INTRODUCTION, GENESIS AND OBJECTIVES OF SECURITIES

CONTRACTS

(REGULATION) ACT, 1956

The object of Securities Contracts (Regulation) Act, 1956 is to provide for the regulation of stock exchanges,

and of transactions in securities dealt on them with a view to preventing undesirable speculation in them. The

Act also seeks to regulate the buying and selling of securities outside the limits of stock exchanges, through
the

licensing of security dealers.

The stock market helps in the mobilization of the funds from the small savings of the investors and
channelizes

such resources into different development needs of various sectors of the economy. The stock market is the

platform of securities trading. But the stock exchanges also suffer from certain limitations and require strict

control over their activities in order to ensure safety in dealings thereon. Hence, in 1956, the Securities
Contracts

(Regulation) Act was passed which provided for recognition of stock exchanges by the Central Government.

The provisions of this Act came into force with effect from February 20, 1957.

The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) provides for direct and indirect control of all aspects
of

the securities trading including the running of stock exchanges which aims to prevent undesirable transaction
in

securities by regulating the business of dealing therein. It gives the Central Government regulatory jurisdiction

over:

(a) Stock exchanges through a process of recognition and continued supervision,

(b) contracts in securities, and

(c) listing of securities on stock exchanges.

As a condition of recognition, a stock exchange complies with the requirements prescribed by the Central

Government. The stock exchanges frame, their own listing regulations in consonance with the minimum
listing

criteria set out in Securities Contracts (Regulations) Rules, 1957.

The Government promulgated the Securities Contracts (Regulation) Rules, 1957 (‘SCRR’) for carrying into

effect the objects of the Securities Contracts (Regulation) Act. These rules provide among other things,
for the procedure to be followed for recognition of Stock Exchanges; Submission of periodical returns and

annual reports by recognised stock exchanges; inquiry into the affairs of stock exchanges and their members

; and requirements for listing of securities. The rules are statutory and they constitute a code of standardised

regulations uniformly applicable to all the recognised stock exchanges.

Under the SCRR, the Government and the Securities and Exchange Board of India (SEBI) issue notifications,

guidelines, and circulars which need to be complied with by market participants. Most of the powers under the

SCRA are exercisable by Department of Economic Affairs (DEA) while a few others by SEBI. The powers of

the DEA under the SCRA are also concurrently exercised by SEBI. The powers in respect of the contracts for

sale and purchase of securities, gold related securities, money market securities and securities derived from

these securities and carry forward contracts in debt securities are exercised concurrently by Reserve Bank of

India (RBI).

I. SECURITIES CONTRACTS (REGULATION) ACT, 1956

The Securities Contracts (Regulation) Act, 1956, extends to the whole of India and came into force on
February

20, 1957. The Act defines various terms in relation to securities and provides the detailed procedure for the

stock exchanges to get recognition from Government/SEBI, procedure for listing of securities of companies
and

operations of the brokers in relation to purchase and sale of securities on behalf of investors.

Lesson 1 n Securities Contracts (Regulation) Act, 1956 3

Non-Applicability

Section 28 provides that the provisions of this Act shall not apply to –

(a) the Government, the Reserve Bank of India, any local authority or any corporation set up by a special

law or any person who has effected any transaction with or through the agency of any such authority

as is referred to in this clause;

(b) any convertible bond or share warrant or any option or right in relation thereto, in so far as it entitles the

person in whose favour any of the foregoing has been issued to obtain at his option from the company

or other body corporate, issuing the same or from any of its shareholders or duly appointed agents,

shares of the company or other body corporate, whether by conversion of the bond or warrant or

otherwise, on the basis of the price agreed upon when the same was issued.

If the Central Government is satisfied that in the interest of trade and commerce or the economic
development
of the country, it is necessary or expedient so to do, it may, by notification in the Official Gazette, specify any

class of contracts as contracts to which this Act or any provision contained therein shall not apply, and also
the

conditions, limitations or restrictions, if any, subject to which it shall not so apply.

DEFINITIONS

Section 2 of this Act contains definitions of various terms used in the Act. Some of the important definitions
are

given below:

Securities

Securities include

(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like

nature in or of any incorporated company or body corporate;

(ii) derivative;

(iii) units or any other instrument issued by any Collective Investment Scheme to the Investors in such

schemes;

(iv) security receipt as defined in clause (zg) of Section 2 of the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest Act, 2002;

(v) units or any other such instrument issued to the investors under any Mutual Fund Scheme;

Explanation : “Securities” shall not include any unit linked insurance policy or scripts or any such

instrument or unit, by whatever name called, which provides a combined benefit risk on the life of the

persons and investment by such person and issued by an insurer referred to in clause (9) of section 2

of the Insurance Act, 1938;

(vi) any certificate or instrument (by whatever name called) issued to an investor by any issuer being a

special purpose distinct entity which possess any debt or receivable, including mortgage debt, assigned

to such entity, and acknowledging beneficial interest of such investor in such debt or receivable,

including mortgage debt, as the case may be;

(vii) government securities;

(viii) such other instruments as may be declared by the Central Government to be securities; and

(ix) rights or interests in securities.

4 EP-SL&CM;

Contract

“Contract” means a contract for or relating to the purchase or sale of securities.

Spot Delivery Contract

Spot delivery contract means a contract which provides for –

(a) actual delivery of securities and the payment of a price therefore either on the same day as the date

of the contract or on the next day, the actual period taken for the dispatch of the securities or the

remittance of money therefor through the post being excluded from the computation of the period

aforesaid if the parties to the contract do not reside in the same town or locality;

(b) transfer of the securities by the depository from the account of a beneficial owner to the account of

another beneficial owner when such securities are dealt with by a depository.

Stock Exchange

Stock Exchange means –

(a) any body of individuals, whether incorporated or not, constituted before corporatisation and

demutualisation under Sections 4A and 4B, or

(b) a body corporate incorporated under the Companies Act, 2013 (erstwhile Companies Act, 1956)

whether under a scheme of corporatisation and demutualisation or otherwise,

for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities.

Recognised Stock Exchange

Recognised Stock Exchange means a stock exchange which is for the time being recognised by the Central

Government.

Government security

Government security means a security created and issued whether before or after the commencement of this

Act, by the Central Government or a State Government for the purpose of raising a public loan and having
one

of the forms specified in clause (2) of section 2 of the Public Debt Act, 1944.

Derivative

Derivative includes –

(a) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument

or contract for differences or any other form of security;

(b) a contract which derives its value from the prices or index of prices, of underlying securities;

(c) Commodity derivatives; and

(d) such other instruments as may be declared by the Central Government to be derivatives.

“commodity derivative” means a contract –

(i) for the delivery of such goods, as may be notified by the Central Government in the Official Gazette,

and which is not a ready delivery contract; or

(ii) for differences, which derives its value from prices or indices of prices of such underlying goods or

activities, services, rights, interests and events, as may be notified by the Central Government, in

Lesson 1 n Securities Contracts (Regulation) Act, 1956 5

consultation with the SEBI, but does not include securities as referred to in sub-clauses (A) and (B)

above.

Securities Appellate Tribunal

Securities Appellate Tribunal means a Securities Appellate Tribunal established under sub-section (1) of
section

15K of the Securities and Exchange Board of India Act, 1992.

MEMBER

Member means a member of a recognised stock exchange;

RECOGNITION OF STOCK EXCHANGES

Section 3 lays down that any stock exchange, desirous of being recognized for the purposes of this Act may

make an application in the prescribed manner to the Central Government. Every application shall contain
such

particulars as may be prescribed, and shall be accompanied by a copy of the bye-laws of the stock exchange

for the regulation and control of contracts and also a copy of the rules relating in general to the constitution of

the stock exchange and in particular to –

(a) the governing body of such stock exchange, its constitution and powers of management and the manner

in which its business is to be transacted;

(b) the powers and duties of the office bearers of the stock exchange;

(c) the admission into the stock exchange of various classes of members, the qualifications, for membership,

and the exclusion, suspension, expulsion and re-admission of members therefrom or thereinto;
(d) the procedure for the registration of partnerships as members of the stock exchange in cases where the

rules provide for such membership; and the nomination and appointment of authorized representatives

and clerks.

GRANT OF RECOGNITION TO STOCK EXCHANGE

Section 4 lays down that if the Central Government is satisfied (powers are exercisable by SEBI also) after

making such inquiry as may be necessary in this behalf and after obtaining such further information, if any, as

it may require;

(a) that the rules and bye-laws of a stock exchange applying for registration are in conformity with such

conditions as may be prescribed with a view to ensure fair dealing and to protect investors;

(b) that the stock exchange is willing to comply with any other conditions (including conditions as to the

number of members) which the Central Government, after consultation with the governing body of the

stock exchange and having regard to the area served by the stock exchange and its standing and the

nature of the securities dealt with by it, may impose for the purpose of carrying out the objects of this

Act; and

(c) that it would be in the interest of the trade and also in the public interest to grant recognition to the stock

exchange;

It may grant recognition to the stock exchange subject to the conditions imposed upon it as aforesaid and in

such form as may be prescribed.

The conditions which the Central Government (powers are exercisable by SEBI also) may prescribe for the

grant of recognition to the stock exchanges may include, among other matters, conditions relating to,—

(i) the qualifications for membership of stock exchanges;

6 EP-SL&CM;

(ii) the manner in which contracts shall be entered into and enforced as between members;

(iii) the representation of the Central Government on each of the stock exchange by such number of

persons not exceeding three as the Central Government may nominate in this behalf; and

(iv) the maintenance of accounts of members and their audit by chartered accountants whenever such

audit is required by the Central Government.

Every grant of recognition to a stock exchange under this section shall be published in the Gazette of India
and

also in the Official Gazette of the State in which the principal office of the stock exchange is situated, and
such

recognition shall have effect as from the date of its publication in the Gazette of India.

No application for the grant of recognition shall be refused except after giving an opportunity to the stock

exchange concerned to be heard in the matter; and the reasons for such refusal shall be communicated to
the

stock exchange in writing.

WITHDRAWAL OF RECOGNITION

Section 5 lays down that if the Central Government is of opinion that the recognition granted to a stock
exchange

should in the interest of the trade or in the public interest, be withdrawn, the Central Government may serve

on the governing body of the stock exchange a written notice that the Central Government is considering the

withdrawal of the recognition for the reasons stated in the notice and after giving an opportunity to the
governing

body to be heard in the matter, the Central Government may withdraw, by notification in the Official Gazette,
the

recognition granted to the stock exchange;

However, the withdrawal shall not affect the validity of any contract entered into or made before the date of
the

notification, and the Central Government may, after consultation with the stock exchange, make such
provision

as it deems fit in the notification of withdrawal or in any subsequent notification similarly published for the due

performance of any contracts outstanding on that date.

Where the recognized stock exchange has not been corporatized or demutualised or it fails to submit the
scheme

within the specified time therefore or the scheme has been rejected by the SEBI, the recognition granted to
such

stock exchange, shall, stand withdrawn and the Central Government shall publish, by notification in the
Official

Gazette, such withdrawal of recognition.

However, such withdrawal shall not affect the validity of any contract entered into or made before the date of
the

notification, and SEBI may, after consultation with the stock exchange, make such provisions as it deems fit in
the order rejecting the scheme published in the Official Gazette.

It is to be noted that the powers under Section 4 and Section 5 have been delegated concurrently to SEBI

also. Hence, SEBI may exercise these powers.

Lesson 1 n Securities Contracts (Regulation) Act, 1956 7

POWERs OF CENTRAL GOVERNMENT

Pow

ers of the cg

To call for periodical returns and make direct enquiries

[Section 6]

To direct rules or make rules [Section 8]

To Suspend Business of Recognised Stock Exchange

[Section 12]

To Issue Directions [Section 12A]

To prohibit contracts in certain cases [Section 16]

To grant Immunity [Section 23-O]

To delegate or to make rules [Section 29A]

To Supersede governing body of a recognised

Stock Exchanges [Section 11]

To call for periodical returns and make direct enquiries

Every recognised stock exchange shall furnish to the SEBI, such periodical returns relating to its affairs as
may

be prescribed.

Every recognised stock exchange and every member thereof shall maintain and preserve for not exceeding

five years such books of accounts, and other documents as the Central Government, after consultation with
the

stock exchange concerned, may prescribe in the interest of the trade or in the public interest, and such books

of account, and other documents shall be subject to inspection to all reasonable times by SEBI.

