BIBLOGRAPHY

1.https://en.wikipedia.org/wiki/Securities_and_Exchange_Board_of_India
2. www.yourarticlelibrary.com/education/sebi-the-purpose...sebi/8762/

3.

dhruviimtmeerutpgdm.blogspot.com/2009/09/limitations-of-sebi.html

4. www.corpgov.net/library/corporate-governance-defined
5. kalyan-city.blogspot.com/

6. www.ehow.com Legal
7. www.managementstudyguide.com

SEBI

INTRODUCTION
Securities Exchange Board of India (SEBI) was set up in 1988 to regulate the functions of
securities market. SEBI promotes orderly and healthy development in the stock market but
initially SEBI was not able to exercise complete control over the stock market transactions. It
was left as a watch dog to observe the activities but was found ineffective in regulating and
controlling them. As a result in May 1992, SEBI was granted legal status. SEBI is a body
corporate having a separate legal existence and perpetual succession.

Reasons for Establishment of SEBI:

With the growth in the dealings of stock markets, lot of malpractices also started in stock markets
such as price rigging, unofficial premium on new issue, and delay in delivery of shares,
violation of rules and regulations of stock exchange and listing requirements. Due to these
malpractices the customers started losing confidence and faith in the stock exchange. So
government of India decided to set up an agency or regulatory body known as Securities
Exchange Board of India (SEBI).

History
It was established by The Government of India on 12 April 1988 and given statutory powers in
1992 with SEBI Act 1992 being passed by the Indian Parliament. SEBI has its headquarters at
the business district of Bandra Kurla Complex in Mumbai, and has Northern, Eastern, Southern
and Western Regional Offices in New Delhi, Kolkata, Chennai and Ahmedabad respectively. It
has opened local offices at Jaipur and Bangalore and is planning to open offices at Guwahati,
Bhubaneshwar, Patna, Kochi and Chandigarh in Financial Year 2013 - 2014.
Controller of Capital Issues was the regulatory authority before SEBI came into existence; it
derived authority from the Capital Issues (Control) Act, 1947.
Initially SEBI was a non statutory body without any statutory power. However in 1995, the SEBI
was given additional statutory power by the Government of India through an amendment to the
Securities and Exchange Board of India Act, 1992. In April 1988 the SEBI was constituted as the
regulator of capital markets in India under a resolution of the Government of India.

Managament of SEBI
The SEBI is managed by its members, which consists of following:
1. The chairman who is nominated by Union Government of India.
2. Two members, i.e., Officers from Union Finance Ministry.
3. One member from the Reserve Bank of India.
4. The remaining five members are nominated by Union Government of India, out of them
at least three shall be whole-time members.

Purpose and Role of SEBI:

SEBI was set up with the main purpose of keeping a check on malpractices and protect
the interest of investors. It was set up to meet the needs of three groups.
1. Issuers:
For issuers it provides a market place in which they can raise finance fairly and easily.
2. Investors:
For investors it provides protection and supply of accurate and correct information.
3. Intermediaries:
For intermediaries it provides a competitive professional market.

Objectives of SEBI:
The overall objectives of SEBI are to protect the interest of investors and to promote the
development of stock exchange and to regulate the activities of stock market. The
objectives of SEBI are:
1. To regulate the activities of stock exchange.
2. To protect the rights of investors and ensuring safety to their investment.
3. To prevent fraudulent and malpractices by having balance between self regulation of
business and its statutory regulations.
4. To regulate and develop a code of conduct for intermediaries such as brokers,
underwriters, etc.

