. This approach to the SEBI Act enables the reader to understand each section of the Act through the commentary and, at the same time, identify contentious sections which are taking shape through a series of judicial decisions.

As the authors note at the outset, the SEBI Act has been subjected to amendments in the past and possible substantive amendments are foreseen in the future. Recommendations of various committees set up to review the Act are included that help to anticipate the sections that can be amended in future.

Judicial rulings

That the two authors have served in various capacities in the surveillance, enforcement and legal affairs departments of SEBI lends credence to the commentary. Rulings by various courts are woven in to the commentary to support the explanation.

“A synchronised transaction even on the trading screen between genuine parties who intend to transfer beneficial interest in the trading stock and who undertake the transaction only for that purpose and not for rigging the market is not illegal and cannot violate the regulations.” In Prashant J. Patel vs. SEBI, SAT observed that “negotiated/synchronised trades are not by themselves illegal but if a synchronised trade is executed with a view to manipulate the market or if it results in circular trading or is dubious in nature and is executed with a view to avoid regulatory detection or does not involve change of beneficial ownership or is executed to create false volumes resulting in upsetting the market equilibrium, it would be illegal.”

Drawing parallels

In certain section, there is a parallel drawn with securities market regulators in other jurisdictions.

For instance, in the section on consent mechanism, the authors compare the procedure of settling stock market related offences through consent orders with similar procedure followed by Income Tax Act. They also draw a comparison between the Securities and Exchanges Commission (SEC)'s consent model with that of SEBI.

The explanations are simply worded and go beyond the SEBI Act and other such regulations.

To explain the term disgorgement, the authors write, “Disgorgement in general parlance means giving up forcibly of the profits or gains made illegally. As per Black's Law Dictionary disgorgement is ''the act of giving up something (such as profits illegally obtained) on demand or by legal compulsion.”

There is also an attempt to weave in a bit of history such as this one, “One of the earliest attempts to disgorge appears to have been made by SEBI in 1998 in an insider trading case of Hindustan Lever Limited vs. SEBI. Here, purchase of shares was made by a person in possession of the price sensitive information without its specific disclosure to the seller. Since the seller was identifiable, SEBI thought it fit to label its directions as compensatory in nature and directed the purchaser to pay a specified sum to the seller who was put in to the disadvantageous position due to the information asymmetry.”

A comprehensive manual for those wishing to understand the rules governing the Indian capital market.

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