Every recognised exchange shall furnish to the Central Government (powers are exercisable by SEBI also) a

copy of its annual report which shall contain such particulars as may be prescribed by Central Government/

SEBI.
The Securities and Exchange Board of India, if it is satisfied that it is in the interest of the trade or in the public

interest so to do, may, by order in writing,–

l call upon a recognised stock exchange or any member thereof to furnish in writing such information

or explanation relating to the affairs of the stock exchange or of the member in relation to the stock

exchange as the SEBI may require; or

l appoint one or more persons to make an inquiry in the prescribed manner in relation to the affairs of

the governing body of a stock exchange or the affairs of any of the members of the stock exchange in

relation to the stock exchange and submit a report of the result of such inquiry to the SEBI within such

time as may be specified in the order or, in the case of an inquiry in relation to the affairs of any of the

members of a stock exchange, direct the governing body to make the inquiry and submit its report to

the SEBI;

l Where an inquiry in relation to the affairs of a recognised stock exchange or the affairs of any of its

members in relation to the stock exchange has been undertaken:

8 EP-SL&CM;

(a) every director, manager, secretary or other officer of such stock exchange;

(b) every member of such stock exchange;

(c) if the member of the stock exchange is a firm, every partner, manager, secretary or other officer

of the firm; and

(d) every other person or body of persons who has had dealings in the course of business with any

of the persons mentioned in clauses (a), (b) and (c), whether directly or indirectly;

shall be bound to produce before the authority making the inquiry all such books of account, and other
documents

in his custody or power relating to or having a bearing on the subject-matter of such inquiry and also to furnish

the authorities within such time as may be specified with any such statement or information relating thereto as

may be required of him.

To Direct Rules or make Rules

Section 8 deals with the power of Central Government to make rules or direct rules to be made in respect of

recognised stock exchange. Where, after consultation with the governing bodies of stock exchanges
generally

or with the governing body of any stock exchange in particular, the Central Government is of opinion that it is
necessary or expedient so to do, it may, by order in writing together with a statement of the reasons therefor,

direct the recognised stock exchanges generally or any recognised stock exchange in particular, as the case

may be, to make any rules or to amend any rules already made in respect of all or any of the matters or to

amend any rules already made in respect of all or any of the matters as specified, within a period of two
months

from the date of the order.

If any recognised stock exchange fails or neglects to comply with any order, within the period specified
therein,

the Central Government may make the rules for, or amend the rules made by, the recognised stock
exchange,

either in the form proposed in the order or with such modifications thereof as may be agreed to between the

stock exchange and the Central Government.

Where in pursuance of this section any rules have been made or amended, the rules so made or amended

shall be published in the Gazette of India and also in the Official Gazette or Gazettes of the State or States in

which the principal office or offices of the recognised stock exchange or exchanges is or are situate, and, on
the

publication thereof in the Gazette of India, the rules so made or amended shall, notwithstanding anything to
the

contrary contained in the Companies Act, 2013 or in any other law for the time being in force, have effect as if

they had been made or amended by the recognised stock exchange or stock exchanges, as the case may be.

To Supersede governing bodies of a recognised stock exchange

Without prejudice to any other powers vested in the Central Government under this Act, where the

Central Government is of opinion that the governing body of any recognised stock exchange should be

superseded, then, the Central Government may serve on the governing body a written notice that the

Central Government is considering the super session of the governing body for the reasons specified in the

notice and after giving an opportunity to the governing body to be heard in the matter, it may, by notification

in the Official Gazette, declare the governing body of such stock exchange to be superseded, and may

appoint any person or persons to exercise and perform all the powers and duties of the governing body,

and, where more persons than one are appointed, may appoint one of such persons to be the chairman

and another to be the vice-chairman thereof.

On the publication of a notification in the Official Gazette, the following consequences shall ensure, namely –

(a) the members of the governing body which has been superseded shall, as from the date of the notification

of super session, cease to hold office as such members;

Lesson 1 n Securities Contracts (Regulation) Act, 1956 9

(b) the person or persons appointed may exercise and perform all the powers and duties of the governing

body which has been superseded;

(c) all such property of the recognised stock exchange as the person or persons appointed may, by order

in writing, specify in this behalf as being necessary for the purpose of enabling him or them to carry on

the business of the stock exchange, shall vest in such person or persons.

The governing body of which is superseded, the person or persons appointed shall hold office for such period

as may be specified in the notification published and, the Central Government may from time to time, by

notification, vary such period.

The Central Government, may at any time before the determination of the period of office of any person or

persons appointed call upon the recognised stock exchange to reconstitute the governing body in accordance

with its rules and on such re-constitution all the property of the recognised stock exchange which has vested
in,

or was in the possession of, the person or persons appointed, shall vest or re-vest, as the case may be, in the

governing body so re-constituted;

However, until a governing body is so re-constituted, the person or persons appointed, shall continue to
exercise

and perform their powers and duties.

To Suspend business of Recognised Stock Exchange

If in the opinion of the Central Government, an emergency has arisen and for the purpose of meeting the

emergency, the Central Government considers it expedient so to do, it may, by notification in the Official
Gazette,

for reasons to be set out therein, direct a recognised stock exchange to suspend such of its business for such

period not exceeding seven days and subject to such conditions as may be specified in the notification, and if,

in the opinion of the Central Government, the interest of the trade or the public interest requires that the
period

should be extended, may, by like notification extend the said period from time to time;

However, where the period of suspension is to be extended beyond the first period, no notification extending

the period of suspension shall be issued unless the governing body of the recognised stock exchange has
been

given an opportunity of being heard in the matter.

To Prohibit Contracts in Certain Cases

Section 16 stipulates that if the Central Government is of opinion that it is necessary to prevent undesirable
speculation in specified securities in any State or area, it may, by notification in the Official Gazette, declare

that no person in the State or area specified in the notification shall, save with the permission of the Central

Government, enter into any contract for the sale or purchase of any security specified in the notification
except

to the extent and in the manner, if any, specified therein.

All contracts in contravention of the provisions of sub-section (1) entered into after the date of the notification

issued thereunder shall be illegal.

To Grant Immunity

Section 23-O deals with the power to grant immunity.

The Central Government may, on recommendation by the SEBI, if the Central Government is satisfied, that
any

person, who is alleged to have violated any of the provisions of this Act or the rules or the regulations made

thereunder, has made a full and true disclosure in respect of alleged violation, grant to such person, subject
to

such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act, or the

rules or the regulations made thereunder or also from the imposition of any penalty under this Act with respect

to the alleged violation.

However, no such immunity shall be granted by the Central Government in cases where the proceedings for

10 EP-SL&CM;

the prosecution for any such offence have been instituted before the date of receipt of application for grant of

such immunity.

Further that the recommendation of the SEBI are not binding upon the Central Government.

An immunity granted to a person as mentioned above may, at any time, be withdrawn by the Central
Government,

if it is satisfied that such person had, in the course of the proceedings, not complied with the condition on
which

the immunity was granted or had given false evidence, and thereupon such person may be tried for the
offence

with respect to which the immunity was granted or for any other offence of which he appears to have been
guilty

in connection with the contravention and shall also become liable to the imposition of any penalty under this
Act

to which such person would have been liable, had not such immunity been granted.
To Delegate or to Make Rules

Power to Delegate

Section 29A stipulates The Central Government may, by order published in the Official Gazette, direct that
the

powers (except the power under section 30) exercisable by it under any provision of this Act shall, in relation

to such matters and subject to such conditions, if any, as may be specified in the order, be exercisable also
by

the Securities and Exchange Board of India or the Reserve Bank of India constituted under section 3 of the

Reserve Bank of India Act, 1934.

Power to Make Rules

Section 30 empowers the Central Government to make rules for the purpose of carrying into effect the objects

of this Act by notification in the Official Gazette.

In particular,such rules may provide for,–

(a) the manner in which applications may be made, the particulars which they should contain and the levy

of a fee in respect of such applications;

(b) the manner in which any inquiry for the purpose of recognising any stock exchange may be made,

the conditions which may be imposed for the grant of such recognition, including conditions as to the

admission of members if the stock exchange concerned is to be the only recognised stock exchange in

the area; and the form in which such recognition shall be granted;

(c) the particulars which should be contained in the periodical returns and annual reports to be furnished

to the Central Government;

(d) the documents which should be maintained and preserved under section 6 and the periods for which

they should be preserved;

(e) the manner in which any inquiry by the governing body of a stock exchange shall be made under

section 6;

(f) the manner in which the bye-laws to be made or amended under this Act shall before being so made or

amended be published for criticism;

(g) the manner in which applications may be made by dealers in securities for licences under section 17, the

fee payable in respect thereof and the period of such licences, the conditions subject to which licences

may be granted, including conditions relating to the forms which may be used in making contracts, the

documents to be maintained by licensed dealers and the furnishing of periodical information to such
authority as may be specified and the revocation of licences for breach of conditions;

(h) the requirements which shall be complied with—

Lesson 1 n Securities Contracts (Regulation) Act, 1956 11

(A) by public companies for the purpose of getting their securities listed on any stock exchange;

(B) by collective investment scheme for the purpose of getting their units listed on any stock exchange;

(ha) the grounds on which the securities of a company may be delisted from any recognised stock exchange

under sub-section (1) of section 21A;

(hb) the form in which an appeal may be filed before the Securities Appellate Tribunal under sub-section (2)

of section 21A and the fees payable in respect of such appeal;

(hc) the form in which an appeal may be filed before the Securities Appellate Tribunal under section 22A and

the fees payable in respect of such appeal;

(hd) the manner of inquiry under sub-section (1) of section 23-I;

(he) the form in which an appeal may be filed before the Securities Appellate Tribunal under section 23L and

the fees payable in respect of such appeal;

(i) any other matter which is to be or may be prescribed.

Every rule made under this Act shall be laid, as soon as may be after it is made, before each House of

Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in

two or more successive sessions, and if, before the expiry of the session immediately following the session or

the successive sessions aforesaid, both Houses agree in making any modification in the rule or both Houses

agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be
of

no effect, as the case may be; so, however, that any such modification or annulment shall be without
prejudice

to the validity of anything previously done under that rule.

POWERS OF RECOGNISED STOCK EXCHANGE

Make Rules

Restricting Voting

Rights Etc.

[Section 7A] To Make Bye-laws

[Section 9]
To make Rules restricting voting rights etc.

Section 7A of the Act stipulates that a recognised stock exchange may make rules or amend any rules made
by

it to provide for all or any of the following matters, namely –

(a) the restriction of voting rights to members only in respect of any matter placed before the stock exchange

at any meeting;

(b) the regulation of voting rights in respect of any matter placed before the stock exchange at any meeting

so that each member may be entitled to have one vote only, irrespective of his share of the paid-up

equity capital of the stock exchange;

(c) the restriction on the right of a member to appoint another person as his proxy to attend and vote at a

meeting of the stock exchange; and

(d) such incidental, consequential and supplementary matters as may be necessary to give effect to any of

the matters specified in clauses (a) (b) and (c).

Powers have been delegated concurrently to SEBI also.

12 EP-SL&CM;

No rules of a recognised stock exchange made or amended in relation to any matter referred to in clauses (a)

to (d) shall have effect until they have been approved by the Central Government (Powers are exercisable by

SEBI also) and published by that Government in the Official Gazette.

To make Bye-laws

Section 9 of the Act provides that any recognised stock exchange may, subject to the previous approval of
the

SEBI, make bye-laws for the regulation and control of contracts.

