Sebi’s Regulatory Architecture - Ensuring Transparency, Accountability, And Market Integrity

Author: LawSphereX

Category: Corporate & Insolvency

Published: 2026-08-23T21:03:32.42986+00:00

Updated: 2026-08-26T17:06:23.25+00:00

SEBI’S REGULATORY ARCHITECTURE: ENSURING

TRANSPARENCY, ACCOUNTABILITY, AND MARKET

INTEGRITY

Jasdeep Singh Arora, Amity Law School, Amity University, Noida, Uttar Pradesh I. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

1. Background and Need for LODR

The Listing Agreement between the companies and stock exchanges predominantly governed the disclosure policies for listed companies before 2015. This resulted in gaps within the compliance framework, lack coherence and poor enforcement. In pursuit of these foundational flaws, SEBI enacted the LODR Regulations, 2015 to amalgamate disclosure regulations into one statutory instrument that is clear and strong. The intention of the LODR Regulations was to bring the system of corporate disclosures in India in line with globally accepted standards by improving reliability, utility, and enforceability.

2. Regulation 4 – Principles Governing Disclosures and Obligations1

This regulation is the philosophical backbone of LODR and lays down guiding principles, such as: i. Timely and accurate disclosure of material information. ii. Fair treatment of all shareholders, particularly minority and retail investors. iii. Avoidance of selective disclosure, promoting parity of information. iv. Emphasis on sustainable value creation and long-term corporate reputation. Significance: This regulation functions as a benchmark for interpreting disclosure obligations in ambiguous scenarios. It represents a movement from “checklist compliance” mentality to a more principles-based governance.

3. Regulation 30 – Disclosure of Material Events and Information2

This regulation requires real-time disclosure of information that may affect, in any way, the

1 SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Regulation 4

2 SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Regulation 30

market price or investment decision of the investor. Materiality is defined by the following: i. Quantitative thresholds (financial impact) ii. Qualitative nature (governance-related issues) iii. Legal or reputational risk Examples of disclosable events: i. Mergers, acquisitions, or sale of assets ii. Resignation or appointment of key personnel iii. Regulatory actions or litigation iv. Fundraising activities or credit downgrades Impact: i. Ensures information symmetry between promoters and investors ii. Builds investor trust and market efficiency iii. Reduces speculative trading based on insider leaks

4. Regulation 33 – Submission of Financial Results

This provision mandates quarterly and annual financial statements in a prescribed format, which must be: i. Approved by the Board and certified by the Audit Committee ii. Accompanied by limited review or audit reports iii. Published within 45 days for quarterly and 60 days for annual results Additional disclosures include: i. Segment-wise revenue and performance ii. Profit/loss before and after tax iii. EPS and footnote explanations Impact: i. Brings discipline to financial reporting cycles ii. Enables real-time assessment of financial health by stakeholders

iii. Minimizes manipulation through standardized formats

5. Regulations 17–27 – Corporate Governance Provisions

These provisions encapsulate mandatory governance structures and disclosure obligations, such as: i. Regulation 17: Board Composition a. At least 50% independent directors for non-executive boards b. Presence of a woman director c. Regular board evaluations and training ii. Regulation 18: Audit Committee a. Composed entirely of independent non-executive directors b. Reviews financial results, internal audits, and statutory compliance iii. Regulation 23: Related Party Transactions (RPTs) a. Mandatory disclosure and shareholder approval for material RPTs b. Prevention of tunnelling or asset diversion by promoters iv. Regulation 25–27: Vigil Mechanism and Code of Conduct a. Mandatory whistleblower policy with access to Audit Committee b. CEO and CFO certifications on financial integrity Impact: i. Fosters transparency in governance and board decision-making ii.

Shields minority shareholders from insider abuse iii. Brings Indian norms in line with OECD and G20 governance principles

6. Regulation 34 – Annual Report and Integrated Disclosures

Regulation 34 mandates submission of a comprehensive Annual Report, including: i. Director’s Report with management policies, dividend, and risk exposure ii. Management Discussion & Analysis (MD&A) covering industry trends, business strategy, internal controls

iii. Corporate Governance Report with disclosures on board meetings, committee composition, attendance iv. Business Responsibility and Sustainability Report (BRSR) for top 1000 listed entities Impact: i. Provides a holistic view of the company, beyond numbers ii. Enhances non-financial transparency, especially on ESG factors iii. Enables investors to make long-term, sustainability-conscious decisions

