Question

Mr. Sanjay Nehra was the Chairman of 'Taran Bank.' The bank was earning good profits. Shareholders were happy as the bank was paying regular dividends. The market price of their shares was also steadily rising. The bank was about to announce taking over of 'Vena Bank.' Mr. Sanjay Nehra knew that the share price of 'Taran Bank' would rise on this announcement. Being a part of the bank, he was not allowed to buy shares of the bank. He called one of his rich friends Sudhir and asked him to invest Rs 5 crores in shares of his bank promising him the capital gains. As expected the share prices went up by 40% and the market price of Suhir's shares was now Rs 7 crores. He earned a profit of Rs 2 crores. He gave Rs 1 crore to Mr. Sanjay Nehra and kept Rs 1 crore with himself. On regular inspection and by conducting enquiries of the brokers involved, Securities and Exchange Board of India (SEBI) was able to detect this irregularity. The SEBI imposed a heavy penalty on Mr. Sanjay Nehra.

By quoting the lines from the above para identify and state any two functions that were performed by SEBI in the above case.

Answer 1

SEBI intervened to perform the following two functions in the given case:

i. Regulatory functions:- SEBI performed various inspections to determine whether Mr Sanjay is guilty or not. This is a regulatory function.

ii. Protective functions:- SEBI imposed heavy fines on Mr Sanjay to make sure that the interests of all the investors stay protected.