THE SECURITIES CONTRACTS (REGULATION) ACT, 1956
(ACT NO.42 OF 1956)
An Act to prevent undesirable transactions in securities by
regulating the business of dealing therein, 1 [***] by providing
for certain other matters connected therewith.
Be it enacted by Parliament in the Seventh Year of the Republic of India as
follows:
· Contracts And Options In Securities
· Listing Of Securities Of Public Companies
THE SECURITIES CONTRACTS (REGULATION) ACT, 1956
(ACT NO:42 OF 1956)
An Act to prevent undesirable transactions in securities by regulating the business of dealing therein, [***]1by providing for certain other matters connected therewith.
Be it enacted by Parliament in the Seventh Year of the Republic of India as follows:
PRELIMINARY
1. (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 as the Central Government may, by notification in the Official Gazette appoint.2
2. In this Act, unless the context otherwise requires,-
(a) "contract" means a contract for or relating to the purchase or sale of securities;
(aa) "derivative"
includes -
(b) "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 (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 a right to buy or sell, or a right to buy and sell, securities in future, and includes a teji, a mandi, a teji mandi, a galli, a put, a call or a put and call in securities;
(e) "prescribed" means prescribed by rules made under this Act;
(f) "recognised stock exchange" means a stock exchange which is for the time being recognised by the Central Government under section 4;
(g) "rules", with reference to the rules relating in general to the constitution and management of a stock exchange, includes, in the case of a stock exchange which is an incorporated association, its memorandum and articles of association;
(ga) "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, 1992.4
(h) "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 other body corporate;
(ia)derivative;
(ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes;5
(ii) Government securities;
(iia) such other instruments as may be declared by the Central Government to be securities; and 6
(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 therefor either
on the same day as the date of the contract or on the next day, the actual
period taken for the despatch 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;]7
(j) "stock exchange" means any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities.
2A. Words and expressions used herein and not defined in this Act but defined in the Companies Act, 1956 or the Securities and Exchange Board of India Act, 1992 or the Depositories Act, 1996 shall have the same meanings respectively assigned to them in those Acts. 8
1 The words “by prohibiting options and” omitted by the Securities
Laws (Amendment)Act, 1995, w.e.f. 25-3-1995.
2 The Act came into force on 20 February, 1957 vide
Notification No.SRO 528, dated 6 February, 1957 published in Gazette of India,
Extraordinary, Part II, section 3 page 549, dated 16 February, 1957.
3 Inserted by Securities Laws ( Second Amendment ) Act,1999
vide Gazette notification dated December 16, 1999.
4 Ibid
5 Ibid
6 Substituted for "(ii) Government Securities; and" by the
Securities and Exchange Board of India Act, 1992, w.e.f. 30-1-1992.
7 Substituted for the following:
(i) "spot delivery contract" means a contract which provides for the
actual delivery of securities and the payment of a price therefor either on the
same day as the date of the contract or on the next day, the actual period
taken for the despatch 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;"
by the Depositories Act, 1996 (22 of 1996), w.e.f. 12-8- 1996.
8supra n.3
CHAPTER II
RECOGNISED STOCK EXCHANGES
Application for
recognition of stock exchanges
3. (1) Any stock exchange, which
is desirous of being recognised for the purposes of this Act may make an
application in the prescribed manner to the Central Government.
(2) Every application under sub-
section (1) 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-
Grant of
recognition to stock exchanges
4. (1) If the Central Government
is satisfied, 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.
(2) The conditions which the Central Government may prescribe under clause (a)
of sub-section (1) 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;
(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 exchanges 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.
(3)
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 as of the stock exchange is situate, and such
recognition shall have effect as from the date of its publication in the
Gazette of India.
(4) No rules of a
recognised stock exchange relating to any of the matters specified in sub-
section (2) of section 3 shall be amended except with the approval of the
Central Government.
5. If the
Central Government is of the opinion that the recognition granted to a stock
exchange under the provisions of this Act 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:
Provided that no such withdrawal
shall 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.
