Jul 31,2020 | 08 min read

Capital Market And Securities Law By Vishesh Dhundia and Aditi Das

One of the vital organs of the financial system is the ‘Capital Market' which is the capitalist arm of the government. The growth and development of Science has led to the growth of various other sectors such as Finance, Security, likewise. India, from being a ‘controlled economic’ country, has now developed so much so that the prices keep changing every day. Liberalization and Reserve Bank of India’s (RBI) efforts in creating a currency forward market has made India efficient in gaining momentum through risk management.  One of the integral parts of liberalization is derivatives. And the credit for setting up Derivatives in India goes to NSE, who after analyzing the market requirements of the country, decided to set up in 1999. Ever since liberalization, Indian Capital Market is also undergoing reforms of structural transformation in order to improve the market efficiency, stock market transactions, more transparent trade practices and so on.

The capital market is a source of payment for financial specialists. When the stock of other monetary assets rises in esteem, speculators end up wealthier, frequently they spend a few of this extra wealth boost deals and advancing financial development. Stock esteem reflects speculators responses to government arrangements as well, on the off chance that the government receives arrangements that financial specialists accept will hurt the economy and company benefits, vice-versa. Within the post-reform period, India stands as an economy that’s quick- modernizing, globalization and developing. India is balanced as a rapidly developing rising advertisement economy in the confront of the current turmoil and negativity. The flexibility appeared by India comes from the solid macroeconomics basics. India has weathered the storms of the recent financial advertise emergency with awesome quality and steadiness. The family sector is coming to prominence with noteworthy commitment within the national pool of investment funds. Rising investment levels and moved forward efficiency are the motors driving development.

Indians have witnessed a multiplying of normal genuine per capital wage development amid the tenth plan period. The government has advanced towards a monetary redress. There has moreover been a sharp rise in net capital inflows. Over a long time, the Indian capital advertises as experienced a critical structural transformation in that it presently compares well with those in created markets. This was deemed fundamental since of the slow opening of the economy and the requirement to promote straightforwardness in elective sources of financing. The administrative and supervisory structure has been updated with most of the control for directing the capital market having been vested with the “Securities trade board of India” (SEBI).

The Bombay stock trade was set up in 1875 and is one of the most seasoned stock exchanges in India. The BSE Sensex is the benchmark record of the nation and acts as an indicator of the economy. It is additionally called the BSE (30) Touchy Record (Web2). The Sensex could be a 30-stock record, composed of the biggest and most exchanged stocks speaking to different segments within the economy. 

DEFINITION OF CAPITAL MARKET 
Several significant Capitalists have defined the concept of capital markets. Let us have a look at them. Arun K. Datta defines the capital market as “The capital market is a complex of institutions investment and practices with established links between the demand for and supply of different types of capital gains.” F. Livingstone defined it as “In a developing economy, it is the business of the capital market to facilitate the mainstream of command over the capital to the point of the highest yield. By doing so it enables control over resources to pass into the hands of those who can employ them most effectively thereby increasing productive capacity and spelling the national dividend.” As per the definitions, it can be summarized as:

  • The capital market is the market for securities, where companies and governments can raise long-term funds. 

  • The market in which corporate equity and longer-term debt securities those maturing in more than one year are issued and traded. 

  • The capital market is a market for long-term debt-equity shares. In this market, the capital funds consisting of both equity and debt are issued and traded.

  •  The market in which long-term securities such as stocks and bonds are bought and sold.

  •  The capital market comprises financial securities, government securities, semi-government securities.

  • The capital market concerns two broad types of securities traded, debts and equity. Buying stock allows investors to gain an equity interest in the company and become owners.

CAPITAL MARKET PARTICIPANTS:
The supply in this market comes from savings from different sectors of the company. These savings accrue from the following sources:

  •  Individuals.

  •  Corporate. 

  •  Governments. 

  •  Foreign countries. 

  •  Banks.

  •  Provident Funds. 

  •  Financial Institutions.

ROLE OF CAPITAL MARKET IN INDIAN FINANCIAL SYSTEM:

  • To mobilize long-term reserve funds to back long-term investments. 