In particular, such bye-laws may provide for :

(a) the opening and closing of markets and the regulation of the hours of trade;

(b) a clearing house for the periodical settlement of contracts and differences thereunder, the delivery of

and payment for securities, the passing on of delivery orders and the regulation and maintenance of

such clearing house;

(c) the submission to the Securities and Exchange Board of India by the clearing house as soon as may be

after each periodical settlement of all or any of the following particulars as the Securities and Exchange

Board of India may, from time to time, require, namely:—

(i) the total number of each category of security carried over from one settlement period to another;

(ii) the total number of each category of security, contracts in respect of which have been squared up

during the course of each settlement period;

(iii) the total number of each category of security actually delivered at each clearing;

(d) the publication by the clearing house of all or any of the particulars submitted to the Securities and

Exchange Board of India under clause (c) subject to the directions, if any, issued by the Securities and

Exchange Board of India in this behalf;

(e) the regulation or prohibition of blank transfers;

(f) the number and classes of contracts in respect of which settlements shall be made or differences paid

through the clearing house;

(g) the regulation, or prohibition of budlas or carry-over facilities;

(h) the fixing, altering or postponing of days for settlements;

(i) the determination and declaration of market rates, including the opening, closing highest and lowest

rates for securities;

(j) the terms, conditions and incidents of contracts, including the prescription of margin requirements, if

any, and conditions relating thereto, and the forms of contracts in writing;

(k) the regulation of the entering into, making, performance, rescission and termination, of contracts,

including contracts between members or between a member and his constituent or between a member

and a person who is not a member, and the consequences of default or insolvency on the part of a

seller or buyer or intermediary, the consequences of a breach or omission by a seller or buyer, and the

responsibility of members who are not parties to such contracts;

(l) the regulation of taravani business including the placing of limitations thereon;

(m) the listing of securities on the stock exchange, the inclusion of any security for the purpose of dealings

and the suspension or withdrawal of any such securities, and the suspension or prohibition of trading in

any specified securities;

Lesson 1 n Securities Contracts (Regulation) Act, 1956 13

(n) the method and procedure for the settlement of claims or disputes, including settlement by arbitration;

(o) the levy and recovery of fees, fines and penalties;

(p) the regulation of the course of business between parties to contracts in any capacity;

(q) the fixing of a scale of brokerage and other charges;

(r) the making, comparing, settling and closing of bargains;

(s) the emergencies in trade which may arise, whether as a result of pool or syndicated operations or

cornering or otherwise, and the exercise of powers in such emergencies, including the power to fix

maximum and minimum prices for securities;

(t) the regulation of dealings by members for their own account;

(u) the separation of the functions of jobbers and brokers;

(v) the limitations on the volume of trade done by any individual member in exceptional circumstances;

(w) the obligation of members to supply such information or explanation and to produce such documents

relating to the business as the governing body may require.

CLEARING CORPORATION

Role of Clearing Corporation

Clearing Corporation is responsible:-

l for clearing and settlement of all trades executed on Stock Exchange and deposit and collateral

management and risk management functions;

l to bring and sustain confidence in clearing and settlement of securities;

l to promote and maintain, short and consistent settlement cycles;

l to provide counter-party risk guarantee, and

l to operate a tight risk containment system.

Section 8A(1) provides that a recognised stock exchange may, with the prior approval of the SEBI, transfer
the

duties and functions of a clearing house to a clearing corporation, being a company incorporated under the

Companies Act, 2013, for the purpose of –

(a) the periodical settlement of contracts and differences thereunder;

(b) the delivery of, and payment for, securities;

(a) any other matter incidental to, or connected with, such transfer.

Every clearing corporation shall, for the purpose of transfer of the duties and functions of a clearing house to
a

clearing corporation, make bye-laws and submit the same to the SEBI for its approval.

SEBI may, on being satisfied that it is in the interest of the trade and also in the public interest to transfer the

duties and functions of a clearing house to a clearing corporation, grant approval to the bye-laws submitted to
it
and approve transfer of the duties and functions of a clearing house to a clearing corporation.

PUNISHMENTS FOR CONTRAVENTIONS

Section 9(3) of the Act provides that the bye-laws made may :

14 EP-SL&CM;

(a) specify the bye-laws, the contravention of which shall make a contract entered into otherwise than in

accordance with the bye- laws void.

(b) provide that the contravention of any of the bye-laws shall render the member concerned liable to one

or more of the following punishments, namely;

(i) fine,

(ii) expulsion from membership,

(iii) suspension from membership for a specified period,

(iv) any other penalty of a like nature not involving the payment of money.

Any bye-laws shall be subject to such conditions in regard to previous publication as may be prescribed, and,

when approved by the SEBI, shall be published in the Gazette of India and also in the Official Gazette of the

State in which the principal office of the recognised stock exchange is situated, and shall have effect as from

the date of its publication in the Gazette of India.

However, if the SEBI is satisfied in any case that in the interest of the trade or in the public interest any
bye-laws

should be made immediately, it may, by order in writing specify the reasons therefor, dispense with the
condition

of previous publication.

POWERS OF the SEBI

[Section 10]

To make or amend

Bye-laws of

Recognised

Stock Exchanges

To make Regulations
[Section 31]

Power to

adjudicate

[Section 23 -i]

To Issue

directions

[Section 12A]

To make or amend Bye-laws of Recognised Stock Exchanges

The SEBI may, either on a request in writing received by it in this behalf from the governing body of a
recognised

stock exchange or on its own motion, if it is satisfied after consultation with the governing body of the stock

exchange that it is necessary or expedient so to do and after recording its reasons for so doing, make bye-
laws,

for all or any of the matters specified in section 9 or amend any bye-laws made by such stock exchange
under

that section.

Where in pursuance of this section any bye-laws have been made or amended, the bye-laws so made or

amended shall be published in the Gazette of India and also in the Official Gazette of the State in which the

principal office of the recognised stock exchange is situated, and on the publication thereof in the Gazette

of India, the bye-laws so made or amended shall have effect as if they had been made or amended by the

recognised stock exchange concerned.

Where the governing body of a recognised stock exchange objects to any bye-laws made or amended by
SEBI

on its own motion, it may, within two months of the publication thereof in the Gazette of India apply to SEBI for

revision thereof and SEBI may, after giving an opportunity to the governing body of the stock exchange to be

heard in the matter, revise the bye-laws so made or amended, and where any bye-laws so made or amended

are revised as a result of any action taken under this sub-section, the bye-laws so revised shall be published

and shall become effective as provided in sub-section (2) of Section 10.

Lesson 1 n Securities Contracts (Regulation) Act, 1956 15

The making or the amendment or revision of any bye-laws shall in all cases be subject to the condition of

previous publication.

However, if the SEBI is satisfied in any case that in the interest of the trade or in the public interest any
bye-laws
should be made, amended or revised immediately, it may, by order in writing specifying the reasons therefor,

dispense with the condition of previous publication.

To Issue Directions

Section 12A provides that if, after making or causing to be made an inquiry, the SEBI is satisfied that it is

necessary –

(a) in the interest of investors, or orderly development of securities market;or

(b) to prevent the affairs of any recognised stock exchange, or, clearing corporation, or such other agency

or person, providing trading or clearing or settlement facility in respect of securities, being conducted in

a manner detrimental to the interests of investors or securities market;or

(c) to secure the proper management of any such stock exchange or clearing corporation or agency or

person, referred to in clause(b)

it may issue such directions –

(i) to any stock exchange or clearing corporation or agency or person referred to in clause (b) or any

person or class of persons associated with the securities market;or

(ii) to any company whose securities are listed or proposed to be listed in a recognised stock exchange,

as may be appropriate in the interests of investors in securities and the securities market.

Explanation : The power to issue directions under this section shall include and always be deemed to have

been included the power to direct any person, who made profit or averted loss by indulging in any transaction

or activity in contravention of the provisions of this Act or regulations made there under, to disgorge an
amount

equivalent to the wrongful gain made or loss averted by such contraventions.

Without prejudice to the provisions of section 12 A(1) and section 23-I, the SEBI may, by an order, for
reasons

to be recorded in writing,levypenaltyundersections23A,23B,23C,23D,23E,23F,23G,23GAand23Hafter holding

an inquiry in the prescribed manner.

To make Regulations

The SEBI may, by notification in the Official Gazette, make regulations consistent with the provisions of this
Act

and the rules made thereunder to carry out the purposes of this Act.

In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for
all

or any of the following matter namely :

(a) the manner, in which at least fifty-one per cent of equity share capital of a recognised stock exchange

is held, within twelve months from the date of publication of the order under sub-section (7), of Section

4B by the public other than shareholders having trading rights under sub-section (8) of that section;

(b) the eligibility criteria and other requirements under Section 17A;

(c) The terms determined by the SEBI Board for settlement of proceeding under sub-section (2) of section

23JA and

(d) any other matter which is required to be, or may be, specified by regulations or in respect of which

provision is to be made by regulation.

16 EP-SL&CM;

Every regulation made under this Act shall be laid, as soon as may be after it is made, before each House of

Parliament, while it is in session for a total period of thirty days which may be comprised in one session or in

two or more successive sessions, and if, before the expiry of the session immediately following the session

or the successive sessions aforesaid, both Houses agree in making any modification in the regulation or both

Houses agree that the regulation should not be made, the regulation shall thereafter have effect only in such

modified form or be of no effect, as the case may be; so, however, that any such modification or annulment
shall

be without prejudice to the validity of anything previously done under that regulation.

To adjudicate

Section 23-I deals with power to adjudicate by the SEBI.

The SEBI may appoint any officer not below the rank of a Division Chief of SEBI to be an adjudicating officer

for holding an inquiry in the prescribed manner after giving any person concerned a reasonable opportunity of

being heard for the purpose of imposing any penalty.

While holding an inquiry, the adjudicating officer shall have power to summon and enforce the attendance of
any

person acquainted with the facts and circumstances of the case to give evidence or to produce any
document,

which in the opinion of the adjudicating officer, may be useful for or relevant to the subject-matter of the
inquiry

and if, on such inquiry, he is satisfied that the person has failed to comply with the provisions, he may impose

such penalty as he thinks fit in accordance with the provisions of this Act.

The SEBI may call for and examine the record of any proceedings under this section and if it considers that
the order passed by the adjudicating officer is erroneous to the extent it is not in the interests of the securities

market, it may, after making or causing to be made such inquiry as it deems necessary, pass an order
enhancing

the quantum of penalty, if the circumstances of the case so justify. However, no such order shall be passed

unless the person concerned has been given an opportunity of being heard in the matter.

Further, nothing contained in this sub-section shall be applicable after an expiry of a period of three months
from

the date of the order passed by the adjudicating officer or disposal of the appeal, whichever is earlier.

CONTRACTS IN SECURITIES

Contracts in notified areas illegal in certain circumstances

Section 13 provides that if the Central Government is satisfied, having regard to the nature or the volume of

transactions in securities in any State or States or area, that it is necessary so to do, it may, by notification in
the

Official Gazette,declare that section 13 to apply to such State or States or area,and there upon every contract
in

such State or States or area which is entered into after date of the notification otherwise than between
members

of a recognised stock exchange or recognized stock exchanges in such State or States or area or through or

with such member shall beillegal.

However, any contract entered into between members of two or more recognised stock exchanges in such

State or States or area, shall –

(i) be subject to such terms and conditions as may be stipulated by the respective stock exchanges with

prior approval of the SEBI;

(ii) require prior permission from the respective stock exchanges if so stipulated by the stock exchanges

with prior approval of the SEBI.

Additional trading floor

Section 13A stipulates that a stock exchange may establish additional trading floor with the prior approval of
the

Securities and Exchange Board of India in accordance with the terms and conditions stipulated by the SEBI.

Lesson 1 n Securities Contracts (Regulation) Act, 1956 17

Explanation : For the purposes of this section, “additional trading floor” means a trading ring or trading facility

offered by a recognised stock exchange outside its area of operation to enable the investors to buy and sell
securities through such trading floor under the regulatory framework of that stock exchange.

Contracts in notified areas to be void in certain circumstances

Section 14 stipulates that any contract entered into in any State or area specified in the notification under

section 13 which is in contravention of any of the bye-laws specified in that behalf under clause (a) of
subsection (3) of section 9 shall be void:

(i) as respects the rights of any member of the recognised stock exchange who has entered into such

contract in contravention of any such bye-law, and also

(ii) as respects the rights of any other person who has knowingly participated in the transaction entailing

such contravention.

Nothing above shall be construed to affect the right of any person other than a member of the recognised
stock

exchange to enforce any such contract or to recover any sum under or in respect of such contract if such
person

had no knowledge that the transaction was in contravention of any of the bye-laws specified in clause (a) of

sub-section (3) of section 9.

Members may not act as principals in certain circumstances

Section 15 provides that no member of a recognised stock exchange shall in respect of any securities enter
into

any contract as a principal with any person other than a member of a recognised stock exchange, unless he

has secured the consent or authority of such person and discloses in the note, memorandum or agreement of

sale or purchase that he is acting as a principal.

However where the member has secured the consent or authority of such person otherwise than in writing he

shall secure written confirmation by such person or such consent or authority within three days from the date

of the contract.

However no such written consent or authority of such person shall be necessary for closing out any
outstanding

contract entered into by such person in accordance with the byelaws, if the member discloses in the note,

memorandum or agreement of sale or purchase in respect of such closing out that he is acting as a principal.

Licensing of dealers in certain areas

Section 17 provides that no person shall carry on or purport to carry on, whether on his own behalf or on
behalf

of any other person, the business of dealing in securities in any State or area to which section 13 has not
been
declared to apply and to which the Central Government may, by notification in the Official Gazette, declare
this

section to apply, except under the authority of a license granted by the SEBI in this behalf.

No notification shall be issued with respect to any State or area unless the Central Government is satisfied,

having regard to the manner in which securities are being dealt with in such State or area, that it is desirable
or

expedient in the interest of the trade or in the public interest that such dealings should be regulated by a
system

of licensing.

The restrictions imposed above in relation to dealings in securities shall not apply to the doing of anything by
or

on behalf of a member of any recognised stock exchange.

Public Issue and Listing of Securities

Section 17A provides for public issue and listing of securities referred to in sub-clause (ie) of clause (h) of

section 2.

18 EP-SL&CM;

Section 2(h)(ie) provides that any certificate or instrument (by whatever name called), issued to an investor

by any issuer being a special purpose distinct entity which possesses any debt or receivable, including

mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt

or receivable, including mortgage debt, as the case may be.

No securities of the nature referred to in sub-clause (ie) of clause (h) of section 2 shall be offered to the public

or listed on any recognized stock exchange unless the issuer fulfil such eligibility criteria and complies with
such

other requirements as may be specified by regulations made by the SEBI.

Every issuer intending to offer the certificates or instruments referred therein to the public shall make an

application, before issuing the offer document to the public, to one or more recognized stock exchanges for

permission for such certificates or instruments to be listed on the stock exchange or each such stock
exchange.

Where the permission applied for listing has not been granted or refused by the recognized stock exchanges

or any of them, the issuer shall forthwith repay all moneys, if any, received from applicants in pursuance of
the

offer document, and if any such money is not repaid within eight days after the issuer becomes liable to repay

it, the issuer and every director or trustee thereof, as the case may be, who is in default shall, on and from the
expiry of the eighth day, be jointly and severally liable to repay that money with interest at the rate of fifteen

percent per annum.

In reckoning the eighth day after another day, any intervening day which is a public holiday under the
Negotiable

Instruments Act, 1881, shall be disregarded, and if the eighth day (as so reckoned) is itself such a public

holiday, there shall for the said purposes be substituted the first day thereafter which is not a holiday.

All the provisions of this Act relating to listing of securities of a public company on a recognized stock
exchange

shall, mutatis mutandis, apply to the listing of the securities of the nature referred to in sub-clause (ie) of
clause

(h) of section 2 by the issuer, being a special purpose distinct entity.

Exclusion of Spot Delivery Contracts

Section 18 provides that Nothing contained in sections 13, 14, 15 and 17 shall apply to spot delivery
contracts.

If the Central Government is of opinion that in the interest of the trade or in the public interest, it is expedient
to

regulate and control the business of dealing in spot delivery contracts also in any State or area (whether
section

13 has been declared to apply to that State or area or not), it may, by notification in the Official Gazette,
declare

that the provisions of section 17 shall also apply to such State or area in respect of spot delivery contracts

generally or in respect of spot delivery contract for the sale or purchase of such securities as may be specified

in the notification, and may also specify the manner in which, and the extent to which, the provisions of that

section shall so apply.

Contracts In Derivatives

Section 18A stipulates that notwithstanding anything contained in any other law for the time being in force,

contracts in derivative shall be legal and valid if such contracts are –

(a) traded on a recognised stock exchange;

(b) settled on the clearing house of the recognised stock exchange, or in accordance with the rules and

bye-laws of such stock-exchange;

(c) between such parties and on such terms as the Central Government may, by notification in the official

Gazette, specify.

Stock Exchanges other than recognised Stock Exchanges prohibited

Section 19 of the Act stipulates that no person shall, except with the permission of the Central Government,

Lesson 1 n Securities Contracts (Regulation) Act, 1956 19

organise or assist in organising or be a member of any stock exchange (other than a recognised stock
exchange)

for the purpose of assisting in, entering into or performing any contracts in securities.

This section shall come into force in any State or area on such date as the Central Government may, by

notification in the Official Gazette, appoint.

LISTING OF SECURITIES

Conditions for Listing

Section 21 of the Act provides that where securities are listed on the application of any person in any
recognised

stock exchange, such person shall comply with the conditions of the SEBI LODR. .

Delisting of Securities

Section 21A provides that a recognised stock exchange may delist the securities, after recording the reasons
therefor,

from any recognised stock exchange on any of the ground or grounds as may be prescribed under this Act.

The securities of a company shall not be delisted unless the company concerned has been given a
reasonable

opportunity of being heard.

A listed company or an aggrieved investor may file an appeal before the Securities Appellate Tribunal (SAT)

against the decision of the recognised stock exchange delisting the securities within fifteen days from the date

of the decision of the recognized stock exchange delisting the securities and the provisions of Sections 22B to

22E of this Act, shall apply, as far as may be, to such appeals.

The Securities Appellate Tribunal may, if it is satisfied that the company was prevented by sufficient cause
from

filing the appeal within the said period, allow it to be filed within a further period not exceeding one month.

A listed company or an aggrieved investor may file an appeal before the Securities Appellate Tribunal (SAT)

against the decision of the recognised stock exchange as per the procedure laid down under the Securities

Contracts (Regulation) (Appeal to Securities Appellate Tribunal) Rules, 2000.

RIGHT TO APPEAL
Right of Appeal against Refusal of Stock Exchanges to List Securities of Public Companies

Where a recognised stock exchange acting in pursuance of any power given to it by its byelaws, refuses to
list

the securities of any public company or collective investment scheme, the company or scheme shall be
entitled

to be furnished with reasons for such refusal, and may, –

(a) within fifteen days from the date on which the reasons for such refusal are furnished to it, or

(b) where the stock exchange has omitted or failed to dispose of, within the time specified in section 40 of

the Companies Act, 2013 (hereafter in this section referred to as the “specified time”), the application

for permission for the shares or debentures to be dealt with on the stock exchange, within fifteen days

from the date of expiry of the specified time or within such further period, not exceeding one month, as

the Central Government may, on sufficient cause being shown,

allow, appeal to the Central Government against such refusal, omission or failure, as the case may be, and

thereupon the Central Government may, after giving the stock exchange an opportunity of being heard,–

(i) vary or set aside the decision of the stock exchange, or

(ii) where the stock exchange has omitted or failed to dispose of the application within the specified time,

grant or refuse the permission, and where the Central Government sets aside the decision of the

20 EP-SL&CM;

recognised stock exchange or grants the permission, the stock exchange shall act in conformity with

the orders of the Central Government.

Right of Appeal to Sat against Refusal to List Securities of Public Companies by Stock

Exchanges

Where a recognised stock exchange, acting in pursuance of any power given to it by its bye-laws, refuses to

list the securities of any company, the company shall be entitled to be furnished with reasons for such refusal,

and may, –

(a) within fifteen days from the date on which the reasons for such refusal are furnished to it, or

(b) where the stock exchange has omitted or failed to dispose of, within the time specified in section 40 of

the Companies Act, 2013, the application for permission for the shares or debentures to be dealt with

on the stock exchange, within fifteen days from the date of expiry of the specified time or within such

further period, not exceeding one month, as the Securities Appellate Tribunal may, on sufficient cause
being shown, allow

appeal to the Securities Appellate Tribunal having jurisdiction in the matter against such refusal, omission

or failure, as the case may be, and thereupon the Securities Appellate Tribunal may, after giving the stock

exchange, an opportunity of being heard, –

(i) vary or set aside the decision of the stock exchange; or

(ii) where the stock exchange has omitted or failed to dispose of the application within the specified time,

grant or refuse the permission,

and where the Securities Appellate Tribunal sets aside the decision of the recognised stock exchange

or grants the permission, the stock exchange shall act in conformity with the orders of the Securities

Appellate Tribunal.

Every appeal shall be in such form and be accompanied by such fee as may be prescribed. The Securities

Appellate Tribunal shall send a copy of every order made by it to SEBI and parties to the appeal. The appeal

filed before the Securities Appellate Tribunal shall be dealt with by it as expeditiously as possible and
endeavour

shall be made by it to dispose off the appeal finally within six months from the date of receipt of the appeal.

The appeal filed before the Securities Appellate Tribunal is as per the procedure laid down under the
Securities

Contracts (Regulation) (Appeal to Securities Appellate Tribunal) Rules, 2000.

Procedure and powers of Securities Appellate Tribunal

Section 22B stipulates that the Securities Appellate Tribunal shall not be bound by the procedure laid down
by

the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice and, subject to the

other provisions of this Act and of any rules, the Securities Appellate Tribunal shall have powers to regulate
their

own procedure including the places at which they shall have their sittings.

The Securities Appellate Tribunal shall have, for the purpose of discharging their functions under this Act, the

same powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit, in
respect

of the following matters, namely :–

(a) summoning and enforcing the attendance of any person and examining him on oath ;

(b) requiring the discovery and production of documents;

(c) receiving evidence on affidavits;

(d) issuing commissions for the examination of witnesses or documents;

(e) reviewing its decisions;

Lesson 1 n Securities Contracts (Regulation) Act, 1956 21

(f) dismissing an application for default or deciding it ex parte;

(g) setting aside any order of dismissal of any application for default or any order passed by it ex parte; and

(h) any other matter which may be prescribed.

Right to Legal Representation

“company secretary” means a company secretary as defined in clause (c) of sub-section (1) of section 2 of

the Company Secretaries Act, 1980 and who has obtained a certificate of practice under sub-section (1) of

section 6 of that Act.

The appellant may either appear in person or authorise one or more chartered accountants or company

secretaries or cost accountants or legal practitioners or any of its officers to present his or its case before the

Securities Appellate Tribunal.

Limitation

The provisions of the Limitation Act, 1963 shall, as far as may be, apply to an appeal made to a Securities

Appellate Tribunal.

Civil Court not to have jurisdiction

No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a
Securities

Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any

court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by
or

under this Act.

Appeal to Supreme Court

Any person aggrieved by any decision or order of the Securities Appellate Tribunal may file an appeal to the

Supreme Court within sixty days from the date of communication of the decision or order of the Securities

Appellate Tribunal to him on any question of law arising out of such order.

However the Supreme Court may, if it is satisfied that the appellant was prevented by sufficient cause from
filing

the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.

PENALTIES AND PROCEDURES

Penalties
The Act prescribes various penalties against persons who might be found guilty of offences under section 23

the Act. These offences are listed below –

Any person who –

(a) without reasonable excuse (the burden of proving which shall be on him) fails to comply with any

requisition made under sub-section (4) of section 6; or

(b) enters into any contract in contravention of any of the provisions contained in section 13 or section 16; or

(c) contravenes the provisions contained in section 17 or section 17A or section 19; or

(d) enters into any contract in derivative in contravention of section 18A or the rules made under section 30;
or

(e) owns or keeps a place other than that of a recognised stock exchange which is used for the purpose

of entering into or performing any contracts in contravention of any of the provisions of this Act and

knowingly permits such place to be used for such purposes; or

(f) manages, controls, or assists in keeping any place other than that of a recognised stock exchange

22 EP-SL&CM;

which is used for the purpose of entering into or performing any contracts in contravention of any of the

provisions of this Act or at which contracts are recorded or adjusted or rights or liabilities arising out of

contracts are adjusted, regulated or enforced in any manner whatsoever; or

(g) not being a member of a recognised stock exchange or his agent authorised as such under the rules or

bye-laws of such stock exchange or not being a dealer in securities licensed under section 17 willfully

represents to or induces any person to believe that contracts can be entered into or performed under

this Act through him; or

(h) not being a member of a recognised stock exchange or his agent authorised as such under the rules

or bye-laws of such stock exchange or not being a dealer in securities licensed under section 17,

canvasses, advertises or touts in any manner either for himself or on behalf of any other person for any

business connected with contracts in contravention of any of the provisions of this Act; or

(i) joins, gathers or assists in gathering at any place other than the place of business specified in the

byelaws of a recognised stock exchange any person or persons for making bids or offers or for entering

into or performing any contracts in contravention of any of the provisions of this Act.

shall, without prejudice to any award of penalty by the Adjudicating Officer or the SEBI under this Act,
on conviction, be punishable with imprisonment for a term which may extend to ten years or with fine,

which may extend to twenty five crore rupees or with both.

