Section 11D of The Securities and Exchange Board of India Act, 1992
If the Board finds, after causing an inquiry to be made, that any person has violated, or is likely to violate, any provisions of this Act, or any rules or regulations made thereunder, it may pass an order requiring such person to cease and desist from committing or causing such violation:
Provided that the Board shall not pass such order in respect of any listed public company or a public company (other than the intermediaries specified under section 12) which intends to get its securities listed on any recognised stock exchange unless the Board has reasonable grounds to believe that such company has indulged in insider trading or market manipulation.]
Summary
- The Board can order any person to stop a specific action if an inquiry shows they have broken or are likely to break the law or regulations.
- This stop order is known as a cease and desist order.
- The Board cannot use this power against an ordinary listed public company unless there is a strong suspicion of insider trading or market manipulation.
- However, if the company is a registered market middleman like a broker, the Board can issue the order even for other types of rule-breaking.
Practical examples
FAQ
1. Can the Board issue a cease and desist order before an inquiry happens?
No, the Board can only pass this order after causing an inquiry to be made.
2. Does the Board have to wait for someone to actually break a rule before issuing this order?
No, the Board can issue the order if it finds that a person is likely to violate the provisions of the Act or its rules.
3. Can the Board stop a regular public company from doing something?
Generally no, unless the company is suspected of insider trading or market manipulation, or if the company is a registered middleman like a broker.
Test yourself
Q1.Under Section 11D of The Securities and Exchange Board of India Act, 1992, what prerequisite must the Board meet before passing a cease and desist order?
Q2.Under Section 11D of The Securities and Exchange Board of India Act, 1992, in which situation can the Board issue a cease and desist order against someone who has not yet broken a rule?
Q3.Under Section 11D and Section 12 of The Securities and Exchange Board of India Act, 1992, what happens if a listed public company is acting as a Section 12 intermediary and commits a minor regulatory violation not involving insider trading?
Q4.Under Section 11D of The Securities and Exchange Board of India Act, 1992, what specific wrongdoings allow the Board to issue a cease and desist order against a standard listed public company?