SEBI Circulars, Regulations & Informal Guidance — Legal Hierarchy

Topic 24 — SEBI's Quasi-Legislative Powers: Regulations, Circulars, Guidelines & Guidance Notes | SEBI Law Officer

SEBI exercises extensive quasi-legislative powers — creating a complex hierarchy of binding and non-binding instruments. Understanding what is legally binding (regulations), what has regulatory force as practice directions (circulars), what is advisory (guidelines and informal guidance), and how conflicts between these instruments are resolved is essential for legal practitioners and SEBI Law Officer aspirants. The legal hierarchy also determines what kind of judicial review is available against each instrument.

1. The Legal Hierarchy of SEBI Instruments

Legal Hierarchy (Highest to Lowest Binding Force): SEBI Act → Rules (CG) → Regulations (SEBI) → Circulars → Guidelines → Informal Guidance

Instrument	Source	Binding Force	Published In	Challenge Before
SEBI Act, 1992	Parliament	Supreme — primary legislation	Gazette of India	Constitutional courts (HC/SC)
Rules (e.g., SEBI (Appeal to SAT) Rules)	Central Government under Section 29 SEBI Act	Binding — subordinate legislation	Official Gazette	HC/SC (ultra vires)
Regulations (e.g., ICDR, LODR, PIT, PFUTP, SAST)	SEBI under Section 30 SEBI Act	Binding — subordinate legislation; quasi-legislative	Official Gazette	SAT / HC / SC
Circulars	SEBI (Chairman's/Board's authority)	Binding as directions under Sections 11, 11B	SEBI website; sometimes Gazette	SAT / HC
Master Circulars	SEBI — consolidation of related circulars	Binding (same as circulars)	SEBI website	SAT / HC
Guidelines	SEBI — policy guidance	Not strictly binding — but followed in practice; may be incorporated in circulars	SEBI website	HC (if causes legal harm)
Informal Guidance	SEBI — specific query responses under Informal Guidance Scheme	NOT binding — for guidance only	SEBI website	Not challengeable
FAQs	SEBI — clarificatory	NOT binding	SEBI website	Not challengeable

2. Section 30 — SEBI's Regulation-Making Power

Section 30(1): The Board may, with the previous approval of the Central Government, by notification in the Official Gazette, make regulations consistent with this Act and the rules made thereunder to carry out the purposes of this Act.

Section 30 is SEBI's quasi-legislative power. Three requirements for valid regulations:

Previous approval of Central Government: SEBI cannot make regulations unilaterally — CG approval is a constitutional safeguard ensuring executive oversight of SEBI's legislative function.
Notification in Official Gazette: Regulations take effect only on publication in the Official Gazette — unpublished drafts are not legally binding.
'Consistent with the Act and Rules': Regulations cannot override the SEBI Act or Rules. A regulation that conflicts with the SEBI Act is ultra vires and void.

Major SEBI Regulations and their subjects:

SEBI Regulation	Subject Matter
SEBI (ICDR) Regulations, 2018	Public issues — IPO, FPO, rights issue, QIP; prospectus disclosures
SEBI (LODR) Regulations, 2015	Listing obligations and disclosure requirements for listed entities
SEBI (PIT) Regulations, 2015	Prohibition of insider trading — UPSI, insiders, code of conduct, SDD
SEBI (PFUTP) Regulations, 2003	Prohibition of fraudulent & unfair trade practices in securities market
SEBI (SAST) Regulations, 2011	Substantial acquisition of shares & takeovers — open offer obligations
SEBI (Mutual Funds) Regulations, 1996	Registration and regulation of mutual funds and AMCs
SEBI (AIF) Regulations, 2012	Alternative investment funds — Category I, II, III
SEBI (FPI) Regulations, 2019	Foreign Portfolio Investors — registration, investment limits, compliance
SEBI (Portfolio Managers) Regulations, 2020	Portfolio management services — discretionary/non-discretionary
SEBI (Investment Advisers) Regulations, 2013	Registration and regulation of investment advisers

