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SECURITIES AND EXCHANGE BOARD OF INDIA (AMENDMENT) ACT, 2002

Ministry of Law and Justice

Act nº 59 of 2002


  • Act nº 59 of 2002

Preamble

THE SECURITIES AND EXCHANGE BOARD OF INDIA (AMENDMENT) ACT, 2002

[Act, No. 59 of 2002]

PREAMBLE

An Act further to amend the Securities and Exchange Board of India Act, 1992.

BE it enacted by Parliament in the Fifty-third Year of the Republic of India as follows:--

Section 1. Short title and commencement

(1) This Act may be called the Securities and Exchange Board of India (Amendment) Act, 2002.

(2) It shall be deemed to have come into force on the 29th day of October, 2002.

Section 2. Amendment of section 2

In section 2 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) (hereinafter referred to as the principal Act), in sub-section (1), after clause (h), the following clause shall be inserted, namely:--

'(ha) "Reserve Bank" means the Reserve Bank of India constituted under section 3 of the Reserve Bank of India Act, 1934 (2 of 1934);'.

Section 3. Amendment of section 4

In section 4 of the principal Act,--

(a) in sub-section (1),--

(i) in clause (b),--

(A) for the word "Ministries", the word "Ministry" shall be substituted;

(B) for the words "and Law", the words and figures "and administration of the Companies Act, 1956 (1 of 1956) " shall be substituted;

(ii) in clause (c), for the words and figures "the Reserve Bank of Indiaconstituted under section 3 of the Reserve Bank of India Act, 1934 (2 of 1934)", the words"the Reserve Bank" shall be substituted;

(iii) for clause (d), the following clause shall be substituted, namely:--

"(d) five other members of whom at least three shall be the whole-time members,";

(b) in sub-section (4) for the words "Reserve Bank of India", the words "ReserveBank" shall be substituted.

Section 4. Amendments of section 11

In section 11 of the principal Act,--

(a) in sub-section (2), after clause (i), the following clause shall be inserted, namely:--

"(ia) calling for information and record from any bank or any other authority or board or corporation established or constituted by or under any Central, State or Provincial Act in respect of any transaction in securities which is under investigation or inquiry by the Board;";

(b) after sub-section (2), the following sub-section shall be inserted, namely:--

"(2A) Without prejudice to the provisions contained in sub-section (2), the Board may take measures to undertake inspection of any book, or register, or other document or record of any listed public company or a public company (not being intermediaries referred to in section 12) which intends to get its securities listed on any recognised stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market.";

(c) in sub-section (3),--

(i) in the opening portion, for the words, brackets, letter and figure "clause (i) of sub-section (2)", the words, brackets, figures and letters "clause (i) or clause (ia) of sub-section (2) or sub-section (2A)" shall be substituted;

(ii) after clause (iii), the following clauses shall be inserted at the end, namely:--

"(iv) inspection of any book, or register, or other document or record of the company referred to in sub-section (2A);

(v) issuing commissions for the examination of witnesses or documents.";

(d) after sub-section (3), the following sub-section shall be inserted, namely:--

"(4) Without prejudice to the provisions contained in sub-sections (1), (2), (2A) and (3) and section 11B, the Board may, by an order, for reasons to be recorded in writing, in the interests of investors or securities market, take any of the following measures, either pending investigation or inquiry or on completion of such investigation or inquiry, namely:--

(a) suspend the trading of any security in a recognised stock exchange;

(b) restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities;

(c) suspend any office-bearer of any stock exchange or self-regulatory organisation from holding such position;

(d) impound and retain the proceeds or securities in respect of any transaction which is under investigation;

(e) attach, after passing of an order on an application made for approval by the Judicial Magistrate of the first class having jurisdiction, for a period not exceeding one month, one or more bank account or accounts of any intermediary or any person associated with the securities market in any manner involved in violation of any of the provisions of this Act, or the rules or the regulations made thereunder :

Provided that only the bank account or accounts or any transaction entered therein, so far as it relates to the proceeds actually involved in violation of any of the provisions of this Act, or the rules or the regulations made thereunder shall be allowed to be attached;

(f) direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation:

Provided that the Board may, without prejudice to the provisions contained in sub-section (2) or sub-section (2A), take any of the measures specified in clause (d) or clause (e) or clause (f), in respect of any listed public company or a public company (not being intermediaries referred to in section 12) which intends to get its securities listed on any recognised stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market:

Provided further that the Board shall, either before or after passing such orders, give an opportunity of hearing to such intermediaries or persons concerned,".

