PART –I

PART –I

1. Approach of the Committee

1.1 The Committee was of the view that the objective of establishing a progressive yet strict securities law legislation would best be achieved by the enactment of a comprehensive Securities Act which would combine the provisions of the Securities Contracts (Regulation) Act, 1956 as well as Securities and Exchange Board of India Act, 1992. The Committee would also have liked to consolidate the Depositories Act 1996 and some of the relevant provisions of the Companies Act 1956 (or as modified in the Companies Bill) and merge the same into a truly comprehensive Securities Act. However, having regard to the fact that the Depositories Act, 1996 dealt with establishment of the securities depository, and, subject to review and amendment of some of its provisions therein, could even continue on a stand alone basis, the Committee finally concluded that such consolidation of the provisions of the Depositories Act into the comprehensive Securities Act was not strictly necessary. In so far as Company law is concerned, considerable progress had already been made in the review of the Companies Act including presentation of the draft bill by the working group and thereafter by the Government through introduction of the Companies Bill 1997 in Parliament. Whilst logically a number of chapters in the Companies Act including particularly Part III and IV of the (existing) Companies Act, 1956 should have been incorporated in the comprehensive Securities Act, what is more important is that the supervision of regulation of these parts should vest with SEBI as part, both of the theme of a comprehensive securities law regime and the establishment and empowerment of a strong market regulator dealing with all aspects of securities market regulation. This principle has been accepted not only in the scheme of the Companies Bill , but also in suggestions received from the government and other market intermediaries. Clearly, it is most logical that all aspects of securities market regulation should be within the exclusive jurisdiction of SEBI rather than have an overlap of jurisdiction between the Central Government and SEBI. The Committee is of the view that SEBI should be made completely autonomous and the Central Government should have minimal control in respect of the subject matter governing security laws. Of course, the Central Government alone shall have the rule-making power under its Act. It is expected that even the rule-making power shall be exercised by the Central Government in consultation with SEBI as far as practicable.

The terms of reference of the Committee were sufficiently broad and enabling to permit the Committee to evolve an appropriate basis for review and amendment of the relevant legislation. In this behalf, after considerable debate and reflection, the Committee adopted the broad principles of consolidation, rationalisation, harmonisation of the securities laws. Whilst the Securities law regime is wide enough to include also delegated legislation in the form of rules and regulations particularly since a large body of law is evolving in this form, the scope of review of this Committee was confined to review of the legislative acts.

Based on the experience of the Committee members themselves, comments and observations received from various departments of SEBI and other persons who met with the Committee, a number of ambiguities, market malpractices and areas for review are identified. The shortcoming in the powers available to SEBI were identified, particularly in the light of the role that SEBI should play in a vibrant market. These were considered in the context of meaningful regulations and rationalisation. Wherever such suggestions have been accepted, appropriate amendments have been made. The Committee’s suggestions are therefore in the following parts:-

By formulation of the consolidated Securities Act 1998 which is based in part upon SCRA and SEBI Act.

Comments on the provisions of the Companies Bill (working draft/Rajya Sabha Bill 1997). (This approach was adopted with a view to avoid duplication of efforts amongst the two Committees).

Suggested amendments to the existing Depositories Act 1996

In fulfilling the above approach, and the objectives, underlying the need for amendment of the Securities laws as well as the objective for development of the securities market as well as some of the policy areas referred to in the prefatory comments, the following main principles have been adopted:-

It is necessary to provide a comprehensive legislative framework and the requisite legislative underpinnings to support market regulations.
It is essential to expand the scope and arena of legislation in the securities market and to cover several pockets of activity which have hitherto escaped regulation.
Investor protection, is of paramount importance
That a strong market regulator lies at the heart of the securities law framework and of all aspects relating to the regulation of the securities market
That the securities market being a dynamic entity, all aspects of market regulations cannot be provided by legislation, and considerable flexibility and latitude must be provided to evolve by delegated legislation in the form of rules, regulations and guidelines. This delegated legislation should, however, have the requisite legislative underpinnings unambiguously expressed for proper implementation and enforcement.
That conflict amongst various legislations be removed or harmonized.
That the developmental as well as regulatory role of SEBI be recognised and harmonised so that they supplement rather than conflict with one another.
Having regard to our constitutional framework and the rule of law under which we all operate, SEBI must necessarily be subjected to administrative law jurisprudence in India. The extensive and wide ranging powers that are conferred upon SEBI must be reasonably and fairly exercised and necessary powers for correcting SEBI whenever it exceeds its authority should be provided for. This is necessary in an environment where such wide and far reaching powers are sought to be conferred on a body, which admittedly is still gathering experience.
That pockets of regulatory immunity which have hitherto escaped regulation by SEBI should be removed and all participants and market intermediaries and persons connected with the securities market must eventually be brought within the net of market regulation. For instance, the Unit Trust of India, which presently claims to stand excluded from SEBI’s jurisdiction, has also been brought within its net.

2. The ( Consolidated ) Securities Act, 1998

In pursuance of the above approach, and applying the guiding principles, the SCRA and SEBI Act were merged into a consolidated statute and a number of additional provisions have been added, in order to fill up the regulating gaps. Having regard to the importance of 'definitions' in the interpretation of the statute and the existence of many problems because of the lack of definitions or ambiguously worded provisions emphasis has been placed on revising many of them.

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