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Securities Contract (Regulation) Act, 1956: by Supreeth Nag Hegde

The document provides an overview of the Securities Contracts (Regulation) Act of 1956 in India. Some key points: 1. The Act was passed to regulate stock exchanges and provide government recognition, as exchanges pre-1956 operated without regulations. It defines terms around securities and lists procedures for exchange registration, security listings, and broker operations. 2. The objectives of the Act are to protect investors, promote securities market development, and regulate the market. A landmark case involved the 1991 Harshad Mehta stock market scam. 3. The Act provides for government recognition of stock exchanges that meet requirements around rules, investor protection, and being in the public interest. Recognition can also be withdrawn under certain conditions

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48 views

Securities Contract (Regulation) Act, 1956: by Supreeth Nag Hegde

The document provides an overview of the Securities Contracts (Regulation) Act of 1956 in India. Some key points: 1. The Act was passed to regulate stock exchanges and provide government recognition, as exchanges pre-1956 operated without regulations. It defines terms around securities and lists procedures for exchange registration, security listings, and broker operations. 2. The objectives of the Act are to protect investors, promote securities market development, and regulate the market. A landmark case involved the 1991 Harshad Mehta stock market scam. 3. The Act provides for government recognition of stock exchanges that meet requirements around rules, investor protection, and being in the public interest. Recognition can also be withdrawn under certain conditions

Uploaded by

anusha B
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Securities Contract (Regulation) Act, 1956

By
Supreeth Nag Hegde
Few basics which are required to be known before
knowing about the act

1. What is Company ?
2. What is Listed Company ?
3. What is Stock Exchange ?
4. What is SEBI ?
History
1. Prior 1956 stock exchanges were functioning in the form of body of individuals, firms,
society, and company without any regulations.
2. In 1956 government introduced the Securities Contracts (Regulation) Act. All existing
stock exchanges were forced to be converted into company, was being regulated by
government.

3. Post 1956 stock exchange were made to register by giving a application to central
government if central government agrees then the stock exchange were given
recognisation . Later the only recognized stock exchange were made to function in
India .
4. The stock exchanges suffer from certain limitations and require strict control over their
activities in order to ensure safety in dealings thereon. Hence, in 1956, the Securities
Contracts (Regulation) Act was passed which provided for recognition of stock
exchanges by the Central Government.
Introduction
The Securities Contracts (Regulation) Act, 1956, extends to the whole of India and
came into force in February, 1957. The Act defines various terms in relation to
securities and provides the detailed procedure the stock exchanges to get recognition
from Government/SEBI, procedure for listing of securities of companies and
operations of the brokers in relation to purchase and sale of securities on behalf of
investors.
Legislative competence and entry invoked in 7th schedule
of the Constitution of India.

• SEBI has the Legislative competence over the act which was previously held by
the central government was amended during the enactment of Securities and
Exchange Board of India Act, 1992.

• Under the Seventh Schedule of the Constitution of India in the Union list on
48th entry Stock exchanges and futures markets.
Other Laws prevailing over this act before getting
enacted

• Indian Contract Act, 1872 and

• Sale of Goods Act, 1930.


OBJECTIVE OF SEBI

• To protect the interests of investors in securities,


• To promote the development of, and
• To regulate the securities market and for matters connected therewith or
incidental thereto.
Landmark case under this act

• Harshad S Mehta vs Central Bureau Of Investigation on 1 October, 1992.

• Famously known as the Harshad Mehta scam of 1991.


Structure of the act

1. PRELIMINARY
2. RECOGNISED STOCK EXCHANGES
3. LISTING OF SECURITIES
4. PENALTIES AND PROCEDURE
5. MISCELLANEOUS
Important Definations

• Corporatisation

• Demutualisation
Important Definations

• Stock Exchange

Stock Exchange means –

(a) any body of individuals, whether incorporated or not,


constituted before corporatisation and demutualisation,

for the purpose of assisting, regulating or controlling the


business of buying, selling or dealing in securities.
Important Definations

• Spot delivery contract

• Spot delivery contract means a contract which


provides for –

• (a) actual delivery of securities

• (b) transfer of the securities by the depository


Important Definations

• Recognised Stock Exchange

Recognised Stock Exchange means a stock


exchange which is for the time being recognised by
the Central Government.

