CONTENTS
Chapter-wise Marks Distribution
Chapter-wise Comparison with Study Material
SECURITIES LAWS
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
CHAPTER
OBJECTS & APPLICABILITY
1. What are the objects of the Securities Contracts (Regulation) Act, 1956?
Ans.: Objects of the Securities Contracts (Regulation) Act, 1956 are as follows:
(a)To provide for the regulation of stock exchanges.
(b)To provide for the regulation of transactions in securities.
(c)To prevent undesirable speculation in securities.
(d)To regulate the buying and selling of securities outside the limits of stock exchanges.
(
e)To provide for the ancillary matters e.g. promoting healthy stock market.
DEFINITIONS
2.Write a short note on: Spot Delivery Contract [Dec. 2014 (3 Marks)]
Ans.: Spot delivery contract means a contract which provides for —
(a)Actual delivery of securities and the payment of a price either on the same day or on the next day
(b)Transfer of the securities by the depository from the account of one beneficial owner to another beneficial owner.
In simple words, if the delivery and payment for securities are to be made on the same day or the next day it is said to be spot delivery. Rolling settlement is followed in India for settlement of spot delivery contract.
Transactions in securities market are divided in two categories. One is ‘Spot Market’ and other is ‘Derivative Market’.
(1)In spot market securities are delivered and cash is paid on the spot and hence called as spot market.
PART I : CAPITAL MARKET
(2) Derivative is one where the price is agreed on one day and delivery and settlement is made on a specified future date. Derivative Market is also known as credit market.
RECOGNIZED STOCK EXCHANGES
3. Explain the procedure for making application and recognition of stock exchange. [Dec. 2023 (5 Marks)]
Ans.: Application for recognition of stock exchanges [Section 3]:
Application to Central Government: Any stock exchange, which is desirous of being recognised, may make an application in the prescribed manner to the Central Government.
Requisites of an application: Application shall be made in prescribed form along with prescribed fee. Application shall be accompanied by 4 copies of bye-laws and Rules of the stock exchange.
The Buy-laws, Rules and Regulations must have following provisions:
- Governing body, its constitution and powers of management and the manner in which its business is to be transacted.
- Powers and duties of the office bearers of the stock exchange.
- Admission into the stock exchange of various classes of members, the qualifications for membership, and the exclusion, suspension, expulsion and readmission of members.
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 authorised representatives and clerks.
Grant of recognition to stock exchanges [Section 4]:
The Central Government may after making inquiry and after obtaining further information can grant recognition. The recognition granted to a stock exchange shall be in prescribed form.
Conditions for granting recognition: While granting recognition, the Central Government may prescribe conditions relating to –
- Qualifications for membership of stock exchanges.
- Manner in which contracts shall be entered into and enforced as between members.
- Representation of the Central Government by such number of persons not exceeding 3 as it may nominate in this behalf.
- Maintenance of accounts of members and their audit by CA whenever such audit is required by the Central Government.
Publication of recognition: Every grant of recognition to a stock exchange 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 situated. Recognition shall have effect as from the date of its publication in the Gazette of India. Opportunity being heard must be given: No application for the grant of recognition shall be refused except after giving an opportunity to the stock exchange concerned to be heard in the matter.
If application is refused the reasons for such refusal shall be communicated to the stock exchange in writing.
Restriction on alteration of Rules: Rules of a recognised stock exchange cannot be amended except with the approval of the Central Government.
4. The recognized stock exchange has powers to make rules for restricting voting rights. Comment. [June 2016 (4 Marks)]
Ans.: Power of recognized stock exchange to make rules restricting voting rights etc. [Section 7A]: Normally, voting rights is proportional to shareholding of a member. However, on case of recognised rules can provide the following matters:
(
a) Restriction of voting rights to members only in respect of any matter placed before the stock exchange at any meeting.
(
b) 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.
(
c) Restriction on the right of a member to appoint another person as his proxy to attend and vote at a meeting.
(d) Such incidental, consequential and supplementary matters as may be necessary to give effect to any of the matters specified above.
Amendments of rules of stock exchange: Rules relating to matter referred to above can be made or amended only with the approval of the Central Government/SEBI.
In approving the rules, the Central Government may make modifications therein as it thinks fit.
On publication of amended rules as approved by the Central Government the rules shall be deemed to have been validly made.
Practically, stock exchanges are asked to amend the rules as per SEBI guidelines or SEBI itself can make the rules.
5. The stock exchange wants to transfer the duties and functions of a clearing house to a clearing corporation. Is it possible to do so? Explain the purpose if any, it serves. [Dec. 2021 (4 Marks)]
3.4
PART I : CAPITAL MARKET
Ans.: Clearing Corporation [Section 8A]: A recognized stock exchange may transfer the duties and functions of a clearing house to a clearing corporation, being a company incorporated under the Companies Act, 2013 with the prior approval of SEBI.