7. Schedules III & V – Prescribed Formats and Disclosures

i. Schedule III provides detailed formats for financial results, shareholding patterns, and deviation statements ii. Schedule V prescribes: a. Compliance certificate from auditors or practicing company secretaries b. Affirmation of code of conduct by directors c. Disclosures on remuneration, penalties, and compliance status Impact: i. Promotes uniformity and comparability across companies ii. Limits scope for creative accounting or disclosure evasion iii. Makes regulatory audits easier for exchanges and SEBI

8. SEBI’s Dynamic Role in Amending LODR3

Since 2015, SEBI has frequently updated LODR to plug loopholes and address emerging trends: i. 2018: Strengthening of RPT norms and board evaluation rules ii. 2021: Mandatory BRSR for ESG transparency iii. 2023: Stricter norms for independent director appointment, resignation, and shareholder

3 https://www.taxmann.com/post/blog/analysis-key-amendments-to-sebi-lodr-regulations

verification SEBI’s dynamic amendment strategy ensures regulatory relevance and responsiveness to market realities. II. SEBI (Prohibition of Insider Trading) Regulations, 2015: Measures to Prevent Misuse

of Confidential Information

1. Introduction and Background

Insider trading, defined as the buying or selling of securities based on non-public, material information, severely undermines the principles of market fairness and transparency. In India, following several market manipulation scandals in the 1990s and 2000s, SEBI recognized the urgent need for a more robust and enforceable regulatory regime to counter insider trading.4 The 2015 Regulations replaced the earlier 1992 framework and were based on the recommendations of the High-Level Committee chaired by Justice N.K. Sodhi.5 These regulations significantly tightened the legal net around insiders and brought India’s insider trading laws in alignment with global standards like those of the U.S. Securities Exchange Commission (SEC) and the UK Financial Conduct Authority (FCA).

2. Expansive Definition of "Insider" and "UPSI"

One of the most pivotal changes under the 2015 regulations was the broadening of the definition of key terms: i. "Insider" was expanded beyond directors and employees to include: a. Any connected person with access to UPSI b. Immediate relatives of insiders c. Professionals such as lawyers, bankers, consultants, and auditors ii. "UPSI" (Unpublished Price Sensitive Information) includes:6 a. Financial results (quarterly/annual) b. Dividend declarations https://www.lawctopus.com/academike/regulation-and-analysis-of-the-concept-of-insider-trading-a-criticalanalysis/ 5https://www.sebi.gov.in/media/press-releases/dec-2013/justice-sodhi-committee-on-insider-trading-regulationssubmits-report-to-sebi_25863.html

6 https://www.icsi.edu/media/webmodules/Final_Guidance_Note_on_PIT.pdf

c. Change in capital structure d. Mergers, demergers, acquisitions e. Delisting and buyback of securities f. Major expansion or exit from business operations This expanded scope significantly increases accountability and legal risk for those handling price-sensitive information.

3. Institutional Mechanisms for Preventing Misuse of UPSI

i. Internal Codes of Conduct and Fair Disclosure Policies a. Every listed company and intermediary is required to formulate an internal Code of Conduct based on SEBI’s model code. b. This code includes procedures to identify and regulate the designated persons (employees likely to access UPSI), mechanisms for pre-clearance of trades, and restrictions on contratrading (opposite trades within six months). c. In parallel, companies must publish a Code of Fair Disclosure on their website, which: • Ensures timely and uniform public disclosure of material events • Minimizes selective disclosure ii. Trading Window Mechanism7 a. A trading window is a designated period during which designated employees are allowed to trade. b. During the closure of the trading window—typically 7-10 days prior to and 48 hours after the disclosure of financial results or UPSI—no trading is allowed. c.

This mechanism protects investors from informational asymmetries and fosters trust in financial disclosures. iii. Creation of Chinese Walls a. Companies are encouraged to maintain information barriers, commonly known as "Chinese Walls," between departments handling UPSI and those involved in trading or advisory 7 https://www. sebi. gov. in/legal/circulars/jul-2023/trading-window-closure-period-under-clause-4-of-schedule-bread-with-regulation-9-of-sebi-prohibition-of-insider-trading-regulations-2015-pit-regulations-extendingframework-for-restricting-t-_74120. html

services. b. Examples include physical separation, role-based access to digital systems, and independent reporting structures. c. These structural safeguards prevent the inadvertent leakage of confidential data within organizations.

4. Structured Digital Database Requirement8

A significant innovation introduced in 2015 is the mandate for companies and intermediaries

to maintain a structured, digitally secure, and time-stamped database of: a. Persons with whom UPSI is shared b. Purpose of sharing c. Date and mode of communication This enables traceability and accountability, allowing SEBI to reconstruct the flow of sensitive information during any investigation. The use of technology here enhances regulatory surveillance and acts as a deterrent against illicit disclosures.

