Question

Mr. Aditya Gupta was the chairman of 'Vandan 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 announced taking over of 'Karur Bank'. Aditya Gupta knew that the share price of Vandan 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 Nimesh and asked him to invest Rs.6 crore in the shares of his bank promising him the capital gain. As expected, the share prices went to by 10% and the market price of Nimesh'* shares was now Rs.8.4 crore. He had earned a profit of Rs.2.4 crores. He gave Rs.1.2 crore to Mr. Aditya Gupta and kept Rs.1.2 crore with him. On regular inspection and by conducting enquiries of the brokers involved, Securities and Exchange Board of India ( SEBI) was able to detect this irregularity. SEBI imposed a heavy penalty on Aditya Gupta.

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

Lines from the Para:

(a) "He called one of his rich friends Sudhir and asked him to invest Rs.5 crore in shares of his bank”.

(b) "On regular inspection and by conducting enquiries of the brokers involved, SEBI was able to detect this irregularity".

Functions that were performed by SEBI in the above case were:

(i) Regulatory function: 'On regular inspection and by conducting enquiries of the brokers involved, Securities and Exchange Board of India ( SEBI) was able to detect this irregularity.'

SEBI can call for information by undertaking inspection, conducting enquiries and audits of stock exchanges and intermediaries.

(ii) Protective function: 'The SEBI imposed a heavy penalty on Vikash Mehra.'

SEBI controls insider trading and imposes penalties for such practices.