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��� GAZETTE OF
EXTRA-ORDINARY PART (II)
OF SECTION 3, SUB-SECTION (ii) PUBLISHED
BY AUTHORITY SECURITIES
AND EXCHANGE BOARD OF INDIA NOTIFICATION Mumbai,
the 17th of July,����
2003 SECURITIES AND EXCHANGE BOARD OF
INDIA (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO
SECURITIES MARKET) REGULATIONS, 2003 S.O. 816 (E) In exercise of the powers
conferred by section 30 of the Securities and Exchange Board of India Act, 1992
(15 of 1992), the Board hereby makes the following regulations, namely:- CHAPTER I PRELIMINARY Short title and commencement 1.�������� (1) These regulations may be called the
Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair
Trade Practices relating to Securities Markets) Regulations, 2003. (2) They shall come into force on the date
of their publication in the Official Gazette. Definitions 2.�������� (1) In these regulations, unless the
context otherwise requires,- (a) "Act" means the Securities and Exchange
Board of India Act, 1992 (15 of 1992); (b)
"dealing in securities"� includes an act of buying,� selling or�
subscribing pursuant to any �issue
of any security or agreeing to buy, sell or subscribe to any issue of any
security or otherwise transacting in any way in any security by any
person� as principal, agent or �intermediary
referred to in section 12 of the Act. (c) "fraud" includes any act,
expression, omission or concealment committed
whether in a deceitful manner or not by a
person or by any other person with his connivance or by his agent while dealing
in securities in order to induce another person or his agent
to deal in securities, whether or not there is any wrongful gain or avoidance
of any loss, and shall�� also include- (1)
a
knowing misrepresentation of the truth or concealment of material fact in order
that another person may act to his�
detriment; (2)
a
suggestion as to a fact which is not true by one who does not believe it to be
true; (3)
an
active concealment of a fact by a person having�� knowledge or belief of the fact; (4)
a
promise made without any intention of performing it; (5)
a
representation made in a reckless and careless manner whether it be true or
false; (6)
any
such act or omission as any other law specifically declares to be fraudulent, (7)
deceptive
behaviour by a person depriving another of informed consent or full
participation, (8)
a false
statement made without reasonable ground for believing it to be true. (9)
The act of an
issuer of securities giving out misinformation that affects the market price of the security,
resulting in investors being effectively misled eventhough
they did not rely on the statement itself or anything derived from it other
than the market price. And "fraudulent"
shall be construed accordingly; Nothing contained in this clause shall apply to
any general comments made in good faith in regard to � ����������� (a) the economic policy of the
government ����������� (b) the economic situation of
the country ����������� (c) trends in the securities
market or (d) any other matter of a like nature whether
such comments are made in public or in private. (d)
"Investigating Authority" means any officer of the Board not below the rank of Division Chief, authorized by the
Board to undertake investigation under Section 11C of the Act; �(e)
"securities" means securities as defined in section 2 of the
Securities Contracts (Regulation) Act, 1956 (42 of 1956). (2)� Words and expressions used and not defined in
these regulations, but defined in the Act or in the rules or regulations made
thereunder, shall have the meanings respectively assigned to them in the Act or
rules or regulations made thereunder, as the case may be. CHAPTER II PROHIBITION
OF FRAUDULENT AND UNFAIR TRADE PRACTICES 3.
Prohibition
of certain dealings in securities No
person shall directly or indirectly- (a) buy, sell or otherwise deal in
securities in a fraudulent manner; (b) use or employ, in connection with
issue, purchase or sale of any security listed or proposed to be listed in a
recognized stock exchange, any manipulative or deceptive device or contrivance
in contravention of the provisions of the Act or the rules or the regulations
made there under; (c) employ any device, scheme or
artifice to defraud in connection with dealing in or issue of securities which
are listed or proposed to be listed on �a
recognized stock exchange; (d) engage in any act, practice, course
of business which operates or would operate as fraud or deceit upon any person
in connection with any dealing in or issue of securities which are listed or
proposed to be listed on� a recognized
stock exchange in contravention of� the
provisions of the Act or the rules and the regulations made there under. 4.�������� Prohibition of manipulative, fraudulent
and unfair trade practices (1) Without
prejudice to the provisions of regulation 3, no person shall indulge in a
fraudulent or an unfair trade practice in securities. (2) Dealing
in securities shall be deemed to be a fraudulent or an unfair trade practice if
it involves fraud and may include all or any of the following, namely:- (a) indulging in an act which
creates false or misleading appearance of trading in
the securities market; (b) dealing in a security not
intended to effect transfer of beneficial ownership but intended to operate
only as a device to inflate, depress or cause fluctuations in the price of such
security for wrongful gain or avoidance of loss; (c) advancing or agreeing to advance
any money to any person thereby inducing any other person to offer to buy any
security in any issue only with the intention of
securing the minimum subscription to such issue; (d) paying, offering or agreeing to
pay or offer, directly or indirectly, to any person any money or money�s worth
for inducing� such person for dealing in
any security with the object of inflating, depressing,
maintaining or causing fluctuation in the price of such security; (e)
any act or omission amounting to manipulation of the price of a��� security; (f) publishing or causing to publish
or reporting or causing to report by a person dealing in securities any
information which is not true or which he does not believe to be true prior to
or in the course of dealing in securities; (g) entering into a transaction in
securities without intention of performing it or without intention of change of
ownership of such security; (h) selling, dealing or pledging of
stolen or counterfeit security whether in physical or dematerialized form; (i) an intermediary promising a
certain price in respect of buying or selling of a security to a client and
waiting till a discrepancy arises in the price of such security and retaining
the difference in prices as profit for himself; (j) an intermediary providing his
clients with such information relating to a security as cannot be verified by
