The Securities Contracts (Regulation) Act, 1956 (Act no. 42 of 1956) dated 4th September, 1956 being the Central Government’s Act was enacted with the object to have prevention of transactions in securities which are undesired. Similarly, to have regulation of the business of dealing in securities. It was provided extension over all India and the same was brought in to force on 20th February, 1957 by notifying in the Official Gazette.
The Act provides for recognition of stock exchanges. For having such recognition the stock exchange is required to make an application to the Central Government and every such applications should accompanied by given documents. The Central Government can grant recognition to the stock exchanges after making necessary enquiries under section 4 of the Act. Such recognition can also include conditions imposed by the Central Government and also any of the conditions which are prescribed in this provision. Moreover, the recognition so granted is also required to publish in the Official Gazette.
The Act makes provisions to corporatize and demutualize the stock exchange, if not so. All such stock exchange are required to submit scheme for such corporatization and demutualization within the specified period to the Securities and Exchange Board of India. The Said Board after being satisfying that the approval will be in the interest of trade and public, approve the scheme either with any modifications or without modifications. And other relevant aspects regarding such approval are given under section 4B of the Act. Similarly, the Central Government is vested with the authority under this Act to decided whether recognition to the stock exchange in the view of interest of trade or public to carry on or withdrawn. On its decision to withdraw the recognition the Central Government is to serve a written notice up on the Governing body of the Stock Exchange stating its reason for considering withdrawal of recognition and thereupon after providing a reasonable opportunity to the Governing body to present its cause, the Government can withdraw recognition. Even such recognition should be withdrawn by the reason that a recognized stock exchange has not been corporatize and demutualize or even if it was failed submitting scheme as required in previous sections.
Further, sections 6 and 7 are provided for requiring the stock exchange to submit returns and annual reports. The recognized stock exchange is empowered under this Act to frame rules to deal with restrictions and regulations on voting rights, etc. Similarly, the clearing house is to be transferred into the clearing corporation by the recognized stock exchange and convert it into a corporate body within the meaning of the Company Act, 1956. Similar to above, the Stock exchange is also required to make bye-laws for regulating the contracts and also controlling the same. Such bye-laws should also provided for certain given matters in the provision of section 9 of the Act.
The Central government is supervisory authority upon the Governing body and it is vested with tremendous powers under this Act. For any particular reason also as per section 11, the Central Government can serve the written notice to the Governing body, showing its intention to supersede upon it due to a particular reason. Upon such decision of supersession, the Central government is required to appoint persons to perform the duties or powers of governing body. The similar supersession can also be made by the Government upon the business of the recognised stock exchange.
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Further, the subsequent provisions under this Act provides for regulation of contract, including its validity. Certain circumstances are specified under which the contracts of stock exchange should be treated invalid, void or otherwise prohibited. And also persons dealing with the securities in the areas specified are required to have licences as dealers which are to be granted by the Securities and Exchange Board of India.
The penal provisions are given under section 23 of the Act, where several offences are defined and the maximum punishment is given up to 10 years along with maximum fine as provided 25 crore rupees, or either imprisonment or fine. Similarly, other offences under this Act also provided dealing with failure to furnishing information, etc., failure execute contract, etc. and respective penalties are also given therewith, under subsequent provisions. Provision regarding adjudication, settlement and on order recovery of the penalty or other fines, or amount under this Act are also provided by this Act. Even it is specifically and even impliedly by other provisions given that, in any case the jurisdictions of the Civil Courts are barred by this Act. And for taking cognizance by the Courts, the complaint on this behalf should be made by the Central or State Government concerned. Otherwise, for dealing with the offences under this Act, the Central Government is empowered to establish the Special Courts, the composition of which is provided under section 26A by insertion of certain new provisions by the Securities Laws (Amendment) Act, 2014. Section 23-O of the Act is important as it is dealing with grant of immunity to those who in the view of the Board, have truly disclosed in relation to the alleged violation on his part.
The Act under its miscellaneous provisions for non-applicability of the provisions of this Act to the Government, the Reserve Bank of India, any local authority or any corporation set up by a special law or person affecting transaction through or with the such authority.
The other important powers which the Central Government to exercise in pursuance to these miscellaneous provisions are power to delegate powers to the Board or Reserve Bank of India-RBI in given circumstances which will be provided by notification. Similarly, the Government also vested with the power to make rules on given matters.
As the provisions of the Act are almost very elaborative, but since the updating is required to have law more effective, the Act was recently amended by the provisions by the Securities Laws (Amendment) Act, 2014 which was brought into effect from 18th July, 2013. Besides this recent amendment, there were several previous amendments in the Act, by the Act of 1995, 1999, etc.
by Faim Khalilkhan Pathan.
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