5. Mandatory Disclosures and Transparency in Trading9

i. Initial Disclosures: Promoters, directors, and key managerial personnel must disclose their shareholding at the time of appointment. ii. Continual Disclosures: Any trade exceeding ₹10 lakh in value must be reported within two trading days. iii. Contra Trading Restrictions: Designated persons are prohibited from executing opposite trades within a six-month period. These provisions reduce conflicts of interest and improve transparency in insider trades.

6. Whistleblower and Informant Mechanism

Recognizing the challenges in detecting insider trading, SEBI introduced the Informant Mechanism through the 2019 amendment, enabling:

8 https://taxguru.in/sebi/structured-digital-database-sebi-pit-regulations-2015.html

9 Joshi, Vallabh M. “SEBI Compliance Unveiled: Non-Standard Disclosures of KMP Resignation amid SEBI’s Regulatory Framework.” MMJC Insights, January 16, 2025. Available at: https://www.mmjc.in/sebi-complianceunveiled-non-standard-disclosures-of-kmp-resignation-amid-sebis-regulatory-framework%EF%BF%BC/

a. Anonymous complaints via legal counsel b. Financial reward of up to ₹1 crore for credible leads c. Protection from retaliation and victimization d. Complete confidentiality of the informant’s identity This system has democratized surveillance, empowering insiders and external stakeholders to act against malpractice without fear.

7. SEBI’s Surveillance and Enforcement Strategy

SEBI combines real-time trading surveillance, pattern recognition algorithms, and exchange data analytics to flag unusual trading activity. Let us highlight some recent significant enforcement actions: i. SEBI’s whistled at Axis Bank for sharing confidential earnings information prior to its public release and punished some employees at the bank. ii. In 2021, Reliance and its executive directors were suspended for engaging in manipulative trades and using UPSI and were fined ₹25 crore by SEBI.10 Such actions further confirm SEBIs resolve towards protecting markets and preserving the confidence of investors.

8. Global Comparisons and Best Practices

SEBI’s domain related to insider trading has positively progressed towards international frameworks integration:

Aspect India (SEBI)

USA (SEC)

UK (FCA)

Structured Mandatory and digitally Not mandatory Not mandated Database time-stamped Voluntary (company- Trading Window Mandatory Not mandatory specific) India is unique in some respects, for instance, with regards to having a well-maintained organized database and closing trading windows which makes SEBI’s framework holistic and anticipatory. III. SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities

Market) Regulations, 2003

1. Introduction and Legislative Background

FUTP regulations which stands for Prohibition of Fraudulent and Unfair Trade Practices regulation 2003 is designed to restrict deceitful and dishonest conduct such as trading in India’s security markets. The legislation seeks to restrict a wide range of market abuse such as manipulation, cheating, impersonation, false statement, or other immoral conduct that threatens market productivity and investor trust. The scams executed by Ketan Parekh and Harshad Mehta highlighted how regulations were not able to explicitly cover and enforce rules for dire corners of scamming.11 This need for a specific explicit and enforcement driven framework led to the pass of a certain law. SEBI put “fraudulent” and “unfair” practices into clear codes so that there was no subjectivity in enforcement.

2. Key Definitions and Scope

The FUTP Regulations12 provide broad and inclusive definitions to ensure maximum coverage of unethical practices: i. Fraud includes acts committed with intent to deceive or mislead investors or SEBI. 11 Raghuram Chakrabarti, Securities Market Scams in India: A Case Study of Harshad Mehta and Ketan Parekh, Indian Sch. of Bus., Working Paper (2005) 12 https://globalinvestigationsreview.com/guide/the-guide-international-enforcement-of-the-securities-laws/thirdedition/article/india-deep-dive-sebi-and-related-legislation-amid-insider-trading-and-market-manipulationinvestigations

ii. Unfair trade practice refers to any manipulative or deceptive act that distorts normal price discovery or misleads investors. These regulations apply to: i. Listed companies and their promoters ii. Brokers, intermediaries, and analysts iii. Investment advisers and research analysts iv. Any person or entity dealing in securities The flexibility in definitions helps SEBI adapt to emerging market practices, such as social media pump-and-dump schemes or coordinated WhatsApp groups sharing UPSI.

