The Securities Contract (Regulation) Act, 1956

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The Securities Contract (Regulation) Act, 1956

The Securities Contract (Regulation)Act, 1956

1. Preamble

§1.PreamblePREAMBLE

[ACT NO. 42 OF 1956]

An Act to prevent undesirable transactions in securities by regulating thebusiness ofdealing therein, by providing for certain other matters connectedtherewith.

Be it enacted by Parliament in the Seventh Year of the Republic of India asfollows :

2. Short title, extent and commencement.

§2.Short title, extent and commencement.1.SHORT TITLE, EXTENT AND COMMENCEMENT.

(1) This Act may be called the Securities Contracts (Regulation) Act, 1956.

(2) It extends to the whole of India.

(3) It shall come into force on such date 2 as the Central Government may, bynotificationin the Official Gazette, appoint.

3. Definitions.

§3.Definitions.2.DEFINITIONS.

In this Act, unless the context otherwise requires, -


(a) "contract" means a contract for or relating to the purchase or saleofsecurities;

(b) "Government security" means a security created and issued, whether beforeorafter the commencement of this Act, by the Central Government or a StateGovernment forthe purpose of raising a public loan and having one of the formsspecified in clause (2)of section 2 of the Public Debt Act, 1944 (18 of 1944);

(c) "member" means a member of a recognised stock exchange;

(d) "option in securities" means a contract for the purchase or sale of arightto buy or sell, or a right to buy and sell, securities in future, andincludes a teji, a mandi, a teji mandi, a galli, a put, a call or a put andcall in securities;

(e) "prescribed" means prescribed by rules made under this Act;

(f) "recognised stock exchange" means a stock exchange which is for thetimebeing recognised by the Central Government under section 4;

(g) "rules", with reference to the rules relating in general to theconstitutionand management of a stock exchange, includes, in the case of astock exchange which is anincorporated association, its memorandum and articles of association;

(h) "securities" include -

(i) shares, scrips, stocks, bonds, debentures, debenture stock or othermarketablesecurities of a like nature in or of any incorporated company orother body corporate;

(ii) Government securities;

(iia) such other instruments as may be declared by the Central Government tobesecurities;

(iii) rights or interests in securities;

(i) "spot delivery contract" means a contract which provides for, -

(a) actual delivery of securities and the payment of a price therefore eitheron the sameday as the date of the contract or on the next day, the actualperiod taken for the dispatch of the securities or the remittance of moneytherefore through the post beingexcluded from the computation of the periodaforesaid if the parties to the contract donot reside in the same town orlocality;


(b) transfer of the securities by the depository from the account of abeneficial owner tothe account of another beneficial owner when suchsecurities are dealt with by adepository;

(j) "stock exchange" means any body of individuals, whether incorporated ornot,constituted for the purpose of assisting, regulating or controlling thebusiness ofbuying, selling or dealing in securities.

4. Application for recognition of stock exchanges.

§4.Application for recognition of stock exchanges.3.APPLICATION FOR RECOGNITION OF STOCK EXCHANGES.

(1) Any stock exchange, which is desirous of being recognised for the purposesof thisAct, may make an application in the prescribed manner to theCentralGovernment.

(2) Every application under sub-section (1) shall contain such particulars asmay beprescribed, and shall be accompanied by a copy of the bye-laws of thestock exchange forthe regulation and control of contracts and also a copy ofthe rules relating in generalto the constitution of the stock exchange and inparticular, to -

(a) the governing body of such stock exchange, its constitution and powers ofmanagementand 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,thequalifications for membership, and the exclusion, suspension, expulsion andre-admissionof members there from or there into;

(d) the procedure for the registration of partnerships as members of the stockexchange incases where the rules provide for such membership; and thenomination and appointment ofauthorised representatives and clerks.

5. Grant of recognition to stock exchanges.

§5.Grant of recognition to stock exchanges.4.GRANT OF RECOGNITION TO STOCK EXCHANGES.

(1) If the Central Government 4 is satisfied, after making such inquiry as maybenecessary 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 registrationare inconformity with such conditions as may be prescribed with a view toensure fair dealingand to protect investors;

(b) that the stock exchange is willing to comply with any other conditions(includingconditions as to the number of members) which the CentralGovernment, after consultationwith the governing body of the stock exchangeand having regard to the area served by thestock exchange and its standing andthe nature of the securities dealt with by it, mayimpose for the purpose ofcarrying out the objects of this Act; and

(c) that it would be in the interest of the trade and also in the publicinterest to grantrecognition to the stock exchange;

it may grant recognition to the stock exchange subject to the conditionsimposed upon itas aforesaid and in such form as may be prescribed.

(2) The conditions which the Central Government 4 may prescribe under clause(a) ofsub-section (1) for the grant of recognition to the stock exchanges mayinclude, amongother matters, conditions relating to, -

(i) the qualifications for membership of stock exchanges;

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

(iii) the representation of the Central Government on each of the stockexchanges by suchnumber of persons not exceeding three as the CentralGovernment may nominate in thisbehalf; and

(iv) the maintenance of accounts of members and their audit by charteredaccountantswhenever such audit is required by the Central Government.

(3) Every grant of recognition to a stock exchange under this section shall bepublishedin the Gazette of India and also in the Official Gazette of the Statein which theprincipal office as of the stock exchange is situate, and suchrecognition shall haveeffect as from the date of its publication in theGazette of India.

(4) No application for the grant of recognition shall be refused except aftergiving anopportunity to the stock exchange concerned to be heard in thematter; and thereasons for such refusal shall be communicated to the stockexchange in writing.


(5) No rules of a recognised stock exchange relating to any of the mattersspecified insub-section (2) of section 3 shall be amended except with theapproval of the CentralGovernment.

6. Withdrawal of recognition.

§6.Withdrawal of recognition.5.WITHDRAWAL OF RECOGNITION.

If the Central Government is 4 of opinion that the recognition granted to astock exchangeunder the provisions of this Act should, in the interest of thetrade or in thepublic interest, be withdrawn, the Central Government may serveon the governing body ofthe stock exchange a written notice that the CentralGovernment is considering thewithdrawal of the recognition for the reasonsstated in the notice and after giving anopportunity to the governing body tobe heard in the matter, the Central Government maywithdraw, by notification inthe Official Gazette, the recognition granted to the stockexchange :

Provided that no such withdrawal shall affect the validity of any contractentered into ormade before the date of the notification, and the CentralGovernment may, afterconsultation with the stock exchange, make such provisionas it deems fit in thenotification of withdrawal or in any subsequentnotification similarly published for thedue performance of any contractsoutstanding on that date.

7. Power of Central Government to call forperiodical returns.

§7.Power of Central Government to call for periodical returns.6.POWER OF CENTRAL GOVERNMENT TO CALL FOR PERIODICAL RETURNS OR DIRECTINQUIRIES TO BE MADE.

(1) Every recognised stock exchange shall furnish to the Securities andExchange Board ofIndia such periodical returns relating to its affairs as maybe prescribed.

(2) Every recognised stock exchange and every member thereof shall maintainand preservefor such periods not exceeding five years such books of account,and other documents asthe Central Government, after consultation with thestock exchange concerned, mayprescribe in the interest of the trade or in thepublic interest, and such books ofaccount, and other documents shall besubject to inspection at all reasonable times by theSecurities and ExchangeBoard of India.


(3) Without prejudice to the provisions contained in sub-sections (1) and (2),theSecurities and Exchange Board of India, if it is satisfied that it is inthe interest ofthe trade or in the public interest so to do, may, by order inwriting, -

(a) call upon a recognised stock exchange or any member thereof to furnish inwriting suchinformation or explanation relating to the affairs of the stockexchange orof the member in relation to the stock exchange as the Securitiesand Exchange Board ofIndia may require; or

(b) appoint one or more persons to make an inquiry in the prescribed manner inrelation tothe affairs of the governing body of a stock exchange or theaffairs of any of the membersof the stock exchange in relation to the stockexchange and submit a report of theresult of such inquiry to the Securitiesand Exchange Board of India within such time asmay be specified in the orderor, in the case of an inquiry in relation to the affairs ofany of the membersof a stock exchange, direct the governing body to make the inquiry andsubmitits report to the Securities and Exchange Board of India.

(4) Where an inquiry in relation to the affairs of a recognised stock exchangeor theaffairs of any of its members in relation to the stock exchange has beenundertaken undersub-section (3), -

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

(b) every member of such stock exchange;

(c) if the member of the stock exchange is a firm, every partner, manager,secretary orother officer of the firm; and

(d) every other person or body of persons who has had dealings in the courseof businesswith any of the persons mentioned in clauses (a), (b) and (c)whether directly orindirectly;

Shall be bound to produce before the authority making the inquiry all suchbooks ofaccount, and other documents in his custody or power relating to orhaving a bearing onthe subject-matter of such inquiry and also to furnish theauthorities within such time asmay be specified with any such statement orinformation relating thereto as may berequired of him.

8. Annual reports to be furnished to CentralGovernment by stock exchange.


§8.Annual reports to be furnished to Central Government by stock exchange.7.ANNUAL REPORTS TO BE FURNISHED TO CENTRAL GOVERNMENT BY STOCK EXCHANGES

Every recognised stock exchange shall furnish the Central Government with acopy of theannual report, and such annual report shall contain suchparticulars as may be prescribed.

9. Power to recognised stock exchange to make rulesrestricting voting.

§9.Power to recognised stock exchange to make rules restricting voting.7A.POWER OF RECOGNISED STOCK EXCHANGE TO MAKE RULES RESTRICTING VOTING RIGHTS,ETC.

(1) A recognised stock exchange may make rules or amend any rules made by itto providefor all or any of the following matters, namely:-

(a) the restriction of voting rights to members only in respect of any matterplacedbefore the stock exchange at any meeting;

(b) the regulation of voting rights in respect of any matter placed before thestockexchange at any meeting so that each member may be entitled to have onevote only,irrespective of his share of the paid-up equity capital of the stockexchange;

(c) the restriction on the right of a member to appoint another person as hisproxy toattend and vote at a meeting of the stock exchange;

(d) such incidental, consequential and supplementary matters as may benecessary to giveeffect to any of the matters specified in clauses (a), (b)and (c).

(2) No rules of a recognised stock exchange made or amended in relation to anymatterreferred to in clauses (a) to (d) of sub-section (1) shall have effectuntil they havebeen approved by the Central Government 4 and published by thatGovernment in the OfficialGazette and, in approving the rules so made oramended, the Central Government may makesuch modifications therein as itthinks fit, and no such publication, the rules asapproved by the CentralGovernment shall be deemed to have been validly made,notwithstanding anythingto the contrary contained in the Companies Act, 1956 (1 of 1956).

10. Power to Central Government to Direct rules to


be made or to make rule.

§10.Power to Central Government to Direct rules to be made or to make rule.8.POWER OF CENTRAL GOVERNMENT TO DIRECT RULES TO BE MADE OR TO MAKE RULES 4 .

(1) Where, after consultation with the governing bodies of stock exchangesgenerally orwith the governing body of any stock exchange in particular, theCentral Government is ofopinion that it is necessary or expedient so to do, itmay, by order in writing togetherwith a statement of the reasons therefore,direct recognised stock exchanges generally orany recognised stock exchange inparticular, as the case may be, to make any rules or toamend any rules alreadymade in respect of all or any of the matters specified insub-section (2) ofsection 3 within a period of two months from the date of the order.

(2) If any recognised stock exchange fails or neglects to comply with anyorder made undersub-section (1) within the period specified therein, theCentral Government may make the rules for, or amend the rules made by, therecognised stock exchange, either inthe form proposed in the order or withsuch modifications thereof as may be agreed tobetween the stock exchange andthe Central Government.

(3) Where in pursuance of this section any rules have been made or amended,the rules somade or amended shall be published in the Gazette of India andalso in the OfficialGazette or Gazettes of the State or States in which theprincipal office or offices of therecognised stock exchange or exchanges is orare situate, and, on the publication thereofin the Gazette of India, the rulesso made or amended shall, notwithstanding anything tothe contrary contained inthe Companies Act, 1956 (1 of 1956), or in any other law for thetime being inforce, have effect as if they had been made or amended by the recognisedstockexchange or stock exchanges, as the case may be.

11. Power of recognised stock exchanges to make Bye-Laws.

§11.Power of recognised stock exchanges to make Bye-Laws.9.POWER OF RECOGNISED STOCK EXCHANGES TO MAKE BYE-LAWS.

(1) Any recognised stock exchange may, subject to the previous approval of theSecuritiesand Exchange Board of India, make bye-laws for the regulation andcontrol of contracts.

(2) In particular, and without prejudice to the generality of the foregoingpower, suchbye-laws may provide for :


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

(b) a clearing house for the periodical settlement of contracts anddifferences there under, the delivery of and payment for securities, thepassing on of delivery ordersand the regulation and maintenance of suchclearing house;

(c) the submission to the Securities and Exchange Board of India by theclearing house assoon as may be after each periodical settlement of all or anyof the following particularsas 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 onesettlement periodto another;

(ii) the total number of each category of security, contracts in respect ofwhich havebeen squared up during the course of each settlement period;

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

(d) the publication by the clearing house of all or any of the particularssubmitted tothe Securities and Exchange Board of India under clause (c)subject to the directions, ifany, issued by the Securities and Exchange Boardof India in this behalf;

(e) the regulation or prohibition of blank transfers;

(f) the number and classes of contracts in respect of which settlements shallbe made ordifferences 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 theprescription of marginrequirements, if any, and conditions relating thereto,and the forms of contractsin writing;

(k) the regulation of the entering into, making, performance, rescission andtermination,of contracts, including contracts between members or between amember andhis constituent or between a member and a person who is not a


member, and the consequencesof default or insolvency on the part of a selleror buyer or intermediary, theconsequences of a breach or omission by a selleror buyer, and the responsibility ofmembers who are not parties to suchcontracts;

(l) the regulation of taravani business including the placing of limitationsthereon;

(m) the listing of securities on the stock exchange, the inclusion of anysecurity for thepurpose of dealings and the suspension or withdrawal of anysuch securities, and thesuspension or prohibition of trading in any specifiedsecurities;

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

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

(p) the regulation of the course of business between parties to contracts inany 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 orsyndicatedoperations or cornering or otherwise, and the exercise of powers insuch emergencies,including the power to fix maximum and minimum prices forsecurities;

(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 inexceptionalcircumstances;

(w) the obligation of members to supply such information or explanation and toproducesuch documents relating to the business as the governing body mayrequire.

(3) The bye-laws made under this section may -

(a) specify the bye-laws the contravention of which shall make a contractentered intootherwise than in accordance with the bye-laws void under sub-section (1) of section 14;


(b) provide that the contravention of any of the bye-laws shall render thememberconcerned 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.

(4) Any bye-laws made under this section shall be subject to such conditionsin regard toprevious publication, as may be prescribed, and, when approved bythe Securities andExchange Board of India, shall be published in the Gazetteof India and also in theOfficial Gazette of the State in which the principaloffice of the recognised stockexchange is situate, and shall have effect asfrom the date of its publication in theGazette of India :

Provided that if the Securities and Exchange Board of India is satisfied inany case thatin the interest of the trade or in the public interest any bye-law should be madeimmediately, it may, by order in writing specifying thereasons therefore, dispense withthe condition of previous publication.

12. Power of securities and exchange board of Indiato make or Amend Bye-Laws.

§12.Power of securities and exchange board of India to make or Amend Bye-Laws.10. POWER OF SECURITIES AND EXCHANGE BOARD OF INDIA TO MAKE OR AMEND BYE-LAWSOF RECOGNISEDSTOCK EXCHANGES.

(1) The Securities and Exchange Board of India may, either on a request inwritingreceived by it in this behalf from the governing body of a recognisedstock exchange or onits own motion, if it is satisfied after consultation withthe governing body of the stockexchange that it is necessary or expedient soto do and after recording its reasons for sodoing, make bye-laws for all orany of the matters specified in section 9 or amend anybye-laws made by suchstock exchange under that section.

(2) Where in pursuance of this section any bye-laws have been made or amendedthe bye-lawsso made or amended shall be published in the Gazette of India andalso in the OfficialGazette of the State in which the principal office of therecognised stock exchange issituate, and on the publication thereof in theGazette of India, the bye-laws so made oramended shall have effect as if they


had been made or amended by the recognised stockexchange concerned.

(3) Notwithstanding anything contained in this section, where the governingbody of arecognised stock exchange objects to any bye-laws made or amendedunder this section bythe Securities and Exchange Board of India on it ownmotion, it may, within two months ofthe publication thereof in the Gazette ofIndia under sub-section (2), apply to theSecurities and Exchange Board ofIndia for revision thereof, and the Securities andExchange Board of India may,after giving an opportunity to the governing body of thestock exchange to beheard in the matter, revise the bye-laws so made or amended, andwhere any bye-laws so made or amended are revised as a result of any action taken underthissub-section, the bye-laws so revised shall be published and shall becomeeffective asprovided in sub-section (2).

(4) The making or the amendment or revision of any bye-laws under this sectionshall inall cases be subject to the condition of previous publication :

Provided that if the Securities and Exchange Board of India is satisfied inany case thatin the interest of the trade or in the public interest any bye-laws should be made,amended or revised immediately, it may, by order inwriting specifying the reasons therefore, dispense with the condition ofprevious publication.

13. Power of Central Government to supersedegoverning body of a recognised.

§13.Power of Central Government to supersede governing body of a recognised.11.POWER OF CENTRAL GOVERNMENT TO SUPERSEDE GOVERNING BODY OF A RECOGNISEDSTOCK EXCHANGE.

(1) Without prejudice to any other powers vested in the Central Governmentunder this Act,where the Central Government is of opinion that the governingbody of any recognised stockexchange should be superseded, then,notwithstanding anything contained in any other lawfor the time being inforce, the Central Government may serve on the governing body awritten noticethat the Central Government is considering the suppression of thegoverningbody for the reasons specified in the notice and after giving an opportunitytothe governing body to be heard in the matter, it may, by notification in theOfficialGazette, declare the governing body of such stock exchange to besuperseded, and mayappoint any person or persons to exercise and perform allthe powers and duties of thegoverning body, and, wheremore persons than oneare appointed, may appoint one of such persons to be the chairmanand anotherto be the vice-chairman thereof.


(2) On the publication of a notification in the Official Gazette under sub-section (1),the following consequences shall ensue, namely :-

(a) the members of the governing body which has been superseded shall, as fromthe date ofthe notification of super session, cease to hold office as suchmembers;

(b) the person or persons appointed under sub-section (1) may exercise andperform all thepowers and duties of the governing body which has beensuperseded;

(c) all such property of the recognised stock exchange as the person orpersons appointedunder sub-section (1) may, by order in writing, specify inthis behalf as being necessaryfor the purpose of enabling him or them to carryon the business of the stock exchange,shall vest in such person or persons.

