COURSE :- BBA LLB .

(H)
SEM :- 8
INVESTMENT LAW [ LAW 455 ]

TOPIC :-
GROUP MEMBERS
S.NO NAME E.NO COURSE SECTION
1 ARYAN PRIYADARSHI A90821519068 BBA LLB B

2 RAJARSHI BANERJEE A90821519015 BBA LLB A

3 VISHAL ANAND MISHRA A90821519057 BBA LLB B

4 GOURAV SARKAR A90821519040 BBA LLB A

Introduction

The Securities Contracts (Regulation) Act, was enacted in the year 1956. It is also
referred to as the SCRA and is one of the first few rules and regulations or legislations
made in the Indian capital markets.

The SCRA regulates the contracts executed in the Indian securities markets and stock
exchanges. Therefore, all those securities that are defined by the Securities and Exchange
Board of India (SEBI) have to necessarily follow the terms and conditions specified
under the securities contract or the SCRA.

Definition of Securities

This definition of securities is utilized for all purposes of the Securities and Exchange
Board of India (SEBI) Act, and several rules and regulations set out as per the SEBI Act.
The Companies Act defines securities to carry the same meaning as defined under the
SCRA, and it includes hybrids as well.

Hybrids are securities that have the characteristics of more than one security, including
derivates. A major example of hybrids can be convertible debentures. These have the
characteristics of both stocks and debentures.

The SCRA includes shares, stocks, bonds, scrips, debentures, debenture stocks, or any
other marketable security of a listed company.
Contracts

The SCRA defines ‘contracts’ as a means to an agreement pertaining to the sale or

purchase of securities. Contracts are of three types, and they are as follows:

i) Spot contract: These are the contracts that provide for the real delivery of
assets or securities in exchange for payments on the same day of the contract
being executed or on a future date.

ii) Ready delivery contract: These are the contracts that are to be executed
immediately or within a specified timeframe.

iii) Forward contracts: These are the contracts under which the parties involved
would agree to execute the contract on a specified date in future.

1. Important Definitions

Some of the important definitions under The Securities Contracts (Regulation) Act, 1956
include:
Corporatisation [Section 2(aa)] means the succession of a recognised stock exchange,
being a body of individuals or a society registered under the Societies Registration Act,
1860 (21 of 1860), by another stock exchange, being a company incorporated for the
purpose of assisting, regulating or controlling the business of buying, selling or dealing in
securities carried on by such individuals or society.

Demutualisation [Section 2(ab)] means the segregation of ownership and management

from the trading rights of the members of a recognised stock exchange in accordance
with a scheme approved by the Securities and Exchange Board of India.

Derivative [Section 2(ac) ] includes,

(i) A security derived from a debt instrument, share, loan, whether secured or
unsecured, risk instrument or contract for differences or any other form of
security,
(ii) A contract which derives its value from the prices, or index of prices, of
underlying securities,
(iii) Commodity derivatives, and
(iv) Such other instruments as may be declared by the Central Government to be
derivatives.

Non transferable specific delivery contract means a specific delivery contract, the
rights or liabilities under which or under any delivery order, railway receipt, bill of
lading, warehouse receipt or any other documents of title relating thereto are not
transferable.
Scheme means a scheme for corporatisation or demutualisation of a recognised stock
exchange which may provide for

(i) The issue of shares for a lawful consideration and provision of trading rights in
lieu of membership cards of members of a recognised stock exchange,

(ii) The restrictions on voting rights,

(iii) The transfer of property, business, assets, rights, liabilities, recognitions,
contracts of the recognised stock exchange, legal proceedings by, or against,
the recognised stock exchange, whether in the name of the recognised stock
exchange or any trustee or otherwise and any permission given to, or by, the
recognised stock exchange, (iv) the transfer of employees of a recognised stock
exchange to another recognised stock exchange; and (v) any other matter
required for the purpose of, or in connection with, the corporatization or
demutualisation, as the case may be, of the recognised stock exchange.

Securities [ Section 2(h) ] 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,Derivative,
(iv) Units or any other instrument issued by any collective investment scheme to
the investors in such schemes,
(v) Security receipt as defined in clause (zg) of section 2 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
(vi) Units or any other such instrument issued to the investors under any mutual
fund scheme,
(vii) Any certificate or instrument (by whatever name called), issued to an investor
by any issuer being a special purpose distinct entity which possesses any debt
or receivable, including mortgage debt, assigned to such entity, and
 acknowledging beneficial interest of such investor in such debt or receivable,
including mortgage debt, as the case may be,
(viii) Government securities,
(ix) Such other instruments as may be declared Government to be securities, and
(x) Rights or interests in securities.

Specific Delivery Contract means a commodity derivative which provides for the actual
delivery of specific qualities or types of goods during a specified future period at a price
fixed thereby or to be fixed in the manner thereby agreed and in which the names of both
the buyer and the seller are mentioned.

Spot Delivery Contract means a contract which provides for,

(i) 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.

(ii) 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.

Transferable Specific Delivery Contract means a specific delivery contract which is not
a non-transferable specific delivery contract and which is subject to such conditions
relating to its transferability as the Central Government may by notification in the
Official Gazette, specify in this behalf.
2. Recognized Stock Exchange

Any stock exchange that desires to be recognized under this Act can apply to the Central
Government in the prescribed form along with a list of particulars that include:

1. the governing body of such stock exchange, its constitution, and powers of
management and the manner in which its business is to be transacted,
2. the powers and duties of the office-bearers of the stock exchange,
3. the admission into the stock exchange of various classes of members, the
qualifications for membership, and the exclusion, suspension, expulsion, and
re-admission of members therefrom or thereinto, and
4. the procedure for the registration of partnerships as members of the stock
exchange in cases where the rules provide for such membership; and the
nomination and appointment of authorized representatives and clerks.

The grant of recognition to stock exchanges is dependent upon the satisfaction of the
Central Government. There are requirements of all recognized stock exchanges to be
corporatized and demutualized under the SCRA.

If the Central Government is of the opinion that the recognition granted to a stock
exchange should be withdrawn in the interest of trade or the public interest, the Central
Government is empowered to withdraw the recognition by serving a notice to the
concerned stock exchange and giving a reasonable opportunity of being heard.

The withdrawal has to be made by way of notification in the Official Gazette. If the
recognized stock exchange fails to demutualize or corporatize, the Central Government is
empowered to withdraw the recognition in such cases too.
Recognized stock exchanges are empowered to make bye-laws for the regulation and
control of contracts which include the following:

1. The opening and closing of markets and the regulation of the hours of trade
2. 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
3. The submission to the Securities and Exchange Board of India 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 may, from
time to time, require
4. The publication by the clearing house of all or any of the particulars submitted
to the Securities and Exchange Board of India
5. The regulation or prohibition of blank transfers
6. The number and classes of contracts in respect of which settlements shall be
made or differences paid through the clearing house
7. The regulation, or prohibition of budlas or carry-over facilities
8. The fixing, altering or postponing of days for settlements
9. The determination and declaration of market rates, including the opening,
closing highest and lowest rates for securities
10. 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
11. 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
 12. The regulation of taravani business including the placing of limitations thereon
13. 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
14. The method and procedure for the settlement of claims or disputes, including
settlement by arbitration
15. The levy and recovery of fees, fines and penalties

3. Powers granted by the SCRA [ The Securities Contract (Regulation)

Act 1956 ]

Powers granted to the Central Government by the SCRA:

1. Granting recognition to stock exchanges

2. Withdrawing recognition given to stock exchanges
3. Power to call for periodical returns and conducting direct inquiries
4. Power to require the furnishing of annual reports of recognised stock exchanges
5. Power to make rules and to direct rules to be made
6. Power to supersede governing body of a recognised stock exchange
7. Power to suspend the business of recognised stock exchanges
8. Power to notify contract as illegal in certain circumstances in notified areas
9. Power to prohibit contracts in certain cases
10. Power to license dealers in securities in certain areas
11. Power to grant immunity
12. Power to delegate its powers to the Securities and Exchange Board of India and
the Reserve Bank of India
13. Power to make rules
14. Power to vary or set aside the decision of refusal to list securities made by the
recognised stock exchange on appeal
 15. Power to grant or refuse listing of securities in appeal

Powers granted to the Securities and Exchange Board of India (SEBI) by the SCRA:

1. Power to approve the transfer of duties and functions of a clearing house to a

clearing corporation
2. Power to approve the making of bye-laws by recognised stock exchanges for
the regulation and control of contracts
3. Power to make or amend bye-laws of recognised stock exchanges
4. Power to issue directions to stock exchanges, clearing corporations, agencies,
persons or classes of persons associated with the securities market
5. Power to issue directions to companies whose securities are listed or proposed
to be listed in a recognised stock exchange
6. Power to approve the establishment of additional trading floor in recognised
stock exchanges
7. Power to appoint adjudicating officers
8. Power to make regulations

Powers granted to the Securities Appellate Tribunal by the SCRA:

1. Power to summon and enforce the attendance of any person and examine him
on oath
2. Power to require the discovery and production of documents
3. Power to receive evidence on affidavits
4. Power to issue commissions for the examination of witnesses or documents
5. Power to review its decisions
6. Power to dismiss application for default or deciding it ex- parte
7. Power to set aside any order of dismissal of any application for default or any
order passed by it ex- parte
 8. Power to vary or set aside decision of refusal to list securities made by the
recognised stock exchange on appeal
9. Power to grant or refuse listing of securities in appeal
10. Power to exercise any other prescribed matter

4. Penalties under the SCRA

The offenses and penalties under the SCRA include:

Particulars of the Offense Penalty

If a person fails to comply with any requisition made under Imprisonment for a
sub-section (4) of section 6 term extendable up to
10 years or fine
extendable up to
rupees 25 crores or
both.

