Appendix ‑ 71
SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO SECURITIES MARKETS) REGULATIONS, 1995
[Notification No. SEBI/LE/856(E) dated 25-10-1995 issued by the
Securities and Exchange Board of India]
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:
1. Short
title and commencement.‑ (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, 1995.
(2)They shall
come into force on the date of their publication in the Official Gazette.
2. Definitions.‑
(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" means
an act of buying, selling or otherwise dealing in any security or agreeing to
buy, sell or otherwise deal in any security by any person either as principal
or as agent;
(c) "fraud" includes any of the
following acts committed by a party to a contract, or with his connivance or by
his agent, with intent to deceive another party thereto or his agent, or to
induce him to enter into the contract:
(1) the suggestion, as to a fact, of that
which is not true, by one who does not believe it to be true;
(2) the active concealment of a fact by one
having knowledge or belief of the fact;
(3) a promise made without any intention of
performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law
specially declares to be fraudulent; and "fraudulent" shall be
construed accordingly.
Explanation : Mere silence
as to facts likely to affect the willingness of a person to enter into a
contract is not fraud, unless the circumstances of the case are such that,
regard being had to them, it is the duty of the person keeping silence to
speak, or unless his silence is, in itself, equivalent to speech;
(d) "investigating officer" means
any person authorised by the Board to undertake investigation under regulation
7;
(e) "regulation" means a
regulation contained in these regulations; and
(f) "securities"
means securities as defined in section 2 of the Securities Contracts
(Regulation) Act, 1956.
PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO
SECURITIES MARKETS
3. Prohibition
of certain dealings in securities.‑ No person shall buy, sell or otherwise deal
in securities in a fraudulent manner.
4. Prohibition against
market manipulation- No person shall
(a) effect, take part in, or enter into,
either directly or indirectly, transactions in securities, with the intention
of artificially raising or depressing the prices of securities and thereby
inducing the sale or purchase of securities by any person;
(b) indulge in any act, which is calculated
to create a false or misleading appearance of trading on the securities market;
(c) indulge in any act which results in
reflection of prices of securities based on transactions that are not genuine
trade transactions;
(d) enter into a purchase or sale of any
securities, not intended to effect transfer of beneficial ownership but
intended to operate only as a device to inflate, depress, or cause fluctuations
in the market price of securities;
(e) pay, offer or agree to pay or offer,
directly or indirectly, to any person any money or money's worth for inducing
another person to purchase or sell any security with the sole object of
inflating, depressing, or causing fluctuations in the market price of
securities.
5. Prohibition
of misleading statements to induce sale or purchase of securities.‑ (1)No person shall make any
statement or disseminate any information which
(a) is misleading in a material particular; and
(b) is likely to induce the sale or purchase
of securities by any other person or is likely to have the effect of increasing
or depressing the market price of securities, if when he makes the statement or
disseminates the information.
(i) he does not care whether the statement
or information is true or false; or
(ii) he knows, or ought reasonably to have
known, that the statement or information is misleading in any material
particular.
Nothing in this
sub‑regulation shall apply to any general comments made in good faith in
regard to-
(a) the economic policy of the Government,
(b) the economic situation in the country,
(c) trends in the securities markets, or
(d) any other matter of a similar nature,
whether such
comments be made in public or in private.
6. Prohibition on unfair
trade practice relating to securities.‑ No person shall
(a) in the course of his business, knowingly
engage in any act or practice which would operate as a fraud upon any person in
connection with the purchase or sale of, or any other dealing in, any
securities;
(b) on his behalf or on behalf of any
person, knowingly buy, sell or otherwise deal in securities, pending the
execution of any order of his client relating to the same security for purchase,
sale or other dealings in respect of securities.
