AMITY UNIVERSITY KOLKATA

GROUP MEMBERS - TANIMA ROY (A90821519013)

ARYAN MANDAL (A90821519024)
COURSE – BBALLB(H)
SEMESTER - 7
SUBJECT – CORPORATE GOVERNANCE
PROJECT TITLE – ROLE OF SEBI IN CORPORATE
GOVERNANCE

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 INDEX

SL.NO CONTENTS PAGE N0.

1. INTRODUCTION 3

2. ESTABLISHMENT OF SEBI 4

3. MEANING OF SEBI 5

4. OBJECTIVES OF SEBI 6

5. ROLE OF SEBI 7

6. FUNCTIONS OF SEBI 9

7. SEBI’s GUIDELINES FOR CORPORATE 10

GOVERNANCE
8. CONCLUSION 13

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INTRODUCTION

Securities and Exchange Board of India was formed after the Indian parliament passed
Securities and Exchange Board of India Act, 1992 in response to financial Services
Assessment program, a program developed by the World Bank and International Monetary
Fund that observes and reports on global financial systems. The Indian government wanted to
establish a strong financial atmosphere and securities market with a regulator promoting the
latest in corporate governance standards.
SEBI sets standards in which the securities market must operate, protecting the rights of
issuers and investors. SEBI has power to investigate circumstances where market or its
players have been harmed and can enforce govern standards with directives. An appeal
process in place ensures accountability and transparency. SEBI may terminate from the
securities list any company that does not comply with its governance standards and
regulation. Main aim of its origin was to curb the malpractices such as Lack of transparency
in the trading operations and prices charged to clients, Poor services due to delay in passing
contract notes or not passing contract notes, Delay in making payments to clients or in giving
delivery of shares, Persistence of odd lots and refusal of companies to stop this practice of
allotting shares in odd lots, Insider trading by agents of companies or brokers rigging and
manipulating prices, unofficial premium on new issue, violation of rules and regulations of
stock exchange and listing requirements.
Due to these malpractices the customers started losing confidence and faith in stock
exchange. Many high profile corporate governance failure scams like the stock market scam,
the UTI scam, Ketan Parikh scam, Satyam scam, which was severely criticized by the
shareholders, called for a need to make corporate governance in India transparent as it greatly
affects the development of the country. Effective corporate governance is only key to regain
the trust of investors and safeguard their interest

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How was SEBI established?
By the end of 1970, the capital market began to emerge as a sensation. As people started
trading and it became popular, various malpractices started to begin such as insider trading,
price rigging, and violation of stock exchange rules, price rigging and other such activities.
Once this started happening, then the government realized that they require a body to lessen
these malpractices. Also, it was essential to form an authority that could regulate the working
of the Indian Securities market so that the trust of people could be built again.
Thus, the underlying motive of its establishment was to assure that Indian Capital Market
works in a streamlines way and gives the investors a transparent environment for investing
their valuable and hard-earned money.

Then the established SEBI to conduct various activities such as:

• Creating and approving the by-laws of stock exchanges
• Inspecting accounting books of various recognized stock exchanges in India
• Inspecting books and records of Financial Intermediaries
• SEBI could also stop companies from getting listed on any stock exchange
• Handling registration of stockbrokers
The Head office of SEBI is Bandra Kurla Complex in Mumbai. It has its regional offices in
New Delhi, Chennai, Kolkata and Ahmadabad. Additionally, some of its local offices are
situated in Bangalore, Chandigarh, Jaipur, Guwahati, Kochi and Patna.

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Meaning of SEBI
Initially, SEBI acted as a watchdog and lacked the authority of controlling and regulating the
affairs of the Indian capital market. Nonetheless, in the year 1992, it got the statutory status
and became an autonomous body to control the activities of the entire stock market of the
country.
The statutory status of the SEBI authorized it to conduct the following activities: -
SEBI got the power of regulating and approving the by-laws of stock exchanges.
It could inspect the accounting books of the recognized stock exchanges in the country.
It could also call for periodical returns from such stock exchanges.
SEBI became empowered to inspect the books and records of financial Intermediaries.
It could constrain companies for getting listed on any stock exchange.
It could also handle the registration of stockbrokers.
SEBI is headquartered in Mumbai and having its regional offices in New Delhi, Chennai,
Kolkata, and Ahmedabad. You can also find SEBI’s local offices in Jaipur, Guwahati,
Bangalore, Patna, Bhubaneswar, Chandigarh, and Kochi.
At present, 17 stock exchanges are currently operating in India, including NSE and BSE. The
operations of all these stock exchanges are regulated by the guidelines of SEBI.