6. (1) Every
recognised stock exchange shall furnish to the [Securities and Exchange
Board of India]9such
periodical returns relating to its affairs as may be prescribed.
(2) Every
recognised stock exchange and every member thereof shall maintain and preserve
for such periods not exceeding five years such books of account, 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 at all reasonable times by the [Securities and Exchange Board of
India]. 10
(3) Without
prejudice to the provisions contained in sub- sections (1) and (2), the [Securities
and Exchange Board of India]11, 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,-
(4)
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 under sub-section (3),-
(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.
7. Every
recognised stock exchange shall furnish the Central Government with a copy of
the annual report, and such annual report shall contain such particulars as may
be prescribed.
7A. (1) 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).
(2)
No rules of a recognised stock exchange made or amended in relation to any
matter referred to in clauses (a) to (d) of sub-section (1) shall have effect
until they have been approved by the Central Government and published by that
Government in the Official Gazette and, in approving the rules so made or
amended, the Central Government may make such modifications therein as it
thinks fit, and on such publication, the rules as provided by the Central
Government shall be deemed to have been validly made, notwithstanding anything
to the contrary contained in the Companies Act, 1956 (1 of 1956).
8. (1) 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 the 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 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 specified in sub-section (2) of
section 3 within a period of [two months]14from the date of the order.
(2) If any
recognised stock exchange fails or neglects to comply with any order made under
sub-section (1) 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.
(3) 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, 1956 (1 of 1956), or in any other law for the time being in
force, have effect as it they had been made or amended by the recognised stock
exchange or stock exchanges, as the case may be.
9. (1) Any
recognised stock exchange may, subject to the previous approval of the [Securities
and Exchange Board of India],15 make bye-laws for the regulation and
control of contracts.
(2) In particular,
and without prejudice to the generality of the foregoing power, 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]16 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]17 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]18 under clause (c) subject to the directions, if any, issued
by the [Securities and Exchange Board of India]19 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 badlas 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;
(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;
(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.
(3)
The bye-laws made under this section may:
(a)
specify the bye-laws, the contravention of which shall make a contract entered
into otherwise 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 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.
(4)
Any bye-laws made under this section shall be subject to such conditions in
regard to previous publication as may be prescribed, and, when approved by the [Securities
and Exchange Board of India],20 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 situate, and shall have effect as from the date of its
publication in the Gazette of India: Provided that if the [Securities and Exchange Board of India]21 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 specifying the reasons
therefor, dispense with the condition of previous publication.
10. (1) The [Securities and Exchange Board of India]23 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.
(2) 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 situate, 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.
(3) Notwithstanding anything contained in this
section, where the governing body of a recognised stock exchange objects to any
bye-laws made or amended under this section by the [Securities and Exchange Board of India]24 on its own motion,
it may, within [two months]25 of the publication thereof in the Gazette of India under
sub-section (2), apply to the [Securities and Exchange
Board of India]26 for revision thereof the [Securities and Exchange Board of India]27 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).
(4) The making or the amendment or revision of
any bye-laws under this section shall in all cases be subject to the condition
of previous publication:
Provided that if the [Securities
and Exchange Board of India]28 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.
11. (1) Without
prejudice to any other powers vested in the Central Government under this Act,
where the Central Government is of the opinion that the governing body of any
recognised stock exchange should be superseded, then, not withstanding anything
contained in any other law for the time being in force, the Central Government
may serve on the governing body a written notice that the Central Government is
considering the supersession 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, 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.
(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 from the date of the
notification of supersession, cease to hold office as such members;
(b) the person or
persons appointed under sub-section (1) 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
under sub-section (1) 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.
(3)
Notwithstanding anything to the contrary contained in any law or the rules or
bye-laws of the recognised stock exchange the governing body of which is
superseded under sub-section (1), the person or persons appointed under that
sub-section shall hold office for such period a may be specified in the
notification published under that sub-section and, the Central Government may
from time to time, by like notification, vary such period.
