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CS Executive · Capital Market and Securities Laws · Secondary Market in India

After an inquiry, SEBI finds that a trader earned Rs 40 lakh by a transaction in contravention of the Securities Contracts (Regulation) Act, 1956 or its regulations. Which statement correctly describes SEBI's power under Section 12A?

SEBI may direct the trader to disgorge an amount equal to the wrongful gain made or loss averted by the contravention. Section 12A's directions power expressly includes this, and it applies to any person, not only to exchanges or clearing corporations, regardless of bye-laws.

  1. ASEBI may direct the trader to disgorge an amount equal to the wrongful gain made or loss avertedCorrect
  2. BSEBI may only direct the clearing corporation, not the trader
  3. CSEBI may disgorge only if the exchange's bye-laws permit it
  4. DSEBI may recover only a penalty fixed by the exchange's governing body

Explanation

The Explanation to Section 12A(1) states that the power to issue directions includes directing any person who made profit or averted loss through a contravention to disgorge an amount equivalent to the wrongful gain or loss averted. The directions can go to persons associated with the securities market, not only to the clearing corporation. It does not depend on exchange bye-laws.

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