(3) Notwithstanding anything to the contrary contained in any law or the rulesor bye-lawsof the recognised stock exchange the governing body of which issuperseded under sub-section (1), the person or persons appointed under thatsub-section shall hold officefor such period as may be specified in thenotification published under that sub-sectionand the Central Government mayfrom time to time, by like notification, vary such period.

(4) The Central Government may at any time before the determination of theperiod ofoffice of any person or persons appointed under this section callupon the recognised stock exchange to re-constitute the governing body inaccordance with its rulesand on such re-constitution all the property of therecognised stock exchange which hasvested in, or was in the possession of, theperson or persons appointed under sub-section(1), shall re-vest or vest, asthe case may be, in the governing body so re-constituted :

Provided that until a governing body is so re-constituted, the person orpersons appointedunder sub-section (1) shall continue to exercise and performtheir powers and duties.

14. Power to suspend business of recognised stockexchanges.

§14.Power to suspend business of recognised stock exchanges.12.POWER TO SUSPEND BUSINESS OF RECOGNISED STOCK EXCHANGES.

If in the opinion of the Central Government an emergency has arisen and forthe purpose ofmeeting the emergency the Central Government considers itexpedient so to do, it may, bynotification in the Official Gazette, for


reasons to be set out therein, direct arecognised stock exchange to suspendsuch of its business for such period not exceedingseven days and subject tosuch conditions as may be specified in the notification, and,if, in theopinion of the Central Government, the interest of the trade or thepublicinterest requires that the period should be extended, may, by likenotification extend thesaid period from time to time :

Provided that where the period of suspension is to be extended beyond thefirst period, nonotification extending the period of suspension shall beissued unless thegoverning body of the recognised stock exchange has beengiven an opportunity of beingheard in the matter.

15. Contracts in notified areas illegal in certaincircumstances.

§15.Contracts in notified areas illegal in certain circumstances.13.CONTRACTS IN NOTIFIED AREAS ILLEGAL IN CERTAIN CIRCUMSTANCES.

If the Central Government is 4 satisfied, having regard to the nature or thevolume oftransactions in securities in any State or area, that it is necessaryso to do, it may, bynotification in the Official Gazette, declare this sectionto apply to such State or area,and thereupon every contract in such State orarea which is entered into after the date ofthe notification otherwise thanbetween members of a recognised stock exchange in suchState or area or throughor with such member shall be illegal.

16. Additional trading floor.

§16.Additional trading floor.13A.ADDITIONAL TRADING FLOOR.

A stock exchange may establish additional trading floor with the priorapproval of theSecurities and Exchange Board of India in accordance with theterms and conditionsstipulated by the said Board.

Explanation : For the purposes of this section, "additional trading floor"meansa trading ring or trading facility offered by a recognised stock exchangeoutside its areaof operation to enable the investors to buy and sellsecurities through such trading floorunder the regulatory framework of thatstock exchange.


17. Contracts in notified areas to be void incertain circumstances.

§17.Contracts in notified areas to be void in certain circumstances.14.CONTRACTS IN NOTIFIED AREAS TO BE VOID IN CERTAIN CIRCUMSTANCES.

(1) Any contract entered into in any State or area specified in thenotification undersection 13 which is in contravention of any of the bye-lawsspecified in thatbehalf under clause (a) of sub-section (3) of section 9 shallbe void :

(i) as respects the rights of any member of the recognised stock exchange whohas enteredinto such contract in contravention of any such bye-law, and also

(ii) as respects the rights of any other person who has knowingly participatedin thetransaction entailing such contravention.

(2) Nothing in sub-section (1) shall be construed to affect the right of anyperson otherthan a member of the recognised stock exchange to enforce any suchcontract or to recoverany sum under or in respect of such contract if suchperson had no knowledge that thetransaction was in contravention of any of thebye-laws specified in clause (a) ofsub-section (3) of section 9.

18. Members may not act as principals in certaincircumstances.

§18.Members may not act as principals in certain circumstances.15.MEMBERS MAY NOT ACT AS PRINCIPALS IN CERTAIN CIRCUMSTANCES.

No member of a recognised stock exchange shall in respect of any securitiesenter into anycontract as a principal with any person other than a member of arecognised stockexchange, unless he has secured the consent or authority ofsuch person and discloses inthe note, memorandum or agreement of sale orpurchase that he is acting as a principal :

Provided that where the member has secured the consent or authority of suchpersonotherwise than in writing he shall secure written confirmation by suchperson or suchconsent or authority within three days from the date of thecontract :

Provided further that no such written consent or authority of such personshall benecessary for closing out any outstanding contract entered into bysuch person inaccordance with the bye-laws, if the member discloses in the


note, memorandum or agreementof sale or purchase in respect of such closingout that he is acting as a principal.

19. Power to prohibit contracts in certain cases.

§19.Power to prohibit contracts in certain cases.16.POWER TO PROHIBIT CONTRACTS IN CERTAIN CASES.

