This article on ‘Arshad Warsi Stock Market Case: Facts and Laws’ was written by Deeksha Kushwaha, an intern at Legal Upanishad.
The regulatory body in charge of observing and controlling the Indian stock markets is called the Securities and Exchange Board of India (SEBI). Although it has improved transparency and investor safety significantly, it has come under fire for failing to stop market manipulation in India. Before moving on, let’s first examine why SEBI hasn’t been able to prevent market manipulation and what actions it can take to resolve this problem.
In this article, we will discuss the recent Arshad Warsi Stock Market Case that created manipulation in the stock market which has also the involvement of famous Indian Actors. By the example of this Arshad Warsi Stock Market Case, we will discuss things and also give some suggestions.
Arshad Warsi Stock Market Case: Facts
In a case involving the publishing of deceptive recordings on YouTube, the Securities and Exchange Board of India (SEBI) has banned a number of entities, including Arshad Warsi, his wife Maria, and other entities including some YouTube Channels. In a case involving the publishing of deceptive movies on YouTube, the Securities and Exchange Board of India (SEBI) has banned a number of entities, including Arshad Warsi, his wife Maria, and other entities. Here is a look at the problem.
- Arshad Warsi and his wife Maria Goretti are among the 45 organisations not allowed to participate in the securities market.
- The choice was made following an examination into claims that specific entities from two companies, Sharpline Broadcast Ltd., and Sadhna Broadcast Ltd., had manipulated share prices by posting deceptive videos on YouTube channels.
- According to SEBI, some people released these films urging viewers to purchase shares of the two companies while making fictitious claims of tremendous returns.
- The market regulator also found that videos with fraudulent content on the channels “The Adviser” and “Moneywise” had more than 3 lakh views. Because of the elevated share prices caused by the dissemination of this misleading information, Mr Warsi and others sold their shares at a loss.
- Further videos showed Sadhna Broadcast Ltd. transitioning from TV to film production, and a major American firm had signed a contract for Rs. 1,100 crores to make four devotional films. The American investor would provide the funding, but Sadhna would retain ownership of the films’ rights.
- Several promoters of Sadhna Broadcasting Ltd. have also been prohibited from trading in stocks, in addition to Mr Warsi and his wife Maria Goretti.
- In addition to the ban, SEBI has seized unlawful earnings totalling 54 crores that the firms obtained by deceiving the investors. The results of the investigation are described in two distinct interim orders.
- All organisations have been told not to sell any assets, whether they are movable or immovable, including money in bank accounts, unless Sebi has given its prior approval and until the impounded money is deposited in the escrow account.
- The order states that Iqbal Hussain Warsi made a gain of 9.34 lakh, Mr Warsi made a gain of 29.43 lacks, Maria Goretti made a gain of 37.56 lacks, and Mr Warsi made a gain of 29.43 lacks. SEBI has designated a number of people, including these three, as volume makers.
Why has SEBI failed to check stock market manipulations?
SEBI’s lack of resources is one of the main causes of the organization’s failure to stop market manipulation in India. Although a relatively tiny institution, SEBI is in charge of policing a sizable and intricate financial sector. The Indian stock market is so large that it is difficult for SEBI to keep track of anomalous activity or market manipulation. Furthermore, SEBI is dependent on the stock exchanges for market data, which can be both delayed and incomplete. This makes it challenging for SEBI to react in real-time to any market manipulation.
The lack of a thorough legal framework is another factor in SEBI’s inability to stop market manipulation. The laws governing the Indian securities market are rather lax, notwithstanding SEBI’s authority to look into and prosecute market manipulators. For instance, the restrictions on insider trading are insufficient to stop anyone from engaging in such actions. Therefore, market manipulators are not deterred from their actions by the severity of the sanctions for such behaviour. Due to these flaws in the legal system, it is difficult for SEBI to prosecute market manipulators harshly.
Last but not least, SEBI has come under fire for failing to coordinate with other regulatory bodies. Many regulatory agencies, including the Reserve Bank of India (RBI) for banking, the Insurance Regulatory and Development Authority (IRDAI) for insurance, and SEBI for securities, are responsible for distinct areas of the Indian financial system. It may be easier for market manipulators to take advantage of supervision gaps caused by a lack of cooperation between these agencies.
Laws and Regulations regarding the Stock Market
Securities Contract (Regulation) Act, 1956
The Securities Contract (Regulation) Act of 1956, as well as the Securities Contract (Regulation) Regulations of 1957, serve as the legal foundation for all transactions involving securities on the stock exchanges. In order to prohibit unwarranted speculation in the securities traded on the stock market, the Securities Contract (Regulation) Act, or SC(R)A, was established in 1956. This is made possible by regulating stock exchanges and the transactions that are carried out by authorised brokers both inside and outside the market.
Securities and Exchange Board of India Act, 1992
The Securities and Exchange Board of India Act, 1992 mandates the establishment of the Securities and Exchange Board of India with the objective of promoting the development of the securities market, regulating the activities in the security market and being entrusted with the task to protect the interests of the investors in the securities market.
Depositories Act, 1996
The Depositories Act of 1996 requires certain organisations, known as depositories, to maintain shareholder securities in electronic and fungible form for the purpose of free share transfers. With the aid of depository participants, who can be banks, brokers, financial institutions, etc., the shares are held in electronic form. The Depository Act outlines the steps for establishing a Depository.
Companies Act, 2013
The fundamental law that governs the issuing, transfer, and allocation of securities and other financial instruments is the Companies Act of 2013. The statute also specifies a complete process for offering securities via a variety of channels, including rights issues, private placements, bonus issues, etc.
The Prevention of Money Laundering Act, the Takeover Code, the LODR Regulations, and the ICDR Regulations are among the other legislation that has a significant impact on how the Indian stock market is regulated.
First and foremost, SEBI must make greater investments in infrastructure and technology to increase its capacity for surveillance. This will allow SEBI to quickly react to any market manipulation and monitor market activities in real-time. Second, it must collaborate with the government to strengthen the laws that regulate the securities market. This may entail tougher laws on insider trading and increased punishments for market manipulation. To speed up case resolution and cut down on response times, SEBI must thirdly streamline its enforcement and investigation procedures.
Finally, SEBI must work more closely with other regulatory organisations to make sure there are no regulatory loopholes that market manipulators might take advantage of.
According to the LiveMint investigation, Arshad and Maria were identified as “volume creators” (VCs) who bought and sold shares of Sadhna Broadcast between April and July 2022, helping to boost trade volumes and interest in the scrip. Arshad denied the accusations made against him and his wife and said he didn’t know anything about the stock market. “I beg you not to take the news at face value. Maria and I have no stock market experience, but we followed the advice and bought in Sharda. Unfortunately, like many other investors, we lost all of our hard-earned money,” he stated.
- Prabhat Nigam, Laws Governing Stock Market in India, Enterslice, 7 December 2021, available at: https://enterslice.com/learning/laws-governing-stock-market-in-india/#:~:text=Securities%20and%20Exchange%20Board%20of%20India%20Act%2C%201992&text=SEBI%20is%20the%20regulatory%20body,and%20commodity%20market%20of%20India
- Somya Jain, Laws governing the stock market in India, Ipleaders Blog 27 September 2021, available at: https://blog.ipleaders.in/laws-governing-the-stock-market-in-india/
- Nikhil Pandey, Arshad Warsi Faces Stock Market Ban: A 10-Point Explainer, NDTV, 3 March 2023, available at: https://www.ndtv.com/feature/arshad-warsi-faces-stock-market-ban-a-10-point-explainer-3832359