3. Circulars — SEBI's Most Frequently Used Instrument

Circulars are SEBI's most frequently issued instruments — typically addressing specific market practices, amending existing frameworks, or providing regulatory directions on emerging issues. Key aspects:

Legal basis: SEBI circulars are issued under Sections 11, 11A, 11B, or 12 of the SEBI Act — as directions to specific categories of market participants.
Binding on addressees: Circulars addressed to 'all registered stock brokers' or 'all listed companies' etc. are binding on those addressees as regulatory directions.
Do not require Gazette publication: Unlike regulations, circulars need not be published in the Official Gazette — they are published on SEBI's website and take effect on the specified date.
Master Circulars: SEBI periodically issues Master Circulars consolidating all circulars on a subject — superseding prior circulars on that topic. Useful as a single-point reference.
Violation of circulars: Attracts penalty under Section 15HB (catch-all provision) — ₹1 crore maximum.

4. SEBI Informal Guidance Scheme, 2003

Informal Guidance Scheme: SEBI's Informal Guidance Scheme allows any person to seek SEBI's views on a specific fact situation — whether a proposed transaction would comply with SEBI regulations. SEBI's response is informal guidance — it is not binding and does not constitute a legal opinion or SEBI's official position.

Key features of the Informal Guidance Scheme:

Who can apply: Any person — listed company, promoter, intermediary, investor — seeking clarity on a proposed transaction or compliance question.
Scope: Typically covers: whether a transaction triggers open offer obligations under SAST; whether a proposed trade violates PIT Regulations; whether an activity requires SEBI registration.
NOT binding: SEBI's informal guidance is explicitly not binding on SEBI or on the applicant. SEBI can take enforcement action even after giving informal guidance, if circumstances change.
Publicly available: All informal guidance responses are published on SEBI's website — creating a body of interpretive guidance that market participants rely on in practice.
Not a defence: Receiving informal guidance that a transaction is compliant does NOT provide a complete legal defence — if the actual transaction differs from the hypothetical presented, SEBI can still act.

5. Parliamentary Oversight of SEBI Regulations — Section 31

Section 31: Every rule and every regulation made under this Act shall be laid before each House of Parliament, as soon as may be after it is made, and, if before the expiry of the session in which it is so laid, or the two successive sessions thereafter, both Houses agree in making any modification in the rule or regulation, or both Houses agree that the rule or regulation shall not be made, the rule or regulation shall thereafter have effect only in such modified form or be of no effect.

Section 31 subjects SEBI's regulations to Parliamentary oversight through the 'laying procedure'. Rules and regulations must be laid before both Houses of Parliament — Parliament can modify or annul them. This is the constitutional check on SEBI's quasi-legislative powers, ensuring democratic accountability. In practice, very few SEBI regulations have been modified or annulled through this process.

6. Regulations vs Circulars — Key Distinctions

Feature	Regulations (Section 30)	Circulars
Source of power	Section 30 SEBI Act — quasi-legislative	Sections 11, 11A, 11B, 12 — directions/guidance
CG approval	Required (Section 30(1))	Not required
Gazette publication	Mandatory — Official Gazette	Not required — published on SEBI website
Parliamentary oversight	Section 31 — laying procedure applies	No laying procedure
Legal status	Subordinate legislation — binding on all covered persons	Regulatory directions — binding on addressees
Challenge forum	SAT / HC / SC (ultra vires challenge)	SAT / HC (proportionality / natural justice challenge)
Violation penalty	Specific sections 15A-15HB depending on regulation	Section 15HB — catch-all ₹1 crore
Frequency	Infrequent — major regulatory overhauls	Very frequent — hundreds per year

7. Landmark Cases on SEBI's Quasi-Legislative Powers

📖 SEBI v. Bhavesh Pabari (2019) 5 SCC 90

Facts: Whether SEBI's informal guidance and circulars could be relied upon to interpret the scope of penalty provisions — and whether SEBI was bound by its own guidance.