3. Types of Prohibited Conduct13

The regulations specify a comprehensive list of activities that are prohibited: i. Price Manipulation • Falsified-trade volume or price changes such as wash trades14, circular trading, and synchronized orders. • Inflating or deflating the stock prices through rumors or false information ii. Misrepresentation and Omission • Promoting falsifies information in public documents, prospectuses, or announcements. • Hiding important information from investors during public offerings or corporate actions. iii. Pump and Dump Schemes • Inflating the stock’s price through misleading assertions(pump) and subsequently liquidating assets(dump) to gain profit iv. Front Running • Brokers or intermediaries placing orders on their own account prior to executing substantial client orders to benefit from anticipated price changes. v. Circular Trading and Wash Sales

13 https://gtngroup.com/americas/prohibited-trading-practices/

14 https://www.investopedia.com/terms/w/washtrading.asp

Generating deceptive market actions via transactions that produce no real alteration in ownership, thus confusing other investors. • By explicitly listing these practices, the regulations lessen uncertainty and enhance SEBI’s capacity for prompt and firm action.

4. Investigative and Enforcement Powers of SEBI15

The FUTP Regulations grant SEBI broad authority for enforcement, which includes: i. Search and seizure of evidence ii. Freezing of bank and demat accounts iii. Attachment of properties and proceeds of unfair gains iv. Debarment from accessing the securities market v. Monetary penalties and prosecution under the SEBI Act SEBI may take action on its own accord, or through investor complaints, surveillance alerts, tip-offs, or even reports received from other regulators and exchanges. The enforcement arm of SEBI operates under a quasi-judicial framework which, with due regard to natural justice, ensures that there are no final orders issued without a hearing.

5. Role in Promoting Corporate Transparency

Given the primary focus in regulating fair market conduct, the FUTP Regulations have another aim which is to ensure truthful accountancy disclosures: i. Listed companies face lowered expectations to make untrue announcements or conceal risks that are material. ii. Promoters and insiders are liable for providing dependable information to the public. iii. Brokerage houses and research analysts as well as influencers are obligated to act in good faith and ethical manner. Therefore, these regulations help eliminate selective disclosure, financial engineering, and deceptive projections while doing the greater good of improving corporate conduct. https://blog.ipleaders.in/sebis-powers-of-investigation-and-enforcement-procedural-safeguards-and-legalchallenges/#:~:text=Section%2011C(3)%20of%20the,evidence%20necessary%20for%20an%20investigation.

6. Landmark Enforcement Actions by SEBI

SEBI has acted upon several notable cases utilizing the jurisdictional power provided by these regulations: i. Sahara India Real Estate Corp Case (2012): The company was found by SEBI to have committed an offense by attempting to raise capital via optionally fully convertible debentures without any proper disclosure breaching both public offering and FUTP norms.16 ii. PACL Limited (2016): SEBI had to impose a penalty on PACL and had to declare the company’s investment schemes as fraudulently targeting retail investors.17 iii. Karvy Stock Broking Case (2019): After misusing client securities, an act that amounts to defiance of FUTP spirit, SEBI imposed a ban on accepting new clients for Karvy.18

7. Integration with Other SEBI Regulations

The FUTP Regulations function alongside: i. SEBI (LODR) Regulations to ensure the accuracy of corporate disclosures ii. SEBI (Insider Trading) Regulations to prevent unfair advantage through privileged information iii. SEBI (Intermediaries) Regulations to enforce conduct norms for brokers and advisors This integration promotes a comprehensive regulatory framework that encourages corporate transparency across various aspects—from financial disclosures to ethical trading practices.

8. Challenges and Future Outlook

Although they are effective, the regulations encounter specific practical difficulties: i. Establishing intent in manipulation cases continues to be challenging, particularly in the realms of algorithmic and high-frequency trading. ii. The international aspect of certain fraudulent activities makes jurisdiction and enforcement more challenging.

16 https://indiankanoon.org/doc/197169197/?utm_source=chatgpt.com

17 https://www.sebi.gov.in/sebi_data/attachdocs/oct-2017/1509262028322.pdf

https://www.cnbctv18.com/finance/sebi-confirms-ban-on-karvy-stock-broking-for-misuse-of-clientssecurities-passes-final-order-2-7561311.htm?utm_source=chatgpt.com

iii. There is an increasing demand for improved investor education to identify and report unusual trading activity. In the future, SEBI is considering AI-based monitoring, predictive analysis, and partnerships with international regulators to enhance its capability in fraud detection and enforcement. IV. SEBI (Stock Brokers and Sub-Brokers) Regulations, 199219

1. Introduction and Legislative Intent

The SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 were established as one of SEBI's initial regulatory structures, soon after it obtained statutory authority. The rules seek to create a clear, ethical, and accountable environment for intermediaries in the securities market, especially stock brokers and sub-brokers. These intermediaries are crucial in enabling transactions between investors and stock exchanges. Thus, any unethical behavior from them can directly impact investor confidence and the integrity of the market. The rules were established to authorize, oversee, and regulate these intermediaries, thus guaranteeing equitable trading practices and improving investor safeguards.

