Securities (Contracts and Regulations) Act, 1956 (SCRA)

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.

Important Definitions

Contract means a contract for or relating to the purchase or sale of securities.

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.

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.

Derivative 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 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,

(ii) Derivative,

(iii) Units or any other instrument issued by any collective investment scheme to the investors in such schemes,

(iv) Security receipt as defined in clause of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act,

(v) Units or any other such instrument issued to the investors under any mutual fund scheme,

(vi) 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,

(vii) Government securities,

(viii) Such other instruments as may be declared Government to be securities, and

(ix) 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.

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:

• The governing body of such stock exchange, its constitution, and powers of management and the manner in which its business is to be transacted,
• The powers and duties of the office-bearers of the stock exchange,
• 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
• 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.

Powers granted by the SCRA

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

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

• Power to approve the transfer of duties and functions of a clearing house to a clearing corporation
• Power to approve the making of bye-laws by recognised stock exchanges for the regulation and control of contracts
• Power to make or amend bye-laws of recognised stock exchanges
• Power to issue directions to stock exchanges, clearing corporations, agencies, persons or classes of persons associated with the securities market
• Power to issue directions to companies whose securities are listed or proposed to be listed in a recognised stock exchange
• Power to approve the establishment of additional trading floor in recognised stock exchanges
• Power to appoint adjudicating officers
• Power to make regulations

Powers granted to the Securities Appellate Tribunal by the SCRA:

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

Penalties under the SCRA

The offenses and penalties under the SCRA include: