CORPORATE GOVERNANCE

1) Discuss the role of market regulators in corporate governance.

 SEBI
 IRDA
 RBI
 FEMA

Ans) SEBI: The Securities and Exchange Board of India (SEBI) is

the regulator for the securities market in India. It was established in 1988 and
given statutory powers on 30 January 1992 through the SEBI Act, 1992.
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).

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.

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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.

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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 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.

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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.

(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.

(v) SEBI regulates takeover of the companies.

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

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The Organisational Structure of SEBI:

1. SEBI is working as a corporate sector.

2. Its activities are divided into five departments. Each department is headed by
an executive director.

3. The head office of SEBI is in Mumbai and it has branch office in Kolkata,
Chennai and Delhi.

4. SEBI has formed two advisory committees to deal with primary and
secondary markets.

5. These committees consist of market players, investors associations and

eminent persons.

Objectives of the two Committees are:

1. To advise SEBI to regulate intermediaries.

2. To advise SEBI on issue of securities in primary market.

3. To advise SEBI on disclosure requirements of companies.

4. To advise for changes in legal framework and to make stock exchange more
transparent.

5. To advise on matters related to regulation and development of secondary

stock exchange.

IRDA: The Insurance Regulatory and Development Authority (IRDA) is a national agency
run by the Government of India. IRDA is based in Hyderabad and was formed by an act of
Indian Parliament called as IRDA Act of 1999. Considering some of the emerging
requirements of the Indian insurance industry, IRDA was amended in 2002. As stated in the
act mission of IRDA is "to protect the interests of the policyholders, to regulate, promote and
ensure orderly growth of the insurance industry and for matters connected therewith or
incidental thereto." Indian insurance industry is regulated by the terms and conditions of the
IRDA.

Indian law has certain expectations from the IRDA to perform in the Indian insurance
industry. IRDA should protect the interest of policyholders by ensuring fair treatment by the
insurance companies. The growth of insurance companies in a speedy and orderly manner
should be taken care by the IRDA. It should monitor and implement quality competence and

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fair dealing of the insurance companies in the industry. IRDA should make sure that the
insurers are providing precise and correct information about the products offered by them for
the insurance customers. IRDA should also ensure speedy settlement of genuine claims of the
policyholders and prevent malpractices in the process of claims settlement.

According to the Section 14 of IRDA Act of 1999 there are certain duties, powers and
functions laid down for the IRDA and they are as follows

(1) Subject to the provisions of this Act and any other law for the time being in force, the
Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance
business and re-insurance business.
(2) Without prejudice to the generality of the provisions contained in sub-section (1), the
powers and functions of the Authority shall include,
(a) Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or
cancel such registration
(b) protection of the interests of the policy holders in matters concerning assigning of policy,
nomination by policy holders, insurable interest, settlement of insurance claim, surrender
value of policy and other terms and conditions of contracts of insurance
(c) Specifying requisite qualifications, code of conduct and practical training for intermediary
or insurance intermediaries and agents
(d) Specifying the code of conduct for surveyors and loss assessors
(e) Promoting efficiency in the conduct of insurance business
(f) Promoting and regulating professional organizations connected with the insurance and re-
insurance business
(g) Levying fees and other charges for carrying out the purposes of this Act
(h) calling for information from, undertaking inspection of, conducting enquiries and
investigations including audit of the insurers, intermediaries, insurance intermediaries and
other organizations connected with the insurance business
(i) control and regulation of the rates, advantages, terms and conditions that may be offered
by insurers in respect of general insurance business not so controlled and regulated by the
Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938);
(j) Specifying the form and manner in which books of account shall be maintained and
statement of accounts shall be rendered by insurers and other insurance intermediaries;
(k) Regulating investment of funds by insurance companies
(l) Regulating maintenance of margin of solvency
(m) Adjudication of disputes between insurers and intermediaries or insurance intermediaries
(n) Supervising the functioning of the Tariff Advisory Committee
(o) Specifying the percentage of premium income of the insurer to finance schemes for
promoting and regulating professional organizations referred to in clause (f)
(p) Specifying the percentage of life insurance business and general insurance business to be
undertaken by the insurer in the rural or social sector

(q) Exercising such other powers as may be prescribed

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RBI: The Reserve Bank of India (RBI) is India's central banking institution, which
controls the monetary policy of the Indian rupee. It commenced its operations on 1
April 1935 in accordance with the Reserve Bank of India Act, 1934.The original
share capital was divided into shares of 100 each fully paid, which were initially
owned entirely by private shareholders. Following India's independence on 15
August 1947, the RBI was nationalised on 1 January 1949.