Functions of SEBI:
The SEBI performs functions to meet its objectives. To meet three objectives SEBI has
three important functions. These are:
i. Protective functions
ii. Developmental functions
iii. Regulatory functions.
1. Protective Functions:
These functions are performed by SEBI to protect the interest of investor and provide
safety of investment.
As protective functions SEBI performs following functions:
(i) It Checks Price Rigging:
Price rigging refers to manipulating the prices of securities with the main objective of
inflating or depressing the market price of securities. SEBI prohibits such practice
because this can defraud and cheat the investors.
(ii) It Prohibits Insider trading:
Insider is any person connected with the company such as directors, promoters etc. These
insiders have sensitive information which affects the prices of the securities. This
information is not available to people at large but the insiders get this privileged
information by working inside the company and if they use this information to make
profit, then it is known as insider trading, e.g., the directors of a company may know that
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company will issue Bonus shares to its shareholders at the end of year and they purchase
shares from market to make profit with bonus issue. This is known as insider trading.
SEBI keeps a strict check when insiders are buying securities of the company and takes
strict action on insider trading.
(iii) SEBI prohibits fraudulent and Unfair Trade Practices:
SEBI does not allow the companies to make misleading statements which are likely to
induce the sale or purchase of securities by any other person.
(iv) SEBI undertakes steps to educate investors so that they are able to evaluate the
securities of various companies and select the most profitable securities.
(v) SEBI promotes fair practices and code of conduct in security market by taking
following steps:
(a) SEBI has issued guidelines to protect the interest of debenture-holders wherein
companies cannot change terms in midterm.
(b) SEBI is empowered to investigate cases of insider trading and has provisions for stiff
fine and imprisonment.
(c) SEBI has stopped the practice of making preferential allotment of shares unrelated to
market prices.
2. Developmental Functions:
These functions are performed by the SEBI to promote and develop activities in stock
exchange and increase the business in stock exchange. Under developmental categories
following functions are performed by SEBI:
(i) SEBI promotes training of intermediaries of the securities market.
(ii) SEBI tries to promote activities of stock exchange by adopting flexible and adoptable
approach in following way:
(a) SEBI has permitted internet trading through registered stock brokers.
5. (b) SEBI has made underwriting optional to reduce the cost of issue.
(c) Even initial public offer of primary market is permitted through stock exchange.
3. Regulatory Functions:
These functions are performed by SEBI to regulate the business in stock exchange. To
regulate the activities of stock exchange following functions are performed:
(i) SEBI has framed rules and regulations and a code of conduct to regulate the
intermediaries such as merchant bankers, brokers, underwriters, etc.
(ii) These intermediaries have been brought under the regulatory purview and private
placement has been made more restrictive.
(iii) SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer
agents, trustees, merchant bankers and all those who are associated with stock exchange
in any manner.
(iv) SEBI registers and regulates the working of mutual funds etc.
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(v) SEBI regulates takeover of the companies.

(vi) SEBI conducts inquiries and audit of stock exchanges.

Powers of SEBI

The important powers of SEBI (Securities and Exchange Board of India) are:-

Powers relating to stock exchanges & intermediaries

SEBI has wide powers regarding the stock exchanges and intermediaries dealing in securities. It
can ask information from the stock

exchanges and intermediaries regarding their business

transactions for inspection or scrutiny and other purpose.

2. Power to impose monetary penalties

SEBI has been empowered to impose monetary penalties on capital market intermediaries and
other participants for a range of violations. It can even impose suspension of their registration for
a short period.
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3. Power to initiate actions in functions assigned

SEBI has a power to initiate actions in regard to functions assigned. For example, it can issue
guidelines to different intermediaries or can introduce specific rules for the protection of interests
of investors.

4. Power to regulate insider trading

SEBI has power to regulate insider trading or can regulate the functions of merchant bankers.

5. Powers under Securities Contracts Act

For effective regulation of stock exchange, the Ministry of Finance issued a Notification on 13
September, 1994 delegating several of its powers under the Securities Contracts (Regulations)
Act to SEBI.
SEBI is also empowered by the Finance Ministry to nominate three members on the Governing
Body of every stock exchange.

6. Power to regulate business of stock exchanges

SEBI is also empowered to regulate the business of stock exchanges, intermediaries associated
with the securities market as well as mutual funds, fraudulent and unfair trade practices relating
to securities and regulation of acquisition of shares and takeovers of companies.

Limitations of SEBI
The Central Government has authorized SEBI to frame its rules and regulation for actively
monitoring capital markets. These rules and regulations will have to be approved by the
government first.This will cause unnecessary delay and interference by the Finance
Minister.
SEBI will have to seek prior approval for filling criminal complaints for violations for the
regulations. This will again cause delay at government level SEBI has not been given
autonomy. Its Board of Directors is dominated by government nominees. Out of 5
directors only 2 can be from outside and these are to represent the Ministries of Finance,
Law and Reserve Bank of India.

Corporate Governance
MEANING
Corporate Governance refers to the way a corporation is governed. It is the technique by which
companies are directed and managed. It means carrying the business as per the stakeholders
desires. It is actually conducted by the board of Directors and the concerned committees for the
companys stakeholders benefit. It is all about balancing individual and societal goals, as well
as, economic and social goals.
Corporate Governance is the interaction between various participants (shareholders, board of
directors, and companys management) in shaping corporations performance and the way it is
proceeding towards. The relationship between the owners and the managers in an organization
must be healthy and there should be no conflict between the two. The owners must see that

individuals actual performance is according to the standard performance. These dimensions of

