INDIAN INSTITUTE OF MANAGEMENT

ROHTAK

LEGAL ASPECTS OF
BUSINESS

IMPACT OF SEBI IN
CORPORATE GOVERNANCE

Submitted by
GROUP 10
MEHUL PAL IPM01112
NAMAN BANKA IPM01114
OJUS SINGHAL PGP13163
PRIYAL MAHESHWARI PGP13177
RADHIKA MUKATI PGP13182
RIYA SHARMA PGP13197
 Introduction
The Securities and Exchange Board of India (SEBI) was created on April 12th, 1992. SEBI is an
acronym for this organization. It is an organization that is controlled and regulated by statute, and
it is responsible for the capital and securities markets in India.

The Securities and Exchange Board of India (SEBI) provides an assurance that it protects the
interests of investors by making certain that the norms and regulations are followed. It performs
the function of a watchdog, which is an unnamed entity that is responsible for managing the flows
of the whole stock market in the nation.

In India, the “Securities and Exchange Board of India (SEBI)” acts as the market regulator for the
securities industry. After first being established for the function of monitoring the operations, in
May of 1992, the Government of India bestowed onto SEBI the status of a legally recognized
organization. During the tail end of the 1970s, India's capital market began to gain popularity as a
hot new trend in the country. Despite this, as the stock market grew in popularity, a number of
unethical practices started to appear, including price manipulation, unauthorized private
placements, failure to comply with the Companies Act's requirements, insider trading, breaking
stock exchange rules and regulations, delaying the delivery of shares, among many other practices.
As time went on, the government of India came to the conclusion that it was necessary to create
an authority in order to curb these unethical business practices and to regulate the functioning of
the Indian securities market. This was due to the fact that the majority of Indian people had begun
to lose faith in the stock market. The Securities and Exchange Board of India (SEBI) was founded
not long after that, in 1988.

At the beginning, SEBI was only able to perform the role of a watchdog since it lacked the power
necessary to oversee and regulate the activities of the Indian capital market. Despite this, in 1992,
it was granted statutory standing, at which point it evolved into an independent organization with
the responsibility of overseeing the operations of the country's whole stock market. The SEBI was
given the legal authority to engage in the following endeavors by virtue of its statutory status.
The Securities and Exchange Board of India (SEBI) was given the authority to both regulate and
approve the by-laws of stock exchanges. It is possible for you to examine the accounting records
of the many stock exchanges that are registered in the nation. In addition to this, it may need
periodic returns from the stock exchanges in question. The SEBI was given the authority to conduct
audits of the books and records kept by financial intermediaries. That might put corporations in a
position where they are unable to be listed on any stock market. In addition to this, it could be
responsible for the registration of stockbrokers.

The Securities and Exchange Board of India (SEBI) has its headquarters in Mumbai, as well as
regional offices in New Delhi, Chennai, Kolkata, and Ahmedabad. In addition to these locations,
the Securities and Exchange Board of India (SEBI) has regional offices in Jaipur, Guwahati,
Bangalore, Patna, Bhubaneswar, Chandigarh, and Kochi.”

There are now 17 stock exchanges active in India, two of which are “the National Stock Exchange
(NSE) and the Bombay Stock Exchange (BSE). The Securities and Exchange Board of India
(SEBI)” is the government agency that oversees the functioning of all of these stock exchanges.

Objective of SEBI

The Securities and Exchange Board of India (SEBI)” is in charge of ensuring that India's stock
market operates in a well-organized manner. It is produced in order to safeguard the interests of
traders and investors in the Indian stock market by establishing a healthy atmosphere in the
securities market. Also, it is made in order to encourage the growth of the equities market and to
regulate it.

In addition, as was mentioned before, one of the primary motivations behind the formation of SEBI
was the elimination of unethical business practices in the Indian stock market.
 Role of SEBI
1. Protecting the interest of investors: Investors are protected by SEBI against deceptive and
misleading advertising, which is one of SEBI's primary responsibilities. In retaliation, SEBI has
created standards to guarantee that advertisements are truthful and succinct, as well as to
safeguard the interests of those who invest. Controlling the manipulation of prices: A practice
known as "price rigging" refers to the manipulation of prices via the use of price fluctuations
with the intention of artificially increasing or deflating the market price of a security. SEBI
makes an attempt to educate investors so that they are able to choose the securities that will
provide them with the greatest return on their investment when comparing the offers of various
firms. For the purpose of conducting investigations into allegations of fraud and insider trading,
SEBI has published guidelines. Included in this are the provisions for a fine as well as possible
imprisonment.