The RBI plays an important part in the Development Strategy of the Government of
India. It is a member bank of the Asian Clearing Union. The general superintendence
and direction of the RBI is entrusted with the 21-member central board of directors:
the governor; four deputy governors; two finance ministry representatives (usually
the Economic Affairs Secretary and the Financial Services Secretary) ten
government-nominated directors to represent important elements of India's
economy; and four directors to represent local boards headquartered at Mumbai,
Kolkata, Chennai and the capital New Delhi. Each of these local boards consists of
five members who represent regional interests, the interests of co-operative and
indigenous banks.
The central bank was an independent apex monetary authority which regulates
banks and provides important financial services like storing of foreign exchange
reserves, control of inflation, monetary policy report till August 2016. A central bank
is known by different names in different countries. The functions of a central bank
vary from country to country and are autonomous or quasi-autonomous body and
perform or through another agency vital monetary functions in the country. A central
bank is a vital financial apex institution of an economy and the key objects of central
banks may differ from country to country still they perform activities and functions
with the goal of maintaining economic stability and growth of an economy.
The bank is also active in promoting financial inclusion policy and is a leading
member of the Alliance for Financial Inclusion (AFI). The bank is often referred to by
the name Mint Street. RBI is also known as banker's bank.

Regulator and supervisor of the financial system

The institution is also the regulator and supervisor of the financial system and
prescribes broad parameters of banking operations within which the country's
banking and financial system functions. Its objectives are to maintain public
confidence in the system, protect depositors' interest and provide cost-effective
banking services to the public. The Banking Ombudsman Scheme has been
formulated by the Reserve Bank of India (RBI) for effective addressing of complaints
by bank customers. The RBI controls the monetary supply, monitors economic
indicators like the gross domestic product and has to decide the design of the rupee
banknotes as well as coins.
Reserve bank of India is the sole body who is authorized to issue currency in India.
The bank also destroys the same when they are not fit for circulation. All the money
issued by the central bank is its monetary liability, i.e., the central bank is obliged to
back the currency with assets of equal value, to enhance public confidence in paper

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currency. The objectives are to issue bank notes and give public adequate supply of
the same, to maintain the currency and credit system of the country to utilize it in its
best advantage, and to maintain the reserves. RBI maintains the economic structure
of the country so that it can achieve the objective of price stability as well as
economic development because both objectives are diverse in themselves. For
printing of notes, the Security Printing and Minting Corporation of India
Limited (SPMCIL), a wholly owned company of the Government of India, has set up
printing presses at Nashik, Maharashtra and Dewas Madhya Pradesh.

FEMA: The (Foreign Exchange Management Act, 1999) (FEMA) is an Act of

the Parliament of India "to consolidate and amend the law relating to foreign
exchange with the objective of facilitating external trade and payments and for
promoting the orderly development and maintenance of foreign exchange market in
India".[1] It was passed in the winter session of Parliament in 1999, replacing
the Foreign Exchange Regulation Act (FERA). This act makes offences related to
foreign exchange civil offenses. It extends to the whole of India. replacing FERA,
which had become incompatible with the pro- liberalization policies of
the Government of India. It enabled a new foreign exchange management regime
consistent with the emerging framework of the World Trade Organisation (WTO). It
also paved the way for the introduction of the Prevention of Money Laundering Act,
2002, which came into effect from 1 July 2005.

FEATURES

The (Foreign Exchange Management Act, 1999) (FEMA) is an Act of the Parliament
of India "to consolidate and amend the law relating to foreign exchange with the
objective of facilitating external trade and payments and for promoting the orderly
development and maintenance of foreign exchange market in India".[1] It was passed
in the winter session of Parliament in 1999, replacing the Foreign Exchange
Regulation Act (FERA). This act makes offences related to foreign exchange civil
offenses. It extends to the whole of India.,[2] replacing FERA, which had become
incompatible with the pro- liberalization policies of the Government of India. It
enabled a new foreign exchange management regime consistent with the emerging
framework of the World Trade Organisation (WTO). It also paved the way for the
introduction of the Prevention of Money Laundering Act, 2002, which came into
effect from 1 July 2005.

REGULATIONS UNDER FEMA

Foreign Exchange Management (Current Account Transactions) Rule, 2000
Foreign Exchange Management (Permissible Capital Account Transactions)
Regulations, 2000

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Foreign Exchange Management (Transfer or Issue of any Foreign Security)
regulations, 2004

Foreign Exchange Management (Foreign currency accounts by a person resident in

India)Regulations, 2000

Foreign Exchange Management (Acquisition and transfer of immovable property in

India) regulations, 2000

Foreign Exchange Management (Establishment in India of branch or office or other

place of business) regulations, 2000

Foreign Exchange Management (Manner of Receipt and Payment) Regulations,

2000

Foreign Exchange Management (Export of Goods and Services) regulations, 2000

Foreign Exchange Management (Realisation, repatriation and surrender of Foreign

Exchange)regulations, 2000

Foreign Exchange Management (Possession and Retention of Foreign Currency)

Regulations, 2000

Foreign Exchange ( Adjudication Procedure and Appeals) rules,