Held: The Supreme Court held that SEBI's informal guidance is NOT binding on SEBI. However, SEBI must act consistently with its publicly stated positions — a sudden reversal of stated positions without notice may violate the principles of legitimate expectation and natural justice.

Ratio: SEBI's informal guidance creates legitimate expectations in market participants — SEBI cannot abruptly reverse stated positions without notice. However, informal guidance is not legally binding and does not limit SEBI's enforcement powers.

📖 Clariant International Ltd. v. SEBI (2004) 8 SCC 524

Facts: Challenge to SEBI's SAST Regulations on the ground that they were ultra vires the SEBI Act — contending that takeover regulation was not within SEBI's mandate.

Held: The Supreme Court upheld SEBI's takeover regulations. Regulation of substantial acquisition of shares is within SEBI's mandate to protect investor interests (Section 11(1)) and regulate the securities market. SEBI's regulations cannot be challenged as ultra vires if they have a rational nexus to the SEBI Act's objectives.

Ratio: SEBI's regulations are valid if they have a rational nexus to the objectives of the SEBI Act — investor protection, market development, and regulation. Courts grant wide deference to SEBI's quasi-legislative choices within this framework.

8. Model Examination Questions

Q1. Explain the legal hierarchy of SEBI instruments. What is the legal status of SEBI circulars and informal guidance?

SEBI Legal Hierarchy — Regulations, Circulars & Informal Guidance

Model Answer — SEBI instruments exist in a clear legal hierarchy: (i) SEBI Act (primary legislation — Parliament) → (ii) Rules (Central Government under Section 29) → (iii) Regulations (SEBI under Section 30 — requires CG approval + Official Gazette publication) → (iv) Circulars (SEBI under Sections 11/11A/11B — binding directions to addressed categories) → (v) Guidelines and Informal Guidance (not binding). Regulations are subordinate legislation — they override circulars. Violation of regulations attracts specific penalties (Sections 15A-15HB); violation of circulars attracts Section 15HB penalty (₹1 crore). SEBI's Informal Guidance Scheme (2003): any person can seek SEBI's view on a proposed transaction. SEBI's response is explicitly non-binding. However, in Bhavesh Pabari (2019 SC), the Court noted that SEBI's publicly stated positions create legitimate expectations — SEBI cannot arbitrarily reverse them without notice. Parliamentary oversight (Section 31): regulations are laid before Parliament — both Houses can modify or annul. In Clariant International v. SEBI (2004 SC), the Court upheld SEBI's takeover regulations — SEBI regulations are valid if rationally nexused to SEBI Act objectives.

🎯 EXAM POINTERS — Topic 24: SEBI Legal Hierarchy & Quasi-Legislative Powers

Legal hierarchy: SEBI Act → Rules (CG, Section 29) → Regulations (SEBI, Section 30) → Circulars → Guidelines → Informal Guidance.
Section 30: SEBI regulations require CG PRIOR APPROVAL + Official Gazette publication + must be consistent with SEBI Act.
Section 31: Regulations must be laid before BOTH HOUSES of Parliament — Parliamentary oversight / laying procedure.
Circulars: Binding on addressees as directions under Sections 11/11B; NO Gazette publication required; NO CG approval.
Violation of regulations: specific sections 15A-15HB. Violation of circulars: Section 15HB — ₹1 crore catch-all.
Informal Guidance Scheme 2003: NOT BINDING on SEBI or applicant; published on SEBI website; creates legitimate expectations.
Bhavesh Pabari (2019 SC): SEBI's publicly stated positions create legitimate expectations — arbitrary reversal without notice may violate natural justice.
Clariant International v. SEBI (2004 SC): SEBI regulations valid if rationally nexused to SEBI Act objectives — wide deference granted.
Master Circulars: consolidate all prior circulars on a subject — supersede earlier circulars on that topic.
Regulation (subordinate legislation) > Circular (regulatory direction) > Guideline (advisory) > Informal Guidance (non-binding).

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