Nothing contained in this
clause shall apply where according to the client's instruction, the transaction
for the client is to be effected only under specified conditions or in
specified circumstances;
(c) intentionally and in contravention of
any law for the time being in force delays the transfer of securities in the
name of the transferee or the dispatch of securities or connected documents to
any transferee:
(d) indulge
in falsification of the books, accounts and records (whether maintained
manually or in computer or in any other form);
(e) when acting as an agent, execute a
transaction with a client at a price other than the price at which the
transaction was executed by him, whether on a stock exchange or otherwise, or
at a price at which it was offset against the transaction of another client.
7. Power of the Board to
order investigation.‑
(1) The Board may suo motu upon information received
by it, cause an investigation to be made in respect of the conduct and affairs
of any person buying, selling or otherwise dealing in securities, by an
investigating officer whom the Board considers fit:
Provided that no such
investigation shall be made except for the purposes specified in sub regulation
(2).
(2) The purposes referred to in sub‑regulation (1) are the
following, namely:
(a) to ascertain whether there are any
circumstances which would render any person guilty of having contravened any of
these regulations or any directions issued there under;
(b) to investigate into any complaint of any
contravention of the regulation, received from any investor, intermediary or
any other person.
8. Procedure for
investigation.‑
(1) Before causing an investigation to be
made‑under regulation 7, the Board shall give notice.
(2) Notwithstanding anything contained in
sub‑regulation (1), where the Board is satisfied that in the interest of
the investors or in the public interest, no such notice should be given, it
may, by an order in writing and recording the reasons as far as practicable,
direct that the investigation be undertaken without such notice.
(3) Subject to the provisions of this
regulation, an order passed under regulation 7 shall be a sufficient authority
for the Investigating Officer to undertake the investigation and, or production
of an authenticated copy of the order, the person concerned shall be bound to
carry out the duty imposed in regulation 9.
9. Duty to produce
records, etc,‑
(1) It shall be the duty of every person in
respect of whom an investigation has been ordered under regulation 8, to
produce to the Investigating Officer such books, accounts and other documents
in his custody or control and furnish him with such statements and information
as the said officer may reasonably require for the purposes of the
investigation.
(2) Without prejudice to the generality of
the provisions of sub‑regulation (1), such person shall
(a) allow the Investigating Officer to have
access to the premises occupied by such person at all reasonable times for the
purpose of investigation;
(b) extend to the Investigating Officer
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 Officer
copies of any such books, accounts and records which, in the opinion of the
Investigating Officer, are relevant to the investigation or, as the case may
be, allow him to take out computer out prints thereof.
(3) The Investigating Officer shall, for the
purpose of investigation, have power to examine orally and to record the
statement of the person concerned, any director, partner member or employee of
such person.
(4) It shall be the duty of every person
concerned to give to the Investigating Officer all such assistance and
otherwise extend all such co‑operation as may reasonably be required in
connection with investigation and to furnish information relevant to such
investigation as may be reasonably sought by such officer.
10. Submission
of Report to the Board.‑ The Investigating Officer shall, on completion of
the investigation, after taking into account all relevant facts and submissions
made by the person concerned, submit a report to the Board.
11. Power
of the Board to issue directions‑ The Board may, after consideration of the report
referred to in regulation 10, and after giving a reasonable opportunity of
hearing to the person concerned, issue directions for ensuring due compliance
with the provisions of the Act, rules and regulations made there under, for the
purpose specified in regulation 12.
12. Purpose
of direction.‑ The purposes for which directions under Regulation 11 may be issued
are the following, namely:
(a) directing the person concerned not to
deal in securities in any particular manner;
(b) requiring the person concerned to call
upon any of its officers, other employees or representative to refrain from
dealing in securities in any particular manner;
(c) prohibiting the person concerned from
disposing of any of the securities acquired in contravention of these
regulations;
(d) directing 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.
13. Suspension
or cancellation of registration.‑ The Board may, in the circumstances specified in
regulation 11, and without prejudice to its power under regulation 12, initiate
action for suspension or cancellation of registration of an intermediary
holding a certificate of registration under section 12 of the Act:
Provided that no such
certificate of registration shall be suspended or cancelled unless the
procedure specified in the regulation applicable to such intermediary is
complied with.