Following duties and functions can be transferred to clearing corporation:
(
a) Periodical settlement of contracts.
(
b) Delivery and payment for securities.
(
c) Other incidental or connected matters.
Every clearing corporation shall, for the purpose of transfer of the duties and functions of a clearing house to a clearing corporation, make bye-laws and submit the same to the SEBI for its approval.
The SEBI on being satisfied that grant approval is in the interest of the trade and also in the public interest, approve the transfer of the duties and functions of a clearing house to a clearing corporation.
6. “A recognized stock exchange may frame rules/amend rules made by it to provide for all or any of the matters specified therein.” Describe them. [Dec. 2019 (5 Marks)]
Ans.: Power of SEBI to make or amend bye-laws of recognized stock exchanges [Section 10]: Following are the provisions relating to power of SEBI to make or amend the bye-laws of recognized stock exchanges:
(
a) SEBI is empowered to make or amend bye-laws of recognised stock exchanges after consultation with the governing body of the stock exchange:
On request from stock exchange or
On its own motion.
(
b) The bye-laws or amended the bye-laws 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. However, if the SEBI 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, dispense with the condition of previous publication.
(c) The bye-laws or amendments become effective as if made or amended by the stock exchange itself.
(d) If the governing body objects to any bye-laws made or amended by SEBI, it should apply to SEBI within 2 months of publication of the bye-laws in Gazette.
(
e) SEBI will give opportunity of hearing and then may revise the bye-laws.
(f) Revised bye-laws will be published in Official Gazette.
(g) Bye-laws or amendments become effective only after publication in Official Gazette.
7. Bombay Stock Exchange wants to establish an Additional Trading Floor. Explain briefly the meaning and procedure for establishing an Additional Trading Floor. [Dec. 2023 (4 Marks)]
Ans.: Establishment of additional trading floor [Section 13A]: A stock exchange may establish additional trading floor with the prior approval of the SEBI in accordance with the terms and conditions stipulated by the SEBI.
Additional trading floor: Additional trading floor means a trading ring or trading facility offered by a recognized stock exchange outside its area of operation to enable the investors to buy and sell securities through such trading floor.
Note: Earlier, the trading in stock exchange was with physical presence of brokers on the trading floor of stock exchange. Now, all stock exchanges have screen based trading. Further, the brokers can have terminals at any place in India and hence the concept of ‘trading floor’ no more exists.
In view of above, Bombay Stock Exchange may establish additional trading floor in accordance with above stated provisions.
8. What is meant by demutualization of stock exchanges? Explain the purpose of demutualization. [June 2015 (5 Marks)]
Ans.: Historically, most of the stock exchanges, except NSE & OTCEI were formed as ‘mutual organization’ i.e. formed by trading members for their common benefit. The disadvantage of such organization is that they primarily work for interest of members and those of investors. The office bearers will have access to inside information, which can be misused by them. There is no transparency and no professional approach. Moreover, they cannot raise large funds for modernization or up-gradation by offering equity shares to others. In view of above shortcomings of ‘mutual stock exchanges’, a policy decision was taken by the Government of India for corporatization of stock exchange. Corporatization means stock exchange should be organized as a company.
Thus, the process of converting ‘mutual stock exchanges’ into company form of organization is known as ‘Demutualization of Stock Exchanges’.
Corporatisation [Section 2(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, 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)]: 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 SEBI.
Corporatisation and demutualisation of stock exchanges [Section 4A]: Every stock exchange shall be corporatized and demutualised before appointed date.
PART I : CAPITAL MARKET
Procedure for corporatisation and demutualisation [Section 4B]:
Submission of scheme: All recognised stock exchanges shall submit a scheme for corporatisation and demutualisation for its approval within time specified by the SEBI. However, stock exchanges, which had already been corporatized and demutualised, shall not be required to submit the scheme.
Approval of scheme: On receipt of the scheme, the SEBI may approve the scheme with or without modification.
Publication of scheme: The scheme so approved shall be published immediately by the SEBI in the Official Gazette and in two daily newspapers circulating in India.
Imposition of restriction: While approving the scheme, SEBI may make an order restricting —
(a) Voting rights of shareholders who are also stock brokers.
(b) Rights of shareholder to appoint the representatives on the governing board of the stock exchange.
(
c) Maximum number of representatives of the stock brokers of the recognised stock exchange to be appointed on the governing board of the recognised stock exchange, which shall not exceed 1/4th of the total strength of the governing board.
Rejection of scheme: Where the SEBI is satisfied that it would not be in the interest of the trade and also in the public interest to approve the scheme, it may, by an order, reject the scheme. Such order of rejection shall be published by it in the Official Gazette.