the clients before their dealing in such security; (k) an advertisement that is
misleading or that contains information in a distorted manner and which may
influence the decision of the investors; (l) an intermediary reporting
trading transactions to his clients entered into on their behalf in an inflated
manner in order to increase his commission and brokerage; (m) an intermediary not disclosing
to his client transactions entered into on his behalf including taking an
option position; (n) circular transactions in respect
of a security entered into between intermediaries in order to increase
commission to provide a false appearance of trading in such security or to
inflate, depress or cause fluctuations in the price of such security; (o) encouraging the clients by an
intermediary to deal in securities solely with the object of enhancing his
brokerage or commission. (p)
an intermediary� predating or otherwise
falsifying records such as contract notes. (q)
an intermediary buying or selling securities in advance of a substantial client
order or whereby a futures or option position is taken about an impending
transaction in the same or related futures or options contract. (r)
planting false or misleading news which may induce sale or purchase of
securities.� CHAPTER III ������ INVESTIGATION Power of
the Board to order investigation 5.
������� Where the Board, the Chairman, the member or the Executive
Director (hereinafter referred to as �appointing authority�) 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 in violation of these regulations; (b) any intermediary or any person
associated with the securities market has violated any of the provisions of the
Act or the rules or the regulations, it
may, at any time by order in writing, direct any officer not below the rank of
Division Chief (hereinafter referred to as the �Investigating Authority�)
specified in the order to investigate the affairs of such intermediary or
persons associated with the securities market or any other person and to report
thereon to the Board in the manner provided in section 11C of the Act. Powers
of Investigating Authority 6.� ������ Without
prejudice to the powers conferred under the Act,�� the Investigating Authority shall have the
following powers for the conduct of investigation, namely:- (1)� to call for information or records from any
person� specified in section 11(2)(i) of
the Act; �(2) 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 of the Act) which
intends to get its securities listed on any recognized stock exchange where the
Investigating Authority has reasonable grounds to believe that such company has
been conducting in violation of these regulations; (3)
to 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 authorized by him in
this behalf as he 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 the investigation; (4)
to keep in his custody any books, registers, other documents and record
produced under this regulation� for a
maximum period of one month which may be extended upto a period of six months
by the Board: Provided
that the Investigating Authority may call for any book, register, other document or record if the
same is 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, he 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)
to examine orally and to record the statement of the person concerned or any
director, partner, member or employee of such person and to take notes of such
oral examination to be used�� as an
evidence against such person: Provided
that the said notes shall be read over to, or by, and signed by, the person so
examined; (6)
to examine on oath any manager, managing director, officer or 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 him personally. Power
of the Investigating Authority to be exercised with prior approval 7.�� ����� The
Investigating Authority may, after obtaining
specific approval from the Chairman or Member
also exercise all or any of the following powers, namely:- �(a) to call 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 are under investigation; (b)
to make an application to the Judicial Magistrate of the first class having
jurisdiction for an order for the seizure of any books, registers, other
documents and record, if in the course of investigation, the Investigating
Authority has reasonable ground to believe that such 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; (c)
to keep in his custody the books, registers, other documents and record seized
under these regulations for such period not later than the conclusion of the
investigation as he considers necessary and thereafter to return the same to
the person, 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: 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 ; (d)
Save as otherwise provided in this regulation, every search or seizure made
under this regulation�� 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. Duty
to co-operate, etc. 8.�������� (1)
It shall be the duty of every person in respect of whom an investigation has
been ordered under regulation 7- (a) to produce to the Investigating
Authority or any person authorized by him such books, accounts and other
documents and record in his custody or control and� to furnish such statements and information as
the Investigation Authority or the person so authorized by him may reasonably
require for the purposes of the investigation; (b)
to appear before the Investigation Authority personally when required to do so
by him under regulation 6 or regulation 7 to answer any question which is put
to him by the Investigation Authority in pursuance of the powers under the said
regulations. (2)
Without prejudice to the provisions of sections 235 to 241 of the Companies
Act, 1956 (1 of 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 of the Act or every person associated with the
securities market to preserve and to produce to the Investigating Authority or
any person authorized by him 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)
Without prejudice to the generality of the provisions of sub-regulations (1)
and (2), such person shall - (a)
allow the Investigating Authority to have access to the premises occupied by
such person at all reasonable times for the purpose of investigation; (b)
extend to the Investigating Authority reasonable facilities for examining any
books, accounts and other documents in his custody or control (whether kept
manually or in computer or in any other form) reasonably required for the
purposes of the investigation; (c)
provide to such Investigating Authority�
any such books, accounts and records which, in the opinion of the
Investigating Authority, are relevant to the investigation or, as the case may
be, allow him to take out computer out-prints thereof. Submission
of report to the Board 9.
������� The Investigating Authority shall,
on completion of investigation, after taking into account all relevant facts, submit
a report to the appointing authority: Provided
that the Investigating Authority may submit an interim report pending
completion of investigations if he considers necessary in the interest of
investors and the securities market or as directed by the appointing authority. Enforcement
by the Board 10.
����� The Board may, after consideration of the
report referred to in regulation 9, if satisfied that there is a violation of
these regulations and after giving a reasonable opportunity of hearing to the
persons concerned, issue such
directions or take such action as mentioned
in regulation 11and regulation 12: Provided
that the Board may, in the interest of investors and the securities market,
pending the receipt of the report of the investigating authority referred to in
regulation 9, issue directions under regulation 11: Provided
further that the Board may, in the interest of investors and securities market,
dispense with the opportunity of pre-decisional hearing by recording reasons in
writing and shall give an opportunity of post-decisional hearing to the persons
concerned as expeditiously as possible. 11.� ���� (1) The Board may, without prejudice to
the provisions contained in sub-sections (1), (2), (2A) and (3) of section 11
and section 11B of the Act, by an order, for reasons to be recorded in writing,
in the interests of investors and securities market, issue or take any of the
following actions or directions, either pending investigation or enquiry
or on completion of such investigation or enquiry,
namely:- (a) suspend the trading of
the security found to be or� prima-facie
found to be involved in fraudulent and unfair trade practice in a recognized
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 organization from holding such
position; (d) impound and retain the
proceeds or securities in respect of any transaction which is� in violation or prima facie in
violation of� these regulations; (e) 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 a fraudulent and unfair
transaction: (f) �require the person concerned to call upon any
of its officers, other employees or representatives to refrain from dealing in
securities in any particular manner; (g) prohibit the person concerned from disposing of any of
the securities acquired in contravention of these regulations; (h) direct the person concerned to dispose of any such
securities acquired in contravention of these regulations, in such manner as
the Board may deem fit, for restoring the status-quo ante; (2) The Board shall issue a press release in respect
of any final order passed under sub-regulation (1) in atleast two newspapers of
which one shall have nationwide circulation and shall also put the order on the
website of the Board. Suspension
or cancellation of registration 12.
����� (1) The Board may, without prejudice to the
provisions contained in sub-sections (1), (2), (2A) and (3) of section 11 and
section 11B of the Act, by an order, for reasons to be recorded in writing, in
the interests of investors and securities market take the following action
against an intermediary: (a) Issue a warning or censure (b) suspend the registration
of the intermediary; or (c) cancel of the
registration of the intermediary Provided that no final order of suspension or
cancellation of an intermediary for violation of these regulations shall be
passed unless the procedure specified in the regulations applicable to such
intermediary under the Securities and Exchange Board of India (Procedure for
Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 is
complied with. Repeal and savings 13. ����� (1) The Securities and Exchange Board of
India (Prohibition of Fraudulent and Unfair Trade Practices relating to
Securities Market) Regulations, 1995 is hereby repealed. (2) Notwithstanding repeal of the Securities and Exchange Board of India
(Prohibition of Fraudulent and Unfair Trade Practices relating to Securities
Market) Regulations, 1995, any violation of regulations 3, 4, 5 and 6 of the
SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to
Securities Market) Regulations, 1995 shall be investigated and proceeded
against in accordance with the procedure laid down in these regulations. (3) Notwithstanding repeal of the
Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair
Trade Practices relating to Securities Market) Regulations, 1995, any
investigation pending, at the commencement of these regulations shall
be continued and disposed of in accordance with the procedure laid down in
these regulations. F.
No. SEBI/LGL/� 13678��� /2003] G.N.
BAJPAI CHAIRMAN SECURITIES
AND EXCHANGE BOARD OF ________________________________________________________________ Footnotes 1. The Securities and Exchange�
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