Any person who enters into any contract in contravention of the provisions contained in section 15 or

who fails to comply with the provisions of section 21 or section 21A or with the orders of or the Central

Government under section 22 or with the orders of the Securities Appellate Tribunal shall, without prejudice

to any award of penalty by the Adjudicating Officer under this Act, on conviction, be punishable with

imprisonment for a term which may extend to ten years or with fine, which may extend to twenty five crore

rupees, or with both.

Penalty for Failure to Furnish Periodical Returns Etc.

If a recognised stock exchange fails or neglects to furnish periodical returns or furnishes false, incorrect

or incomplete periodical returns to the SEBI or fails or neglects to make or amend its rules or bye-laws as

directed by the SEBI or fails to comply with directions issued by SEBI, such recognised stock exchange

shall be liable to a penalty which shall not be less than 5 lakh rupees and which may extend to 25

Penalty for contravention where no separate penalty has been provided

Whoever fails to comply with any provision of this Act ,the rules or articles or bye-laws or the regulations

of the recognised stock exchange or directions issued by the SEBI for which no separate penalty has

been provided, shall be liable to a penalty which shall not be less than 1 lakh rupees which may extend

to one crore rupees.

Penalty for failure to furnish information, return, etc.

Any person, who is required under this Act or any rules made thereunder, fails to furnish any information,

document, books, returns or report to a recognised stock exchange or fail to maintain books of account or

records, as per the listing agreement or conditions, or bye-laws of a recognised stock exchange or who

furnishes false, incorrect or incomplete information, document, books, return or report, shall be liable to

a penalty which shall not be less than 1 lakh rupees but which may extend to 1 lakh rupees for each day

during which such failure continues subject to a maximum of 1 crore rupees for each such failure.

To maintain books of account or records, as per the listing agreement or conditions, or bye-laws of a

recognised stock exchange, fails to maintain the same, shall be liable to a penalty which shall not be

less than 1 lakh rupees but which may extend to 1 lakh rupees for each day during which such failure

continue subject to a maximum of one crore rupees.

Lesson 1 n Securities Contracts (Regulation) Act, 1956 23

Penalty for failure by any person to enter into an agreement with clients

Any person, who is required under this Act or any bye-laws of a recognised stock exchange made

thereunder, fails to enter into an agreement with his client, fails to enter into such agreement, he shall

be liable to a penalty, which shall not be less than 1 lakh rupees but which may extend to 1 lakh rupees

for each day during which such failure continues subject to a maximum of 1 crore rupees for every such

failure.

Penalty for failure to redress investors’ grievances

Any stock broker or a company whose securities are listed or proposed to be listed in a recognised stock

exchange, after having been called upon by SEBI or a recognised stock exchange in writing, to redress

the grievances of the investors, fails to redress such grievances within the time stipulated by the SEBI

or a recognized stock exchange, he or it shall be liable to a penalty which shall not be less than one

lakh rupees but which may extend to one lakh rupees for each day during which such failure continues

subject to a maximum of 1 crore rupees.

Penalty for failure to segregate securities or moneys of client or clients

Any person, who is registered as a stock broker with SEBI, fails to segregate securities or moneys of

the client or clients or uses the securities or moneys of a client or clients for self or for any other client,

he shall be liable to a penalty which shall not be less than 1 lakh rupees but which may extend to one

crore rupees.

Penalty for failure to comply with provision of listing conditions or delisting conditions or grounds

• If a company or any person managing collective investment scheme or mutual fund or real

estate investment trust or infrastructure investment trust or alternative investment fund, fails to

comply with the listing conditions or delisting conditions or grounds or commits a breach thereof,

he shall be liable to a penalty which shall not be less than 5 lakh rupees but which may extend

to 25 crore rupees.

Penalty for excess dematerialisation or delivery of unlisted securities

• If any issuer dematerialises securities more than the issued securities of a company or delivers

in the stock exchanges the securities which are not listed in the recognised stock exchange

or delivers securities where no trading permission has been given by the recognised stock

exchange, he shall be liable to a penalty which shall not be less than 5 lakh rupees but which

may extend to 25 crore rupees.

Penalty for failure to conduct business in accordance with rules, etc.

Where a stock exchange or a clearing corporation fails to conduct its business with its members or any

issuer or its agent or any person associated with the securities markets in accordance with the rules or

regulations made by the Securities and Exchange Board of India and the directions issued by it under

this Act, the stock exchange or the clearing corporations, as the case may be, shall be liable to penalty

which shall not be less than 5 crore rupees but which may extend to 25 crore rupees or three times the

amount of gains made out of such failure, whichever is higher.

FACTORS TO BE TAKEN INTO ACCOUNT BY THE ADJUDICATING

OFFICER

Section 23J provides for the factors to be taken into account by the adjudicating officer. While adjudging the

quantum of penalty under section 12A and section 23-I, the SEBI or adjudicating officer shall have due regard

to the following factors, namely –

24 EP-SL&CM;

(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the

default;

(b) the amount of loss caused to an investor or group of investors as a result of the default;

(c) the repetitive nature of the default.

Settlement of Administrative and Civil Proceedings

Section 23JA states that any person, against whom any proceedings have been initiated or may be initiated

under section 12A or section 23-I, may file an application in writing to SEBI proposing for settlement of the

proceedings initiated or to be initiated for the alleged defaults.

The SEBI may, after taking into consideration the nature, gravity and impact of defaults, agree to the proposal

for settlement, on payment of such sum by the defaulter or on such other terms as may be determined by the

SEBI in accordance with the regulations made under the SEBI Act, 1992.

For the purpose of settlement under this section, the procedure as specified by the SEBI under the SEBI Act,

1992 shall apply.

No appeal shall lie under section 23L against any order passed by the SEBI or adjudicating officer, as the
case

may be, under this section.

All settlement amounts, excluding the disgorgement amount and legal costs, realised under this Act shall be

credited to the Consolidated Fund of India.

Recovery of Amounts

Section 23JB deals with recovery of amounts. If a person fails to pay the penalty imposed under this act or
fails

to comply with any direction of SEBI for refund of monies or fails to comply with a direction of disgorgement

order issued under Section 12A or fails to pay any fees due to SEBI, the Recovery Officer may draw up under

his signature a statement in the specified form specifying the amount due from the person (such statement

being hereafter in this Chapter referred to as certificate) and shall proceed to recover from such person the

amount specified in the certificate by one or more of the following modes, namely:-

(a) attachment and sale of the person’s movable property;

(b) attachment of the person’s bank accounts;

(c) attachment and sale of the person’s immovable property;

(d) arrest of the person and his detention in prison;

(e) appointing a receiver for the management of the person’s movable and immovable properties,

and for this purpose, the provisions of sections 220 to 227, 228A, 229, 232 the second and third schedule to

the Income Tax Act, 1961 and the Income-tax (Certificate Proceedings) Rules, 1962, as in force from time to

time in so far as may be, apply with necessary modifications as of the said provisions and the rules
thereunder

were the provisions of this Act and referred to the amount due under this Act instead of to income-tax under
the

Income-Tax Act, 1961.

Explanation 1. – For the purposes of this sub-section, the person’s movable or immovable property or monies

held in bank accounts shall include any property or monies held in bank accounts which has been transferred,

directly or indirectly on or after the date when the amount specified in certificate had become due, by the
person

to his spouse or minor child or son’s wife or son’s minor child, otherwise than for adequate consideration, and

which is held by, or stands in the name of, any of the persons aforesaid; and so far as the movable or
immovable

property or monies held in bank accounts so transferred to his minor child or his son’s minor child is
concerned,

Lesson 1 n Securities Contracts (Regulation) Act, 1956 25

it shall, even after the date of attainment of majority by such minor child or son’s minor child, as the case may
be, continue to be included in the person’s movable or immovable property or monies held in bank accounts
for

recovering any amount due from the person under this Act.

Explanation 2. – Any reference under the provisions of the Second and Third Schedules to the Income-tax

Act, 1961 and the Income-tax (Certificate Proceedings) Rules, 1962 to the assessee shall be construed as a

reference to the person specified in the certificate.

Explanation 3. – Any reference to appeal in Chapter XVIID and the Second Schedule to the Income-tax Act,

1961, shall be construed as a reference to appeal before the Securities Appellate Tribunal under section 23L

of this Act.

The Recovery Officer shall be empowered to seek the assistance of the local district administration while

exercising the powers under sub-section (1).

Notwithstanding anything contained in any other law for the time being in force, the recovery of amounts by a

Recovery Officer, pursuant to non-compliance with any direction issued by the SEBI under section 12A, shall

have precedence over any other claim against such person.

The expression “Recovery Officer” means any officer of the Board who may be authorised, by general or

special order in writing to exercise the powers of a Recovery Officer.

Continuance of proceedings

Section 23 JC provides that where a person dies, his legal representative shall be liable to pay any sum which

the deceased would have been liable to pay, if he had not died, in the like manner and to the same extent as

the deceased:

However, in case of any penalty payable under this Act, a legal representative shall be liable only in case the

penalty has been imposed before the death of the deceased person.

Any proceeding for disgorgement, refund or an action for recovery before the Recovery Officer under this Act,

except a proceeding for levy of penalty, initiated against the deceased before his death shall be deemed to
have

been initiated against the legal representative, and may be continued against the legal representative from
the

stage at which it stood on the date of the death of the deceased and all the provisions of this Act shall apply

accordingly;

Any proceeding for disgorgement, refund or an action for recovery before the Recovery Officer under this Act,

except a proceeding for levy of penalty, which could have been initiated against the deceased if he had
survived,
may be initiated against the legal representative and all the provisions of this Act shall apply accordingly.

Every legal representative shall be personally liable for any sum payable by him in his capacity as legal

representative if, while his liability for such sum remains undischarged, he creates a charge on or disposes of

or parts with any assets of the estate of the deceased, which are in, or may come into, his possession, but
such

liability shall be limited to the value of the asset so charged, disposed of or parted with.

The liability of a legal representative under this section shall, be limited to the extent to which the estate of the

deceased is capable of meeting the liability.

Explanation.—For the purposes of this section ‘‘Legal representative” means a person who in law represents

the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased

and where a party sues or is sued in a representative character, the person on whom the estate devolves on

the death of the party so suing or sued.

26 EP-SL&CM;

CREDITING SUM REALISED BY WAY OF PENALTIES TO

CONSOLIDATED FUND OF

INDIA

As per Section 23K all sums realised by way of penalties under this Act shall be credited to the Consolidated

Fund of India.

Appeal to Securities Appellate Tribunal

Section 23L stipulates that any person aggrieved, by the order or decision of the recognized stock exchange
or

the adjudicating officer or any order made by the Securities and Exchange Board of India under or
sub-section

(3) of section 23-I, may prefer an appeal before the Securities Appellate Tribunal.

Every appeal shall be filed within a period of forty-five days from the date on which a copy of the order or

decision is received by the appellant and it shall be in such form and be accompanied by such fee as may be

prescribed.

However the Securities Appellate Tribunal may entertain an appeal after the expiry of the said period of
fortyfive days if it is satisfied that there was sufficient cause for not filing it within that [Link] receipt of an
appeal

the Securities Appellate Tribunal may, after giving the parties to the appeal, an opportunity of being heard,
pass

such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.

The Securities Appellant Tribunal shall send a copy of every order made by it to the parties to the appeal and
to

the concerned adjudicating officer.

The appeal filed before the Securities Appellate Tribunal shall be dealt with by it as expeditiously as possible

and endeavour shall be made by it to dispose of the appeal finally within six months from the date of receipt of

the appeal.

The appeal may be prefer before the Securities Appellate Tribunal as per the procedure laid down under the

Securities Contracts (Regulation) (Appeal to Securities Appellate Tribunal) Rules, 2000.

OFFENCES

Section 23M provides that if any person contravenes or attempts to contravene or abets the contravention of

the provisions of this Act or of any rules or regulations or byelaws made thereunder, for which no punishment

is provided elsewhere in this Act, he shall be punishable with imprisonment for a term which may extend to
ten

years, or with fine, which may extend to twenty-five crore rupees or with both.

If any person fails to pay the penalty imposed by the adjudicating officer or the SEBI or fails to comply with the

direction or order , he shall be punishable with imprisonment for a term which shall not be less than one
month

but which may extend to ten years, or with fine, which may extend to twenty-five crore rupees, or with both.