  • To motivate broader proprietorship of beneficial assets. 

  • To make strides the proficiency of capital allotment through a competitive pricing mechanism

  • To supply liquidity with components empowering the speculator to see budgetary assets. 

  • To form, lower the costs of exchanges and information.

  • To coordinate the stream of reserves into effective channels through investment, disinvestment, and reinvestment.

  • Form integration between budgetary segments and non-financial segments, Long term finance and brief term fund.

  • Security against a showcase hazard or cost chance through subordinate exchanging and default risk through speculation protection funds.

SEBI AND REGULATIONS OF THE CAPITAL MARKET
Sometime recently the foundation of the securities and trade board of India, the principal legislation overseeing the securities showcase in India were “The capital issues control Act 1956” and the securities contract act 1956. The administrative powers were vested with controllers of capital issues for the essential showcase and the stock trade division for the secondary advertisement within the service of the fund, Government of India. Within the year 1989, SEBI was made a regulatory fiat of the service of finance. Since at that point, SEBI has gradually been allowed increasing powers. With the cancellation of the capital issues control act and the sanctioning of the SEBI act in 1992, the essential showcase has ended up protecting SEBI. Assisted, the service of the back, the Government of India, has exchanged most of the powers beneath the securities contracts act 1956 to SEBI. SEBI ensures the interest of financial specialists in securities and advances the development of securities advertisement.

FUNCTIONS OF SEBI:

  • Regulate the business in stock exchanges and any other securities markets. 

  • Register and regulate the working of capital market intermediaries like brokers, merchant bankers, portfolio managers and so on. 

  • Register and regulate the working mutual funds. 

  • Promote and regulate self-regulatory organizations. 

  • Prohibit fraudulent and unfair trades’ practices in securities markets. 

  • Promote investors’ education and training of intermediaries of securities markets. 

  • Prohibit insider trading securities.

  • Regulate substantial acquisition of shares and takeover of companies. 

  • Perform such other functions as may be prescribed by the government. 

  • Review any intermediary or market participant information.

LEGISLATIONS GOVERNING CAPITAL MARKET

The four main legislations governing the capital market are as follows:

  • The SEBI Act, 1992 which sets up the SEBI with four overlay goals of protection of the interface of financial specialists in securities, improvement of securities market, control of the securities showcase and matter associated therewith and incidental thereto. 

  • The Companies Act, 1956 which bargains with issue, allocation and exchange of transfer of, revelations to be made in open issues, guaranteeing, rights and reward issues and instalment of intrigued and dividends.

  • The securities Contracts Direction Act, 1956 which gives for controls of securities exchanging and the administration of stock exchanges. 

  • The Stores Act, 1996, which gives for the foundation of storehouses for electronic support and exchange for the proprietorship of demand securities.

SEBI IN RELATION WITH STOCK MARKETS, COMPANIES AND CAPITAL

The Indian stock markets, which accomplished an exceptional degree of growth within the final decades, are balanced for an assisted jump forward in the •current decade. The stock trade specialists SEBI and above all, the Government of India have an energetic assignment ahead of them. With supported endeavours on the portion of all these, Indian stock markets can easily demonstrate to be not as it were wellsprings of the unceasing source of stores but also. vehicles for conveyance of riches to an overgrowing populace of Investors within the country. The capital showcase serves a very useful reason by pooling the capital assets of the nation and making them accessible to ambitious investors.

The notice of the company needs to state the sum of capital with which the company is proposed to be enlisted. The capital so stated becomes the authorized capital of the company. The full or any portion of it may be issued which will be the issued capital of the company. That part 89 of such capital which has been apportioned is the subscribed capital. The actual amount obtained is the paid- up capital. Capital must be partitioned into shares of a settled sum. All the offers may be of one lesson or may be divided into diverse classes of securities. The companies Act permitted only two kinds of shares to be issued.

  1. Equity share capital, that is ordinary, shares. 

  2. ii’ Preference share capital, that is preference shares.