2. Registration and Eligibility Criteria

The regulation requires all stock brokers and sub-brokers to get registered with SEBI and the corresponding stock exchange. This is done to prevent handling by unqualified and unskilled representatives in such a delicate area. Key eligibility norms include: i. Adequate infrastructure and capital adequacy. ii. Absence of any criminal or regulatory violations. iii. Fulfilment of the ‘fit and proper’ person criteria set by SEBI. iv. Membership with recognized stock exchanges. This registration system allows SEBI to screen and filter market participants, thus reducing the risk of fraud and ensuring professionalism. 19 https://www.sebi.gov.in/legal/regulations/jul-2017/sebi-stock-brokers-and-sub-brokers-regulations-1992-lastamended-on-july-13-2017_35309.html?QUERY

3. Code of Conduct for Brokers and Sub-Brokers20

The Code of Conduct for brokers and sub-brokers to follow is set out in full detail in the regulations. This document is important reason of maintaining the ethical standards in their operations. Important inclusions entail: i. Honesty and Fairness: Brokers must perform all work and tasks honestly and fairly to their clients. ii. Obligation to Disclose: Complete and accurate information must be provided with respect to the transactions, brokerage charges, and risks on investments. iii. Confidentiality: Apart from the law, client’s information and trading strategies must not be made available for public use. iv. Avoidance of Conflict of Interest: Brokers must be in a position not to have personal interests that is different from that of the clients. v. Prompt Execution of Orders: Best possible market rates must be offered to the clients for execution of orders. vi.

No manipulative practices: Indulging in front-running, circular trading, or price rigging, or offering clients false promises is strictly prohibited. This Framework ensure that brokers do not act as service providers but rather protect investors interests.

4. Compliance and Reporting Obligations21

To ensure transparency and accountability, the rules require that brokers and sub-brokers: i. Maintain proper books of accounts, records, and documents. ii. Submit periodic reports on turnover, client complaints, and risk exposure. iii. Ensure audit trails for all transactions. iv. Implement internal controls to prevent fraud and maintain data integrity. https://www.sebi.gov.in/reports/reports/mar-2003/discussion-paper-on-code-of-conduct-subbrokers_12984.html

21 https://www.bcasonline.org/Referencer2018-19/part5/auditing-compliances-for-stock-brokers.html

SEBI and the stock exchanges perform regular checks and audits to evaluate adherence to regulations. Failure to comply may result in suspension, financial penalties, or loss of registration.

5. Role in Enhancing Corporate Transparency

Just as these policies focus on intermediaries and not companies, they add value to corporate governance22 in important areas: i. Improved allocation of the investor’s decision-making efforts is achieved through brokers providing accurate information and risk assessment. ii. Brokers transmit information related to the corporation’s certain events, such as earnings announcements, rights issues, or public offerings. It is necessary that they indeed provide accurate information about these events to the market. iii. Brokers sustain non manipulated price transparency which is precondition to transparency itself by stopping practices such as insider trading and fictitious research. The conduct and ethics of intermediaries enhances the integrity of the entire capital market alongside the governance framework of disclosure requirements placed on listed companies. V.

SEBI (Buy-back of Securities) Regulations, 201823

1. Introduction and Objective

The SEBI (Buy-back of Securities) Regulations, 2018 were introduced to consolidate and simplify the regulatory framework for buy-backs of shares and other specified securities by listed companies in India. These regulations replaced the earlier SEBI (Buy-back of Securities) Regulations, 1998, aligning the rules with evolving corporate practices and reinforcing investor protection through greater transparency, accountability, and procedural clarity. The core purpose of a buy-back is to allow a company to return surplus cash to shareholders, improve financial ratios (like earnings per share and return on equity), and signal confidence in the company’s future. However, without regulation, buy-backs can be misused for stock price manipulation or misleading financial engineering.

