Securities Law

Securities law in India sits at the intersection of market regulation, corporate governance, and enforcement — a space where the stakes are high, the procedures are technical, and the window for mounting an effective defence is shorter than most people expect. Whether you are a listed company managing continuous disclosure obligations, a promoter facing an insider trading inquiry, or a company preparing for a public issue, the regulatory environment demands careful, experienced navigation.

The SEBI Framework

The Securities and Exchange Board of India was established under the SEBI Act, 1992 with a three-part mandate: protecting investor interests, developing the securities market, and regulating it. Over the past three decades, SEBI has evolved from a nascent regulator into one of the more active and assertive financial regulators in the country — with a substantial enforcement apparatus, a detailed regulatory rulebook, and the institutional will to use both.

SEBI's jurisdiction extends across a wide perimeter: listed companies, prospective issuers, stock exchanges, depositories, stockbrokers, merchant bankers, investment advisers, portfolio managers, mutual funds, alternative investment funds, research analysts, and the full range of market intermediaries. The applicable primary legislation includes the SEBI Act, 1992; the Securities Contracts (Regulation) Act, 1956 (SCRA); and the Depositories Act, 1996. These statutes form the skeleton — the detailed regulatory architecture lives in SEBI's extensive library of regulations, master circulars, and guidance notes.

The regulatory architecture is layered. Regulations (formally notified) sit at the top; below them are circulars and master circulars that consolidate and clarify operational requirements; and SEBI also issues informal guidance (in the form of informal guidance letters to specific applicants) that, while not binding on third parties, give a sense of the regulator's current thinking on particular issues. Keeping track of this body of rules — and the amendments that regularly update it — is itself a compliance task.

SEBI Enforcement: How It Works

SEBI enforcement typically begins quietly. The regulator's surveillance systems, complaints from investors, referrals from stock exchanges, or information from other regulators can all trigger a preliminary inquiry. From there, SEBI may order a formal investigation under Section 11C of the SEBI Act — at which point the regulator's inspection and investigation powers are broad: it can call for books, records, electronic data, and statements from any person connected with the market.

The next step, for most respondents, is the show cause notice (SCN). This is the formal document that sets out the alleged violations and invites a response. The SCN is the critical juncture: the reply framed at this stage — the facts put on record, the legal arguments advanced, the defences identified — shapes the entire proceeding that follows. A poorly constructed reply filed without legal counsel is very difficult to walk back later.

Adjudication Proceedings

Most SEBI enforcement matters are decided through adjudication proceedings before an Adjudicating Officer (AO) appointed by SEBI. The AO holds a quasi-judicial inquiry, receives evidence and submissions, and passes an order imposing a monetary penalty if violations are found. Penalties under the SEBI Act and SCRA can be significant — ranging from specific amounts per day of default to amounts linked to the benefit gained or three times the profit made, whichever is higher. There is no technical ceiling for many categories of violation.

For more serious matters — market manipulation, systematic fraud, or violations involving significant public interest — the matter may be taken up before a Whole Time Member (WTM) of SEBI or the full Board, which has the power to issue directions under Section 11 and 11B of the SEBI Act: directions to refund money, disgorge profits, debar persons from the securities market, or cancel registrations. These are not merely financial penalties — they can effectively end a career or business in the market.

Settlement and Consent Orders

SEBI's settlement mechanism allows respondents in certain proceedings to propose a settlement before (and in some cases after) the passing of an order. A successful settlement results in a consent order — the proceeding is closed, and the terms (which typically include a monetary payment and may include undertakings about future conduct) are made public. Settlement is not available for all categories of violations, and the terms are not always predictable, but for eligible matters it can be an efficient way to achieve closure without the reputational and business disruption of a contested enforcement proceeding.

SAT Appeals

The Securities Appellate Tribunal (SAT) is a specialised appellate forum established under the SEBI Act to hear appeals against orders made by SEBI, the Insurance Regulatory and Development Authority of India (IRDAI), and the Pension Fund Regulatory and Development Authority (PFRDA). For securities law purposes, SAT is the primary avenue of challenge against SEBI adjudication orders, WTM orders, and Board orders.

SAT's jurisdiction is broad within its statutory remit. It hears appeals on both law and fact, and it has the power to confirm, modify, or set aside SEBI orders. The Tribunal is composed of judicial and technical members with backgrounds in law and finance, which gives it a solid grasp of both the regulatory framework and the practical realities of market functioning — an important feature when SEBI's orders are challenged on proportionality or factual grounds.

