SECURITIES CONTRACTS (REGULATION ACT), 1956

Q. 1 Basic features of Act

1. It extends whole of India.

2. The aim of Act is to prevent undesirable transactions in securities by regulating the business
of dealing therein, by providing for certain other matters connected therewith.
3. The previously self-regulated stock exchanges were brought under statutory regulation
through the passage of the SC (Regulation) Act, 1956, which provides for direct and indirect
control of viertually all aspects of securities trading and running of stock exchanges
4. This Act gives Central Government regulatory or jurisdiction over (a) stock exchange
through a process of recognition and continued supervision, (b) contracts in securities and
(c) listing of securities on stock exchange.
As a condition of recognition, a stock exchange complies with conditions prescribed by Central
Government. Organised trading activity in securities in an area takes place on a specified
recognised stock exchange. The stock exchanges determine their own listing regulations which have
to conform with the minimum listing criteria set out in the Rules.
5. There are 32 sections in the Act.
 Section 1 – Title
 section 2 – Definitions
 Section 3 to 12A – Registered Stock Exchanges
 Section 13 to 19 – Contracts and Options in Securities
 Section 21 to 22F – Listing of Securities
 Section 23 to 26 – Penalties and Procedure
 Section 27 to 32 – Miscellaneous Provisions
6. Recognition of Stock Exchanges:- Any stock exchange, which is desireous of being
recognised for the purposes of this Act, may make an application in the prescribed manner
along with all necessary documents, bye-laws, rules and particulars to the Central
Government. If the Central Government is satisfied, after making such inquiry, it may grant
recognition to the stock exchange subject to conditions.
8. Periodical returns and books:- Every recognised stock exchange shall furnish
prescribed periodic returns to the Central Government (SEBI). Stock Exchanges shall
submit annual reports to the Central Government. The Central Government can call for
periodical returns or direct inquiries to be made.
9. Making of rules and bye-laws:- A recognised stock exchange may make rules or
amend any rules made by it to make rules restricting voting rights, etc. It also may make
bye-laws for the regulation and control of contracts. The Central Government may direct
recognised stock exchange to make any rules or to amend any rules already made.
10. The Central Government (SEBI) may 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 it may extend the said period from
time to time.
11. Where securities are listed on the application of any person in any recognised stock
exchange, such person shall comply with the conditions of the listing agreement with
that stock exchange.

DEFINITIONS

S Q. 1 Securities :- 'Securities' include -

(i) shares, scripts, stocks, bonds, debentures, debenture stock or other marketable securities of a
ike nature in or of any incorporated company or body corporate.
 (ii) Derivative
(iii)units or any other instrument issued by any collective investiment scheme to the investors in
such schemes
(iv) security receipt as defined in clause (zg) of section 2 of the Securitisation and
Reconstruction of Financia Assets and Enforcement of Security Interest Act, 2002.
(v) units or any other such instrument issued to the investors under any mutual fund scheme.
(vi)Any certificate of 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 acknowedging 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

Stock Exchange:-

'Stock exchange' means - (a) Any Body of individuals, whether incorporated or not,
constituted before corporatization and demutualization under sections 4A and 4B or (b) a body
corporate incorporated under the Companies Act, whether under a scheme of corporatization or
otherwise, for the purpose of assisting, regulating or controlling the business of buying, selling or
dealing in securities.

S Q. 2 Functions of Stock Exchange:-

The Stock Exchange provides a market place for purchase and sale of securities i.e., shares,
bonds, debentures, etc. It ensures the free transferablility of securities which is the essential basis
for the joint stock enterprise system.
The SE provides the linkage between the savings in the household sector and the investment
in the corporate economy. It mobileses savings, channelises them as securities into these enterprises
which are favoured by the investors on the basis of such criteria as future growth prospectus, goods
returns and appreciation of capital.
By providing a market quotation of the price of shares and bonds – a sort of collective
judgement simultaneously reached by many buyers and sellers in the market – the SE serves the
role of a barometer, not only of the state of thealth of individual companies, but also of the nation's
economy as a whole.
The SC of India has enunciated the role of the SEs in the following case – Union of India
VS Aied International Products Ltd (AIR 1971 SC 251)