(4) The Central Government may at any time
before the determination of the period of office of any person or persons
appointed under this section 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 under sub-
section (1), shall re-vest, as the case may be, in the governing body so re-
constituted:
Provided that until a governing body is so re- constituted,
the person or persons appointed under sub- section (1), shall continue to
exercise and perform their powers and duties.
12. 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.
Provided that 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.
9 Substituted for
"Central Government" by the Securities and Exchange Board of India Act, 1992,
w.e.f. 30-1-1992.
10Ibid
11Ibid
12Ibid
13 Ibid
14 Substituted by
the Securities Laws (Amendment) Act, 1995, w.e.f. 25-3-1995 for "six
months".
15 Substituted for
"Central Government" by the Securities and Exchange Board of India Act, 1992,
w.e.f. 30-1-1992.
16 Ibid
17 Ibid
18 Ibid
19 Ibid
20 Ibid
21
Ibid
22 Ibid
23 Ibid
24 Ibid
25 Substituted by the
Securities Laws (Amendment) Act, 1995, w.e.f. 25-1-1995 for "six
months".
26 supra
n.13
27 Ibid
28
Ibid
CHAPTER III
CONTRACTS AND OPTIONS IN SECURITIES
13. If the Central Government is
satisfied, having regard to the nature or the volume of transactions in
securities in any State or area, that it is necessary so to do, it may, by
notification in the Official Gazette, declare this section to apply to such
State or area, and thereupon every contract in such State or area which is
entered into after date of the notification otherwise than between members of a
recognised stock exchange in such State or area or through or with such member
shall be illegal.
13A. 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 said Board.
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 the stock exchange.] 29
14. (1) 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 sub-section (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-laws, and also
(ii) as respects the rights of
any other person who has knowingly participated in the transaction entailing
such contravention.
(2) Nothing in sub-section
(1) 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.
15. 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:
Provided that where the member has secured the consent
or authority of such person otherwise than in writing he shall secure written
confirmation by such person of such consent or authority within three days from
the date of the contract:
Provided further that 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 bye-laws, 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.
16. (1) 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.
(2) All contracts in contravention of the provisions of
sub-section (1) entered into after the date of the notification issued
thereunder shall be illegal.
17. (1) Subject to the provision of
sub-section (3) and to the other provisions contained in this Act, 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 licence granted by the [Securities and Exchange Board of India]30 in this
behalf.
(2) No notification under sub- section (1) 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.
(3) The restrictions imposed by sub-section (1) 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.
18. (1) Nothing contained in sections
13, 14, 15 and 17 shall apply to spot delivery contracts.
(2) Notwithstanding anything contained in
sub-section (1), 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 are (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 provision of that section
shall so apply.
18A.
Notwithstanding anything contained in any other law for the time being in force,
contracts are -
19. (1) No person shall, except with the
permission of the Central Government, 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.
(2) 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.
[Prohibition of options in securities
20. Omitted by the Securities Laws (Amendment) Act,
1995, w.e.f. 25-1-1995]32
29 Inserted by the
Securities Laws (Amendment) Act, 1995, w.e.f. 25-1-1995.
30supra n. 9
31supra n. 3
32Prior to omission it read as under: "20.
Prohibition of options in securities.-
1. Notwithstanding anything
contained in this Act or in any other law for the time being in force, all
options in securities entered into after the commencement of this Act shall be
illegal.
2. Any option
in securities which has been entered into before such commencement and which
remains to be performed whether wholly or in part, after such commencement,
shall to that extent, become void."
CHAPTER IV
LISTING OF SECURITIES [****]33
[Conditions for listing
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.] 34
22. 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 public company or collective
investment scheme,35 the company or
scheme 36shall be entitled to be furnished with
reasons for such refusal, any 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 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,
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 recognised stock exchange or grants the permission, the stock
exchange shall act in conformity with the orders of the Central Government.
Provided that no appeal shall be preferred against refusal,
omission or failure, as the case may be, under this section on and after the
commencement of the Securities Laws (Second Amendment) Act, 1999.37
Right of Appeal
to Securities Appellate Tribunal against refusal of stock exchange to list
securities of public companies
22A. (1) 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 public company, the company shall be entitled to be furnished
with reasons for such refusal, and may, -
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.