Section 5. Substitution of new section for section 11A

For section 11A of the principal Act, the following section shall be substituted, namely:--

"11A. Board to regulate or prohibit issue of prospecuts, offer document or advertisement soliciting money for issue of securities.--

(1) Without prejudice to the provisions of the Companies Act, 1956 (1 of 1956), the Board may, for the protection of investors,--

(a) specify, by regulations --

(i) the matters relating to issue of capital, transfer of securities and other matters incidental thereto; and

(ii) the manner in which such matters shall be disclosed by the companies;

(b) by general or special orders--

(i) prohibit any company from issuing prospectus, any offer document, or advertisement soliciting money from the public for the issue of securities;

(ii) specify the conditions subject to which the prospectus, such offer document or advertisement, if not prohibited, may be issued.

(2) Without prejudice to the provisions of section 21 of the Securities Contracts (Regulation) Act, 1956, the Board may specify the requirements for listing and transfer of securities and other matters incidental thereto.".

Section 6. Insertion of new sections 11C and 11D

After section 11B of the principal Act, the following sections shall be inserted, namely:--

"11C. Investigations.--

(1) Where the Board has reasonable ground to believe that--

(a) the transactions in securities are being dealt with in a manner detrimental to the investors or the securities market; or

(b) any intermediary or any person associated with the securities market has violated any of the provisions of this Act or the rules or the regulations made or directions issued by the Board thereunder,

it may, at any time by order in writing, direct any person (hereafter in this section referred to as the Investigating Authority) specified in the order to investigate the affairs of such intermediary or persons associated with the securities market and to report thereon to the Board.

(2) Without prejudice to the provisions of sections 235 to 241 of the Companies Act, 1956, it shall be the duty of every manager, managing director, officer and other employee of the company and every intermediary referred to in section 12 or every person associated with the securities market to preserve and to produce to the Investigating Authority or any person authorised by it in this behalf, all the books, registers, other documents and record of, or relating to, the company or, as the case may be, of or relating to, the intermediary or such person, which are in their custody or power.

(3) The Investigating Authority may require any intermediary or any person associated with securities market in any manner to furnish such information to, or produce such books, or registers, or other documents, or record before him or any person authorised by it in this behalf as it may consider necessary if the furnishing of such information or the production of such books, or registers, or other documents, or record is relevant or necessary for the purposes of its investigation.

(4) The Investigating Authority may keep in its custody any books, registers, other documents and record produced under sub-section (2) or sub-section (3) for six months and thereafter shall return the same to any intermediary or any person associated with securities market by whom or on whose behalf the books, registers, other documents and record are produced :

Provided that the Investigating Authority may call for any book, register, other document and record if they are needed again :

Provided further that if the person on whose behalf the books, registers, other documents and record are produced requires certified copies of the books, registers, other documents and record produced before the Investigating Authority, it shall give certified copies of such books, registers, other documents and record to such person or on whose behalf the books, registers, other documents and record were produced.

(5) Any person, directed to make an investigation under sub-section (1), may examine on oath, any manager, managing director, officer and other employee of any intermediary or any person associated with securities market in any manner, in relation to the affairs of his business and may administer an oath accordingly and for that purpose may require any of those persons to appear before it personally.

(6) If any person fails without reasonable cause or refuses--

(a) to produce to the Investigating Authority or any person authorised by it in this behalf any book, register, other document and record which is his duty under sub-section (2) or sub-section (3) to produce; or

(b) to furnish any information which is his duty under sub-section (3) to furnish; or

(c) to appear before the Investigating Authority personally when required to do so under sub-section (5) or to answer any question which is put to him by the Investigating Authority in pursuance of that sub-section; or

(d) to sign the notes of any examination referred to in sub-section (7),

he shall be punishable with imprisonment for a term which may extend to one year, or with fine, which may extend to one crore rupees, or with both, and also with a further fine which may extend to five lakh rupees for every day after the first during which the failure or refusal continues.

(7) Notes of any examination under sub-section (5) shall be taken down in writing and shall be read over to, or by, and signed by, the person examined, and may thereafter be used in evidence against him.

(8) Where in the course of investigation, the Investigating Authority has reasonable ground to believe that the books, registers, other documents and record of, or relating to, any intermediary or any person associated with securities market in any manner, may be destroyed, mutilated, altered, falsified or secreted, the Investigating Authority may make an application to the Judicial Magistrate of the first class having jurisdiction for an order for the seizure of such books, registers, other documents and record.

(9) After considering the application and hearing the Investigating Authority, if necessary, the Magistrate may, by order, authorise the Investigating Authority --

(a) to enter, with such assistance, as may be required, the place or places where such books, registers, other documents and record are kept;

(b) to search that place or those places in the manner specified in the order; and

(c) to seize books, registers, other documents and record, it considers necessary for the purposes of the investigation:-

Provided that the Magistrate shall not authorise seizure of books, registers, other documents and record, of any listed public company or a public company (not being the intermediaries specified under section 12) which intends to get its securities listed on any recognised stock exchange unless such company indulges in insider trading or market manipulation.