COMPOSITION OF CERTAIN OFFENCES

As per Section 23N, notwithstanding anything contained in the Code of Criminal Procedure, 1973, any
offence

punishable under this Act, not being an offence punishable with imprisonment only, or with imprisonment and

also with fine, may either before or after the institution of any proceeding, be compounded by a Securities

Appellate Tribunal or a court before which such proceedings are pending.

CONTRAVENTION BY COMPANIES
Section 24 provides that, where a contravention of any of the provisions of this Act or any rule, regulation,

direction or order made thereunder has been committed by a company, every person who, at the time when

the contravention was committed, was in charge of, and was responsible to, the company for the conduct of

the business of the company, as well as the company, shall be deemed to be guilty of the contravention , and

Lesson 1 n Securities Contracts (Regulation) Act, 1956 27

shall be liable to be proceeded against and punished accordingly.

However, any such person shall not be liable to any punishment provided in this Act, if he proves that the

contravention was committed without his knowledge or that he exercised all due diligence to prevent the

commission of such contravention .

Where a contravention of any of the provisions of this Act or any rule, regulation, direction or order made

thereunder has been committed by a company and is proved that the contravention has been committed with

the consent or connivance of, or is attributable to any gross negligence on the part of any director, manager,

secretary or other officer of the company, such director, manager, secretary or other officer of the company
shall

also be deemed to be guilty of that contravention and shall be liable to be proceeded against and punished

accordingly.

The provisions of this section shall be in addition to and not in derogation of, the provisions of section 22A of

the Act.

CERTAIN OFFENCES TO BE COGNIZABLE

As per Section 25, notwithstanding anything contained in the Code of Criminal Procedure, 1898, any offence

punishable under section 23 shall be deemed to be cognizable offence within the meaning of that Code.

COGNIZANCE OF OFFENCES BY COURTS

Section 26 provides that no court shall take cognizance of any offence punishable under this Act or any rules

or regulations or bye-laws made thereunder, save on a complaint made by the Central Government or State

Government or the SEBI or a recognised stock exchange or by any person.

Establishment of Special Courts

Section 26A lays down the provisions for establishment of special courts by Central Government for the
purpose

of speedy trial.
(a) The Central Government may, for the purpose of providing speedy trial of offences under this Act, by

notification, establish or designate as many Special Courts as may be necessary.

(b) A Special Court shall consist of a single judge who shall be appointed by the Central Government

with the concurrence of the Chief Justice of the High Court within whose jurisdiction the judge to be

appointed is working.

(c) A person shall not be qualified for appointment as a judge of a Special Court unless he is, immediately

before such appointment, holding the office of a Sessions Judge or an Additional Sessions Judge, as

the case may be.

Offences triable by Special Courts

Section 26B provides that all offences committed under this Act, shall be taken cognizance of and triable by
the

Special Court established for the area in which the offence is committed or where there are more Special
Courts

than one for such area, by such one of them as may be specified in this behalf by the High Court concerned.

Appeal and Revision

As per Section 26C, the High Court may exercise, so far as may be applicable, all the powers conferred by

Chapters XXIX and XXX of the Code of Criminal Procedure, 1973 on a High Court, as if a Special Court
within

the local limits of the jurisdiction of the High Court were a Court of Session trying cases within the local limits
of

the jurisdiction of the High Court.

28 EP-SL&CM;

Application of Code to proceeding before special court

Section 26D provides that the Code of Criminal Procedure, 1973 shall apply to the proceeding before a
special

court and for the purposes of the said provisions, the special court shall be deemed to be Court of Session
and

the person conducting prosecution before a special court shall be deemed to be a public prosecutor within the

meaning of the Code of Criminal Procedure, 1973. The persons conducting prosecution should have been in

practice as an Advocate for not less than seven years or shall have held a post, for a period of not less than

seven years, under the Union or a State, requiring special knowledge of law.

Transitional provisions
Section 26E stipulates that, any offence committed under this Act, which is triable by a Special Court shall,
until

a Special Court is established, be taken cognizance of and tried by a Court of Session exercising jurisdiction

over the area, notwithstanding anything contained in the Code of Criminal Procedure, 1973.

However, nothing contained in this section shall affect the powers of the High Court under section 407 of the

Code to transfer any case or class of cases taken cognizance by a Court of Session under this section.

MISCELLANEOUS PROVISIONS

Entitlement of the Investors to Dividend declared by the Company

It shall be lawful for the holder of any security whose name appears on the books of the company issuing

the said security to receive and retain any dividend declared by the company in respect thereof for any year,

notwithstanding that the said security has already been transferred by him for consideration, unless the

transferee who claims the dividend from the transferor has lodged the security and all other documents
relating

to the transfer which may be required by the company with the company for being registered in his name
within

fifteen days of the date on which the dividend became due.

Explanation. – The period specified in this section shall be extended –

(i) in case of death of the transferee, by the actual period taken by his legal representative to establish

his claim to the dividend;

(ii) in case of loss of the transfer deed by theft or any other cause beyond the control of the transferee,

by the actual period taken for the replacement thereof; and

(iii) in case of delay in the lodging of any security and other documents relating to the transfer due to

causes connected with the post, by the actual period of the delay.

Nothing contained in above paragraph shall affect –

(a) the right of a company to pay any dividend which has become due to any person whose name is for the

time being registered in the books of the company as the holder of the security in respect of which the

dividend has become due; or

(b) the right of the transferee of any security to enforce against the transferor or any other person his rights,

if any, in relation to the transfer in any case where the company has refused to register the transfer of

the security in the name of the transferee.

Right to Receive Income From Collective Investment Scheme

It shall be lawful for the holder of any securities, being units or other instruments issued by collective
investment

scheme, whose name appears on the books of the collective investment scheme issuing the said security to

receive and retain any income in respect of units or other instruments issued and declared by the collective

Lesson 1 n Securities Contracts (Regulation) Act, 1956 29

investment scheme in respect thereof for any year, though the said security, being units or other instruments

issued by collective investment scheme, has already been transferred by him for consideration, unless the

transferee who claims the income in respect of units or other instruments issued by collective investment

scheme from the transfer or has lodged the security and all other documents relating to the transfer which
may

be required by the collective investment scheme with the collective investment scheme for being registered in

his name within fifteen days of the date on which the income in respect of units or other instruments issued by

the collective investments scheme became due.

Explanation – The period specified in this section shall be extended –

(i) in case of death of the transferee, by the actual period taken by his legal representative to establish his

claim to the income in respect of units or other instruments issued by collective investment scheme;

(ii) in case of loss of the transfer deed by theft or any other cause beyond the control of the transferee, by

the actual period taken for the replacement thereof; and

(iii) in case of delay in the lodging of any security, being units or other instruments issued by the collective

investment scheme, and other documents relating to the transfer due to causes connected with the

post, by the actual period of the delay.

This shall not affect –

(a) the right of a collective investment scheme to pay any income from units or other instruments issued by

collective investment scheme which has become due to any person whose name is for the time being

registered in the books of the collective investment scheme as the registered holder in the books of the

collective investment scheme being units or other instruments issued by collective investment scheme

in respect of which the income in respect of units or other instruments issued by Collective Investment

Scheme has become due; or

(b) the right of transferee of any security, being units or other instruments issued by collective investment

scheme, to enforce against the transferor or any other person his rights, if any, in relation to the transfer

in any case where the company has refused to register the transfer of the security being units or other
instruments issued by the collective investment scheme in the name of the transferee.

Right to receive Income from Mutual Fund

Section 27B provides that it shall be lawful for the holder of any securities, being units or other instruments

issued by any mutual fund, whose name appears on the books of the mutual fund issuing the said security

to receive and retain any income in respect of units or other instruments issued by the mutual fund declared

by the mutual fund in respect thereof for any year, notwithstanding that the said security, being units or other

instruments issued by the mutual fund, has already been transferred by him for consideration, unless the

transferee who claims the income in respect of units or other instruments issued by the mutual fund from the

transferor has lodged the security and all other documents relating to the transfer which may be required by
the

mutual fund with the mutual fund for being registered in his name within fifteen days of the date on which the

income in respect of units or other instruments issued by the mutual fund became due.

The period specified in this Section may be extended –

(i) in case of death of the transferee, by the actual period taken by his legal representative to establish his

claim to the income in respect of units or other instrument issued by the mutual fund;

(ii) in case of loss of the transfer deed by theft or any other cause beyond the control of transferee, by the

actual period taken for the replacement thereof;

(iii) in case of delay in the lodging of any security, being units or other instruments issued by the mutual

30 EP-SL&CM;

fund, and other documents relating to the transfer due to cause connected with the post, by the actual

period of the delay.

This shall not affect –

(a) the right of a mutual fund to pay any income from units or other instruments issued by the mutual fund

which has become due to any person whose name is for the time being registered in the books of the

mutual fund as the holder of the security being units or other instruments issued by the mutual fund in

respect of which the income in respect of units or other instruments issued by mutual fund has become

due; or

(b) the right of transferee of any security, being units or other instruments issued by the mutual fund, to

enforce against the transferor or any other person his rights, if any, in relation to the transfer in any

case where the mutual fund has refused to register the transfer of the security being units or other
instruments issued by the mutual fund in the name of the transferee.

Protection of action taken in good faith

No suit, prosecution or other legal proceeding whatsoever shall lie in any court against the governing body

or any member, office bearer or servant of any recognised stock exchange or against any person or persons

appointed under sub-section (1) of section 11 for anything which is in good faith done or intended to be done
in

pursuance of this Act or of any rules or bye-laws made thereunder.

Special Provisions related to Commodity Derivatives

Section 30A deals with following special provisions relating to commodity derivatives:-

(1) This Act shall not apply to non-transferable specific delivery contracts. However, no person shall

organise or assist in organising or be a member of any association in any area to which the provisions

of section 13 have been made applicable (other than a stock exchange) which provides facilities for the

performance of any non-transferable specific delivery contract by any party thereto without having to

make or receive actual delivery to or from the other party to the contract or to or from any other party

named in the contract.

(2) Where in respect of any area, the provisions of section 13 have been made applicable in relation to

commodity derivatives for the sale or purchase of any goods or class of goods, the Central Government

may, by notification, declare that in the said area or any part thereof as may be specified in the notification

all or any of the provisions of this Act shall not apply to transferable specific delivery contracts for the

sale or purchase of the said goods or class of goods either generally, or to any class of such contracts

in particular.

(3) If the Central Government is of the opinion that in the interest of the trade or in the public interest it is

expedient to regulate and control non-transferable specific delivery contracts in any area, it may, by

notification in the Official Gazette, declare that all or any of the provisions of this Act shall apply to such

class or classes of non-transferable specific delivery contracts in such area in respect of such goods or

class of goods as may be specified in the notification, and may also specify the manner in which and

the extent to which all or any of the said provisions shall so apply.

Validation of certain Acts

Section 32 provides that any act or thing done or purporting to have been done under the principal Act, in

respect of settlement of administrative and civil proceedings, shall, for all purposes, be deemed to be valid
and
effective as if the amendments made to the principal Act had been in force at all material times.

Lesson 1 n Securities Contracts (Regulation) Act, 1956 31

II. SECURITIES CONTRACTS (REGULATION) RULES, 1957

These rules were made by the Central Government in exercise of the powers conferred by Section 30 of the

Securities Contracts (Regulation) Act, 1956 and notified on February 21, 1957.

Requirements of Listing of Securities with recognised Stock Exchanges

This is one of the most important provisions of the Securities Contracts (Regulation) Rules, 1957. Rule 19

provides for the complete procedure in this regard. A public company as defined under the Companies Act,

2013, desirous of getting its securities listed on a recognised stock exchange, shall apply for the purpose to
the

stock exchange and forward along with its application the following documents and particulars:

(a) Memorandum and articles of association and, in the case of a debenture issue, a copy of the trust

deed.

(b) Copies of all prospectuses or statements in lieu of prospectuses issued by the company at any time.

(c) Copies of offers for sale and circulars or advertisements offering any securities for subscription or sale

during the last five years.

(d) Copies of balance sheets and audited accounts for the last five years, or in the case of new companies,

for such shorter period for which accounts have been made up.

(e) A statement showing –

i. dividends and cash bonuses, if any, paid during the last ten years (or such shorter period as the

company has been in existence, whether as a private or public company),

ii. dividends or interest in arrears, if any.