(2) Every appeal under
sub-section (1) shall be in such form and be accompanied by such fee as may be
prescribed.
(3) The Securities Appellate Tribunal shall
send a copy of every order made by it to the Board and parties to the appeal.
(4) The appeal filed before the Securities
Appellate Tribunal under sub-section (1) 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.38
Procedure and powers of Securities Appellate
Tribunal
22B. (1) The Securities Appellate Tribunal shall not 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.
(2) 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:-
(3) Every proceeding before
Securities Appellate Tribunal shall be deemed to be a judicial proceeding,
within the meaning of sections 193 and 228, and for the purposes of section 196
of the Indian Penal Code and the Securities Appellate Tribunal shall b deemed to
be a civil court for all the purposes of section 195 and Chapter XXVI of the
Code of Criminal Procedure, 1973.39
Right to
legal representations
22C. 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 or present his or its
case before the Securities Appellate Tribunal.
Explanation. - For the purposes of this section, -
Limitation
22D. The provisions of the Limitation Act, 1963 shall as
far as may be apply to an appeal made to a Securities Appellate Tribunal.41
Civil
court not to have jurisdiction
22E. 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.42
Appeal
to High Court
22F. Any person aggrieved by any decision or order of
the Securities Appellate Tribunal may file an appeal to the High Court within
sixty days from the date of communication of the decision or order of the
Securities Appellate Tribunal on any question of fact or law arising out of such
order;
Provided that the High 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.43
33"By public companies" omitted by Securities Laws
(Second Amendment) Act, 1999 w.e.f. 16.12.1999
34 Substituted by the Securities Laws
(Amendment) Act, 1995, w.e.f. 25-1-1995 for the following:
"21. Power to compel listing of
securities by public companies- Notwithstanding anything contained in any other
law for the time being in force, if the Securities and Exchange Board of India
is of opinion, having regard to the nature of the securities issued by any
public company as defined in the Companies Act, 1956 (1 of 1956), or to the
dealings in them, that it is necessary or expedient in the interest of the trade
or in the public interest so to do, it may require the company, after giving it
an opportunity of being heard in the matter, to comply with such requirements as
may be prescribed with respect to the listing of its securities on any
recognised stock exchange."
35
Supra n. 3
36 Ibid
37Inserted by Securities Laws (Second Amendment) Act, 1999
vide Gazette Notification dated December 16, 1999
38Inserted by
Securities Laws (Second Amendment) Act, 1999 vide Gazette Notification dated
December 16, 1999. Earlier provision read as under was omitted by the
Depositories Act, 1996.
"22A. Free transferability and registration of transfers of
listed securities of companies.-
(1) In this
section, unless the context otherwise requires,-
(a) "company" means a company whose securities are listed on
a recognised stock exchange;
(b) "security" means security
of a company, being a security listed on a recognised sock exchange but not
being a security which is not fully paid-up or on which the company has a
lien;
(c) all other words
and expressions used in this section and not defined in this Act but defined in
the Companies Act, 1956 (1 of 1956), shall have the same meanings as are
assigned to them in that Act.
(2)
Subject to the provisions of this section, securities of companies shall be
freely transferable.
(3) Notwithstanding
anything contained in its articles or in section 82 or section 111 of the
Companies Act, 1956 (1 of 1956), but subject to the other provisions of this
section, a company may refuse to register the transfer of any of its securities
in the name of the transferee on any one or more the following grounds and on no
other ground, namely:
(a) that the instrument of transfer
is not proper or has not been duly stamped and executed or that the certificate
relating to the security has not been delivered to the company or that any other
requirement under the law relating to registration of such transfer has not been
complied with;
(b) that the transfer of the securities is in contravention
of any law or rules made thereunder or any administrative instructions or
conditions of listing agreement laid down in pursuance of such laws or
rules;
(c) that the transfer of the security is likely to result
in such change in the composition of the board of directors as would be
prejudicial to the interests of the company or to the public interest; and
(d) that the transfer of the security is prohibited by any
order of any court, tribunal or other authority under any law for the time being
in force.