SEBI’s regulations ensure that such transactions are conducted in a transparent, fair, and investor-friendly manner. https://sageuniversity. edu. in/blogs/corporate-transparency-importance-of-transparency-in-buildingstakeholder-trust https://www. sebi. gov. in/legal/regulations/sep-2018/securities-and-exchange-board-of-india-buy-back-ofsecurities-regulations-2018_40327. html

2. Key Provisions Promoting Transparency

i. Modes of Buy-back and Public Disclosure24 a. The regulations permit buy-backs via: • Tender offer (from existing shareholders), • Open market purchases, and • Buy-back from odd-lot holders. b. Each mode requires detailed disclosures in public announcements, which must include: • Maximum number of securities to be bought back, • Price at which they will be bought, • Total amount earmarked, • Timelines and rationale for the buy-back, • Impact on financial ratios and shareholding pattern. This ensures that all shareholders are equally informed and can make timely, data-driven decisions. ii. Filing and Disclosures with SEBI and Stock Exchanges a. Companies conducting a buy-back are required to: • File a letter of offer with SEBI, • Provide an auditor’s certificate confirming compliance with financial limits (i. e.

, net worth thresholds under Section 68 of the Companies Act, 2013), • Submit daily reports to stock exchanges detailing buy-back progress. These filings enhance regulatory oversight and provide real-time transparency to investors and market participants. iii. Reservation for Small Shareholders a. In the tender offer route, at least 15% of the buy-back size must be reserved for small shareholders (i. e. , those holding securities with a market value of ₹2 lakh or less). This

24 https://taxguru.in/company-law/buy-back-shares-methods-sources-conditions-procedures.html

provision: • Prevents buy-backs from being dominated by institutional investors, • Empowers retail investors to participate fairly, • Demonstrates SEBI’s commitment to inclusive investor protection. iv. Restrictions to Prevent Manipulation a. To prevent unfair trade practices, the regulations impose the following safeguards: • No issuance of new securities within six months post-buy-back (except in certain cases), • No buy-back if the company is in default of loans or tax dues, • A company cannot buy back more than 25% of its paid-up capital and free reserves, • The buy-back must be completed within one year from the date of resolution. These restrictions ensure that buy-backs are not used for short-term stock price inflation or deceptive financial engineering. v. Post Buy-back Disclosure Requirements25 a.

After completion, companies must disclose: • The actual number of shares bought back, • Extinguishment of securities, and • Impact on capital structure, promoter shareholding, and key financials. This post-event reporting builds public trust and assures that the buy-back objectives have been met honestly and within legal boundaries.

3. Contribution to Corporate Transparency

The 2018 regulations make the buy-back process highly structured, visible, and verifiable, thereby enhancing: i. Shareholder trust through fair treatment and consistent disclosures, ii. Market integrity by avoiding speculative or opaque practices, https://agrudpartners.com/share-buyback-law-inindia/#:~:text=The%20maximum%20limit%20is%2025,share%20capital%20and%20free%20reserves.

iii. Regulatory confidence, as SEBI has full visibility over the use of company funds and effect on public shareholding. The regulation also acts as a preventive tool against insider trading and corporate misgovernance, especially in cases where promoters may have asymmetric information.

VI. Corporate Governance Guidelines26

Corporate governance refers to a framework of rules, practices, and processes by which companies are directed and controlled. SEBI’s Corporate Governance Guidelines, particularly as embedded in the SEBI (Listing Obligations and Disclosure Requirements) Regulations,

2015 (LODR) and various circulars, are designed to ensure that listed companies operate in a

manner that is transparent, accountable, and equitable to all stakeholders. SEBI’s guidelines focus on establishing strong institutional mechanisms within companies, especially at the board level, to ensure oversight, risk management, and ethical conduct. Three critical areas under these guidelines are:

1. Board Composition27

A balanced board is the backbone of good corporate governance. SEBI prescribes the following

policies on the board of directors’ composition: i. Constitution of the board: Each listed company’s board of directors should include at least one-woman director and should have an optimal mix of executive and non-executive directors. ii. Independent directors: For an appointed chairperson who is also a non-executive director, independent directors must fill one third of the board. If the sector is managed by an executive chairman, the controlling director, then independent directors must account for fifty percent of the board. iii. Combination of roles: In the case where the Chairperson is also the Managing Director or CEO, SEBI suggests that these roles are split in order to eliminate excessive power concentration.

The intention of such provisions is to ensure there is a balanced multi-faceted board that acts autonomously from the management and upholds the company’s reputation while decisively

26 https://corridalegal.com/corporate-governance-india-sebi-guidelines-best-practices/

27 https://www.sebi.gov.in/sebi_data/commondocs/cir2803an1_p.pdf

representing the shareholder’s interests in business dealings.

2. Independent Directors

As part of the board, independent directors eliminate the risk of bias and decision tampering by bringing in a neutral perspective. An independent director is defined by SEBI as a person who does not have any material financial connection with the business or the sponsors of the company. Important guidelines are as follows: i. Duration: An independent director may hold office for two consecutive terms of 5 years each. ii. Eligibility criteria: Relevant skills and unsullied professional standing must be present. iii. Duties and responsibilities: Under Schedule IV of The Companies Act 2013 (with further instruction from SEBI), independent directors shall: a. Safeguard the interests of minority shareholders. b. Review the performance of management. c. Ensure the integrity of financial controls and risk management systems. iv.