(f) Certified copies of agreements or other documents relating to arrangements with or between –

i. vendors and/or promoters,

ii. underwriters and sub-underwriters,

iii. brokers and sub-brokers.

(g) Certified copies of agreements with –

i. managing agents and secretaries and treasurers,

ii. selling agents,

iii. managing directors and technical directors,

iv. general manager, sales manager, managers or secretary.

(h) Certified copy of every letter, report, balance sheet, valuation contract, court order or other document,

part of which is reproduced or referred to in any prospectus, offer for sale, circular or advertisement

offering securities for subscription or sale, during the last five years.

(i) A statement containing particulars of the dates of, and parties to all material contracts, agreements

(including agreements for technical advice and collaboration), concessions and similar other documents

(except those entered into in the ordinary course of business carried on or intended to be carried on by

the company) together with a brief description of the terms, subject-matter and general nature of the

documents.

(j) A brief history of the company since its incorporation giving details of its activities including any

reorganization, reconstruction or amalgamation, changes in its capital structure (authorised, issued

and subscribed) and debenture borrowings, if any.

32 EP-SL&CM;

(k) Particulars of shares and debentures issued (i) for consideration other than cash, whether in whole or

part, (ii) at a premium or discount, or (iii) in pursuance of an option.

(l) A statement containing particulars of any commission, brokerage, discount or other special terms

including an option for the issue of any kind of the securities granted to any person.

(m) Certified copies of –

i. acknowledgment card or the receipt of filing offer document with the SEBI;

ii. agreements, if any, with the Industrial Finance Corporation, Industrial Credit and Investment

Corporation and similar bodies.

(n) Particulars of shares forfeited.

(o) A list of highest ten holders of each class or kind of securities of the company as on the date of

application along with particulars as to the number of shares or debentures held by and the address of

each such holder.

(p) Particulars of shares or debentures for which permission to deal is applied for;

However, a recognised stock exchange may either generally by its bye-laws or in any particular case call for

such further particulars or documents as it deems proper.

Rule 19(2)
Sub-rule 2 of Rule 19 provides that apart from complying with such other terms and conditions as may be laid

down by a recognised stock exchange, an applicant company shall satisfy the stock exchange that;

(a) Its articles of association provide for the following among others –

(i) that the company shall use a common form of transfer;

(ii) that the fully paid shares will be free from all lien, while in the case of partly laid shares, the

company’s lien, if any, will be restricted to moneys called or payable at a fixed time in respect of

such shares;

(iii) that any amount paid-up in advance of calls on any share may carry interest but shall not entitle

the holder of the share to participate in respect thereof, in a dividend subsequently declared;

(iv) there will be no forfeiture of unclaimed dividends before the claim becomes barred by law;

(v) that option or right to call of shares shall not be given to any person except with the sanction of

the company in general meeting;

However, a recognised stock exchange may provisionally admit to dealings the securities of a

company which undertakes to amend its articles of association at its next general meeting so as

to fulfill the foregoing requirements and agrees to act in the meantime strictly in accordance with

the provisions of this clause.

Rule 19(2)(b)

The minimum offer and allotment to public in terms of an offer document shall be-

(i) at least twenty five per cent of each class or kind of equity shares or debenture convertible into equity

shares issued by the company, if the post issue capital of the company calculated at offer price is less

than or equal to one thousand six hundred crore rupees;

(ii) at least such percentage of each class or kind of equity shares or debentures convertible into equity

shares issued by the company equivalent to the value of four hundred crore rupees, if the post issue

Lesson 1 n Securities Contracts (Regulation) Act, 1956 33

capital of the company calculated at offer price is more than one thousand six hundred crore rupees but

less than or equal to four thousand crore rupees;

(iii) at least ten percent of each class or kind of equity shares or debentures convertible into equity shares

issued by the company, if the post issue capital of the company calculated at offer price is above four

thousand crore rupees.

However, the company referred to in sub-clause (ii) or sub-clause (iii), shall increase its public
shareholding to at least twenty five per cent within a period of three years from the date of listing of the

securities, in the manner specified by the SEBI.

The applicant company, who has issued equity shares having superior voting rights to its promoters

or founders and is seeking listing of its ordinary shares for offering to the public under this rule and the

regulations made by the Securities and Exchange Board of India in this regard, shall mandatorily list its

equity shares having superior voting rights at the same recognized stock exchange along with the ordinary

shares being offered to the public.

Conditions precedent to submission of application for listing by Stock Exchange

Sub-rule (3) of Rule 19 provides that company while applying for listing shall, as conditions precedent,
undertake

inter alia –

(a) (i) that letters of allotment will be issued simultaneously and that, in the event of its being impossible to

issue letters of regret at the same time, a notice to that effect will be inserted in the press so that it will

appear on the morning after the letters of allotment have been posted.

(ii) that letters of right will be issued simultaneously,

(iii) that letters of allotment, acceptance or rights will be serially numbered, printed on good quality

paper and, examined and signed by a responsible officer of the company and that whenever possible,

they will contain the distinctive numbers of the securities to which they relate.

(iv) that letters of allotment and renounceable letters of right will contain a proviso for splitting and that,

when so required by the exchange, the form of renunciation will be printed on the back of or attached

to the letters of allotment and letters of right.

(v) that letters of allotment and letters of right will state how the next payment of interest or dividend on

the securities will be calculated;

(b) to issue, when so required, receipts for all securities deposited with it whether for registration,

subdivision, exchange or for other purposes; and not to charge any fees for registration of

transfers, for sub-division and consolidation of certificates and for sub-division of letters of

allotment, renounceable letters of right, and split consolidation, renewal and transfer receipts into

denominations of the market unit of trading;

(bb) to issue, when so required, consolidation and renewal certificates in denominations of the market unit of

trading, to split certificates, letters of allotment, letters of right, and transfer, renewal, consolidation and

split receipts into smaller units, to split call notices, issue duplicates thereof and not require any discharge
on call receipts and to accept the discharge of members of stock exchange on split, consolidation and

renewal receipts as good and sufficient without insisting on the discharge of the registered holders;

(c) when documents are lodged for sub-division or consolidation (or renewal) through the clearing house

of the exchange;

(i) to accept the discharge of an official of the stock exchange clearing house on the company’s

split receipts and (consolidation receipts and renewal receipts) as good and sufficient discharge

without insisting on the discharge of the registered holders; and

34 EP-SL&CM;

(ii) to verify when the company is unable to issue certificates or split receipt or (consolidation receipts

or renewal receipts) immediately on lodgement whether the discharge of the registered holders,

on the documents lodged for sub-division or consolidation (or renewal) and their signatures on the

relative transfers are in order;

(d) on production of the necessary documents by shareholders or by members of the exchange, to make on

transfers an endorsement to the effect that the power of attorney or probate or letters of administration

or death certificate or certificate of the Controller of Estate Duty or similar other document has been

duly exhibited to and registered by the company;

(e) to issue certificates in respect of shares or debentures lodged for transfer within a period of one month

of the date of lodgement of transfer and to issue balance certificates within the same period where the

transfer is accompanied by a larger certificate;

(f) to advise the stock exchange of the date of the board meeting at which the declaration or recommendation

of a dividend (or the issue or right or bonus share) will be considered;

(g) to recommend or declare all dividends and/or cash bonuses at least five days before the commencement

of the closure of its transfer books or the record date fixed for the purpose and so advise the stock

exchange in writing of all dividends and/or cash bonuses recommended or declared immediately after

a meeting of the board of the company has been held to finalise the same;

(h) to notify the stock exchange of any material change in the general character or nature of the company’s

business;

(i) to notify the stock exchange of any change –

(i) in the company’s directorate by death, resignation, removal or otherwise,

(ii) of managing director, managing agent or secretaries and treasurers,

(iii) of auditors appointed to audit the books and accounts of the company;

(j) to forward to the stock exchange copies of statutory and annual reports and audited accounts as soon

as issued, including directors’ reports;

(k) to forward to the stock exchange as soon as they are issued, copies of all other notices and circulars

sent to the shareholders including proceedings of ordinary and extraordinary general meetings of the

company and to file with the stock exchange certified copies of resolutions of the company as soon as

such resolutions become effective;

(l) to notify the stock exchange prior to intimating the shareholders, of any new issue of securities whether

by way of right, privilege, bonus or otherwise and the manner in which it is proposed to offer or allot the

same;

(m) to notify the stock exchange in the event of re-issue of any forfeited securities or the issue of securities

held in reserve for future issue;

(n) to notify the stock exchange of any other alteration of capital including calls;

(o) to close the transfer books only for the purpose of declaration of dividend or issue of right or bonus

shares or for such other purposes as the stock exchange may agree and to give notice to the stock

exchange as many days in advance as the exchange may from time to time reasonably prescribe,

stating the dates of closure of its transfer books (or, when the transfer books are not to be closed, the

date fixed for taking a record of its shareholders or debenture holders) and specifying the purpose or

purposes for which the transfer books are to be closed (or the record is to be taken) and in the case of

a right or bonus issue to so close the transfer books or fix a record date only after the sanctions of the

Lesson 1 n Securities Contracts (Regulation) Act, 1956 35

competent authority subject to which the issue is proposed to be made have been duly obtained, unless

the exchange agrees otherwise;

(p) to forward to the stock exchange an annual return immediately after each annual general meeting of

at least ten principal holders of each class of security of the company along with particulars as to the

number of shares or debentures held by, and address of, each such holder;

(q) to grant to shareholders the right of renunciation in all cases of issue of rights, privileges and benefits

and to allow them reasonable time not being less than four weeks within which to record, exercise, or

renounce such rights, privileges and benefits, and to issue, where necessary, coupons or fractional
certificates or provide for the payment of the equivalent of the value of the fractional right in cash unless

the company in general meeting or the stock exchange agrees otherwise;

(r) to promptly notify the stock exchange–

(i) of any action which will result in the redemption, cancellation or retirement in whole or in part of

any securities listed on the exchange,

(ii) of the intention to make a drawing of such securities, intimating at the same time the date of

the drawing and the period of the closing of the transfer books (or the date of the striking of the

balance) for the drawing;

(iii) of the amount of securities outstanding after any drawing has been made;

(s) to intimate the stock exchange any other information necessary to enable the shareholders to appraise

the position of the company and to avoid the establishment of a false market in the shares of the

company;

(t) that in the event of the application for listing being granted, such listing shall be subject to the rules

and bye-laws of the exchange in force from time to time and that the company will comply within a

reasonable time, with such further listing requirements as may be promulgated by the exchange as a

general condition for new listings.

Application for listing of new securities

Rule 19(4) stipulates that an application for listing shall be necessary in respect of the following:

(a) all new issues of any class or kind of securities of a company to be offered to the public;

(b) all further issues of any class or kind of securities of a company if such class or kind of securities of the

company are already listed on a recognised stock exchange.

Suspension or withdrawal of admission to dealings in securities on stock exchange

Rule 19(5) stipulates that a recognised stock exchange may suspend or withdraw admission to dealings in
the

securities of a company or body corporate either for a breach of or non-compliance with, any of the conditions

of admission to dealings or for any other reason, to be recorded in writing, which in the opinion of the stock

exchange justifies such action;

However, no such action shall be taken by a stock exchange without affording to the company or body
corporate

concerned a reasonable opportunity by a notice in writing, stating the reasons, to show cause against the

proposed action.
Further, where a recognised stock exchange has withdrawn admission to dealings in any security, or where

suspension of admission to dealings has continued for a period exceeding three months, the company or

body corporate concerned may prefer an appeal to the Securities Appellate Tribunal constituted under
section

36 EP-SL&CM;

15K of the SEBI Act, 1992 and the procedure laid down under the Securities Contracts (Regulation) (Appeal

to Securities Appellate Tribunal) Rules, 2000 shall apply to such appeal. The Securities Appellate Tribunal

may, after giving the stock exchange an opportunity of being heard, vary or set aside the decision of the stock

exchange and its orders shall be carried out by the stock exchange. [Rule 19(5)]

A recognised stock exchange may, either at its own discretion or shall in accordance with the orders of the

Securities Appellate Tribunal restore or re-admit to dealings any securities suspended or withdrawn from the

list. [Rule 19(6)]

All requirements with respect to listing prescribed by these rules shall, so far as they may be, also apply to a

public sector company. [Rule 19(6A)]

The SEBI may, at its own discretion or on the recommendation of a recognised stock exchange, waive or
relax

the strict enforcement of any or all of the requirements with respect to listing prescribed by these rules. [Rule

19(7)]

Notwithstanding anything contained in this rule, the minimum offer and allotment requirements as prescribed

under clause (b) of sub-rule (2) shall not be applicable to the listing of such equity shares having superior

voting rights issued to the promoters or founders as the case may be, in cases where the applicant company
is

seeking listing of its ordinary shares for offering to the public in accordance with the provisions of this rule and

the regulations made by the Securities and Exchange Board of India in this regard. [Rule 19(8)]

Minimum Shareholding

Rule 19A (1) stipulates that every listed company other than public sector company shall maintain public

shareholding of at least 25%. However, any listed company which has public shareholding below 25%, shall

increase its public shareholding to at least twenty five per cent, within a period of four years from the date of

commencement of amendment to the said rules in 2014, in the manner specified by the SEBI.

