SEBI and its role in preventing corporate fraud–a critical analysis
Written By: Sreshta Satpathy
The Securities and Exchange Board of India (SEBI) is India’s primary securities market regulator. The Securities and Exchange Commission (SEC) in the United States is SEBI’s counterpart. Its declared goal is to “protect the interests of investors in securities, to promote the growth and regulation of the securities market, and for matters related to or incidental to the securities market.”
The Securities and Exchange Board of India was founded in its current form in April 1992, after the nation’s parliament passed the Securities and Exchange Board of India Act. In 1988, it was constituted with relatively limited powers. The Controller of Capital Issues, which had regulated the securities markets under the Capital Issues (Control) Act of 1947, which was passed just months before India achieved independence from the British, was replaced. SEBI is responsible for overseeing the regulation of all participants in the Indian capital market.
It tries to protect investors’ interests and grow capital markets by enforcing a variety of laws and regulations. Initially, SEBI served as a watchdog and lacked the ability to monitor and regulate the Indian capital market’s operations. Nonetheless, in 1992, it was granted statutory authority and became an autonomous organization responsible for overseeing the country’s entire stock market.
Importance and role of SEBI in preventing Corporate Frauds
The Securities and Exchange Board of India’s corporate governance measures are based on the Securities and Exchange Board of India Act and are aimed at preventing fraudulent practices. The organization is in charge of implementing rules and regulations in order to encourage orderly stock market development. As an investor, you must follow these guidelines and adhere to the code of ethics. Breach of regulations was the norm before SEBI was founded, and compliance was the exception. It was vital to reverse the situation in order to restore investor trust. As a result, in the name of SEBI, a regulatory organization was established. The Securities and Exchange Commission (SEC) was established on April 12, 1988, to safeguard investor safety and growth in the securities market.
SEBI establishes governance norms for the securities market, ensuring that issuers’ and investors’ interests are protected. SEBI has the authority to investigate situations in which the market or its participants have been affected and can issue instructions to impose governance norms. Accountability and openness are ensured by having an appeals process in place. Any firm that does not follow SEBI’s governance requirements and regulations may be removed from the securities market. For instance, the group ensures that companies issuing securities follow fair processes and provide shareholders with appropriate information.
It also governs takeovers, stock market listing agreements, company restructurings, and other matters. The SEBI corporate governance guidelines are intended to promote a safe, transparent environment for investors while also prohibiting unfair acts such as insider trading. SEBI’s role in upholding corporate ethical standards become even more essential in 2018 when the institution imposed new compliance requirements. Large corporations, for example, will be required to have at least one female independent director, as well as distinct chairpersons and CEOs. Listed firms are also required to report related-party transactions and hold a certain number of annual general meetings. SEBI’s corporate governance activities are mostly based on the Kotak committee’s recommendations from March 2018, and they attempt to improve transparency.
Its regulatory measures ensure that firms and financial intermediaries adhere to the organization’s principles and code of conduct. The ultimate goal is to keep the financial market in good working order. SEBI’s developmental duties are aimed at encouraging automated trading and modernizing market infrastructure. Fraud and unfair practices have decreased as a result of these activities.
Companies that purchase or sell stocks, for example, must register for a dematerialization (Demat) account online, which reduces bureaucracy and simplifies the process of holding shares. The Demat system enables traders to work from anywhere while also reducing the dangers associated with paper shares, such as trading delays and thefts. All these measures by SEBI ensure maximum transparency and proper functioning of any organization.
In today’s economic context, corporate governance is a crucial instrument and mechanism for a company’s existence and development. It is the job and responsibility of all stakeholders to ensure that corporations follow corporate governance guidelines in their operations. It is necessary to raise awareness among shareholders and other stakeholders. On corporate governance principles and procedures, stakeholders.
The business entities, on the other hand, should make ethical business decisions. Even if unfair practices sometimes occur in the Indian capital market today, they are far less common. Furthermore, the legislation and rules governing the security market are changed on a regular basis.
As a result, SEBI is improving day by day is becoming very strict with its power. Following a slew of high-profile frauds, including those involving Harshad Mehta, Ketan Parekh, Satyam, and Nirav Modi, SEBI has tightened disclosure requirements and implemented Clause 49 rules to usher in a new era of transparency and accountability in the country. To summarise, SEBI has enhanced the securities market by mandating the disclosure of all essential information through its guidelines, regulations, and directives.