[vc_row][vc_column][vc_column_text]Introduction:
The Securities Contracts (Regulation) Act, 1956 “Act” was enacted in order to prevent undesirable transactions in securities and to regulate the working of stock exchanges in the country. The provision of the Act came into force with effect from 20th February, 1957 vide Notification No. SRO 528 dated 16th February, 1957.
Definitions:
Stock exchange [Section 2(j)]
- any body of individuals, whether incorporated or not, constituted before corporatisation and demutualisation under sections 4A and 4B, or
- a body corporate incorporated under the 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 [Section 2(f)] means a stock exchange which is for the time being recognized by the Central Government under Section 4 of the Act.
Corporatisation [Section 2(aa)] means the succession of a recognised stock exchange, being a body of individuals or a society registered under the Societies Registration Act, 1860 (21 of 1860), by another stock exchange, being a company incorporated for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities carried on by such individuals or society.
Demutualisation [Section 2(ab)] means the segregation of ownership and management from the trading rights of the members of a recognised stock exchange in accordance with a scheme approved by the Securities and Exchange Board of India (SEBI). (Pls click here for other definitions of the Act)
The main parts of the Act are as follows and the powers of Central Government with regard to this Act are exercisable by SEBI:
(A) Recognised Stock Exchanges (B) Penalties
Brief description of important sections of the Act:
(A) Recognised Stock Exchanges
Application for recognition of stock exchanges (Section 3)
3(1): Every stock exchange which desirous of being recognized for the purposes of this Act, may make an application in the prescribed manner to the Central Government (the powers of Central Government with regard to this Act are exercisable by SEBI)
3(2) : Every such application shall contain required particulars and 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
Grant of recognition to stock exchanges (Section 4)
4(1): If the Central Government is satisfied, after making such inquiry as may be necessary may grant recognition to the stock exchange subject to some conditions.
Corporatisation and demutualisation of stock exchanges (Section 4A)
On and from the appointed date, all recognised stock exchanges (if not corporatised and demutualised before the appointed date) shall be corporatised and demutualised in accordance with the provisions contained in section 4B.
Procedure for corporatisation and demutualisation (Section 4B)
4B(1): All recognised stock exchanges referred to in section 4A shall, within such time as may be specified by the SEBI, submit a scheme for corporatisation and demutualisation for its approval
4B(2): On receipt of the scheme, the SEBI after making such enquiry as may be necessary and if it is satisfied that it may approve the scheme with or without modification.
Note: “appointed date” means the date which the SEBI may, by notification in the Official Gazette, appoint and different appointed dates may be appointed for different recognised stock exchanges.
Power of Central Government to call for periodical returns or direct inquiries to be made (Section 6)
Every recognised stock exchange shall furnish to SEBI periodical returns relating to its affairs as may be prescribed. Every recognised stock exchange and every member thereof shall preserve such books of accounts and other documents for period of not exceeding five years.
Annual reports to be furnished to Central Government by stock exchanges (Section 7)
Every recognised stock exchange shall furnish the Central Government a copy of the annual report.
Power of recognised stock exchanges to make bye-laws (Section 9)
9(1) Any recognised stock exchange may, subject to the previous approval of the SEBI, make bye-laws for the regulation and control of contracts. (Pls click here for such bye-laws)
Power of SEBI to make or amend bye-laws of recognised stock exchanges (Section 10)
10(1) The SEBI may either on a request from the governing body of a recognised stock exchange or on its own motion 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.
Power to suspend business of recognised stock exchanges (Section 12)
The Central Government is empowered to suspend the business of recognised stock exchange on an emergency situation by giving notification in the Official Gazette stating the reasons therein, for a period of not exceeding seven days and subject to such conditions as may be specified in the notification. However, in the interest of the trade or the public the said period can be extended from time to time, provided that no such period of suspension can be extended, unless the governing body of the recognised stock exchange has been given an opportunity of being heard in the matter.
Conditions for listing (Section 21)
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.
Delisting of securities (Section 21A)
21A(1): A recognised stock exchange may delist the securities, after recording the reasons therefor, on any of the ground or grounds as may be prescribed under this Act, provided that the securities of a company shall not be delisted unless the company concerned has been given a reasonable opportunity of being heard.
21A(2): 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 within fifteen days from the date of the decision of the recognised stock exchange, provided that SAT 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.
Section 22 – Right of appeal against refusal of stock exchanges to list securities of public companies
Where a recognised stock exchange refuses to list the securities of any public company or collective investment scheme, the company or scheme may appeal to the Central Government against such refusal, omission or failure, as the case may be:
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- within fifteen days from the date on which the reasons for such refusal are furnished to it, or
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where the stock exchange has omitted or failed to dispose of, within the time specified in sub-section (1) of section 73 of the Companies Act, 1956 (1 of 1956) (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.
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Section 22A – Right of appeal to Securities Appellate Tribunal against refusal of stock exchange to list securities of public companies
Where a recognised stock exchange refuses to list the securities of any public company or collective investment scheme, the company or scheme may appeal to the SAT against such refusal, omission or failure, as the case may be:
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- within fifteen days from the date on which the reasons for such refusal are furnished to it, or
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where the stock exchange has omitted or failed to dispose of, within the time specified in sub-section (1A) of section 73 of the Companies Act, 1956 (1 of 1956), (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 Securities Appellate Tribunal may, on sufficient cause being shown, allow.
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Section 22D – Limitation
The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to an appeal made to a Securities Appellate Tribunal.
(B ) Penalties :
| Section | Contravention/Non-compliance | Penalty Prescribed |
| 23A | Failure to furnish information, return, etc and maintain books of accounts and records. | One lakh rupees for each day during which such failure continues or one crore rupees, whichever is less. |
| 23B | Any person who is required under this Act or bye-laws of a recognised stock exchange to enter into an agreement with clients, fails to enter into such agreement | One lakh rupees for each day during which such failure continues or one crore rupees, whichever is less. |
| 23C | Any stock broker or sub-broker or a company whose securities are listed or proposed to be listed in a recognised stock exchange, fails to redress the grievances within the time stipulated by the SEBI or a recognised stock exchange | One lakh rupees for each day during which such failure continues or one crore rupees, whichever is less. |
| 23D | Any stock broker or sub-broker who fails to segregate securities or moneys of the client(s) or uses the securities or moneys of a client(s) for self or for any other client | Penalty not exceeding one crore rupees. |
| 23E | If a company or any person managing collective investment scheme or mutual fund, fails to comply with the listing conditions or delisting conditions | Penalty not exceeding twenty-five crore rupees. |
| 23F | 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 | Penalty not exceeding twenty-five crore rupees. |
| 23G | If a recognised Stock exchanges fails to furnish the periodical returns to the SEBI or fails to amend the bye laws as directed by SEBI or fails to comply with the directions of the Board | Penalty which may extend to Twenty-Five Crores Rupees. |
| 23H | Who 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-Section 23H | Penalty which may extend to one crore rupees. |
Offences:
| Section | Contravention/Non-compliance | Fine Prescribed |
| 23M(1) | Any person who contravenes the provisions of this Act or of any rules or regulations or bye-laws made thereunder, for which no punishment is provided | elsewhere in this Act Imprisonment for a term which may extend to ten years, or with fine, which may extend to twenty-five crore rupees or both. |
| 23M(2) | If any person fails to pay the penalty imposed by the adjudicating officer or fails to comply with any of his directions or orders |
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 both |
| 24(1) | Where an offence has been committed by a company, every person who, at the time when the offence 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 offence, and shall be liable to be proceeded against and punished accordingly | |
| 24(2) | Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent 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 offence and shall be liable to be proceeded against and punished accordingly | |
Conclusion:
The Securities Contract (Regulation) Act, 1956 deals with stock exchanges, contracts in securities, and listing of securities on stock exchanges, and keeps a vigil over all the stock exchanges of India and prevents undesirable contracts in Securities market through a process of recognition and continued supervision.