Explanation : For the purposes of this sub-rule, a company whose securities has been listed pursuant to an
offer and allotment made to public in terms of clause (b) of sub-rule (2) of rule 19, shall maintain minimum
25%

public shareholding from the date on which the public shareholding in the company reaches the level of 25%
in

terms of said sub-clause.

Sub-rule (2) provides that where the public shareholding in a listed company falls below 25 % at any time,
such

company shall bring the public shareholding to 25% within a maximum period of twelve months from the date

of such fall in the manner specified by the SEBI.

However every listed public sector company whose public shareholding falls below twenty five per-cent. at
any

time after the commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2018,
shall

increase its public shareholding to at least twenty five per-cent, within a period of two years from such fall, in

the manner specified by the SEBI.

Where the public shareholding in a listed company falls below 25% in consequence to SCRR (Amendment)

Rules, 2015, such company shall increase its shareholding to atleast 25%, in the manner specified by the
SEBI

within a period of three years, as the case may be, from the date of notification of:

(a) the Depository Receipts Scheme, 2014, in cases where the public shareholding falls below 25% as a

result of such Scheme;

(b) the SEBI (Share Based Employee Benefits) Regulations, 2014, in cases where the public shareholding

falls below 25%, as a result of such regulations.

Sub rule (5) provides that where the public shareholding in a listed company falls below twenty-five per cent,
as

a result of implementation of the resolution plan approved under section 31 of the Insolvency and Bankruptcy

Lesson 1 n Securities Contracts (Regulation) Act, 1956 37

Code, 2016, such company shall bring the public shareholding to twenty-five per cent within a maximum
period

of three years from the date of such fall, in the manner specified by the Securities and Exchange Board of
India.

However, if the public shareholding falls below ten per cent, the same shall be increased to at least ten per
cent,

within a maximum period of eighteen months from the date of such fall, in the manner specified by the
Securities

and Exchange Board of India.

Delisting of securities

Rule 21 deals with delisting of securities. A recognized stock exchange may, without prejudice to any

other action that may be taken under the Act or under any other law for the time being in force, delist any

securities listed thereon on any of the following grounds in accordance with the regulations made by the

SEBI, namely:–

(a) the company has incurred losses during the preceding three consecutive years and it has negative

networth;

(b) trading in the securities of the company has remained suspended for a period of more than six months;

(c) the securities of the company have remained infrequently traded during the preceding three years;

(d) the company or any of its promoters or any of its director has been convicted for failure to comply with

any of the provisions of the Act or the SEBI Act, 1992 or the Depositories Act, 1996 or rules, regulations,

agreements made thereunder, as the case may be and awarded a penalty of not less than rupees one

crore or imprisonment of not less than three years;

(e) the addresses of the company or any of its promoter or any of its directors, are not known or false

addresses have been furnished or the company has changed its registered office in contravention of

the provisions of the Companies Act, 2013; or

(f) shareholding of the company held by the public has come below the minimum level applicable to the

company as per the SEBI LODR and the company has failed to raise public holding to the required

level within the time specified by the recognized stock exchange.

However, no securities shall be delisted unless the company concerned has been given a reasonable
opportunity

of being heard.

(2) If the securities is delisted under clause (1),

(a) the company, promoter and director of the company shall be jointly and severally liable to purchase the

outstanding securities from those holders who wish to sell them at a fair price determined in accordance

with regulations made by the SEBI, under the Act; and

(b) the said securities shall be delisted from all recognized stock exchanges.

(3) A recognized stock exchange may, on the request of the company, delist any securities listed thereon in

accordance with the regulations made under the Act by the SEBI, subject to the following conditions, namely :

(a) the securities of the company have been listed for a minimum period of three years on the recognized

stock exchange;
(b) the delisting of such securities has been approved by the two-third of public shareholders; and

(c) the company, promoter and/or the director of the company purchase the outstanding securities from

those holders who wish to sell them at a price determined in accordance with regulations made by SEBI

under the Act.

However, the condition at (c) may be dispensed with by the SEBI if the securities remain listed at least on the

National Stock Exchange of India Limited or the Bombay Stock Exchange Limited.

38 EP-SL&CM;

ROLE OF COMPANY SECRETARY

Company Secretary has the Right to Legal Representation. The appellant may either appear in person or

authorise one or more chartered accountants or company secretaries or cost accountants or legal
practitioners

or any of its officers to present his or its case before the Securities Appellate Tribunal.

CASE LAWS

1. 21.02.2020 Pacific Finstock Ltd. (Appellant) vs. BSE Ltd. (Respondent) Securities Appellate Tribunal

For Listing of a security, the Listing norms as on date of Application filed alone is required to be consider but

status of the directors/ promoters of the company are required to be considered on the date of the passing of

the order on the listing application.

1. The appellant, being aggrieved by the order dated August 02, 2019 passed by the BSE Limited (“BSE”

for convenience) rejecting the listing application has filed the present appeal.

2. The facts leading to the filing of the present appeal is, that the appellant was a listed company on

the Vadodara Stock Exchange and Ahmedabad Stock Exchange but subsequently it came on the

Dissemination Board of the BSE and remained on the Dissemination Board for the last several years.

Securities and Exchange Board of India (“SEBI” for convenience) issued a Circular dated October

10, 2016 by which the companies which were on the Dissemination Board were required to get their

company listed on nationwide stock exchange or provide an exit opportunity to existing shareholders.

In terms of this Circular, the appellant submitted a plan of action to BSE on February 16, 2017 and a

revised plan of action was submitted on June 28, 2017. In the meanwhile, the appellant vide notice
dated August 07, 2017 was identified as a suspected shell company. Against this notice, the appellant

filed an Appeal No. 264 of 2017 before this Tribunal which was disposed of by an order dated September

29, 2017 directing the appellant to make a fresh application for direct listing of its securities which would

be considered by BSE and which would further be subject to any order that may be passed by SEBI.

3. It transpires that the appellant filed a fresh listing application. During the pendency of the application

the Whole Time Member (“WTM”) passed an order dated October 26, 2017 directing BSE to consider

the outcome of the forensic audit while considering the listing application. Accordingly, the appellants’

application was kept in abeyance till the submission of the Forensic Audit Report. The WTM’s order

dated October 26, 2017 was subsequently confirmed by a confirmatory order dated August 02, 2018

against which the appellant filed an Appeal No. 295 of 2018 which was eventually dismissed as

infructuous by an order dated March 07, 2019.

4. In the meanwhile, the promoters/ directors of the appellant company were debarred from accessing the

securities market vide SEBI’s order dated September 28, 2019 passed in the matter of Kavit Industries

Ltd. This fact was brought to the notice of the appellant and sought clarification as to how the company is

required to comply with the requirements for direct listing of its securities. It transpires that the company

vide letter dated May 18, 2019 intimated that two of its directors have resigned with effect from April 15,

2019 and that SEBI vide its order dated February 13, 2019 has removed the tag of “suspected shell

company”. BSE after considering the aforesaid response, found that one of its promoters Shri Jayesh

Raichandbhai Thakkar, continued to remain as the promoter of the company inspite of being debarred

by SEBI vide order dated September 28, 2018 and, therefore, the direct listing requirements norms had

not been complied with. Accordingly, the listing application was rejected.

5. Before the Tribunal the only ground urged is that the law which was applicable on the date when the

listing application was filed on July 29, 2017 could alone be considered. There is no dispute on this

proposition namely that the listing norms that was in force on the date when the application was filed

was alone required to be considered. Subsequent norms or amended norms or regulations are not

required to be considered. However, the status of the directors/ promoters of the company are required

Lesson 1 n Securities Contracts (Regulation) Act, 1956 39

to be considered on the date of the passing of the order on the listing application. If on the date when

the listing application was being considered the promoters/ directors of the company committed default

and thereby incurred a debarment from accessing the securities market then it was imperative upon the
authority to consider such debarment while considering the listing application. In the instant case, the

debarment was in direct conflict when the norms stipulated for considering the listing agreement. Such

order of SEBI of debarment of one of the promoters was brought to the knowledge of the company.

The said listing requirements norms were not rectified and consequently the BSE had no option but to

reject the listing application. The said order does not suffer from any manifest error of law and requires

no interference. The appeal fails and is dismissed.

2. 03.12.2019 Karvy Stock Broking Limited (Appellant) vs. National Stock

Exchange of India (Respondent)

Securities Appellate Tribunal

1. By the present appeal the appellant is seeking quashment of the impugned order/circular dated

December 2, 2019 issued by respondent National Stock Exchange of India Ltd. (hereinafter referred to

as ‘NSE’).

2. Vide the said circular respondent NSE had suspended the present appellant from its membership

due to the alleged non compliance of the regulatory provisions of the Exchange with effect from 2nd

December, 2019.

3. Upon hearing both sides, the Rules are framed by respondent NSE in exercise of the powers of the

Section 9 of the SCRA. The appellant has equally efficacious remedy to challenge the impugned order

before the relevant authority of the respondent NSE. In that view of the matter, SAT did not find any

reason to entertain the appeal. Learned Senior counsel for the respondent submits that the appeal,

if any, filed by the appellant with the respondent, they would be heard expeditiously by convening

meeting of the relevant authority. There is no need to bypass the statutory Rules. At this stage, learned

counsel for the appellant submits that the appellant may be provided with liberty to seek documents

from the respondent. SAT did not find any hitch in acceding to the said request. The respondent shall

supply the documents or grant inspection of the same relevant to the dispute.

4. For the reasons stated above, the appeal is disposed of. Appellant would be at liberty to file an appeal

as provided by Rule 13A(d) of the NSE Rules. In case, if such an appeal is filed, appellant shall be

heard as expeditiously as possible and in any event shall be decided by December 6, 2019. In case

the relevant authority would not be able to decide the appeal within the period, the decision on the

temporary stay
LESSON ROUND UP

– The Securities Contracts (Regulation) Act, 1956 (‘SCRA‘) was enacted by Parliament to prevent

undesirable transactions in securities by regulating the business of dealing therein, and by providing

for certain other matters connected therewith.

– Section 2 of this Act contains definitions of various terms used in the Act.

– Section 3 lays down that any stock exchange, desirous of being recognized for the purposes of this Act

may make an application in the prescribed manner to the Central Government.

– Powers of the Central Government as covered under Section 6, 8, 11, 12, 16, 23-O, 29A.

– Powers of Recognised Stock Exchange as covered under Section 7A and 9.

– Powers of the SEBI as covered under section 10, 12A, 23-I and 31.

40 EP-SL&CM;

– Section 17A of the Act provides for public issue and listing of securities referred to in sub-clause (ie) of

clause (h) of section 2.

– The Act prescribes various penalties against persons who might be found guilty of offences under the

Act.

– Section 21 of the Act provides that where securities are listed on the application of any person in any

recognised stock exchange, such person shall comply with the conditions of the SEBI LODR.

– Section 31 provides that without prejudice to the provisions contained in Section 30 of SEBI Act, 1992,

SEBI may, by notification in the Official Gazette, make regulations consistent with the provisions of this

Act and the rules made thereunder to carry out the purposes of this Act.

– The Government promulgated the Securities Contracts (Regulation) Rules, 1957 for carrying into

effect the object of the Securities Contracts (Regulation) Rules, 1956.

– Rule 19 dealt with the requirement with respect to the listing of securities on a recognised stock

exchange.

– Rule 19A provides the detailed provision regarding continuous listing agreement.
Flowchart Placeholder

Relevant flowcharts can be inserted here for better visualization.