Role of Stock Exchange:- “A SE fulfils a vital function in the economic development of a nation.
It's main function is to 'liquify' capital by enabling a person who has invested money in, say a
factory or railway, to convert it into cash by disposing off his shares in the enterprise to someone
else. Investment in Joint Stock Companies is attractive to the public, because the value of the shares
is announced day after day in the Stock Exchanges and shares quoted on the exchanges are capable
of almost immediate conversion into money.
In modern days, a company stands little chance of inducing the public to subscribe to its
capital, unless its shares are quoted in an approved SE. All public companies are anxious to obtain
permission from reputed exchanges for securing quotation of their shares and the management of
company is anxious to inform the investing public that the shares of the company will be quoted on
the SE.
Q. 2 Recognition of Stock Exchange – Sections 3to 5
Section – 3: Appication for Recognition of SE
Section 3 of this Act, lays down that any stock exchange, desirous of being recognised for
the purposes of this Act may make an application in the prescribed manner to the Central
Government in Form A.
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 rues relating in genera to the constitution of the SE and in
particular, to -
(a) the governing body of SE, 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 SE
(c) the admission into the SE of various classes of members, the qualifications for membership and
the exclusion, suspension, expulsion and re-admission of members therefor;
(d) the procedure for the registration of the partnerships as members of the SE in case where the
rules provide for such membership, and the nomination and appointment of authorised
representatives.

Section – 4: Grant of Recognition of SE

Section 4 lays down that, if the Central Government is satisfied after making such enquiry as
may be necessary in this behalf and after obtainining such further information, if any, as it may
require;
(a) that the rules and buy-laws of a SE 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 SE is willing to comply with any other conditions, which the Central Government, after
consultation with the governing body of the SE and having regard to the area served by the SE and
its standing and 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 SE.

Other Conditions:-
For the grant of Recognition to the SE, conditions relating to -
(a) the qualifications for membership of SE
(b) the manner in which contracts shall be entered into and enforced as between members
(c)the representation of the Central Government on each of the SE s by such number of persons not
exceeding three as the Central Government may nominate in this behalf, and
(d)the maintenance of accounts of members and their audit by chartered accounts whenever such
audit is required by the Central Government.

Every grant of recognition to a SE under this section shall be published in the official
Gazette of the State in which the principa office of the SE is situated, and such recognition shall
have effect as from the date of its publication in the Gazett of India.
No application for the grant of recognition shall be refused except after giving an
opportunity to the SE concerned to be heared in the matter; and the reasons for such refusal shall be
communicated to the SE in writing.
If an SE wants to amend its rues, the approval of Central Government must be needed.
Renewal of Recognition :- RULE 7 OF SC9(R) RULES, 1957
Three months before the expiry of the period of recognition, a recognised SE desirous of
renewal of such recognition may make an application to the SEBI in form A.
Section 5 - Withdrawl of Recognition
According to provision of this section, recognition of a SE, be withdrawn by the Central
Government by serving the notice which have mentioned reasons in such notice to the concerned
SE, and after giving opportunity to the governing body to be heared in the matter, the Central
Government may withdraw, by notification in the official gazatte.

Q. 3 DUTIES AND POWERS OF THE RECOGISED SE (SECs 7 TO 9)

Section 7 :- Annual reports to be furnished to Central Government by SE
Every recognised SE shall furnish annual reports and records to the Central Govt with in
specified time and in priscribed manner.

Section 7A :- Powers of the recognised SE to make rules Restricting voting rights

A recognised SE may make rules or amend any rules made by it to provide for all or any of
the following matters:-
1. the restriction of voting rights to members only in respect of any matter placed before the SE
at any meeting
2. the regulation of voting rights in respect of any matter placed before the SE at any meeting,
so that each member may be entitiled to have one vote only, irrespective of his share of
paid-up capital of the SE
3. the restriction on the right of a member to appoint another person as his proxy to attend and
vote at a meeting of the SE
4. such incidental, consequential nd supplemetary matters as may be necessary to give effect to
any of the matters specified in clauses (a), (b) & (c)
the rules and amendments thereof relating with above, should be approved by Central Govt and
should be published in the official gazette.

Section 8:- Powers of Central Government to direct rules to be made or to make rules
(1) This section provides that, where, after consultations with the governing bodies of SE s, the
Central Government is of opinion that, it is necessary fo to do, it may, by order in writing
together with a statement of the reasons therefore, direct recognised SE, to make any rules
or to amend any rules already made, in respect of all or any of the matters specified in
subsection (2) of Section 3 i.e., 3(2) within a period of two months from the date of the
order.
(2) If the recognised SE fails or neglects to comply with any order made u/s8(1), within the
period specified therein (i.e. 2 months), the central government may make the rules or
amendments.
(3) The above made rules and amendments shall be published in official gazette.

Section 8A :- Clearing Corporations (this section was inserted in the year 2004)
According to section 8A of the Act, a recognised SE may with the prior approval of the
SEBI, transfer the duties and functions of a clearing house to a clearing corporation, for the purpose
of (a) the periodical settlement of contracts and differences there under; (b) the delivery of, and
payment of securities; (c) 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 SEBI.
SEBI may on being satisfied to transfer the duties and functions of clearing house to a
clearing corporation, grant approval to the bye-laws of such a clearing corporation.

