SEBI Act 1992 Explained | Supreme Court Judgments & Regulatory Powers
The SEBI Act, 1992 — Comprehensive Blog
By:
Jayprakash B. Somani
Advocate, Supreme Court of India & Insolvency Professional
Cell: PA 9322188701
www.jayprakashsomani.com
Introduction
The Securities and Exchange Board of India Act, 1992 (Act No. 15 of 1992) is the primary statute that provides the statutory basis for SEBI, India’s securities market regulator. The Act empowers SEBI to protect investor interests, promote development of the securities market, and regulate market intermediaries and practices.
The Act was enacted on 4 April 1992 and came into force on 30 January 1992.
Purpose and Background
Before 1992, SEBI existed as a non-statutory body established by a Government Resolution in 1988 with limited powers. Following major securities market scandals—most notably the Harshad Mehta scam—the need was felt to grant SEBI statutory authority.
The SEBI Act was therefore enacted to provide SEBI with comprehensive regulatory, enforcement, and adjudicatory powers to ensure market integrity and investor protection.
Structure of the Act
The SEBI Act consists of:
10 Chapters
Approximately 91 Sections
Chapter-wise Outline
Chapter I – Preliminary
Short title, extent and commencement (Section 1)
Definitions (Section 2)
Chapter II – Establishment of SEBI
Constitution of SEBI as a corporate body (Section 3)
Management, removal of members, terms and meetings (Sections 4–9)
Chapter III – Transfer of Assets
Transfer of assets and liabilities from the earlier Board to statutory SEBI (Section 10)
Chapter IV – Powers and Functions of SEBI
Duties to protect investors and regulate securities markets (Section 11)
Regulation of prospectus and offer documents (Section 11A)
Identification and regulation of collective investment schemes (Section 11AA)
Power to issue directions and impose penalties (Section 11B)
Investigation powers (Section 11C)
Cease-and-desist proceedings (Section 11D)
Chapter V – Registration Certificate
Registration of brokers, sub-brokers, and other market intermediaries (Section 12)
Chapter VA – Prohibition of Manipulative and Deceptive Devices, Insider Trading
Prohibition of insider trading, fraudulent practices, and unlawful acquisitions (Section 12A)
Chapter VI – Finance, Accounts and Audit
SEBI’s funds, accounts, audit and financial management
Chapter VIA – Penalties and Adjudication
Penalties for contraventions
Adjudication procedures
Chapter VIB – Securities Appellate Tribunal
Establishment, powers, and procedure of the Securities Appellate Tribunal (SAT)
Chapter VII – Miscellaneous
Rule-making powers, appeals, offences and general provisions
Key Objectives of the SEBI Act
The core objectives of the SEBI Act, primarily reflected in Section 11, are:
Protection of investor interests in securities
Promotion of development of a fair, efficient and transparent securities market
Regulation of the securities market and prevention of malpractices
This balanced mandate ensures investor confidence while facilitating orderly market growth.
Important Provisions and Sections
Section 3 – Establishment of SEBI
Establishes SEBI as a corporate body with perpetual succession and a common seal.
Section 4 – Management
Specifies the composition of the Board, including the Chairman, members from the Ministry of Finance, an RBI nominee, and whole-time members.
Section 11 – Powers and Functions
Defines SEBI’s core regulatory, supervisory, and enforcement functions.
Sections 11A and 11AA
Relate to regulation of public issues and identification of collective investment schemes.
Section 11B
Empowers SEBI to issue binding directions and impose penalties.
Sections 11C and 11D
Provide investigation powers and authority to issue cease-and-desist orders.
Section 12
Mandates registration of market intermediaries such as brokers, transfer agents, and portfolio managers.
Section 12A
Prohibits insider trading, market manipulation, and regulates takeovers.
Chapters VIA and VIB
Deal with penalties, adjudication, and appellate remedies including SAT.
Interaction with Other Laws
While the SEBI Act operates as a comprehensive regulatory framework, it functions in coordination with:
Securities Contracts (Regulation) Act, 1956
Companies Act (particularly provisions relating to public issues and securities transfers)
Depositories Act, 1996
This integrated approach ensures multi-layer compliance for listed entities and intermediaries.
Important Supreme Court Case Law under the SEBI Act
Although most matters are first adjudicated by SEBI or the Securities Appellate Tribunal, the Supreme Court has delivered landmark judgments shaping securities regulation.
SEBI v. Sahara India Real Estate Corporation & Ors.
A seminal judgment affirming SEBI’s jurisdiction over public issues. The Supreme Court directed Sahara group companies to refund large sums raised through Optionally Fully Convertible Debentures (OFCDs) in violation of SEBI regulations, reinforcing investor protection and regulatory oversight.
SEBI v. Ram Kishori Gupta & Anr. (2025)
The Supreme Court held that the principles of res judicata and constructive res judicata apply to SEBI’s quasi-judicial proceedings, preventing multiple enforcement actions on the same cause of action and strengthening procedural fairness.
SEBI v. Pan Asia Advisors Ltd. & Ors.
Upheld SEBI’s authority to enforce insider trading regulations and curb market abuse.
SEBI v. Price Waterhouse Coopers
The Court confirmed SEBI’s power to penalise auditors and professional intermediaries for securities law violations, reinforcing accountability and corporate governance standards.
SEBI v. Rakhi Trading Pvt. Ltd.
Reaffirmed SEBI’s jurisdiction over fraudulent and unfair trade practices, emphasising the regulator’s role in preserving market integrity.
Role of the Securities Appellate Tribunal (SAT)
Under Chapter VIB, the Act establishes the Securities Appellate Tribunal to hear appeals against SEBI orders. SAT decisions are appealable before the Supreme Court on substantial questions of law.
Importance of the SEBI Act Today
Strengthened through amendments and judicial interpretation, the SEBI Act remains central to Indian securities regulation by ensuring:
Investor protection
Fair and transparent markets
Regulation of intermediaries and listed entities
Effective enforcement and redress mechanisms
Judicial scrutiny continues to refine SEBI’s powers while ensuring procedural fairness.
Conclusion
The SEBI Act, 1992 forms the backbone of India’s securities market regulation. With a robust statutory framework, extensive enforcement powers, and consistent judicial support, the Act enables SEBI to act decisively against market abuse while promoting orderly and transparent market development.