If a person enters into any contract in contravention of any of Imprisonment for a

the provisions contained in section 13 or section 16 term extendable up to
10 years or fine
extendable up to
 rupees 25 crores or
both.

If a person contravenes the provisions contained in section 17 Imprisonment for a

or section 17A or section 19 term extendable up to
10 years or fine
extendable up to
rupees 25 crores or
both.

If a person enters into any contract in derivative in Imprisonment for a

contravention of section 18A or the rules made under section term extendable up to
30 10 years or fine
extendable up to
rupees 25 crores or
both.

If a person owns or keeps a place other than that of a Imprisonment for a

recognised stock exchange which is used for the purpose of term extendable up to
entering into or performing any contracts in contravention of 10 years or fine
any of the provisions of this Act and knowingly permits such extendable up to
place to be used for such purposes rupees 25 crores or
both.
If a person manages, controls, or assists in keeping any place Imprisonment for a
other than that of a recognised stock exchange which is used term extendable up to
for the purpose of entering into or performing any contracts in 10 years or fine
contravention of any of the provisions of this Act or at which extendable up to
contracts are recorded or adjusted or rights or liabilities arising rupees 25 crores or
out of contracts are adjusted, regulated or enforced in any both.
manner whatsoever

If a person not being a member of a recognised stock exchange Imprisonment for a

or his agent authorized as such under the rules or bye-laws of term extendable up to
such stock exchange or not being a dealer in securities licensed 10 years or fine
under section 17 wilfully represents to or induces any person to extendable up to
believe that contracts can be entered into or performed under rupees 25 crores or
this Act through him both.

If a person not being a member of a recognised stock exchange Imprisonment for a

or his agent authorized as such under the rules or bye-laws of term extendable up to
such stock exchange or not being a dealer in securities licensed 10 years or fine
under section 17, canvasses, advertises or touts in any manner extendable up to
either for himself or on behalf of any other persons for any rupees 25 crores or
business connected with contracts in contravention of any of both.
the provisions of this Act
5. Important judgments under SCRA

Some of the important judgments under the Securities Contracts (Regulations) Act, 1956
are:

1.MCX Stock Exchange Limited Versus Securities & Exchange Board of India, Writ
Petition No. 213 of 2011 dated 14th March, 2012 (Bombay High Court)

The Bombay High Court in this case, clarified the validity of option contracts under the
Securities Contracts (Regulation) Act, 1956 and stated that option contracts are different
from forward contracts. The distinction was specified because forward contracts are
prohibited under the Act and the Bombay High Court held that option contracts are valid
contracts under the Act.

2.The Madras Stock Exchange Limited Versus S.S.R. Rajakumar, Original Side
Application No. 64 of 1995 dated 25th February, 2003 (Madras High Court)

The Madras High Court, in this case, reversed the wrongful expulsion of the respondent
who was made liable to pay the applicant a sum of Rs. 30 lakhs by a subordinate court.
The Madras High Court further held that the officers of a recognised stock exchange
cannot be held liable for following the Articles of the recognised stock exchange.

3. Parikh Versus Union of India, Special Civil Application No. 17040 of 2012 with Writ
Petition (Public Interest Litigation) No. 211 of 2012 dated 07th May, 2014 (Gujarat High
Court)
In this case before the Gujarat High Court, the Petitioner had challenged the legality and
validity of certain circulars and the Securities Contracts (Regulation) (Stock Exchange
and Clearing Corporations) Regulations, 2012 issued by the Securities and Exchange
Board of India stating that they are inconsistent with the provisions of the Indian
Constitution, Securities Contracts (Regulation) Act, 1956 and the erstwhile Companies
Act, 1956. The Gujarat High Court dismissed the petition of the Petitioner in this case
and upheld the validity of all the challenged circulars and regulations.

Conclusion

The SCRA is an enactment to provide for direct and indirect control of all aspects of
securities trading, running of stock exchanges and to prevent undesirable transactions in
securities. The SCRA,1956, among other provisions, making provision as to recognition
of the stock exchanges by the Government, providing for their corporatisation and
demutualisation, ensuring adequate government control over the functions and affairs of
the stock exchanges in the interest of investors, has contributed to a healthy, disciplined
and beneficial platform for the dealings in security. Due to such provisions contained in
the Act, there has been a raising in investment.The Securities Contract (Regulation) Act,
1956 deals with stock exchanges, contracts in securities, and listing of securities on stock
exchanges, and keeps a vigil over all the stock exchanges of India and prevents
undesirable contracts in Securities market through a process of recognition and continued
supervision.