Section 11B of The Securities and Exchange Board of India Act, 1992
3[(1)] Save as otherwise provided in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary—
- (i)in the interest of investors, or orderly development of securities market; or
- (ii)to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interests of investors or securities market; or
- (iii)to secure the proper management of any such intermediary or person, it may issue such directions,—
- (a)to any person or class of persons referred to in section 12, or associated with the securities market; or
- (b)to any company in respect of matters specified in section 11A, as may be appropriate in the interests of investors in securities and the securities market.] 4[Explanation.—For the removal of doubts, it is hereby declared that the power to issue directions under this section shall include and always be deemed to have been included the power to direct any person, who made profit or averted loss by indulging in any transaction or activity in contravention of the provisions of this Act or regulations made thereunder, to disgorge an amount equivalent to the wrongful gain made or loss averted by such contravention.] 5[(2) Without prejudice to the provisions contained in sub-section (1), sub-section (4A) of section 11 and section 15-I, the Board may, by an order, for reasons to be recorded in writing, levy penalty under sections 15A, 15B, 15C, 15D, 15E, 15EA, 15EB, 15F, 15G, 15H, 15HA and 15HB after holding an inquiry in the prescribed manner.]
Summary
- The Board can issue formal directions to market participants if it determines through an enquiry that it is necessary to protect investors or the market.
- It can issue these directions to intermediaries, anyone associated with the securities market, or companies issuing shares to the public.
- The Board has the power to order rule-breakers to give up any illegal profits they made or any losses they avoided, which is known as disgorgement.
- The Board can also levy financial penalties on those who break the rules, provided it conducts an inquiry first.
Practical examples
FAQ
1. Can the Board force me to return money I made by breaking market rules?
Yes. The Board has the power to direct any person to disgorge an amount equivalent to the wrongful gain they made, or the loss they avoided, by violating the Act.
2. Who exactly can the Board issue these directions to?
The Board can issue directions to intermediaries like brokers, anyone associated with the securities market, or companies dealing with the issue and transfer of securities.
3. Can the Board penalize me without doing any research first?
No. The Board can only issue directions or levy penalties if it is satisfied that it is necessary after making an enquiry, or causing an enquiry to be made.
Test yourself
Q1.Under Section 11B of The Securities and Exchange Board of India Act, 1992, what specific action can the Board take regarding illegal profits?
Q2.Under Section 11B of The Securities and Exchange Board of India Act, 1992, what prerequisite must be met before the Board issues a direction to a market participant?
Q3.Section 11B of The Securities and Exchange Board of India Act, 1992 allows the Board to issue directions to intermediaries to prevent detrimental conduct. According to Section 12, who is considered an intermediary that would be subject to these directions?
Q4.Section 11B of The Securities and Exchange Board of India Act, 1992 allows the Board to levy penalties. How does this relate to the Board's general functions under Section 11?