• Government security

Government security means a security created and


issued whether before or after the commencement of
this Act, by the Central Government or a State
Government for the purpose of raising a public loan.
RECOGNITION OF STOCK EXCHANGES

Section 3
• Every application shall contain such particulars as may be
prescribed,

• Shall be accompanied by a copy of the bye-laws of the


stock exchange for the regulation and control of contracts

• A copy of the rules relating in general to the constitution


of the stock exchange and in particular to –

1. governing body
2. office bearers
3. members
RECOGNITION OF STOCK EXCHANGES

Section 4

• (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 which the Central Government,
may impose; 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;
Withdrawal Of stock exchanges
• If the Central Government is of opinion that the
recognition granted to a stock exchange should in the

• Interest of the trade or in the public interest, be


withdrawn.

• the Central Government may serve on the governing


body of the stock exchange a written notice that the
Central Government is considering the withdrawal of
the recognition for the reasons stated in the notice.

• 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.
Withdrawal Of Stock Exchanges
Powers of CG
Powers of RSE
Powers of SEBI
PUBLIC ISSUE AND LISTING OF SECURITIES
PUBLIC ISSUE AND LISTING OF SECURITIES
RIGHT OF APPEAL TO SAT AGAINST
REFUSAL TO LIST SECURITIES BY STOCK
EXCHANGES
RIGHT OF APPEAL TO SAT AGAINST
REFUSAL TO LIST SECURITIES BY STOCK
EXCHANGES
(All sums realized by way of penalties under this Act shall be credited to the
Consolidated Fund of India.)
Factors to be taken in account by the Adjudicating officer while
imposing the amount of Penalty

• 1. the amount of disproportionate gain or unfair advantage,


wherever quantifiable, made as a result of the default;

• 2. the amount of loss caused to an investor or group of


investors as a result of the default;

• 3. the repetitive nature of the default.


Recovery of amount by Adjudicating officer if
any person fails to pay the penalty

Recover from such person the amount by one or more of the


following modes, namely:-

1. Attachment and sale of the person’s movable property;

2. Attachment of the person’s bank accounts;

3. Attachment and sale of the person’s immovable property;

4. Arrest of the person and his detention in prison;

5. Appointing a receiver for the management of the person’s


movable and immovable properties.
The mechanism provided to deliver justice to the
agrieved persons whom to approch
• SCORES (SEBI COMPLAINTS REDRESS SYSTEM)

It is an online platform designed to help investors to lodge their complaints,


pertaining to securities market, online with SEBI against listed companies and
SEBI registered intermediaries. All complaints received by SEBI against listed
companies and SEBI registered intermediaries are dealt through SCORES.
• SECURITIES APPELLATE TRIBUNAL

In order to afford proper appellate remedies, SEBI Act provides for the
establishment of the Securities Appellate Tribunals to consider appeals against
SEBI’s orders.
The Central Government is empowered to establish a Tribunal by notification,
to be known as the Securities Appellate Tribunal to exercise the jurisdiction,
power and authorities conferred on it or under the Act or any other law for the
time being in force. The Central Government shall also specify the matters and
places in relation to which the Securities Appellate Tribunal may exercise
jurisdiction.
The mechanism provided to deliver justice to the
agrieved persons whom to approch

• SEBI (Ombudsman) Regulations, 2003


Ombudsman in its literal sense is an independent person appointed to hear and
act upon citizen’s complaint about government services. This concept was
invented in Sweden and the idea has been widely adopted. For example, various
banks, insurance companies have appointed Ombudsman to attend to the
complaints of their customers.
• Special Courts

The Central Government may, for the purpose of providing speedy trial of
offences under this Act, by notification, establish or designate as many Special

Courts as may be necessary.


Right to Receive Income or Dividend from
Collective Investment Scheme/Mutual Fund or
Company

• If any person has transferred the security but the


transferee has not yet registered the security in his name,
despite of the fact that transferors name appear in the
books of accounts, transferee can claim the income or
dividend if he makes application within 15 days from
declaration of the income or dividend.
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Thank You

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