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The objectives of SEBI
SEBI’s responsibility is to ensure that the securities market in India functions in an orderly
manner. It is made to protect the interests of investors and traders in the Indian stock market
by providing a healthy environment in securities and to promote the development of, and to
regulate the equity market.
Further, as stated earlier, one of the prime reasons for establishing SEBI was to prevent
malpractices in the Indian capital market.

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Role of SEBI in Corporate Governance
To make corporate governance more effective the SEBI since its setup in 1992 has taken up
number of initiatives, appointed various committees and has brought amendments to the
Clause 35B and the Clause 49 of listing agreement.
Here the SEBI’s role in corporate governance is illustrated through norms and provisions as
stated these two clauses; the Clause 35B and the Clause 49 of listing agreement. SEBI norms
and guidelines under Clause 35B and 49 of the listing agreement for effective Corporate
Governance: Since its establishment, SEBI has taken initiatives to align Indian corporate
governance practices with the global standards adopted in advanced economies. The recent
amendments to Clause 35B and 49 of the listing agreement make Governance more effective
and rigorous in protecting the interest of all stakeholders. The amended Clause 49 of listing
agreement is in alignment with the new Companies Act, 2013. This clause is applicable to
listed companies but as per SEBI clarification, in future this clause will be applicable to non-
listing companies also.
Clause 35B
Under the revised clause 35B, the issuer has agreed to provide e-voting facility in respect of
all shareholders' resolutions, to be passed at General Meetings or postal ballot facilities to
International Journal of Pure and Applied Mathematics Special Issue 220 share holders. The
company has to send notices of meeting to all members, auditors of the company and
directors by POST or Registered e-mail or Courier and the same be placed on the official
website of the company. The notice of meeting should also mention that the company is
providing facility for voting by electronic means and postal ballot facilities to members.
Through this provision large number of shareholders can participate in the selection of board
members.

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Functions of SEBI:
In addition to its role in corporate governance, SEBI has protective, regulatory and
developmental functions. The organization protects investors by prohibiting malpractices
related to securities and promoting fair trade practices. Additionally, it aims to educate them
on money management, trading and finances in general.
Its regulatory functions have the role to ensure that corporations and financial intermediaries
alike follow its guidelines and code of conduct. The end goal is to keep the financial market
running smoothly.
The developmental functions of SEBI aim to promote computerized trading and modernize
the market infrastructure. These initiatives have led to a reduction in fraud and unfair
practices. For example, the organization requires companies that buy or sell stocks to register
for a dematerialization account online, which helps reduce bureaucracy and simplifies the
process of holding investments. The dematerialization account system allows traders to work
from anywhere and mitigates the risks associated with paper shares, such as trading delays or
thefts.
The SEBI carries out the following three key functions to perform its roles.
1. Protective Functions: SEBI performs these functions for protecting the interests of the
investors and financial institutions. Protective functions include checking price rigging,
prevention of insider trading, promoting fair practices, creating awareness among investors
and prohibition of fraudulent and unfair trade practices
2. Regulatory Functions: Through regulatory functions, SEBI monitors the functioning of the
financial market intermediaries. It designs the guidelines and code of conduct for financial
intermediaries and regulates mergers, amalgamations, and takeovers takeover of companies.
SEBI also conducts inquiries and audit of stock exchanges. It acts as a registrar for the
brokers, sub-brokers, merchant bankers and many others. SEBI has the power to levy fees on
the capital market participants. Apart from controlling the intermediaries, SEBI also regulates
the credit rating agencies.
3. Development Functions: Among the list of SEBI’s development functions, one of them is
imparting training to intermediaries. SEBI promotes fair trading and malpractices reduction.
It also educates and makes investors aware of the stock market by utilizing the funds
available in IEPF.