Independent meetings: One separate meeting without executives for independent directors is required by law every year. This allows them to talk about and review other company matters as well as assess the board’s performance without other management.

3. Audit Committees28

At the board level, the audit committee is among the most important because it supervises the entity’s financial reporting and disclosure processes. As per SEBI rules, every listed entity is required to have an audit committee with the following main features: i. Composition: The committee should comprise at least three directors of which two-thirds should be independent directors. All committee members must be financially literate, and one member should have accounting or a related finance qualification. ii. Chairperson: The chairperson of the audit committee should be an independent director and must attend the Annual General Meeting (AGM) to respond to any questions from 28https://www.indiacode.nic.in/showdata?actid=AC_CEN_22_29_00008_201318_1517807327856&orderno=181

shareholders. iii. Functions and responsibilities: a. Review financial statements and quarterly results before submission to the board. b. Evaluate the performance and independence of statutory auditors. c. Monitor the company’s internal control mechanisms and risk management systems. d. Examine any related-party transactions. e. Oversee the functioning of the whistleblower mechanism.

4. Contribution to Corporate Transparency

The combination of these governance elements acts as essential protections against fraud, mismanagement, and unethical behavior by insiders. SEBI's emphasis on board structure, independent supervision, and thorough auditing procedures offers numerous advantages: i. Enhances the credibility of financial and operational disclosures. ii. Encourages ethical leadership and strategic discipline. iii. Improves investor confidence, especially among institutional and foreign investors. iv. Aligns Indian companies with global governance standards, such as those prescribed by the OECD and World Bank. VII. Penalties for Non-Compliance: Fines, Restrictions, and Enforcement Mechanisms29

A critical aspect of SEBI's regulatory power lies in its ability to enforce compliance through a

robust framework of penalties and corrective actions. These punishments not only seek to negate violation, but also check whether any harm will come to the Indian securities market in the first place. SEBI adopts a wide scope arrangement of punitive and remedial measures which differ in the degree or form of violation.

1. Monetary Penalties and Fines

i. SEBI possesses the power, as granted by the SEBI Act of 1992 and other related regulations, to levy financial penalties for a variety of infractions. These encompass: a. Failure to disclose material information (under LODR Regulations). 29 https://quicktakes.io/learn/criminal-or-civil-law/questions/what-are-the-consequences-of-noncompliance-withsebi-regulations-for-intermediaries

b. Violation of insider trading norms (under SEBI PIT Regulations). c. Fraudulent and unfair trade practices (under FUTP Regulations). d. Non-compliance with directions or circulars issued by SEBI. ii. The fines can be substantial, depending on the violation. For instance: a. Penalties for failing to provide necessary papers or disclosures under Section 15A of the SEBI Act can reach ₹1 crore or ₹1 lakh per day of default, whichever is higher. b. Under Section 15G, the penalty for insider trading cases can be up to ₹25 crore or three times the insider trading profit, whichever is greater. These heavy penalties are intended to ensure that companies take their disclosure and governance obligations seriously.

2. Restrictions on Market Access

In addition to monetary penalties, SEBI may restrict individuals or entities from accessing the securities market, including: i. Debarring promoters, directors, or key management personnel from holding managerial positions or from participating in securities trading. ii. Suspending or delisting of securities for listed companies with repeated or severe violations. iii. Freezing of promoter shareholding or voting rights for failure to comply with disclosure or listing requirements. These restrictions are powerful deterrents, as they affect the ability of companies and individuals to participate in capital markets and raise funds.

3. Enforcement Through Adjudication and Consent Mechanism

SEBI follows a structured adjudication process, where Adjudicating Officers (AOs) are appointed to conduct inquiries and determine penalties. For certain cases, SEBI also allows for: i. Consent orders: Settlements where the accused agrees to pay a penalty without admitting guilt, in return for closure of proceedings. ii. Compounding of offenses: Particularly in procedural or non-material violations, where the matter can be settled out of court.

This two-tiered mechanism (punitive + settlement) ensures speedy resolution while maintaining fairness in enforcement.

