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    Question

    An Executive Director (ED) of SEBI orders an

    investigation into "Z-Plus Brokers" based on a tip-off about 'Wash Trades.' The Investigating Authority (IA) conducts a search and seizure. During the proceedings, the IA records the statement of a Director of "Z-Plus Brokers" under oath. The Director later argues that the statement is inadmissible because the ED did not obtain "Prior Board Approval" in a formal meeting before directing the IA. Is the Director’s contention valid?
    A Yes, because Section 11C of the SEBI Act requires the "Board" to form an opinion, and an individual ED cannot substitute their judgment for the collective Board. Correct Answer Incorrect Answer
    B Yes, but only if the search and seizure was conducted without a warrant from a Magistrate under the Bharatiya Nagarik Suraksha Sanhita (BNSS). Correct Answer Incorrect Answer
    C No, because SEBI investigations are "Administrative" and not "Quasi-Judicial," therefore the rules of evidence and natural justice do not apply until the adjudication stage. Correct Answer Incorrect Answer
    D No, because Regulation 5 specifically designates the ED as an "Appointing Authority," and statements recorded by the IA are deemed to be evidence under Regulation 5(5). Correct Answer Incorrect Answer
    E Yes, because the IA must be a "Division Chief" or above, and if the ED appointed a junior officer, the entire investigation is coram non judice. Correct Answer Incorrect Answer

    Solution

    Explanation: The law provides a specific administrative shortcut to allow SEBI to react to market volatility. Under Regulation 5 , the ED is legally empowered to act as the "Appointing Authority." Furthermore, Regulation 5(5) explicitly states that the IA may examine any person on oath and the notes of such examination may be used as evidence against such person. The Supreme Court in various rulings has upheld that regulatory investigations are valid as long as they follow the internal delegation of power (like Reg 5) and the IA follows the procedure laid down in the SEBI Act/Regulations.

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