(1) If the Central Government 4 is of opinion that it is necessary to preventundesirablespeculation in specified securities in any State or area, it may,by notification inthe Official Gazette, declare that no person in the State orarea specified in thenotification shall, save with the permission of theCentral Government, enter into anycontract for the sale or purchase of anysecurity specified in the notification except tothe extent and in the manner,if any, specified therein.

(2) All contracts in contravention of the provisions of sub-section (1)entered into afterthe date of the notification issued there under shall beillegal.

20. Licensing of dealers in securities in certainareas.

§20.Licensing of dealers in securities in certain areas.17.LICENSING OF DEALERS IN SECURITIES IN CERTAIN AREAS.

(1) Subject to the provisions of sub-section (3) and to the other provisionscontained inthis Act, no person shall carry on or purport to carry on, whetheron his own behalf or onbehalf of any other person, the business of dealing insecurities in any State or area towhich section 13 has not been declared toapply and to which the Central Government may,by notification in the OfficialGazette, declare this section to apply, except under theauthority of a licencegranted by the Securities and Exchange Board of India in thisbehalf.

(2) No notification under sub-section (1) shall be issued with respect to anyState orarea unless the Central Government is satisfied, having regard to themanner inwhich securities are being dealt with in such State or area, that itis desirable orexpedient in the interest of the trade or in the publicinterest that such dealings shouldbe regulated by a system of licensing.

(3) The restrictions imposed by sub-section (1) in relation to dealings insecuritiesshall not apply to the doing of anything by or on behalf of a memberof any recognisedstock exchange.


21. Exclusion of spot delivery contracts fromsections 13,14,15 and 17.

§21.Exclusion of spot delivery contracts from sections 13,14,15 and 17.18.EXCLUSION OF SPOT DELIVERY CONTRACTS FROM SECTIONS 13, 14, 15 AND 17.

(1) Nothing contained in sections 13, 14, 15 and 17 shall apply to spotdeliverycontracts.

(2) Notwithstanding anything contained in sub-section (1), if the CentralGovernment 4 isof opinion that in the interest of the trade or in the publicinterest it isexpedient to regulate and control the business of dealing inspot delivery contracts alsoin any State or area (whether section 13 has beendeclared to apply to that State or areaor not), it may, by notification in theOfficial Gazette, declare that the provisions ofsection 17 shall also apply tosuch State or area in respect of spot delivery contractsgenerally or inrespect of spot delivery contracts for the sale or purchase of suchsecuritiesas may be specified in the notification, and may also specify the mannerinwhich, and the extent to which, the provisions of that section shall soapply.

22. Stock exchanges other than recognised stockexchanges prohibited.

§22.Stock exchanges other than recognised stock exchanges prohibited.19.STOCK EXCHANGES OTHER THAN RECOGNISED STOCK EXCHANGES PROHIBITED.

(1) No person shall, except with the permission of the Central Government,organise orassist in organising or be a member of any stock exchange (otherthan a recognised stockexchange) for the purpose of assisting in, enteringinto or performing any contracts insecurities.

(2) This section shall come into force in any State or area on such date asthe CentralGovernment may, by notification in the Official Gazette, appoint.

23. Prohibition of options in securities.

§23.Prohibition of options in securities.20.PROHIBITION OF OPTIONS IN SECURITIES.


24. Conditions for listing.

§24.Conditions for listing.21.CONDITIONS FOR LISTING.

Where securities are listed on the application of any person in any recognisedstockexchange, such person shall comply with the conditions of the listingagreement with thatstock exchange. 8.

25. Right of appeal against refusal of stockexchanges to list securities.

§25.Right of appeal against refusal of stock exchanges to list securities.22.RIGHT OF APPEAL AGAINST REFUSAL OF STOCK EXCHANGES TO LIST SECURITIES OFPUBLIC COMPANIES.

Where a recognised stock exchange acting in pursuance of any power given to itby itsbye-laws, refuses to list the securities of any public company, thecompany shall beentitled to be furnished with reasons for such refusal, andmay, -

(a) within fifteen days from the date on which the reasons for such refusalare furnishedto it, or

(b) where the stock exchange has omitted or failed to dispose of, within thetimespecified in sub-section (1) of section 73 of the Companies Act, 1956 (1of 1956)(hereafter in this section referred to as the "specified time"), theapplicationfor permission for the shares or debentures to be dealt with on thestock exchange, withinfifteen days from the date of expiry of the specifiedtime or within such further period,not exceeding one month, as the CentralGovernment may, on sufficient cause being shown,allow,

appeal to the Central Government against such refusal, omission or failure, asthe casemay be, and thereupon the Central Government may, after giving thestock exchange anopportunity 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 theapplication withinthe specified time, grant or refuse the permission, andwhere the Central Government setsaside the decision of the recognised stockexchange or grants the permission, the stockexchange shall act in conformitywith the orders of the Central Government.