corporate governance should not be overlooked.
Corporate Governance deals with the manner the providers of finance guarantee themselves of
getting a fair return on their investment. Corporate Governance clearly distinguishes between the
owners and the managers. The managers are the deciding authority. In modern corporations, the
functions/ tasks of owners and managers should be clearly defined, rather, harmonizing.
Corporate Governance deals with determining ways to take effective strategic decisions. It gives
ultimate authority and complete responsibility to the Board of Directors. In todays marketoriented economy, the need for corporate governance arises. Also, efficiency as well as
globalization are significant factors urging corporate governance. Corporate Governance is
essential to develop added value to the stakeholders.
Corporate Governance ensures transparency which ensures strong and balanced economic
development. This also ensures that the interests of all shareholders (majority as well as minority
shareholders) are safeguarded. It ensures that all shareholders fully exercise their rights and that
the organization fully recognizes their rights.
Corporate Governance has a broad scope. It includes both social and institutional aspects.
Corporate Governance encourages a trustworthy, moral, as well as ethical environment.

DEFINITION

Corporate governance is accountability to providers of capital. Bruce Weber, dean of the

Lerner College of Business at the University of Delaware, at the inaugural meeting in November
of the newly reconstituted advisory board for the John L. Weinberg Center for Corporate
Governance.
Corporate governance is about how investors get the managers to give them back their money
(Shleifer & Vishny, A Survey of Corporate Governance, Journal of Finance 52(2) 1997: 738)

Corporate governance is gathering together a group of smart, accomplished people around a

board table to make good decisions on behalf of the company and its stakeholders. As We
Start Anew, Jim Kristie, editor and associate publisher of Directors & Boards.

IMPORTANCE
The importance of corporate governance is listed below:
1.

Changing Ownership Structure : In recent years, the ownership structure of companies

has changed a lot. Public financial

institutions, mutual funds, etc. are the single largest

shareholder in most of the large companies. So, they have effective control on the management
of the companies. They force the management to use corporate governance. That is, they put
pressure on the management to become more efficient, transparent, accountable, etc. The also
ask the management to make consumer-friendly policies, to protect all social groups and to
protect the environment. So, the changing ownership structure has resulted in corporate
governance.
2.

Importance of Social Responsibility : Today, social responsibility is given a lot of

importance. The Board of Directors have to protect the rights of the customers, employees,
shareholders, suppliers, local communities, etc. This is possible only if they use corporate
governance.

3.

Growing Number of Scams : In recent years, many scams, frauds and corrupt practices
have taken place. Misuse and misappropriation of public money are happening everyday in
India and worldwide. It is happening in the stock market , banks, financial institutions,
companies and government offices. In order to avoid these scams and financial irregularities,
many companies have started corporate governance.

4.

Indifference on the part of Shareholders : In general, shareholders are inactive in the

management of their companies. They only attend the Annual general meeting. Postal ballot is
still absent in India. Proxies are not allowed to speak in the meetings. Shareholders
associations are not strong. Therefore, directors misuse their power for their own benefits. So,
there is a need for corporate governance to protect all the stakeholders of the company.
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5.

Globalisation : Today most big companies are selling their goods in the global market .
So, they have to attract foreign investor and foreign customers. They also have to follow
foreign rules and regulations. All this requires corporate governance. Without Corporate
governance, it is impossible to enter, survive and succeed the global market.

6.

Takeovers and Mergers : Today, there are many takeovers and mergers in the business
world. Corporate governance is required to protect the interest of all the parties during
takeovers and mergers.

7.

SEBI : SEBI has made corporate governance compulsory for certain companies. This is
done to protect the interest of the investors and other stakeholders.

Principles of Corporate Governance

Shareholder recognition is key to maintaining a companys stock price. More often than
not, however, small shareholders with little impact on the stock price are brushed aside to make
way for the interests of majority shareholders and the executive board. Good corporate
governance seeks to make sure that all shareholders get a voice at general meetings and are
allowed to participate.

Stakeholder interests should also be recognized by corporate governance. In particular,

taking the time to address non-shareholder stakeholders can help your company establish a
positive relationship with the community and the press.

Board responsibilities must be clearly outlined to majority shareholders. All board

members must be on the same page and share a similar vision for the future of the company.

Ethical behavior violations in favor of higher profits can cause massive civil and legal
problems down the road. Underpaying and abusing outsourced employees or skirting around lax
environmental regulations can come back and bite the company hard if ignored. A code of
conduct regarding ethical decisions should be established for all members of the board.

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Business transparency is the key to promoting shareholder trust. Financial records,

earnings reports and forward guidance should all be clearly stated without exaggeration or
creative accounting. Falsified financial records can cause your company to become a Ponzi
scheme, and will be dealt with accordingly.