However, the SEBI shall give a reasonable opportunity of being heard before passing an order rejecting the scheme.
Effects of publication: On the publication of scheme in the Official Gazette it shall have full effect.
Compliance: Every recognised stock exchange shall ensure that at least 51% of its equity share capital is held, within 12 months from the date of publication of the order, by the public other than shareholders having trading rights. However, the SEBI may extend the said period by another 12 months on sufficient cause being shown to it.
LISTING OF SECURITIES & APPEAL IN CASE OF REJECTION OF LISTING
9. You are the Company Secretary of Vision Ltd., whose shares were listed at Delhi Stock Exchange. The stock exchange delists the shares of the company. Give your suggestions to the company regarding the remedy available keeping in view the provisions of the Securities Contracts (Regulation) Act, 1956. [Dec. 2016 (6 Marks)] Or
ST Ltd. applied for listing of instruments in a recognized stock exchange. However, permission was refused by the stock exchange. Can the company appeal to SAT against such refusal? Explain. [Dec. 2019 (5 Marks)]
Ans.: Delisting of securities [Section 21A]: A recognised stock exchange may delist the securities of company on any of the ground or grounds prescribed under the Act.
Recognised stock exchange shall record reasons for delisting the securities of company and shall give a reasonable opportunity of being heard to the company.
Appeal: A listed company or an aggrieved investor may file an appeal before the SAT within 15 days from the date of delisting of securities. However, on sufficient cause being shown SAT may extend period further by 1 month.
The provisions of sections 22B to 22E shall apply to such appeal.
10. Serene Lifestyle Limited has been into the business of manufacturing wooden furniture. In order to expand its business operations, the company has decided to list its securities. Accordingly, it submitted a preliminary application with the Recognized Stock Exchange for listing of its forthcoming public issue. But the application has been refused by the respective Stock Exchange without stating any reason(s). One of the junior Board Director suggested, to make an appeal to the Central Government. You being the Company Secretary of Serene Lifestyle Limited, analyses the situation and elaborate, whether the suggested remedies are available for the Company, or not? [Dec. 2025 (5 Marks)]
Ans.:
Appeal to SAT against refusal to list securities of public companies [Section 22A]:
(
a) Where a recognised stock exchange refuses to list the securities of any public company, it shall furnish the reasons for such refusal.
(b) Time period for filing appeal is 15 days from the date of refusal. However, SAT may extend such period not exceeding 1 month on sufficient cause being shown.
(
c) Every appeal to SAT shall be in prescribed form along with prescribed fee.
(d) SAT may vary or set aside the decision of the stock exchange.
(
e) If application is not disposed by the stock exchange within specified time, on appeal, SAT may grant or refuse the permission.
(
(
f) Appeal should be decided by the SAT expeditiously and possibly within 6 months.
g) SAT shall send a copy of every order made by it to the SEBI and parties to the appeal.
In view of above provisions management of Serene Lifestyle Limited is advised to file appeal before Securities Appellate Tribunal (SAT) and not before the Central Government.
PART I : CAPITAL MARKET
11. “Any person aggrieved by the order or decision of the recognized stock exchange or any other order made by the SEBI may prefer an appeal before this Securities Appellate Tribunal”. Explain the statement. [Dec. 2023 (5 Marks)]
Ans.: Appeal to Securities Appellate Tribunal (SAT):
Any person may prefer an appeal before the SAT who is aggrieved by the order or decision of the - Recognised stock exchange or - Adjudicating officer or - SEBI.
Every appeal shall be filed within a period of 45 days from the date on which a copy of the order or decision is received by the appellant Appeal shall be made in prescribed form along with prescribed fees.
SAT may entertain an appeal after the expiry of 45 days if it is satisfied that there was sufficient cause for not filing it within that period.
On receipt of an appeal, the SAT may pass appropriate order after giving the parties opportunity of being heard. SAT may confirm, modify or set aside the order.
The SAT shall send a copy of every order made by it to the parties to the appeal and to the concerned adjudicating officer.
Appeal should be decided by the SAT expeditiously and possibly within 6 months.
12. Gelwel Ltd., a Bombay Stock Exchange listed company, received a penalty order [dated 9th September 2024] from the stock exchange for default in compliances on 10th December 2024. Being the Company Secretary of Gelwel Ltd., decide the following situations:
(i) Can Gelwel Ltd. file an appeal against the penalty order, issued by Bombay Stock Exchange, for default in compliances?
(ii) With whom and within what time period appeal should be filed, if applicable?
(iii) What is the time period, within which such appeals if filed should be disposed off? [Dec. 2024 (2 + 2 + 1 = 5 Marks)]
Ans.: Considering provisions of section 23L of the Securities Contracts (Regulation) Act, 1956, answer to given case is as follows:
(i) Any person may prefer an appeal before the SAT who is aggrieved by the order or decision of the –
(a) Recognised stock exchange or (b) Adjudicating officer or (c) SEBI.
