Unit 4:- Regulations related to Listing of Securities

4.1 SEBI 

4.2 Listing Agreement 

4.3 Banking Regulation

 

4.1 SEBI (Securities and Exchange Board of India)

Introduction & Definition

SEBI is the statutory regulatory body established to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market. It acts as the “Watchdog” of the Indian capital markets.

Statutory Provisions

  • SEBI Act, 1992: The parent legislation.
  • SEBI (LODR) Regulations, 2015: Listing Obligations and Disclosure Requirements.
  • SEBI (ICDR) Regulations, 2018: Issue of Capital and Disclosure Requirements.

Essential Ingredients (Powers of SEBI)

  • Quasi-Legislative: Power to draft regulations (like LODR).
  • Quasi-Judicial: Power to pass orders and impose penalties.
  • Quasi-Executive: Power to conduct investigations and audits of stock exchanges and intermediaries.
  • Regulate Intermediaries: Oversight of brokers, underwriters, and merchant bankers.

Landmark Case Laws

  1. Sahara India Real Estate Corp Ltd. v. SEBI (2012):
    • Facts: Sahara raised money from the public through Optionally Fully Convertible Debentures (OFCDs) without SEBI approval, claiming it was a private placement.
    • Issue: Does SEBI have jurisdiction over unlisted companies raising money from the public?
    • Judgment: The Supreme Court upheld SEBI’s power, stating that if an offer is made to more than 50 persons, it is a Public Issue, and SEBI has the mandate to intervene to protect investors.
  2. SEBI v. Rakhi Bahl (2022):
    • Judgment: Reaffirmed that SEBI’s powers to investigate insider trading and market manipulation are broad and necessary to maintain market integrity.

Exam-Style Conclusion

SEBI is the cornerstone of market governance in India. For your exam, emphasize that SEBI’s transition from a non-statutory body to a powerful regulator has been the primary driver behind the modernization of the Indian stock market.

4.2 Listing Agreement (LODR Regulations)

Introduction & Definition

A Listing Agreement is a legal contract between a company and a Stock Exchange. When a company wants its securities traded on an exchange (like BSE or NSE), it must agree to abide by specific rules regarding disclosure and governance.

Statutory Provisions

  • SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015: Replaced the old bilateral agreements with a standardized regulatory framework.

Essential Ingredients (Governance Requirements)

  • Board Composition: Requirements for a minimum number of Independent Directors.
  • Audit Committee: Mandatory oversight of financial reporting.
  • Material Disclosures: Immediate reporting of events that could affect the share price (e.g., mergers, strikes, defaults).
  • Related Party Transactions (RPTs): Strict approval mechanisms to prevent siphoning of funds.

Comparison Table: Unlisted vs. Listed Company Requirements

Feature

Unlisted Company

Listed Company (LODR)

Governance

Primarily Companies Act, 2013.

Companies Act + SEBI LODR.

Transparency

Annual filing with ROC.

Quarterly financial results + Real-time disclosures.

Share Transfer

Restricted (if Private).

Freely Tradable on Exchanges.

Public Oversight

Minimal.

High (Institutional Investors & Analysts).

4.3 Banking Regulation

Introduction & Definition

Banking institutions are the custodians of public money; therefore, their corporate governance is more stringent than that of ordinary commercial companies. They are regulated primarily by the Reserve Bank of India (RBI).

Statutory Provisions

  • Banking Regulation Act, 1949: The primary law governing banking operations.
  • RBI Act, 1934: Power of the central bank to control credit and monetary policy.
  • Basel III Norms: International standards for bank capital adequacy and liquidity.

Essential Ingredients (Governance in Banks)

  • Licensing: No company can carry out banking business without a license from the RBI (Section 22).
  • Statutory Reserves: Mandatory maintenance of CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio).
  • Board Structure: At least 51% of board members must have specialized knowledge in areas like agriculture, banking, or finance (Section 10A).
  • Restriction on Loans: Banks cannot grant loans against their own shares or to their directors without security.

Landmark Case Laws

  1. Vellore Citizens Welfare Forum v. Union of India:
    • Judgment: While an environmental case, it established the “Precautionary Principle,” which the RBI now applies to “Green Banking” and ESG (Environmental, Social, and Governance) lending norms.

Exam-Style Conclusion

Banking regulation is designed to prevent “Systemic Risk.” In an exam, distinguish between the Companies Act (general governance) and the Banking Regulation Act (specialized governance), noting that the RBI has the power to supersede the board of a failing bank to protect depositors.

 

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