(4)
A company shall, before the expiry of two months from the date on which the
instrument of transfer of any of its securities is lodged with it for the
purposes of registration of such transfer, not only form, in good faith, its
opinion as to whether such registration ought not or ought to be refused on any
of the grounds mentioned in sub-section (3) but also-
(a) if it has formed the opinion that such registration
ought not to be so refused, effect such registration;
(b) if it has formed the opinion that such registration
ought to be refused on the ground mentioned in clause (a) of sub-section (3),
intimate the transferor and the transferee by notice in the prescribed form
about the requirements under the law which has or which have to be complied with
for securing such registration; and
(c) in any other case make a reference to the Company Law
Board and forward copies of such reference to the transferor and the
transferee.
(5)
Every reference under clause (c) of sub-section (4) shall be in the prescribed
form and contain the prescribed particulars and shall be accompanied by the
instrument of transfer of the securities to which it relates, the documentary
evidence, if any, furnished to the company along with the instrument of
transfer, and evidence of such other nature and such fees as may be
prescribed.
(6) On receipt of a
reference under sub-section (4), the Company Law Board shall, after causing
reasonable notice to be given to the company and also to the transferor and the
transferee concerned and giving them a reasonable opportunity to make their
representations, if any, in writing by order, direct either that the transfer
shall be registered by the company or that it need not be registered by it.
(7) Where on a
reference under sub-section (4), the Company Law Board directs that the transfer
of the securities to which it relates-
(a) shall be registered by the
company, the company shall give effect to the direction within ten days of the
receipt of the order as if it were an order made on appeal by the Company Law
Board in exercise of the powers under section 111 of the Companies Act, 1956 (1
of 1956);
(b) need not be registered by the company, the company
shall, within ten days from the date of such direction, intimate the transferor
and the transferee accordingly.
(8)
It default is made in complying with the provisions of this section, the company
and every officer of the company who is in default shall be punishable with fine
which may extend to five thousand rupees.
(9) If in any
reference made under clause (c) of sub- section (4) of this section, any person
makes any statement-
(a) which is false in any material particular, knowing it
to be false; or
(b)
which omits any material fact knowing it to be material, he shall be punishable
with imprisonment for a term which may extend to three years and shall also be
liable to fine.
(10) For the removal of doubts, it is hereby provided that nothing in this
section shall apply in relation to any securities the instrument of transfer in
respect whereof has been lodged with the company before the commencement of the
Securities Contracts (Regulation) Amendment Act, 1995."
39Inserted by Securities Laws (Second Amendment )
Act, 1999 vide Gazette Notification dated December 16, 1999
40Ibid
41Ibid
42Ibid
43Ibid
CHAPTER V
PENALTIES AND PROCEDURES
23. (1) 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 19; or
(d) enters into any contract
in derivative in contravention of section 18 A or the rules made under section
30.44
(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
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
(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
bye-laws 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, on conviction, be punishable with
imprisonment for a term which may extend to one year, or with fine, or with
both.
(2) 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 with the orders of]45 the Central Government under section 22 or
with the orders of the Securities Appellate Tribunal shall,46 on conviction, be punishable with fine
which may extend to one thousand rupees.
24. (1) Where an offence has been
committed by a company, every person who, at the time when the offence was
committed, was incharge 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:
Provided that nothing contained in this sub-section
shall render any such person liable to any punishment provided in this Act, if
he proves that the offence was committed without his knowledge or that he
exercised all due diligence to prevent the commission of such offence.
(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
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 offence and 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 other association of individuals, and
(b)
"director", in relation to -
(i) a firm, means a partner in the firm;
(ii) any association of persons or a body of individuals,
means any member controlling the affairs thereof. 47
[(3) The provisions of this section shall be in addition
to, and not in derogation of, the provisions of section 22A].48
25. Notwithstanding anything contained
in the [Code of Criminal Procedure, 1898 (5 of 1898)],49 any offence punishable under sub-section
(1) of section 23, shall be deemed to be a cognizable offence within the meaning
of that Code.