Types of Corporate Governance Mechanisms

Effective corporate governance is essential if a business wants to set and meet its strategic goals.
A corporate governance structure combines controls, policies and guidelines that drive the
organization toward its objectives while also satisfying stakeholders' needs. A corporate
governance structure is often a combination of various mechanisms.
Internal Mechanism
The foremost sets of controls for a corporation come from its internal mechanisms. These
controls monitor the progress and activities of the organization and take corrective actions when
the business goes off track. Maintaining the corporation's larger internal control fabric, they serve
the internal objectives of the corporation and its internal stakeholders, including employees,
managers and owners. These objectives include smooth operations, clearly defined reporting
lines and performance measurement systems. Internal mechanisms include oversight of
management, independent internal audits, structure of the board of directors into levels of
responsibility, segregation of control and policy development.
External Mechanism
External control mechanisms are controlled by those outside an organization and serve the
objectives of entities such as regulators, governments, trade unions and financial institutions.
These objectives include adequate debt management and legal compliance. External mechanisms
are often imposed on organizations by external stakeholders in the forms of union contracts or
regulatory guidelines. External organizations, such as industry associations, may suggest
guidelines for best practices, and businesses can choose to follow these guidelines or ignore

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them. Typically, companies report the status and compliance of external corporate governance
mechanisms to external stakeholders.
Independent Audit
An independent external audit of a corporations financial statements is part of the overall
corporate governance structure. An audit of the company's financial statements serves internal
and external stakeholders at the same time. An audited financial statement and the accompanying
auditors report helps investors, employees, shareholders and regulators determine the financial
performance of the corporation. This exercise

gives a broad, but limited, view of the

organizations internal working mechanisms and future outlook.

Small Business Relevance
Corporate governance has relevance in the small business world as well. Internal mechanisms of
corporate governance may not be implemented on a noticeable scale by a small business, but the
functions can be applied to many small businesses nevertheless. Business owners make strategic
decisions about how workers will do their duties, and they monitor their performance; this is an
internal control mechanism -- part of business governance. Likewise, if a business requests a
loan from a bank, it must respond to that banks demands to comply with liens and agreement
terms -- an external control mechanism. If the business is a partnership, a partner might demand
an audit to place reliance on the profit figures provided -- another form of external control.

Benefits of Corporate Governance

1. Good corporate governance ensures corporate success and economic growth.
2. Strong corporate governance maintains investors confidence, as a result of which,
company can raise capital efficiently and effectively.
3. It lowers the capital cost.
4. There is a positive impact on the share price.
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5. It provides proper inducement to the owners as well as managers to achieve objectives

that are in interests of the shareholders and the organization.
6. Good corporate governance also minimizes

wastages, corruption, risks

and

mismanagement.
7. It helps in brand formation and development.
8. It ensures organization in managed in a manner that fits the best interests of all.

Disadvantages of Corporate Governance

Corporate governance is the method by which a corporation is directed, its business practices
controlled, and its vision for success communicated to its shareholders. Disadvantages of this
method of leadership arise from a lack of oversight, sentimental business decisions by an
entrenched board of directors, and the high cost of changing direction once a business path
proves to be ineffective.

Family-Owned Companies
Corporate governance works at its best when shareholders and board members are able to make
objective decisions that are in the best interest of the company. According to Ibis Associates, a
business planning firm, family-run corporations (founding family members own controlling
share of the company), such as Ford and Wal Mart, lose objectivity in business making decisions
due to the family's financial

investment in the business' performance and the emotional ties

associated with building a worldwide corporation from the ground up.

Easily Corruptible
Corporate governance needs a certain level of government oversight to avoid increasing levels of
corruption. This is certainly true of areas in corporate finance and banking where deregulation of
the industry through 2001-2004 contributed to predatory lending practices and created a credit
crises for millions of Americans. According to Jonathan Brown, author of "The Separation of
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Banking and Commerce," the lack of governmental oversight in corporate governance lead to a
misallocation of credit that actually worked against competition. Banks stopped competing with
one another.
Costs of Monitoring
To effectively govern a publicly traded

corporation, shareholders must speak with one voice

and have enough votes to allow that voice to have any real weight. This requires individuals that
have a collective vision for the company to pour more money into that company to gain a
controlling share. This process can be highly political, since controlling shareholders that sense a
hostile takeover may attempt to buy up more shares to stay in power and keep the minority party
silent. Corporate governance at this level could grind to a halt, driving stock prices lower and
hindering a corporation's ability to make smart business decisions.

CORPORATE SOCIAL RESPONSIBILITY

MEANING

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The term corporate social responsibility( CSR ) is based on the idea that business has social
responsibility or obligations beyond just earning profits.A business is responsible not only
to its shareholders alone but to all the stakeholders.

DEFINITION

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