4. Role of SAT30 and the Judiciary

Entities penalized by SEBI can appeal before the Securities Appellate Tribunal (SAT) and further to the Supreme Court of India. This ensures judicial oversight and upholds principles of natural justice. However, SAT has generally upheld SEBI's authority, reinforcing the regulator's proactive stance in investor protection and market discipline. Notable judgments have affirmed SEBI’s actions in cases like: i. Sahara Group (2012) – Unlawful mobilization of funds. ii. NSE Co-Location Case (2021) – Misuse of preferential access to trading systems.

5. Whistleblower Protections and Informant Rewards

The Prohibition of Insider Trading Regulations (2015) and the Informant Mechanism (2019) both established a whistleblower mechanism. It offers: i. Monetary rewards up to ₹1 crore for credible tips. ii. Confidentiality guarantees and protection from retaliation. Failure to protect or respond to whistleblowers can also attract penalties and increase reputational damage for companies.

6. Naming and Shaming Mechanism

SEBI has implemented a "naming and shaming" approach in recent years by: i. Publishing the names of defaulters or non-compliant entities on its website. ii. Issuing public warnings and notices. iii. Recommending prosecution under criminal law in extreme cases. This increases public scrutiny and forces businesses to stay compliant for the benefit of their brand and the confidence of investors.

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1. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015,

Regulation 4

2. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015,

Regulation 30

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6. https://www.icsi.edu/media/webmodules/Final_Guidance_Note_on_PIT.pdf

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8. https://taxguru.in/sebi/structured-digital-database-sebi-pit-regulations-2015.html

9. Joshi, Vallabh M. “SEBI Compliance Unveiled: Non-Standard Disclosures of KMP

Resignation amid SEBI’s Regulatory Framework.” MMJC Insights, January 16, 2025. Available at: https://www.mmjc.in/sebi-compliance-unveiled-non-standarddisclosures-of-kmp-resignation-amid-sebis-regulatory-framework%EF%BF%BC/ 10. https://indianexpress.com/article/business/rpl-insider-trading-case-sebi-finesreliance-mukesh-ambani-7129384/?utm_source=chatgpt.com

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Mehta and Ketan Parekh, Indian Sch. of Bus., Working Paper (2005) 12. https://globalinvestigationsreview.com/guide/the-guide-international-enforcementof-the-securities-laws/third-edition/article/india-deep-dive-sebi-and-relatedlegislation-amid-insider-trading-and-market-manipulation-investigations

13. https://gtngroup.com/americas/prohibited-trading-practices/

14. https://www.investopedia.com/terms/w/washtrading.asp

15. https://blog.ipleaders.in/sebis-powers-of-investigation-and-enforcement-proceduralsafeguards-and-legalchallenges/#:~:text=Section%2011C(3)%20of%20the,evidence%20necessary%20for %20an%20investigation.

16. https://indiankanoon.org/doc/197169197/?utm_source=chatgpt.com

17. https://www.sebi.gov.in/sebi_data/attachdocs/oct-2017/1509262028322.pdf

18. https://www.cnbctv18.com/finance/sebi-confirms-ban-on-karvy-stock-broking-formisuse-of-clients-securities-passes-final-order-2- 7561311.htm?utm_source=chatgpt.com 19. https://www.sebi.gov.in/legal/regulations/jul-2017/sebi-stock-brokers-and-subbrokers-regulations-1992-last-amended-on-july-13-2017_35309.html?QUERY 20. https://www.sebi.gov.in/reports/reports/mar-2003/discussion-paper-on-code-ofconduct-sub-brokers_12984.html

21. https://www.bcasonline.org/Referencer2018-19/part5/auditing-compliances-forstock-brokers.html

22. https://sageuniversity.edu.in/blogs/corporate-transparency-importance-oftransparency-in-building-stakeholder-trust 23. https://www.sebi.gov.in/legal/regulations/sep-2018/securities-and-exchange-boardof-india-buy-back-of-securities-regulations-2018_40327.html

24. https://taxguru.in/company-law/buy-back-shares-methods-sources-conditionsprocedures.html

25. https://agrudpartners.com/share-buyback-law-inindia/#:~:text=The%20maximum%20limit%20is%2025,share%20capital%20and%20 free%20reserves.

26. https://corridalegal.com/corporate-governance-india-sebi-guidelines-best-practices/

27. https://www.sebi.gov.in/sebi_data/commondocs/cir2803an1_p.pdf

28. https://www.indiacode.nic.in/showdata?actid=AC_CEN_22_29_00008_201318_1517807327856&orderno=181

29. https://quicktakes.io/learn/criminal-or-civil-law/questions/what-are-theconsequences-of-noncompliance-with-sebi-regulations-for-intermediaries

30. https://vajiramandravi.com/upsc-daily-current-affairs/prelims-pointers/sat/