26. No court inferior to that of a
presidency magistrate or a magistrate of the first class shall take cognizance
of or try any offence punishable under this Act.
44Inserted by Securities Laws (Second Amendment) Act,
1999 vide Gazette Notification dated December 16, 1999. Clause (d) was earlier
omitted by the Securities Laws (Amendment) Act, 1995, w.e.f. 25-1-1995. Prior to
omission it read as under: "(d) enters into any option in securities in
contravention of the provisions contained in section 20; or" wilfully represents
to or induces any person to believe that contracts can be entered into or
performed under this Act through him; or
45Substituted for "or who fails to comply with
the orders of the Securities and Exchange Board of India under section 21" by
the Securities Laws (Amendment) Act, 1995, w.e.f.25-1-1995.
46Inserted by the Securities Laws ( Second
Amendment) Act,1999 vide Gazette Notification dated December 16, 1999
47Substituted by the Securities Laws ( Second
Amendment) Act,1999 vide Gazette Notification dated December 16, 1999 for " (b)
director , in relation to a firm, means a partner in the firm".
48Inserted by the Securities Contracts
(Regulation) Amendment Act, 1985.
49Now Code of Criminal Procedure, 1973.
CHAPTER VI
MISCELLANEOUS
27. (1) 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.
(2) Nothing contained in
sub- section (1) shall affect -
Right to receive income from collective investment
scheme. –
27A (1) 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 by the collective investment scheme declared by the
collective investment scheme in respect thereof for any year notwithstanding
that 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 investment
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 instrument 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 collective investment scheme, and other documents relating to the
transfer due to causes connected with the post, by the actual period of the
delay.
(2) Nothing contained in sub-section (1) shall affect -
28. (1) 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.
(2) Without prejudice to
the provisions contained in sub-section (1), if the Central Government is
satisfied that in the interests 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.
29. 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.
29A. The Central Government may, by
order published in the Official Gazette, direct that the powers (except the
power under section 30) exercisable by 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, 1934.51
30. (1) The Central Government may, by
notification in the Official Gazette, make rules for the purpose of carrying
into effect the objects of this Act.
(2) In particular, and without prejudice to
the generality of the foregoing power, 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 recognizing 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 -
(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".52
(ha)
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.53
(i) any other matter which is
to be or may be prescribed.
(3) Any rules made under this section [***]54 shall, as soon as
may be, after their publication in the Official Gazette, be laid before both
Houses of Parliament.
31. Repealed by the Repealing and
Amending Act, 1960 (58 of 1960), section 2 and Schedule 1.
50
supra n. 3
51 Substituted by
Securities Laws (Second Amendment) Act, 1999 vide Gazette Notification dated
December 16, 1999 for "The Central Government may, by order published in the
Official Gazette, direct that the powers 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]" which was inserted by Securities and Exchange
Board of India Act, 1992, w.e.f. 30.1.92
52
Substituted by Securities Laws (Second Amendment) Act, 1999 vide
Gazette Notification dated December 16, 1999 for "the requirements which shall
be complied with by public companies for the purpose of getting their securities
listed on any stock exchange; [***]
53 Substituted by Securities Laws ( Second
Amendment ) Act, 1999 vide Gazette Notification dated December 16, 1999 for
[(ha) the form in which a notice
referred to in sub-clause (b) of sub-section (4) of section 22A shall be the
particulars which such notice shall contain, the form in which a reference under
clause (c) of the said sub-section (4) shall be the particulars which such
reference shall contain, and the evidence and the fees which shall accompany
such reference; and] which was inserted by Securities Contracts (Regulation)
Amendment Act,1985
54 The words "shall be
subject to the condition of previous publication and" deleted by the Securities
Laws (Amendment) Act, 1995, w.e.f. 25-3-1995.