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SEBI Guidelines for Corporate Governance:
Corporate governance encompasses the mechanisms, rules and practices by which companies
are operated and controlled. It aims to mitigate conflicts of interest between shareholders and
promote ethical decision-making, transparency and integrity at the executive level. The role
of SEBI in corporate governance is to ensure these rules are implemented and followed by all
parties.
For example, the organization ensures that companies issuing securities use fair practices and
disclose relevant information to the shareholders. It also regulates takeovers, listing
agreements of stock exchanges, corporate restructurings and more. SEBI guidelines for
corporate governance are designed to provide a safe, transparent environment for investors
and prohibit fraudulent or unfair practices, like insider trading.
The role of SEBI in ensuring ethical standards among corporations became even more
important in 2018 when the organization imposed additional compliance conditions. For
instance, big firms will be required to have at least one-woman independent director and
separate chairpersons and CEOs. Furthermore, listed companies must disclose related-party
transactions and hold a specific number of annual general meetings. SEBI initiatives in
corporate governance are largely based on the recommendations made by the Kotak
committee in March 2018 and aim to enhance transparency.
Under the chairmanship of Kumar Mangalam Birla, SEBI (Securities and Exchange Board of
India) created a committee on corporate governance in India to actualize the need of
corporate governance and promote good corporate governance in India.
SEBI has released specific guidelines for auditing and corporate governance in India based
on this committee’s recommendations, which are expected to be incorporated into the listing
agreement between the company and the stock exchange.
Below, under the relevant heads of the auditing and corporate governance in India, is a
summary of SEBI guidelines that have heightened the need of corporate governance in In
India.
(a)Board of Directors:
The following are some points in this regard:
The company’s board of directors shall have an optimal balance of executive and non-
executive directors.
The number of independent directors will depend on the executive or nonexecutive nature of
the Chairman.
(b) Audit Committee:
The audit committee’s task should include the following elements:
• Oversight of the company’s financial reporting process and the disclosure of its financial reports to
ensure that the financial statements are accurate, adequate, and reliable.

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• Requesting that an external auditor be appointed and withdrawn.
• Checking the adequacy of the role of internal audit
• Updating the financial and risk management practices of the company.

(c) Remuneration of Directors:

In the section on corporate governance of the Annual Report, the following disclosures on the
remuneration of directors are made:
• All managers’ remuneration plan components, i.e., wages, benefits, incentives, stock
options, pensions, etc.
• Descriptions of fixed components and benefits linked to results, along with performance
requirements.

(d) Process of the Board Some of the points set out in this Regard are:
• The board meetings shall be held at least four times a year, with a maximum period of four
months between each of the two meetings.
• A director shall not be a member of more than ten committees, nor shall he serve as
Chairman of more than five committees in all the companies of which he is a director.

(e) Administration:
A Management Discussion and Appraisal Report should form part of the shareholders’
annual report, including discussions on the following topics (within limits defined by its
competitive position).
• Risks and opportunities
• Segment-wise or product-wise performance
• Risks and Issues
• Discussion on financial results concerning the performance of operation.
• Front of material growth in human resource / industrial relations.

(f) Shareholders:
In this respect, some points are:
In the event of the appointment of a new director or the reappointment of a director, the
following details must be given to shareholders:
• A short resume of the director (summary)

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• Nature of his specialist knowledge
• Amount of organizations of which he retains the management and membership of the
Board’s committees.
• A Board Committee shall be formed under the chairmanship of a non-executive director to
examine the redress of shareholder and investor grievances explicitly.

(g) Corporate Governance report:

A separate section on auditing and corporate governance shall be included in the Company’s
Annual Report. It shall consist of a comprehensive report on corporate governance.

(h) Compliance:
The company shall acquire a certificate from the company auditors regarding its auditing and
corporate governance compliance conditions. This certificate shall be appropriated with the
Directors’ Report sent to stockholders and forwarded to the stock exchange.

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Conclusion
Today corporate governance is an essential tool and mechanism for the very survival and
success of corporate in the new economic environment. No doubt at all, in this vibrant
volatile economic environment, the market Regulator SEBI has greater role and power to
make companies to follow the corporate governance standards but it alone cannot enforce and
monitor the compliance to corporate governance standards companies. It is the duty and
responsibility of all the stakeholders to ensure that the corporate governance norms are
followed by the companies in their operations. It is needed to create awareness among the
shareholders and other stakeholders on corporate governance norms and practices. Then the
corporate entities should adopt ethical business practices. The corporate practices in India
emphasize the functions of audit and finances that have legal, moral and ethical implications
for the business and its impact on the shareholders. Amendments introduced by SEBI in
Clause 49 roved innovative measures to appropriately balance legislative and regulatory
reforms for the growth of the enterprise and to increase foreign investment. The rules and
regulations are measures that increase the involvement of the shareholders in decision making
and introduce transparency in corporate governance, which ultimately safeguards the interest
of the society and shareholders. Corporate governance safeguards not only the management
but the interests of the stakeholders as well and fosters the economic progress of India in the
roaring economies of the world.

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Bibliography

Articles – 1. SEBI’s report on Corporate governance

Websites – 1. www.sebi.gov.in
2. www.academia.edu
3. www.scribd.com

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