26. Free Transferability and registration oftransfers of listed securities.

§26.Free Transferability and registration of transfers of listed securities.22A.FREE TRANSFERABILITY AND REGISTRATION OF TRANSFERS OF LISTED SECURITIES OFCOMPANIES.

27. Penalties.

§27.Penalties.23.PENALTIES.

(1) Any person who -

(a) without reasonable excuse (the burden of proving which shall be on him)fails tocomply with any requisition made under sub-section (4) of section 6;or

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

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

(e) owns or keeps a place other than that of a recognised stock exchange whichis used forthe purpose of entering into or performing any contracts incontravention of any of theprovisions of this Act and knowingly permits suchplace to be used for such purposes; or

(f) manages, controls, or assists in keeping any place other than that of arecognisedstock exchange which is used for the purpose of entering into orperforming any contractsin contravention of any of the provisions of this Actor at which contracts are recordedor adjusted or rights or liabilities arisingout of contracts are adjusted, regulated orenforced in any manner whatsoever;or

(g) not being a member of a recognised stock exchange or his agent authorisedas suchunder the rules or bye-laws of such stock exchange or not being adealer in securitieslicensed under section 17 willfully represents to orinduces any person to believe thatcontracts can be entered into or performedunder this Act through him; or

(h) not being a member of a recognised stock exchange or his agent authorised


as suchunder the rules or bye-laws of such stock exchange or not being adealer in securitieslicensed under section 17 canvasses, advertises or toutsin any manner either for himselfor on behalf of any other persons for anybusiness connected with contracts incontravention of any of the provisions ofthis Act; or

(i) joins, gathers or assists in gathering at any place other than the placeof businessspecified in the bye-laws of a recognised stock exchange any personor persons for makingbids or offers or for entering into or performing anycontracts in contravention of any ofthe provisions of this Act;

shall, on conviction, be punishable with imprisonment for a term which mayextend to oneyear, or with fine, or with both.

(2) Any person who enters into any contract in contravention of the provisionscontainedin section 15 or who fails to comply with the provisions of section21 or with the ordersof or section 22 shall, on conviction, be punishable withfine which may extend toone thousand rupees.

28. Offences by Companies.

§28.Offences by Companies.24.OFFENCES BY COMPANIES.

(1) Where an offence has been committed by a company, every person who, at thetime whenthe 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 thecompany, shall be deemed to beguilty of the offence, and shall be liable to beproceeded against and punishedaccordingly :

Provided that nothing contained in this sub-section shall render any suchperson liable toany punishment provided in this Act, if he proves that theoffence was committed withouthis knowledge or that he exercised all duediligence to prevent the commission of suchoffence.

(2) Notwithstanding anything contained in sub-section (1), where an offenceunder this Acthas been committed by a company and it is proved that theoffence has been committed withthe consent or connivance of, or isattributable to any gross negligence on the part ofany director, manager,secretary or other officer of the company, such director, manager,secretary orother officer of the company, shall also be deemed to be guilty of thatoffenceand shall be liable to be proceeded against and punished accordingly.

Explanation : For the purpose of this section, -


(a) "company" means any body corporate and includes a firm or otherassociationof individuals, and

(b) "director", in relation to a firm, means a partner in the firm.

(3) The provisions of this section shall be in addition to, and not inderogation of, theprovisions of section 22A.

29. Certain offences to be cognizable.

§29.Certain offences to be cognizable.25.CERTAIN OFFENCES TO BE COGNIZABLE.

Notwithstanding anything contained in the Code of Criminal Procedure, 1898 (5of 1898),any offence punishable under sub-section (1) of section 23, shall bedeemed to be acognizable offence within the meaning of that Code.

30. Jurisdiction to try offences under this Act.

§30.Jurisdiction to try offences under this Act.26.JURISDICTION TO TRY OFFENCES UNDER THIS ACT.

No court inferior to that of a presidency magistrate or a magistrate of thefirst classshall take cognizance of or try any offence punishable under thisAct.

31. Title to Dividends.

§31.Title to Dividends.27.TITLE TO DIVIDENDS.

(1) It shall be lawful for the holder of any security whose name appears onthe books ofthe company issuing the said security to receive and retain anydividend declared by thecompany in respect thereof for any year,notwithstanding that the said security hasalready been transferred by him forconsideration, unless the transferee who claims thedividend from thetransferor has lodged the security and all other documents relating tothetransfer which may be required by the company with the company for beingregistered inhis name within fifteen days of the date on which the dividendbecame 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 hislegalrepresentative to establish his claim to the dividend;

(ii) in case of loss of the transfer deed by theft or any other cause beyondthe controlof the transferee, by the actual period taken for the replacementthereof; and

(iii) in case of delay in the lodging of any security and other documentsrelating to thetransfer due to causes connected with the post, by the actualperiod of the delay.