Filing an Appeal

An appeal to SAT must ordinarily be filed within 45 days of receiving the SEBI order, though condonation of delay is available on sufficient cause being shown. The appeal is accompanied by a memorandum of appeal setting out the grounds of challenge, the relief sought, and the material facts. Grounds typically include errors of law in interpreting the regulations, perversity in appreciation of evidence, procedural irregularities (breach of principles of natural justice), and disproportionality of penalty.

Interim relief — a stay of the SEBI order pending the appeal — is a critical early step in many matters, particularly where the order involves a market debarment or a registration cancellation that would prevent the appellant from continuing to carry on business while the appeal is pending. SAT can grant interim relief; the threshold is the usual one of prima facie case, balance of convenience, and irreparable harm, though the Tribunal is mindful of SEBI's investor protection mandate when exercising this power.

From SAT, the next appellate forum is the Supreme Court of India under Section 15Z of the SEBI Act — an appeal on a question of law. The Supreme Court route is resource-intensive and reserved for matters of genuine legal importance, but it has produced important securities law precedents over the years.

Insider Trading and UPSI

The SEBI (Prohibition of Insider Trading) Regulations, 2015 (the PIT Regulations) replaced the 1992 framework with a significantly more detailed and demanding regime. The 2015 regulations have been amended multiple times since — the 2018 and 2019 amendments in particular introduced the structured digital database (SDD) requirement and tightened the compliance obligations — and enforcement activity under the PIT Regulations has been a consistent priority for SEBI.

Who Is an Insider?

The definition is wider than most people assume. An insider is any person who is a connected person, or any person who is in possession of or has access to unpublished price sensitive information (UPSI). A connected person includes directors, officers, employees, and any person who has been associated with the listed company — as an auditor, legal adviser, banker, or otherwise — in the preceding six months. The six-month look-back means that a person who ceased their formal connection with the company can still be an insider for a further period.

What Counts as UPSI?

Unpublished price sensitive information is information that is both not yet generally available and likely to materially affect the price of the securities of the company if published. The PIT Regulations enumerate categories that are presumed to be UPSI: financial results, dividends, changes in key management, material mergers and acquisitions, changes in capital structure, and buy-backs, among others. The list is illustrative, not exhaustive — any information that meets the two-part test is UPSI regardless of whether it fits a listed category.

Trading Window and Compliance Architecture

Listed companies are required to maintain a trading window policy that closes the window for trading by designated persons — directors, officers, and other employees with access to UPSI — during certain periods (primarily around the preparation and publication of financial results). Trades during a closed window are a red flag and a frequent trigger for investigation.

The structured digital database requirement (introduced in 2019) mandates that every listed company maintain a time-stamped electronic database recording every person who has been given access to UPSI, the nature of the information shared, and the date of sharing. This database must be maintained for eight years and must be accessible to regulators on demand. In practice, many companies implemented SDDs hurriedly and the databases are not robust — they do not capture all access events, entries are backdated, or the information recorded is insufficiently granular. These are significant compliance vulnerabilities.

Compliance programmes under the PIT Regulations fail for predictable reasons: they are designed as paperwork exercises rather than real controls, designated person lists are not updated, pre-clearance processes are nominal, and SDDs are maintained as afterthoughts. Building a programme that actually works requires embedding the compliance architecture into the company's real information flows — not just issuing a policy document.

LODR and Listed Company Compliance

The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 — universally referred to as LODR — set out the ongoing obligations of companies whose securities are listed on recognised stock exchanges. The LODR regime has been substantially amended multiple times since 2015, with the 2021 and 2023 amendment cycles adding materially to the compliance burden, particularly around related party transactions and corporate governance.

Continuous Disclosure Obligations

Listed companies are subject to a demanding disclosure calendar. Quarterly financial results must be filed within prescribed timelines; material events and information must be disclosed to stock exchanges promptly (within 24 hours for many categories; within 30 minutes for certain time-critical events). What constitutes a "material event" requiring disclosure is broadly defined, and the consequences of non-disclosure or delayed disclosure — both in terms of SEBI enforcement and market integrity — are real.

The annual report, the annual secretarial audit, the business responsibility and sustainability report (for the top listed entities), and the corporate governance report are all part of the mandatory disclosure architecture. Each comes with its own form requirements, content mandates, and certification obligations.