(10) The Investigating Authority shall keep in its custody the books, registers, other documents and record seized under this section for such period not later than the conclusion of the investigation as it considers necessary and thereafter shall return the same to the company or the other body corporate, or, as the case may be, to the managing director or the manager or any other person, from whose custody or power they were seized and inform the Magistrate of such return:

Provided that the Investigating Authority may, before returning such books, registers, other documents and record as aforesaid, place identification marks on them or any part thereof.

(11) Save as otherwise provided in this section, every search or seizure made under this section shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) relating to searches or seizures made under that Code.

11D. Case and desist proceedings.--

If the Board finds, after causing an inquiry to be made, that any person has violated, or is likely to violate, any provisions of this Act, or any rules or regulations made thereunder, it may pass an order requiring such person to cease and desist from committing or causing such violation:

Provided that the Board shall not pass such order in respect of any listed public company or a public company (other than the intermediaries specified under section 12) which intends to get its securities listed on any recognised stock exchange unless the Board has reasonable grounds to believe that such company has indulged in insider trading or market manipulation.".

Section 7. Insertion of new Chapter VA

After Chapter V of the principal Act, the following Chapter shall be inserted, namely:--

"CHAPTER VA

PROHIBITION OF MANIPULATIVE AND DECEPTIVE DEVICES, INSIDER TRADING AND SUBSTANTIAL ACQUISITION OF SECURITIES OR CONTROL

12A. Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control.--

No person shall directly or indirectly --

(a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognised stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder;

(b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange;

(c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder;

(d) engage in insider trading;

(e) deal in securities while in possession of material or non-public information or communicate such material or non-public information to any other person, in a manner which is in contravention of the provisions of this Act or the rules or the regulations made thereunder;

(f) acquire control of any company or securities more than the percentage of equity share capital of a company whose securities are listed or proposed to be listed on a recognised stock exchange in contravention of the regulations made under this Act.".

Section 8. Amendment of section 14

In section 14 of the principal Act, in sub-section (1), clause (aa) shall be omitted.

Section 9. Amendment of section 15A

In section 15A of the principal Act,--

(i) in clause (a), for the words "a penalty not exceeding one lakh and fifty thousand rupees for each such failure", the words "a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less" shall be substituted;

(ii) in clause (b), for the words "a penalty not exceeding five thousand rupees for every day during which such failure continues", the words "a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less" shall be substituted;

(iii) in clause (c), for the words "a penalty not exceeding ten thousand rupees for every day during which the failure continues", the words "a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less" shall be substituted.

Section 10. Amendment of section 15B

In section 15B of the principal Act, for the words "a penalty not exceeding five lakh rupees for every such failure", the words "a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less" shall be substituted.

Section 11. Substitution of new section for section 15C

For section 15C of the principal Act, the following section shall be substituted, namely:--

"15C. If any listed company or any person who is registered as an intermediary, after having been called upon by the Board in writing, to redress the grievances of investors, fails to redress such grievances within the time specified by the Board, such company or intermediary shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.".

Section 12. Penalty for failure to redress investors' grievances

In section 15D of the principal Act,--

(i) in clause (a), for the words "a penalty not exceeding ten thousand rupees for each day during which he carries on any such collective investment scheme including mutual funds, or ten lakh rupees, whichever is higher", the words "a penalty of one lakh rupees for each day during which he sponsors or carries on any such collective investment scheme including mutual funds, or one crore rupees, whichever is less" shall be substituted;

(ii) in clause (b), for the words "a penalty not exceeding ten thousand rupees for each day during which such failure continues or ten lakh rupees, whichever is higher", the words "a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less" shall be substituted;

(iii) in clause (c), for the words "a penalty not exceeding five thousand rupees for each day during which such failure continues or five lakh rupees, whichever is higher", the words "a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less" shall be substituted;

(iv) in clause (d), for the words "a penalty not exceeding one thousand rupees for each day during which such failure continues", the words "a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less" shall be substituted;

(v) in clause (e) for the words "a penalty not exceeding one thousand rupees for each day during which such failure continues", the words "a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less" shall be substituted;

(vi) in clause (f), for the words "a penalty not exceeding five lakh rupees for each such failure", the words "a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less" shall be substituted.

Section 13. Amendment of section 15E

In section 15E of the principal Act, for the words "a penalty not exceeding five lakh rupees for each such failure", the words "a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less" shall be substituted.

Section 14. Amendment of section 15F

In section 15F of the principal Act,--

(i) in clause (b), for the words "a penalty not exceeding five thousand rupees for each day during which such failure continues", the words "a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less" shall be substituted;

(ii) in clause (c), for the words "a penalty not exceeding five thousand rupees", the words "a penalty of one lakh rupees" shall be substituted.