Section 9 :- Powers of recognised SE to make bye-laws

Any recognised SE may, subject to the previous approval of SEBI, make bye-laws for the
regulation and Contol of contracts. Such bye-laws may provide for -
(a) the opening and closing of markets and the regulation of the hours of trade,
(b) passing on of delivery orders and the regulation and maintenance of clearing house
(c)the submission to SEBI by clearing house as soon as may be after each periodical settelment of
all or any one of the following particulars as the SEBI may, from time to time requires 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.
(d)the regualation or prohibition of days for settelement
(e) the fixing, altering or postponing of days for settelment
(f) the determination and declaration of market rates, including the opening, closing, highest and
lowest rates for securities.
(g)The listing of securities on the SE
(h) the method and procedure fot the settlement of claims or disputes, including settlement by
arbitration
(i)the levy and recovery of fees, fines and penaties
(j) the regulation of the course of business between parties to contracts in any capacity
(k) the fixing of a scale of brokerage and other charges
(l)the making, comparing, settling and closing of bargains
(m)the regulation of dealings by members for their own account
(n)the seperation of the functions of jobbers and brokers
(o)the limitations on the volume of trade done by any individual member in exceptional cases
(p)if the contravention of any of the bye-laws, shall render the member concerned liable to one or
more of the following punishments namely -
 fine
 expulsion from membership
 suspension from membership for a specified period
 any other penalty of a like nature not involving the payment of money

section 10: It empowers the SEBI to make or amend bye-laws of the recognised SE
The SEBI may, either on a request in writing received by it in this behalf from the
governing body of a recognised SE or on its own motion, if it is satisfied after consultation with the
governing body of the SE, that it is necessary to do so and after recording its reasons for so doing ,
make bye-laws for all or any of the matters specified in Sec 9 or amend bye-laws made by sush SE
under the section.
These amendments should be published in Official Gazette. If any objections raised by
concern SE, the SEBI shall give opportunity for hearing and made such an amendments so revised
shall be again published and those shall become effective.

Section 11:- It empowers the Central Government to sepersede governing body of a recognised SE
Section 12:- It empowers the Central Government to suspend business of recognised SE
Section 12A:- Powers of SEBI to issue directions.

Q.4 LISTING OF SECURITIES

INTRODUCTION:
Listing of securities with SE is a matter of great importance for companies and investors,
because this provides the liquidity to the securities in the market. In order to avail of the benefit of
listing the company seeking such isting should be applied as per conditions of listing agreement
entered into with SE. It is open to the companies to get their securities listed in their recognised SE
and one or more of the other SE s in the country under this Act. Only public companies are alowed
to list their securities in SE. Pvt. Ltd companies can not get listing facility. They should first convert
themselves into Public Ltd companies.
S.Q. BENEFITS OF LISTING
1. Public image of the company is enhanced
2. The liquidity of the security is ensured making it easy to buy and sell the securities in the SE
3. Tax concessions are made available both to the investors and the companies
4. Listing procedure compels company management to disclose important information to the
investors enabling them to make crucial decisions with regard to keeping or disposing of
such securities.
5. Listed companies command better support such as loans and investments from Banks and
Financial Institutions.

S.Q. TYPES OF LISTING

(1) INITIAL ISTING :- If the shares or securities are to be listed for the first time by a company
on a SE, it is called initial listing
(2) LISTING FOR PUBLIC ISSUE:- When companies whose securities are listed on a SE
comes out with a public issue of securities, it has to list such issue with the SE.
(3) LISTING OF RIGHTS ISSUE:- When companies whose securities are listed on the SE,
issues securities to existing share holders on rights basis, it has to list such rights issues on
the concerned SE.
(4) LISTING OF BONUS SHARES:- Shares issued as a result of capitalisation of profit
through bonus issue shall list such issues also on the concerned SE
(5) LISTING OF MERGER OR AMALGAMATION:- When new shares are issued by an
amalgamated company to the share holders of the amalgamating company, such shares are
also required to be listed on the concerned SE.

CONDITIONS FOR LISTING (Section 21)

Where securities are listed on the application of any person in any recognised SE, such
person shall comply with the conditions of the listing agreement with that SE.

DELISTING OF SECURITIES (Section 21A)

A recognised SE may delist the securities, after recording the reasons threfor from any
recognised SE on any of the ground or grounds as may be prescribed under this Act.
A listed company or an aggrieved investor may file an appeal before the SAT, against the
decision of the recognised SE delisting the securities within 15days from the date of the decision of
the recognised SE, it may extend maximum upto one month.

