Scams, Scandals and Securities: -The Birth of SEBI in India
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Purva Bharat Kale, [Link], Sandip University, Nashik
Abstract
Purpose OF Study: This paper covers a detailed study of how the watchdog of the Indian
Financial market was established. The paper also discussed the Pre Indian financial markets and
the present monetary markets. The paper also discusses the major scams that led to the birth of
SEBI.
Introduction
We can see a lot of evolution in countries like India, where we can trace the financial markets in
ancient times, in periods like the Maurya period, where Indigenous banking and lending
practices were common. Later on the formal financial markets began in colonial period wherein
BSE was establish in 1875 which is Asia’s oldest exchange after this period there was lot of
evolution in the financial markets but it remained unregulated as there was no regulatory body
for the checks and balances and due to absence of regulatory body it give rise to scams like
harshad Mehta scam and many more. Therefore, to safeguard the interests of Investors, in 1988,
the watchdog of Financial markets in India, SEBI, was established.
Pre-Independent Capital Market of India
The roots can be traced back to when India had well-established trade and credit practices,
wherein a significant milestone was reached after the establishment of the BSE-Bombay stock
exchange, which is Asia’s oldest exchange. In the colonial period, the market was highly
unregulated because there were only a few people who were engaged in banking practices, like
large merchants and traders. There were no rules and regulations for trading practices, and the
financial markets didn’t favor people in India.
Post-Independence Capital Market of India
As India gained Independence in 1947, India wanted to strengthen its economy, and therefore it
initially looked after building a economy that was structured economy. In the year of 1948, the
Reserve Bank of India was also nationalized. In the years 1950 and 1980, the financial market
was highly underdeveloped. But 1990 was a turning point as India allowed foreign investments.
Present Status of the Capital Market in India
By mid-2025, the financial market will be experiencing various factors, like global and domestic
factors. The SEBI plays a very important role in maintaining integrity and compliance
management, and transparency. We have 2 types of securities, primary and secondary securities.
Primary securities are the securities that are traded for the first time, and secondary securities are
the securities that are traded for a second time. Factors like insider trading, price rigging, and
lack of transparency are some of the main factors in capital market [Link] plays a very
important role in the growth of the financial sector and protects investors, maintains
transparency, and efficient market system
Capital scams in India
The capital market in India plays a very important role in facilitating the efficient mobilization and
institutional sector investors for sector-driven economic and industrial growth. As there was no
regulatory body, the Indian financial market was punctuated by a series of egregious scandals.
Harshad Mehta scam
The Harshad Mehta scam 1992-A paradigmatic scam which involved manipulation of the stock market.
The scam amounted to approximately 4000 crores. The incident strongly highlighted the need for
oversight of the regulatory bodies like the RBI and SEBI.
Ketan Parekh scam 2001-It involved the manipulation of stock by a chartered accountant and Ketan
Parekh, who was a stockbroker. He targeted the stocks which has low liquidity. Total estimated fraud
was 1000 crores. This scam exposed the gaps between regulatory bodies and spurred the regulatory
bodies to implement stricter rules and regulations in the financial market.
Satyam scam 2009- Scam that took place in the year of 2009, which was one of the biggest corporate
frauds. The chairman of this company, Ramlinga Raju, confessed to orchestrating the financial
misrepresentation of the company’s revenue and net profits, and cash reserves.
While doing research, As I conducted my research it was apparent that each scam highlighted the
loopholes in the financial market and highlighted the gaps in the regulatory body. It triggered the stronger
enforcement, transparent rules, and standards of corporate governance, wherein the RBI also stated rules
for banking regulations so that the funds are not misused.
Recent enhancements
Introduction of whistleblower reward system to boost tip-offs
It also launched the financial penalties framework and strengthened
The infrastructure for the early detection of fraud was introduced with the digital UPI ID and SEBI check
tool
Reference and Conclusion
After the Harshad Mehta scam, SEBI introduced electronic trading, dematerialization, and stronger
corporate governance. SEBI was also granted the powers, like search and seizure, and
And acted as an oversight for the financial instruments, and also established standards like Independent
directors and KYC norms. After the Ketan Parekh scams during 1998-2001, the SEBI Amendment 2002
empowered SEBI further. The carry forward system was also banned, introduced exchange-traded
derivatives were introduced. There was the enactment of the Depositories Act of 1996 for
dematerialization.
The establishment of SEBI was a turning point in India’s financial history. It converted the volatile and
unregulated market into a regulated and transparent market and established an environment that is
friendly to investors. The SEBI has reformed a lot.
As financial misconduct increases and transcends borders, becoming more intricate and complex, SEBI
stands at a critical crossroads. Now the only question is, can it evolve faster or stay one step ahead of
those who exploit the system, and I think this can only be adjudicated by time.
References
OpenAI, 2025
[Link]
373552466_Scams_That_Changed_India's_Capital_Market