2. To ensure Development activities in Stock Exchange: E-Trading: The idea of e-trading was
first presented a few years ago by SEBI in order to get rid of the uncomfortable feeling. The
procedure of purchasing and selling securities is made easier as a result of this. The stock
exchange is the venue for the initial public offering of securities on the Primary Market, which
is a component of the Capital Market. In order to ensure that the securities market operates
efficiently, SEBI encourages the education and training of market intermediaries.

3. To Regulate Insider Trading: From the beginning of markets that deal with the buying and
selling of securities, stock exchanges, and other financial instruments, there has been an issue
with insider trading. A person or group of persons who have first-hand knowledge of the internal
challenges and highs and lows of a corporation is referred to as having "insider" information.
The insider's shares are promptly sold when they become aware of the loss that is likely to be
sustained, which happens as soon as the insider receives this information. As a result, the
corporation sustains a significant amount of loss.
 Role of SEBI in corporate governance
SEBI has been given the mandate to protect the interests of investors in securities and to promote
the development and regulation of the securities market in India.” One of the ways in which SEBI
has impacted corporate governance in India is by making regulations and guidelines for listed
companies.

Since its establishment in 1992, the SEBI has undertaken a variety of initiatives, formed a number
of committees, and amended Clauses 35B and 49 of the listing agreement in an effort to improve
corporate governance. Here, the listing agreement's Article 35B and Clause 49 include rules and
requirements that highlight the SEBI's involvement in corporate governance. SEBI standards and
recommendations for good corporate governance under Clauses 35B and 49 of the listing
agreement: Since its founding, SEBI has made steps to bring Indian corporate governance
procedures into line with the international norms followed by mature nations. Governance is now
more effective and stricter in defending the interest thanks to the most recent changes to Clauses
35B and 49 of the listing agreement

The listing agreement's latest revisions to Clauses 35B and 49 make Governance more effective
and stricter in defending the interests of all stakeholders. The revised Listing Agreement Clause
49 complies with the 2013 Companies Act. This condition is applied to listed firms however as
per SEBI clarification, in future this clause will be applicable to non-listing companies as well.”

SEBI has made it mandatory for listed companies to comply with corporate governance norms,
such as having a certain number of independent directors on their board, having an audit
committee, and publishing quarterly results. These regulations have helped to improve the
transparency and accountability of listed companies in India.

SEBI has also played a role in improving the accountability of companies by requiring them to
disclose certain information to the public. For example, SEBI has mandated that listed companies
disclose their financial statements, related party transactions, and other material information that
may impact the company's financial performance.

Another way in which SEBI has impacted corporate governance in India is by taking action
against companies that violate its regulations. SEBI has the power to impose fines and penalties
 on companies that violate its regulations, and in extreme cases, it can even bar companies from
accessing the securities market.

Overall, SEBI has had a significant impact on corporate governance in India by improving
transparency, accountability, and promoting good governance practices among listed companies.
Its regulations and guidelines have helped to protect the interests of investors and ensure that
listed companies operate in a responsible and ethical manner.

SEBI guidelines for corporate governance

Corporate governance refers to the processes, laws, and customs that regulate how businesses are
run and managed. It strives to lessen shareholder conflicts of interest and advance moral decision-
making, openness, and integrity at the executive level.” In terms of corporate governance, SEBI's
job is to make sure that all parties adhere to and apply these standards.

For instance, the group makes sure that businesses that issue securities follow ethical standards
and communicate pertinent information to shareholders. It also controls takeovers, stock market
listing agreements, company reorganizations, and other things. The SEBI principles for corporate
governance are intended to give investors a secure, open environment and to outlaw dishonest or
unfair actions like insider trading.

2018 saw SEBI enforce greater compliance requirements, which increased the organization's
significance in upholding ethical standards among firms. For instance, large companies will be
obliged to have separate chairpersons and CEOs as well as at least one independent women
director. A certain number of annual general meetings must also be held, and related-party
transactions must be disclosed by listed businesses. The Kotak committee's recommendations from
March 2018 served as the foundation for many of SEBI's corporate governance efforts, which seek
to increase transparency.

Under the leadership of Kumar Mangalam Birla, SEBI (Securities and Exchange Board of India)
created a committee on corporate governance in India to improve efficient corporate governance
in the country and recognize the need for it”.
“According to the recommendations made by this committee, SEBI has developed specific
guidelines for corporate governance and auditing in India. It is anticipated that these rules will be
included in the listing agreement between the company and the stock exchange.”

(a) Board of directors:

Here are a few things to consider in this regard:
● The ideal ratio of executive and non-executive directors must be present on the board
of directors of the firm.
● “Whether the Chairman is an executive or non-executive, the number of” independent
directors will vary.