(2) Nothing contained in sub-section (1) shall affect -

(a) the right of a company to pay any dividend which has become due to anyperson whosename is for the time being registered in the books of the companyas the holder of thesecurity in respect of which the dividend has become due;or

(b) the right of the transferee of any security to enforce against thetransferor or anyother person his rights, if any, in relation to the transferin any case where thecompany has refused to register the transfer of thesecurity in the name of thetransferee.

32. Act not to apply in certain cases.

§32.Act not to apply in certain cases.28.4 ACT NOT TO APPLY IN CERTAIN CASES.

(1) The provisions of this Act shall not apply to -

(a) the Government, the Reserve Bank of India, any local authority or anycorporation setup by a special law or any person who has effected anytransaction with or through theagency of any such authority as is referred toin this clause;

(b) any convertible bond or share warrant or any option or right in relationthereto,insofar as it entitles the person in whose favour any of the foregoinghas been issued toobtain at his option from the company or other bodycorporate, issuing the same or fromany of its shareholders or duly appointedagents, shares of the company or other bodycorporate, whether by conversion ofthe bond or warrant or otherwise, on the basis of theprice agreed upon whenthe same was issued.

(2) Without prejudice to the provisions contained in sub-section (1), if theCentralGovernment 4 is satisfied that in the interests of trade and commerce


or the economicdevelopment of the country it is necessary or expedient so todo, it may, by notificationin the Official Gazette, specify any class ofcontracts as contracts to which this Act orany provision contained thereinshall not apply, and also the conditions, limitations orrestrictions, if any,subject to which it shall not so apply.

33. Protection of action taken in good faith.

§33.Protection of action taken in good faith.29.PROTECTION OF ACTION TAKEN IN GOOD FAITH.

No suit, prosecution or other legal proceeding whatsoever shall lie in anycourt againstthe governing body or any member, office bearer or servant of anyrecognised stockexchange or against any person or persons appointed under sub-section (1) of section 11for anything which is in good faith done or intendedto be done in pursuance of this Actor of any rules or bye-laws made thereunder.

34. Power to delegate.

§34.Power to delegate.29A.POWER TO DELEGATE.

The Central Government may, by order published in the Official Gazette, directthat thepowers exercisable by it under any provision of this Act shall, inrelation to suchmatters and subject to such conditions, if any as may bespecified in the order, beexercisable also by the Securities and ExchangeBoard of India.

35. Power to make rules.

§35.Power to make rules.30.POWER TO MAKE RULES.

(1) The Central Government may, by notification in the Official Gazette, makerules forthe purpose of carrying into effect the objects of this Act.

(2) In particular, and without prejudice to the generality of the foregoingpower, suchrules may provide for, -

(a) the manner in which applications may be made, the particulars which theyshouldcontain and the levy of a fee in respect of such applications;


(b) the manner in which any inquiry for the purpose of recognising any stockexchange maybe made, the conditions which may be imposed for the grant of suchrecognition, includingconditions as to the admission of members if the stockexchange concerned is to be theonly recognised stock exchange in the area; andthe form in which such recognition shallbe granted;

(c) the particulars which should be contained in the periodical returns andannual reportsto the furnished to the Central Government;

(d) the documents which should be maintained and preserved under section 6 andthe periodsfor which they should be preserved;

(e) the manner in which any inquiry by the governing body of a stock exchangeshall bemade under section 6;

(f) the manner in which the bye-laws to be made or amended under this Actshall beforebeing so made or amended be published for criticism;

(g) the manner in which applications may be made by dealers in securities forlicencesunder section 17, the fee payable in respect thereof and the period ofsuchlicences, theconditions subject to which licences may be granted,including conditions relating to theforms which may be used in makingcontracts, the documents to be maintained by licenseddealers and thefurnishing of periodical information to such authority as may be specifiedandthe revocation of licences for breach of conditions;

(h) the requirements which shall be complied with by public companies for thepurpose ofgetting their securities listed on any stock exchange;

(ha) the form in which a notice referred to in clause (b) of sub-section (4)of section22A shall be, the particulars which such notice shall contain, theform in which areference under clause (c) of the said sub-section (4) shall bethe particulars which suchreference shall contain, and the evidence and thefees which shall accompany suchreference; and

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

(3) Every rule made under this section shall, as soon as may be, after itspublication inthe Official Gazette, be laid before each House of Parliament,while it is in session, fora total period of thirty days which may becomprised in one session or in two to moresuccessive sessions, and if, beforethe expiry of the session immediately following thesession or the successivesession aforesaid, both Houses agree in making anymodification in the rule orboth House agree that the rule should not be made, the ruleshall thereafterhave effect only in such modified form or be of no effect, as the casemay be;


so, however, that any such modification or annulment shall be withoutprejudice tothe validity of anything previously done under that rule.

36. Repeals.

§36.Repeals.31.REPEAL.

[Repealed by the Repealing and Amending Act, 1960.]

The Securities Contract (Regulation) Act, 1956

Documents

Transcript of The Securities Contract (Regulation) Act, 1956