The Companies (Amendment) Act, 2000, has substituted Section 86 with new provisions which are that the share capital of a company limited by shares shall be divided into two kinds namely:

  • Value share capital with voting rights or with differential rights as to profit, voting or something else in agreement with such rules and subject to such conditions as may be, 

  • Inclination: share capital. Customarily, subjects as it were to some exemption indicated in S 77, companies were not allowed to buy their possessions. Section 77A, brought in by the Companies (Amendment) Ordinance, 1999 has caused this auxiliary alter within the subject and logic of Company Law that, subject to the confinements conceived in the section- a company may buy-back its claim shares.

UNFAIR TRADE PRACTICES IN SEBI:

Unjustifiable exchange homes in security showcase is considered to be not only illegal but an untrustworthy movement which disintegrates investor’s certainty within the stock advertise. Managing securities on the premise of unpublished cost-sensitive information by those who have the benefit of getting such information is, in numerous nations branded unlawful and enactment to bargain with such activities with obstacle discipline for this offence as of now exists in most developed nations. In spite of the fact that late, India has presently joined the arena by a quasi-legislative degree within the shape of SEBI’s Insider Exchanging Regulation 1992, SEBI’s False and Out of line Exchange Homes relating to Securities Market Direction 1995. The viability of these Controls will, of course, depend upon their viable execution and in the event that so executed directions may offer assistance check the tendency of such practices.

SEBI’S REGULATIONS AND RIGHTS

SEBI may without bias to its right, start criminal prosecution beneath area 24 or any activity (Beneath Chapter A by means of the SEBI Act. to ensure the speculator and within the interface of securities advertise and for due compliance with the arrangements of the SEBI Act and regulations made there beneath, the issue taking after the direction. Any person aggrieved by an order of SEBI under the regulations may prefer an appeal to the Securities Appellate Tribunal.

  • Directing not to dealing securities in any particular manner 

  • Prohibiting from disposing of any of the securities acquired in violation of these regulations. 

  • Restraining to communicate or counsel any person to deal in securities. 

  • Declaring the transactions ‘null and void’ 

  • Directing the persons who acquired the securities in violation of these regulations to deliver the securities back to the seller. 

  • In case the buyer is not in a position to deliver such securities, the market price prevailing at the time to issuing such direction or at the time of transaction whichever in higher shall be paid to the seller

  • Directing the person who; has dealt in securities in violation of this regulation to transfer an amount or proceeds equivalent to the cost price or market price of securities, whichever is higher to the Investor Protection. Fund of a Recognized Stock Exchange.

In KSL and Industries Ltd. V. SEBI,59 respondent debarred appealing party from getting to and awaiting related with the capital showcase for period of two a long time. Examination revealed control of the open issue made by MFL conjointly grey market operations and secondary controls within the offers of the company. Tribunal held that affirmation of extortion cannot survive on unimportant guesses and deduces, “financial sporadic, subscriptions coming about in unpredictable allotment” by itself cannot be considered as extortion and in infringement of control 4 and 6 of the SEBI (FUTP) reg.: Respondent has fizzled to substantiate the charge against the. appealing party. So, condemned arrangements may not be sustained and appealing parties damaged the FUTP control do not arise. 

CONCLUSION
The restoration of the capital showcase has set the tone for the increased pace of industrialization, A number of corporates have entered the markets for the primary time weenie recorded companies have to come out with a plethora of rights and open issues. Capital is known as the spine of the corporate structure. Any corporate substance in order to proceed to exist and subsist within the quick changing and profoundly competitive commerce situation needs to carry out the restructuring of the capital. In order to maintain and survive such vast capitals and markets, the county has laws and regulations, however, the implementation is overrated. Hence, what needs to be looked into is the implementation of proper laws in the country.

 

Securities Law And Capital Markets Service in Vikhroli (W), Mumbai ...


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ABOUT THE AUTHOR


Vishesh Dhundia

Working at a Boutique Law Firm in Jangpura and deal with matters pertaining to Intellectual Property, Regulatory, Corporate Commercial Disputes, Technology, Media & Entertainment, Communications and Broadcasting, Pharmaceuticals and Healthcare, Biotechnology, Agri-business and Food.

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