basic concepts in securities laws - ctconline.org - ca jayant... · concepts of and in securities...

Basic Concepts in Securities

Laws

CA Jayant Thakur

October 2014

Overview

Concepts of and in Securities Laws

Principal Laws and Regulations

Substantive and procedural issues, and

enforcement including penalties and

prosecution

Focus on issues relevant to CAs and non-

specialists

CA Jayant Thakur, 17th October 2014

Relevance for CAs

Increasing role as Auditors of listed

companies/entities, Independent

Directors, Audit Committee members,

etc.

Deemed insiders

CFOs

New Regulations like Investment Advisors,

etc.

Increasing powers of SEBI


Relevance for CAs

Bombay High Court in Price

Waterhouse’s case ((2010) 103 SCL 96)

SAT in Pyramid’s case (Order dated

March 11, 2011)

Recent decisions in merchant bankers

case (Keynote, etc)


Important Concepts

Securities

◦ Wide definition

◦ Generally “listed” or proposed to be listed

◦ Hence, “listed company”

SEBI

◦ Background/brief history

◦ From Harshad Mehta to Ketan Parekh to

Roy/Raju to now perhaps DLF


Broad framework of law

Principal Acts

Regulations/Rules

Guidelines

Circulars

Cases (SEBI, SAT, Courts, Informal

Guidance)

Running into 1000s of pages of bare law

Regularly amended


SEBI Act

Enabling, empowering and enforcing

Contains powers to make

Regulations/Rules, register intermediaries

and other bodies, investigate, punish, give

relief, etc.

More details in subordinate regulations

Concept of registration


Depositories/SCRA

Depositories Act

◦ Governing dematerialization and authorities

Securities Contracts (Regulation) Act

◦ Governs listing, definitions of securities,

governance of stock exchanges

◦ A common concept of “spot contracts”

Objective

Commonly violated


Consolidation of Laws

Too many laws in financial sector

1999 proposal to merge 3 laws

◦ Justice Dhanuka Committee

2013 proposal to merge more laws

◦ Justice Srikrishna Commission


Listing Agreement

Nature – a contract

Regulated by SEBI

Corporate governance – Clause 49

Accounts disclosures – Clause 41

Deficiency

Proposal to make into Regulations

Violation

◦ Penalty

◦ Other actions


Regulations considered separately

Takeover Regulations

Prohibition of insider trading Regulations

Corporate governance/Clause 49

Settlement Regulations


FUTP Regulations

Governs frauds, price manipulations and

numerous similar acts

◦ Front running – recent controversies

◦ Price rigging, false disclosures, synchronized

deals, self-dealing, etc.

Numerous cases

Wide definition of “fraud”

Disgorgement, Penalties, debarment,

prosecution, etc.


ICDR Regulations

Issue of shares

◦ Public/Rights/Preferential/Bonus, etc.

Earlier Guidelines

◦ Guidelines vs. Regulations


Buyback of Securities

Buyback of securities – reverse of an

issue

Several ways – reverse rights, open

market, etc.

Helps consolidation/return of

funds/market support


Sweat Equity

Concept of Sweat Equity

Stringent Regulations make issue almost

commercially impossible

Restrictions over issue, pricing/valuation,

accounting, remuneration, etc.


Delisting Regulations

Reverse of Listing

Steps/conditions

◦ By Promoters

◦ Majority of minority approval

◦ milestones

Stringent Regulations

◦ Hated by listed companies/Promoters

◦ Loved by Investors

Recent controversies – AstraZeneca etc


Investment Advisors/Research

Analysts/Portfolio Managers

Specialized Regulations

Unwitting non-compliance by CAs


Collective Investment Schemes

Governing various collectively managed

assets

Almost every week entities caught in

violation

◦ Often CIS in garb of taking loans, etc.

Stringent Regulations

Time sharing schemes

Gold investment schemes


Other Regulations

Numerous other Regulations governing

stock brokers, AIFs, mutual funds, FIIs,

bankers, etc.


ESOPs Guidelines

Issue of stock options, share purchase

schemes for employees

Pricing/valuation, accounting, lock in, etc.

Guidelines vs. Regulations


Informal Guidance

Similar to Advance Ruling

Cheap advice too!

Time bound replies

Limited binding nature


Securities Lending/Borrowing

To enable shareholders to lend to short-

sellers

◦ Earn some profit

◦ Have safety of his assets

◦ Be protected of value/returns of assets


Investigation

Elaborate powers

Summons – for personal

statement/documents

Search and seizure – recent changes

Obtaining records from elsewhere

◦ Phone-tapping?


Orders (other than penalty)

Wide powers

Interim Orders

Preventive/Remedial/Protective action

◦ Zenith Infotech – SEBI order 25/03/2013

Suspension/cancellation

Debarment

Disgorgement

Attachment/arrest


Penalties

Progressively increased

Rs. 1lakh per day, Rs. 25 crores, 3/5 times

certain amounts

◦ Minimum penalty – recent amendment

Consideration for levy of penalty

Shriram Mutual Fund’s Supreme Court

decision ((2006) 68 SCL 216)


Prosecution

Wide provisions

◦ Exceeded only by Companies Act, 2013

Compounding


Inter play with other laws

Companies Act, 2013

◦ Overlapping provisions

◦ Powers to SEBI

SFIO

Insurance/RBI

◦ ULIPs

Laws relating to deposits


Miscellanous/Conclusion

Role/attitude of SEBI towards CAs –

higher bar

◦ Insider trading

◦ Merchant banking

◦ CFO

◦ Independent Directors/Audit Committee

Continuing awareness of developments

Detailed knowledge of specific fields


THANK YOU!

basic concepts in securities laws - ctconline.org - ca jayant... · concepts of and in securities...

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