Securities Contracts (Regulation) Act, 1956

Securities and Exchange Board of India

SECURITIES CONTRACTS (REGULATION) ACT, 1956

[42 OF 1956]

SECTIONS

PRELIMINARY

1. Short title, extent and commencement

2. Definitions

RECOGNISED STOCK EXCHANGES

3. Application for recognition of stock exchanges

4. Grant of recognition to stock exchanges.

4A. Corporatisation and demutualisation of stock exchanges

4B. Procedure for corporatisation and demutualisation

5. Withdrawal of recognition

6. Power of Central Government to call for periodical returns or direct inquiries to be made

7. Annual reports to be furnished to Central  Government by stock exchanges

7A. Power of recognised stock exchange to make rules restricting voting rights, etc.

8. Power of Central Government to direct rules to be made or to make rules

8A. Clearing corporation

9. Power of recognised stock exchanges to make bye-laws

10. Power of Securities and Exchange Board of India to make or amend bye-laws of recognised stock exchanges

11. Power of Central Government to supersede governing body of a recognised stock exchange

12. Power to suspend business of recognised stock exchanges.

12A. Power to issue directions

13. Contracts in notified areas illegal in certain circumstances

13A. Additional trading floor

14. Contracts in notified areas to be void in certain circumstances

15. Members may not act as principals in certain circumstances

16. Power to prohibit contracts in certain cases

17. Licensing of dealers in securities in certain areas

17A. Public issue and listing of securities referred to in sub-clause (ie) of clause (h) of section 2

18. Exclusion of spot delivery contracts from sections 13, 14, 15 and 17

18A. Contracts in derivative

19. Stock exchanges other than recognised stock exchanges prohibited

20. Prohibition of options in securities

21. Conditions for listing

21A. Delisting of securities

22. Right of appeal against refusal of stock exchanges to list securities of public companies

22A. Right of appeal to Securities Appellate Tribunal against refusal of stock exchange to list securities of public companies

22B. Procedure and powers of Securities Appellate Tribunal

22C. Right to legal representation

22D. Limitation

22E. Civil court not to have jurisdiction

22F. Appeal to Supreme Court

PENALTIES AND PROCEDURE

23. Penalties

23A. Penalty for failure to furnish information, return, etc.

23B. Penalty for failure by any person to enter into an agreement with clients

23C. Penalty for failure to redress investors’ grievances

23D. Penalty for failure to segregate securities or moneys of client or clients

23E. Penalty for failure to comply with provision of listing conditions or delisting conditions or grounds

23F. Penalty for excess dematerialisation or delivery of unlisted securities

23G. Penalty for failure to furnish periodical returns, etc.

23GA Penalty for failure to conduct business in accordance with rules, etc.

23H. Penalty for contravention where no separate penalty has been provided

23-I. Power to adjudicate

23J. Factors to be taken into account while adjudging quantum of penalty

23JA. Settlement of administrative and civil proceedings

23JB. Recovery of amounts

23JC Continuance of proceedings

23K. Crediting sums realised by way of penalties to Consolidated Fund of India

23L. Appeal to Securities Appellate Tribunal

23M. Offences

23N. Composition of certain offences 23-O. Power to grant immunity

24. Contravention by companies

25. Certain offences to be cognizable

26. Cognizance of offences by courts

26A. Establishment of Special Courts

26B. Offences triable by Special Courts

26C. Appeal and revision

26D. Application of Code to proceedings before Special Court

26E. Transitional Provisions

MISCELLANEOUS

27. Title to dividends

27A. Right to receive income from collective investment scheme

27B. Right to receive income from mutual fund

28. Act not to apply in certain cases

29. Protection of action taken in good faith

29A. Power to delegate

29B. Powers of Board not to apply to International Financial Services Centre

30. Power to make rules

30A. Special Provisions related to commodity derivatives

30B. Special provisions related to pooled investment vehicle

31. Power of Securities and Exchange Board of India to make regulations

32. Validation of certain acts

SECURITIES CONTRACTS (REGULATION) ACT, 1956

[42 OF 1956]

[4th September, 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:

PRELIMINARY

Short title, extent and commencement.

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 2 as the Central Government may, by notification in the Official Gazette, appoint.

Definitions.

2. In this Act, unless the context otherwise requires,—

(a) “contract” means a contract for or relating to the purchase or sale of securities;

3 [(aa) “corporatisation” 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;

(ab) “demutualisation” 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;]

4 [5 [(ac)] “derivative”— includes

(A) 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;

(B) a contract which derives its value from the prices, or index of prices, of underlying securities;]

6 [(C) commodity derivatives; and

(D) such other instruments as may be declared by the Central Government to be derivatives;]

(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);

7 [(bb) “goods” mean every kind of movable property other than actionable claims, money and securities;

(bc) “commodity derivative” means a contract —

(i) for the delivery of such goods, as may be notified by the Central Government in the Official Gazette, and which is not a ready delivery contract; or

(ii) for differences, which derives its value from prices or indices of prices of such underlying goods or activities, services, rights, interests and events, as may be notified by the Central Government, in consultation with the Board, but does not include securities as referred to in sub-clauses (A) and (B) of clause (ac);]

(c) “member” means a member of a recognised stock exchange;

8 [(ca) “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; ]

(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;

9 [(da) “pooled investment vehicle” means a fund established in India in the form of a trust or otherwise, such as mutual fund, alternative investment fund, collective investment scheme or a business trust as defined in sub-section (13A) of section 2 of the Income tax Act, 1961 and registered with the Securities and Exchange Board of India, or such other fund, which raises or collects monies from investors and invests such funds in accordance with such regulations as may be made by the Securities and Exchange Board of India in this behalf;]

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

10[(ea) “ready delivery contract” means a contract which provides for the delivery of goods and the payment of a price therefor, either immediately, or within such period not exceeding eleven days after the date of the contract and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in respect of any goods, the period under such contract not being capable of extension by the mutual consent of the parties thereto or otherwise:

Provided that where any such contract is performed either wholly or in part:

(I) by realisation of any sum of money being the difference between the contract rate and the settlement rate or clearing rate or the rate of any offsetting contract; or

(II) by any other means whatsoever, and as a result of which the actual tendering of the goods covered by the contract or payment of the full price therefor is dispensed with, then such contract shall not be deemed to be a ready delivery contract; ]

(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;

11[(ga) “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;

(v) any other matter required for the purpose of, or in connection with, the corporatisation or demutualisation, as the case may be, of the recognised stock exchange;]

12[ 13[(gb)] “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 (15 of 1992);]

(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 14[or a pooled investment vehicle or other body corporate];

15[(ia) derivative;

(ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes;]

16[(ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;]

17[(id) units or any other such instrument issued to the investors under any mutual fund scheme;]

18[Explanation.—For the removal of doubts, it is hereby declared that