Related Party Transactions Under LODR

LODR's related party transaction framework operates in parallel with — and is often more demanding than — the Companies Act RPT framework. Under LODR, all RPTs require prior approval of the audit committee; material RPTs (above the threshold) require shareholder approval by ordinary resolution with related parties abstaining. The 2021 amendments significantly expanded the definition of "related party" for LODR purposes, bringing in entities where promoters have significant influence even without formal control, and the 2023 amendments tightened the materiality thresholds.

The practical challenge is that promoter-driven groups often have complex inter-company relationships that, post-2021, fall within LODR's expanded RPT perimeter. Mapping these relationships, calibrating the disclosure and approval requirements, and building a process that can execute on the timelines the regulations demand is a substantive compliance exercise.

Board Composition and Governance Requirements

LODR prescribes requirements on board composition — the proportion of independent directors, the separation of the roles of chairperson and managing director (for the top 500 listed entities), the constitution and functioning of board committees, and the qualifications and conduct of independent directors. Non-compliance with board composition requirements attracts both regulatory scrutiny and the attention of proxy advisory firms whose reports influence institutional shareholder voting.

Capital Markets Transactions

Capital markets transactions — public issues, rights issues, preferential allotments, qualified institutional placements, and offers for sale — are regulated primarily by the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations), alongside applicable provisions of the Companies Act and SEBI's issue-specific circulars.

Public Issues: IPOs and FPOs

An initial public offering is one of the most legally intensive transactions a company undertakes. The ICDR Regulations prescribe eligibility criteria for issuers, the content and format of the draft red herring prospectus (DRHP), the due diligence obligations of the lead managers, the process for SEBI observations, and the post-issue compliance requirements. SEBI's review of the DRHP is substantive — the regulator examines disclosures for adequacy, flags related party transactions and conflicts, and raises queries that must be resolved before the offer can open. The process from DRHP filing to SEBI observations typically takes 30 days for most issuers, but substantive comments can extend the timeline.

Legal due diligence for a public issue goes well beyond verifying that corporate records are in order. It involves examining regulatory approvals, litigation exposure, compliance history (including any SEBI or RoC actions), material contracts, and intellectual property — and assessing whether the risk disclosures in the DRHP accurately capture what a reasonable investor would want to know. The lead manager's legal counsel and the company's own counsel play distinct but overlapping roles in this exercise.

Preferential Allotments and QIPs

For listed companies raising capital outside the public issue route, preferential allotments to identified investors and qualified institutional placements (QIPs) to institutional investors are the two main mechanisms. Both are governed by ICDR and require compliance with pricing formulae (the SEBI-prescribed floor price based on average market price), lock-in requirements, and shareholder approval by special resolution. QIPs offer a faster timeline than preferential allotments and do not require SEBI filing of the placement document, but the process demands careful co-ordination between the company, the lead manager, and legal counsel to execute within the short window during which market conditions are favourable.

Rights Issues

Rights issues — offering shares to existing shareholders in proportion to their holdings — have their own ICDR framework and have been the subject of several SEBI initiatives to make the process faster and more efficient, including the introduction of the fast-track rights issue route for eligible listed companies. The abridged letter of offer and the ASBA-based application process have simplified the shareholder experience, but the issuer-side compliance and disclosure obligations remain substantive.

How We Work on Securities Law Matters

Securities law work at Tejas Advisors covers the full range of matters that listed companies, market participants, and individuals encounter in the SEBI regulatory environment — from day-to-day compliance advisory through to enforcement defence and capital markets transactions.

• SEBI enforcement defence: responding to show cause notices, preparing for adjudication, and advising on settlement strategy
• SAT appeals: drafting the memorandum of appeal, seeking interim relief, and representing on the appeal
• Insider trading compliance: PIT Regulations programme design, structured digital database implementation, designated person list management, and trading window policy
• LODR compliance: continuous disclosure obligations, material event identification, RPT approval processes, and board governance requirements
• Capital markets transactions: legal due diligence for IPOs and FPOs, DRHP review, preferential allotment and QIP structuring, and rights issue compliance
• SEBI informal guidance applications: preparing and filing informal guidance requests on novel regulatory questions
• Regulatory interface: communicating with SEBI, stock exchanges, and depositories on compliance and regulatory matters
• Compliance reviews: identifying gaps in existing compliance programmes against the current regulatory baseline

Every engagement is led personally by the founder. Securities law matters — particularly enforcement matters — require continuity and senior attention that cannot be delegated down through layers of associates. Whether you are dealing with an early-stage SEBI inquiry or preparing a company for a public listing, you work directly with experienced counsel throughout.