Securities and Exchange Board of India (Terms and Conditions of Service of Chairman and Members) Rules, 1992

The Securities and Exchange Board of India (SEBI) was created under the SEBI Act, 1992 to protect the interests of investors in securities and to promote the development of the securities market. One of the foundational instruments governing the functioning of the Board is the Terms and Conditions of Service of Chairman and Members Rules, 1992. These Rules set out the qualifications, appointment procedures, remuneration, tenure, duties and postservice restrictions for the Chairman and the Members of SEBI.

1. Legislative Basis

The Rules are framed under Section15 of the SEBI Act, 1992. They are a statutory instrument and have the force of law. Any amendment to the Rules requires a formal notification in the Official Gazette and must conform to the procedural safeguards prescribed in the Act.

2. Scope and Applicability

The Rules apply exclusively to:

• The Chairman of SEBI.
• Fulltime members of the Board.
• Parttime members (including independent members).

They do not extend to staff officers, consultants, or other officials who are not part of the Board.

3. Qualifications of OfficeBearers

3.1 Chairman

The Chairman must be a person of high integrity with proven experience in finance, law, or administration. Specific qualifications include:

• At least 45years of age.
• Minimum 15years of experience in securities markets, banking, law, or public administration.
• No criminal conviction or pending investigation relating to fraud or corruption.
• Not a member of any other statutory body that may cause a conflict of interest.

3.2 Fulltime Members

Fulltime members must satisfy similar integrity criteria and typically possess:

• Professional qualification in law, finance, economics, or related fields.
• At least 12years of relevant experience.
• Absence of any disqualifying holdings (e.g., shareholding in a listed company exceeding 5%).

3.3 Parttime/Independent Members

These members bring expertise from academia, industry, or public service. Requirements include:

• A distinguished record of professional achievement.
• No current employment with any listed company or market intermediary.
• Commitment to serve at least three days a month on Board business.

4. Appointment Process

The appointment procedure is designed to ensure transparency and meritocracy.

• Invitation: The Government of India issues a public advertisement specifying the criteria.
• Selection Committee: A committee comprising the Minister of Finance, a senior bureaucrat, and a distinguished independent expert evaluates the applications.
• Shortlisting: Candidates are shortlisted based on qualifications, experience, and integrity.
• Interview: Shortlisted candidates undergo a rigorous interview.
• Recommendation: The committee recommends the selected candidate(s) to the Central Government.
• Appointment Order: The President of India, on the advice of the Union Cabinet, issues the formal appointment order.

5. Tenure and Reappointment

The Rules provide for a fixed tenure to promote independence.

• Chairman: 5years, renewable for a maximum of one additional term.
• Fulltime members: 5years, renewable once.
• Parttime members: 3years, renewable once.

Reappointments are subject to a performance review by the Government and adherence to the coolingoff period of two years after the completion of the total tenure.

6. Remuneration and Allowances

Remuneration is determined by the Government on the recommendation of the SEBI Board and is intended to be reasonable and commensurate with the responsibilities. The Rules distinguish between:

• Salary: Fixed monthly salary payable to fulltime members and the Chairman.
• Allowances: Travel, accommodation, and deminimis allowances for official duties.
• Performance Bonus: Discretionary remuneration based on achievement of specific regulatory milestones (e.g., successful implementation of reforms).

All remuneration is subject to annual review and is published in the Union Budget documents.

7. Duties and Responsibilities

Beyond the general statutory duties, the Rules articulate specific obligations:

1. Uphold Independence: Members must act without undue influence from the Government, market participants, or personal interests.
2. Maintain Confidentiality: All information obtained in the course of official duties must be kept confidential unless expressly authorized for disclosure.
3. Attendance: Minimum attendance of 80% at Board meetings and statutory committees.
4. Code of Conduct: Adherence to the SEBI Code of Conduct, which includes restrictions on trading in securities, gifts, and outside employment.
5. Annual Report: Each member must contribute to the preparation of the SEBI Annual Report, highlighting regulatory initiatives and market developments.

8. Conflict of Interest and Disqualification

The Rules contain robust provisions to prevent conflicts of interest:

• Members must disclose all financial interests, directorships, and shareholdings on an annual basis.
• Any member acquiring a shareholding of 0.5% or more in a listed entity must recuse himself/herself from matters relating to that entity.
• Engagement in any business that may be regulated by SEBI (e.g., brokerage, mutual fund management) is prohibited during the tenure.
• Failure to disclose or a breach of the conflictofinterest provisions can lead to removal by the President on the recommendation of the Government.

9. PostService Restrictions

To safeguard the integrity of the Board, the Rules impose a coolingoff period after the conclusion of service:

• Members cannot accept any appointment in a listed company, market intermediary, or any entity regulated by SEBI for a period of two years.
• They are prohibited from acting as consultants or advisors on matters overlapping with SEBIs jurisdiction during this period.

10. Removal and Resignation

Removal can be effected only on specific grounds and follows a dueprocess mechanism:

• Misconduct: Proven breach of the Code of Conduct or criminal conviction.
• Incapacity: Physical or mental incapacity that hampers performance.
• Nonattendance: Failure to attend 3 consecutive Board meetings without valid reason.

Removal requires a recommendation from the Chairman (or in his absence, the senior most member) and an order from the President of India. Voluntary resignation must be submitted in writing, with a notice period of 30 days.

11. Amendments to the Rules

Any amendment to the Rules must be:

• Prepared by the SEBI Secretariat after consultation with the Board.
• Placed before the Parliament for consideration, unless it is an administrative amendment that does not affect substantive rights.
• Published in the Official Gazette with a clear statement of the effective date.

12. Impact on Market Governance

The structured service conditions serve several purposes:

1. Independence: Fixed tenure and postservice restrictions insulate members from political and commercial pressure.
2. Accountability: Transparent appointment, remuneration and removal mechanisms enhance public confidence.
3. Expertise: Specified qualifications ensure that the Board possesses the technical knowledge required to regulate a complex market.
4. Stability: Predictable terms promote continuity in policy implementation and longterm strategic planning.

These factors collectively strengthen the credibility of SEBI, fostering investor trust and supporting the orderly growth of Indias capital markets.

13. Conclusion

The Securities and Exchange Board of India (Terms and Conditions of Service of Chairman and Members) Rules, 1992 form a cornerstone of good governance for Indias primary market regulator. By delineating clear qualifications, a transparent appointment process, balanced remuneration, and stringent postservice restrictions, the Rules aim to ensure that the Board functions with independence, integrity, and competence. Ongoing compliance and periodic review of these Rules remain essential to adapt to evolving market dynamics and to sustain public confidence in the regulatory framework.

For further reading, refer to the official SEBI website and the Gazette notifications relating to the 1992 Rules and subsequent amendments.