(
(
CH. 3 : SECURITIES CONTRACTS (REGULATION) ACT, 1956 3.9
Therefore, under this case, Gelwel Ltd. is eligible to file an appeal against the penalty order issued by Bombay Stock Exchange.
ii) Every appeal shall be filed before the SAT within a period of 45 days from the date on which a copy of the order or decision is received by the appellant. SAT may entertain an appeal after the expiry of 45 days if it is satisfied that there was sufficient cause for not filing it within that period.
Gelwel Ltd. received order on 10th December 2024. Thus, it has to file appeal on or before 24th January, 2025.
Gelwel Ltd. can file appeal after 24th January, 2025 only if sufficient cause is shown.
iii) Appeal should be decided by the SAT expeditiously and possibly within 6 months.
PENALTIES
13. Corporates Advisors Ltd. is a listed company. The stock exchange asked certain information about shareholding pattern etc., which the company could not provide even after a further opportunity was given to the company to furnish such information as the company did not maintain the relevant records. What are the penalties leviable against the company under Securities Contracts (Regulation) Act, 1956? Will your answer differ, if the information is sought by the SEBI (state the relevant provision)? [June 2023 (4 Marks)]
Ans.: Penalty for failure to furnish information, return [Section 23A(a)]:
Any person, who fails to furnish any information, document, books, returns or report to a recognized stock exchange, within the time specified in the listing agreement or conditions or bye-laws of the recognized stock exchange, he shall be liable to a penalty which shall not be less than ` 1 lakh but which may extend to ` 1 lakh for each day during which such failure continues subject to a maximum of ` 1 Crore for each such failure.
If Corporate Advisors Ltd. fails to furnish information to the stock exchange it is liable to penalty stated above as per section 23A(a) under the Securities Contracts (Regulation) Act, 1956.
Penalty for failure to furnish information, return etc. [Section 15A]: A person shall be liable to penalty which shall not be less than ` 1 lakh but which may extend to `1 lakh for each day subject to a maximum of ` 1 Crore, if he fails –
(a) To furnish any document, return or report to the SEBI.
(b) To file return or furnish information, books or other documents within specified time.
(c) To maintain books of account or records.
If Corporate Advisors Ltd. fails to furnish information to the SEBI it is liable to penalty stated above as per section 15A under the SEBI Act, 1992.
PART I : CAPITAL MARKET
14. XYZ, a recognized stock exchange fails to comply with certain directions issued by the Securities and Exchange Board of India and the adjudicating officer initiated proceedings for the purpose of imposing penalty. The stock exchange seeks your advice whether it is possible to go for settlement of the proceedings. Advise explaining the relevant provisions of the Securities Contracts (Regulation) Act, 1956?
Ans.: Settlement of administrative and civil proceedings [Section 23JA]:
(1) Filing of application to the SEBI: Any person against whom any of the following proceedings have been initiated or may be initiated may file an application in writing to the SEBI proposing for settlement of the proceedings initiated or to be initiated for the alleged defaults.
Defaults u/s 12A [i.e. failure to observe directions issued by the SEBI]
Defaults u/s 23-I [i.e. failure to observe the order passed in adjudicating proceedings]
(2) SEBI may consider the matter for settlement: The SEBI may, after taking into consideration the nature, gravity and impact of defaults, agree to the proposal for settlement, on payment of such sum by the defaulter or on such other terms as may be determined by the SEBI in accordance with the regulations made under the SEBI Act, 1992.
(3) Procedure to be followed: For the purposes of settlement, the procedure as specified by the SEBI under the SEBI Act, 1992 shall apply.
(4) No appeal to an order: No appeal shall lie u/s 23L against any order passed by the SEBI or the adjudicating officer, as the case may be, under this section.
(5) Settlement amounts: All settlement amounts, excluding the disgorgement amount and legal costs, realized under the Act shall be credited to the Consolidated Fund of India (excluding the disgorgement amount and legal cost).
15. Akilesh, one of the Executive Director of a listed company has violated the provisions of Insider Trading Regulations of SEBI. The Adjudicating Officer has imposed penalty of ` 5 lakh. The Executive Director did not pay the amount within the stipulated time as stated in the order. Examine the recourses available with the Adjudicating Officer for recovery of amount under the Securities Contracts (Regulation) Act, 1956. [June 2022 (4 Marks)]
Ans.: Recovery of amounts [Section 23JB]: The Recovery Officer may draw up under his signature a statement in the specified form (referred to as certificate) specifying the amount due from the person in following cases:
(1) If such person fails to pay the penalty imposed under the Act.
(2) If such person fails to comply with a direction of disgorgement order.
(3) If such person fails to pay any fees due to the SEBI.