RIGHT OF APPEAL AGAINST REFUSAL OF LISTING OF SECURITIES IN SE (Sec-22)

Where a recognised SE, refuses to list the securities if any public company shall be entitled
to be furnished with reasons for such refusal and may -
Appeal to the Central Govt against such refusal, ommission or failure as the case may be,
and thereupon the Central Govt may, after giving the SE an opportunity of being heard -
vary or set aside the decision of the SE; or
where the SE has omitted or failed to dispose of the application within the specified time, grant or
refuse the permission, and where the Central Govt sets aside the decision of the recognised SE or
grants the permission, the SE shall act in confirmity with the order of the Central Government.

Right of appeal to SAT against refusal of SE to list securities of Public Company (Sec-22A)
(1) where a recognised SE, refuses to list the securities of any company, shall be entitled to be
furnished with reasons for such refusal, and may -
(a) within 15 days from the date on which the reasons for such refusal are furnished to it and not
exceeding one month, may apply to the SAT having jurisdiction in the matter against such refusal,
omission or failure, as the case may be, and thereupon the SAT may, after giving the SE, an
opportunity of being heard, -
 set aside the decision of the SE, or
 where the SE has omitted or failed to dispose of the application with in the specified time,
grant or fefuse the permission,-
any where the SAT sets aside the decision of the recognised SE or grants the permission, the
SE sgakk act in confirmity with the order of the SAT

(2) Every appeal shall be in such form and be accompanies by such fee as may be prescribed
(3) The SAT shall send a copy of every order made by it to the Board and parties to the appeal.
(4) The appeal filed before the SAT should be dispose of that within 6months from the date of
receipt of an appeal

Procedure and Powers of SAT (Section 22B)

(1) The SAT shall not be bound by the procedure laid down by the CPC, 1908,but shall be
guided by tge principles of natural justice and subject to the other provisions of this Act and
any rules, the SAT shall have powers to regulate their own procedure including the places at
which they shall have their sittings.
(2) The SAT shall have, for the purpose of discharging their functions under this Act, the same
powers as are vested in a Civil Court under CPC 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 examinations of witnesses or documents
(e) reviewing its decisions
(f) desmissing an application for default or deciding it ex-parte
(g) any other matter which may be prescribed

Civil court not to have Jurisdiction: (Section 22 E)

No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any
matter which a SAT is empowered by this Act.

Appeal to Supreme Court: (Section 22 F)

Any person aggreived by any decision on order of the SAT may file an appeal to the SC
within 60 days from the date of communication of the decision or order of the SAT to him any
question of law arising out of such order.

Q.5 GUIDELINES FOR LISTING OF SECURITIES

Rule 19 of Securities Contract (regulation) Rules, 1957 provides the following guidelines for listing
shares of Public Ltd Company.
(1) A public company which is desirous of getting its securities listed on a recognised SE, and
forward along with its application, the following deocuments and particulars :-
(a) MOA and AOA, in case of a debenture issue, a copy of trust deed;
(b) Copies of all prospectus 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.
(e) A statement showing – any dividends and cash bonuses paid during the last 10 years.
 (f) Certified copies of agreements between – (a) vendors and promotors, (b) underwriters and
sub-underwriters, (c) brokers and sub-brokers.
(g) Certified copies of agreements with (a) managing agents and secretaries and treasurers,
(b)selling agents, (c) managing directors and technical directors and (d) general manager,
sales manager 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 during the last 5
years.
(i) A statement containing particulars of the dates of, and parties to all contraacts, agreements,
concessions and similar other documents.
(j) A brief history of the company since its incorporation, giving details of its activities
including any reorganisation, reconstruction or amalgamation, any changes in capita
structure.
(k) Particulars of shares and debentures.
(l) A statement containing particulars of any commission, brokerage, discount for the issue of
any kind of the securities granted to any person.
(m)Certified copies of acknowledgement card or the reciept of filing offer document with the
SEBI.
(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.
(p) Particulars of shares or debentures for which permission to deal is applied for.

(2) A part from complying with such other terms and conditions as may be laid down by a
recognised SE, an applicant company shal satisfy the SE, that
(a) its articles of association provides about,
i. company, shall use a common form of transfer
ii. that the fully paid shares will be free from all lien
iii. that any amount paid-up in advance of calls on any share
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 shal not be given to any person except with the
sanction of the company in general meeting.
(b) At least 10% of each class or kind of securities issued by a company was offered to the public
for subscription through advertisement in news papers for a period not less than two days and that
application received in pursuance of ssuch offer were allotted subject to the following conditions:
minimum 20 lakh securities was offered to the public
the size of the offer to the public, i.e., the offer price mutiplied by the number of securities offered
to the public was minimum Rs. 100 crores; and
the issue was made only through book building method with allocation of 60 % of the issue size to
the qualified institutional buyers as specified by the SEBI.