(b) Audit Committee:

Here are some things to consider in this regard:
● The organization is required to establish an independent audit committee with the
following bylaws:
○ It must consist of at least three “non-executive directors, the majority of whom must
be independent, and at least one of whom must have knowledge of finance and
accounting.
○ Its chairman must be an independent director, and he or she must be present at the
annual general meeting to answer shareholders' queries”.
● An independent audit committee must be established by the corporation, and it must have
the following qualifications:
○ It “must have at least three members, all of whom must be non-executive directors,
the majority of whom must be independent, and at least one of whom must have”
knowledge of finance and accounting.
○ A director who is independent will serve as the committee's chairman. The
Chairman will take questions from shareholders during the Annual General
Meeting.
● The following duties should be assigned to the audit committee:
○ Monitoring “the company's financial reporting procedure and the dissemination of
its financial reports to” guarantee the accuracy, sufficiency, and dependability of
the financial statements.
 ○ Seeking “the appointment and removal of an external auditor”.
○ Evaluating the effectiveness of internal audit's job.
○ Modernizing the business's risk and financial management procedures. electronic
version

(c) Remuneration of Directors

The following information on director compensation is included in the Annual Report's section on
corporate governance:
○ All elements of the compensation plans for managers, such as salaries, perks,
bonuses, “stock options, pensions, etc”.
○ Descriptions of fixed components, results-related benefits, and performance
standards.

(d) “Process of the Board Some of the points set out in this regard are:
There should be a section in the annual report dedicated to a Management Discussion and
Assessment Report, which covers the following ground: (within limits defined by its competitive
position).
The Potential Dangers and Benefits
● Segment or product-specific results
● Threats and Challenges
● Analysis of operational performance as it relates to financial outcomes.
● The cutting edge of quantitative development in HR and IR.

(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.
(f) Shareholders:
The following are a few considerations in this regard:
The following information must be communicated to stockholders in the case of a new director's
appointment or a director's reappointment”:

● A Board Committee shall be formed under the chairmanship of a non-

executive director to explicitly examine the redress of shareholder and
investor complaints.
● A brief resume of the director (summary).
● The nature of his specialist knowledge.
● The number of organizations over which he retains management and
membership of the Board's committees.”

(g) Corporate Governance report:

In the annual report of the company”, there will be a part devoted specifically to auditing as well
as corporate governance. It will be in the form of an in-depth report on the governance of the
corporation.

(h) Compliance:

The firm is required to get a certificate from the company auditors stating that it complies with the
auditing and corporate governance requirements set out in the certificate. This certificate is to be
appropriated and included in the Directors' Report that is sent to investors. It is also to be delivered
to the stock market.
 Issues and Challenges faced by SEBI in
corporate governance

While SEBI has made significant progress in promoting good corporate governance practices in
India, there are still some challenges that it faces in this regard. Some of the key issues faced by
SEBI in corporate governance include:

Lack of Compliance: One of the major challenges faced by SEBI is the lack of compliance with
its regulations by some listed companies. While SEBI has made it mandatory for listed companies
to comply with its regulations, there are still some companies that do not follow them. This can
lead to a lack of transparency and accountability, and can harm the interests of investors.

Insider Trading: Insider trading is another major issue that SEBI faces in corporate governance.
Insider trading refers to the buying or selling of securities by a person who has access to non-
public information about a company. This can lead to unfair trading practices and can harm the
interests of investors. SEBI has taken several steps to prevent insider trading, but it remains a
challenge.

Related Party Transactions: Related party transactions are another area of concern in corporate
governance. “Related party transactions refer to transactions between a company and its related
parties, such as directors” or promoters. These transactions can be prone to conflict of interest and
can harm the interests of minority shareholders. SEBI has made it mandatory for companies to
disclose related party transactions, but there are still some challenges in monitoring and regulating
these transactions.

Corporate Culture: The overall corporate culture in India is another challenge that SEBI faces in
promoting good corporate governance practices. Many companies still have a hierarchical and
authoritarian culture, which can lead to poor decision-making and a lack of accountability. SEBI
has taken several steps to promote a culture of good governance, but changing corporate culture is
a long-term challenge.
Enforcement: Enforcement of regulations is another challenge faced by SEBI in corporate
governance. SEBI has the power to impose fines and penalties on companies that violate its
regulations, and in extreme cases, it can even bar companies from accessing the securities market.
However, enforcement of regulations can be a challenging task, especially when dealing with large
and powerful companies.

Globalization: The increasing globalization of the Indian economy is another challenge that SEBI
faces in corporate governance. As Indian companies expand globally, they need to comply with
global standards of corporate governance. SEBI needs to ensure that Indian companies maintain
high standards of governance while also remaining competitive in the global marketplace.

In conclusion, while SEBI has made significant progress in promoting good corporate governance
practices in India, there are still some challenges that it faces. These challenges require a multi-
pronged approach and a long-term commitment from all stakeholders to address.
 Recommendations
SEBI can take several measures to combat the current challenges faced in corporate governance.
Here are some elaborations on the measures:
Strengthening Regulations: SEBI can strengthen its regulations related to corporate governance
to ensure that companies comply with them. For example, it can introduce stricter regulations
related to related-party transactions, disclosure requirements, and board composition. SEBI can
also mandate training for directors and senior management on corporate governance practices.

Promoting Transparency: SEBI can promote transparency by making it mandatory for

companies to disclose all related party transactions and providing regular updates to shareholders
about their financial performance. SEBI can also ensure that companies have a whistleblower
policy in place to encourage employees to report any violations.

Improving Enforcement Mechanisms: SEBI can improve its enforcement mechanisms by

increasing its surveillance and monitoring of listed companies. It can also introduce stricter
penalties for violations of its regulations. SEBI can also work towards streamlining the process of
enforcement and providing clarity on the penalty structure.

Building Awareness: SEBI can work towards building awareness among investors about the
importance of good corporate governance practices. SEBI can hold investor awareness programs,
workshops, and seminars to educate investors on how to make informed investment decisions.

Capacity Building: SEBI can build the capacity of its own staff to handle the increasing
complexity of corporate governance issues. It can also work with other regulatory bodies and
industry associations to build a network of experts who can provide guidance to companies.

Collaboration: SEBI can collaborate with other stakeholders such as auditors, credit rating
agencies, and independent directors to improve the overall corporate governance framework in
India. SEBI can also work with international bodies to learn from best practices in other
jurisdictions.
Focus on Technology: SEBI can leverage technology to monitor corporate governance practices
in a more efficient manner. For example, it can use data analytics to identify potential violations
or use blockchain technology to improve transparency and accountability.

In conclusion, to combat the current challenges faced by SEBI in corporate governance, it will
require a multi-pronged approach that involves strengthening regulations, promoting transparency,
improving enforcement mechanisms, building awareness, capacity building, collaboration, and
focusing on technology. By taking these measures, SEBI can promote good corporate governance
practices among listed companies in India.
 Conclusion
Although SEBI is a relatively new organization, it has done a decent job of carrying out its mandate
as a capital market regulator, guaranteeing the protection of diverse stakeholders, and increasing
participation in capital formation”. To maintain ethical trading and investor safety, SEBI has taken
action where warranted. A corporation that uses good corporate governance has much better levels
of confidence among its shareholders. Active and independent directors have a positive impact on
share prices by working to enhance the company's standing in the financial community.

Corporate governance is a crucial consideration for foreign institutional investors when choosing
a company to invest in. “In order to correctly balance legislative and regulatory reforms for the
growth of the business and to encourage foreign investment, SEBI suggested amending Article 49.
By enhancing shareholder participation in decision-making and introducing transparency in
corporate governance, the laws and regulations serve to defend the interests of both society and
shareholders”. By safeguarding not just the management's interests but also those of the
stakeholders, corporate governance helps India's economy grow in the expanding economies of
the rest of the globe.
 References
1. http://iica.in/images/SEBI.pdf
2. http://corporatelawreporter.com/2014/05/21/role-stock-exchange-corporate-governance/
3.https://www.livemint.com/Companies/YxfiL9PBQT3jryt5tCu3zN/Five-themes-Sebi-panelon-
corporate-governance-is-working-on.html
4.https://www.sebi.gov.in/reports/reports/oct-2017/report-of-the-committee-on-
corporategovernance_36177.html
5. International Journal of Pure and Applied Mathematics Special Issue 227
6.http://www.economicsdiscussion.net/business-environment/corporate-
governance/corporategovernance-in-india-need-importance-and-conclusion/10145
7.https://www.google.com/amp/s/m.economictimes.com/markets/stocks/news/kotak-ledpanel-
wants-md-ceo-roles-split-6-independent-directors-onboard/amp_articleshow/60956612.cms
8.https://www.indiainfoline.com/article/news-top-story/sebi-consultative-paper-on-
corporategovernance-norms-113110710070_1.html
9. Dr.Lakshmi T and Rajeshkumar S “In Vitro Evaluation of Anticariogenic Activity of
Acacia Catechu against Selected Microbes”, International Research Journal of
Multidisciplinary Science & Technology, Volume No. 3 , Issue No. 3, P.No 20-25, March
2018.