Basic Features of Securities Contract (Regulation) Act
The Securities Contract (Regulation) Act, 1956 (SCRA), is a significant legislation in India that provides a comprehensive framework for the regulation of transactions in securities. This Act primarily aims to prevent malpractices in securities and to ensure fair and transparent dealings. Let's delve into the fundamental features of the SCRA:
Regulating Securities Contracts
At the heart of SCRA lies the purpose of regulating securities contracts. Any contract for the purchase or sale of securities must comply with the rules and conditions prescribed by the SCRA. Any such contract which fails to comply with the stipulations laid down by the SCRA is deemed void under Section 13 of the Act.
Definition of Securities
The SCRA offers a comprehensive definition of securities. As per Section 2(h), 'securities' include shares, scrips, stocks, bonds, debentures, debenture stock, or other marketable securities of similar nature. This definition is all-encompassing and covers almost every type of financial instrument traded in the securities market.
Recognition of Stock Exchanges
The SCRA provides a legal framework for the recognition and functioning of stock exchanges. As per Section 3 of the Act, a stock exchange cannot function without the recognition granted by the Central Government. Moreover, such recognition can be withdrawn under certain circumstances. This provision ensures that all stock exchanges function under a regulated environment.
Licensing of Brokers and Sub-brokers
The Act also provides for the licensing and regulation of brokers and sub-brokers. This is to ensure that the entities involved in the securities market are competent, reliable and work within the framework of the Act.
Prevention of Manipulative and Fraudulent Practices
A crucial feature of the SCRA is its focus on the prevention of manipulative and fraudulent practices in the securities market. The Act outlines several prohibitions against market manipulation, such as creating artificial prices, cornering, short selling, etc., which are all seen as detrimental to the integrity of the securities market.
The Securities and Exchange Board of India (SEBI) is empowered by the SCRA to supervise and regulate the securities market. SEBI is responsible for implementing the provisions of the SCRA and has been granted broad powers under the Act to protect the interests of investors.
The SCRA establishes a system of dispute resolution for resolving disputes related to securities contracts. It outlines the rights and remedies available to parties in case of breach of contract or other disputes.
Case Law Precedents
A few key case law precedents under the SCRA include Sahara India Real Estate Corporation Ltd. and Ors. vs. SEBI (2012) wherein the Supreme Court held that the optionally fully convertible debentures (OFCDs) offered by Sahara were 'securities' as per the definition provided by SCRA. Another significant case is SEBI vs. Shriram Mutual Fund (2006) where the Supreme Court held that SEBI has the power to regulate all kinds of mutual fund activities under the SCRA.
Conclusion: Features of Securities Contract (Regulation) Act
In conclusion, the Securities Contract (Regulation) Act, 1956, features as a cornerstone for the regulation of securities contracts in India. By stipulating requirements for securities contracts, defining securities, recognizing stock exchanges, licensing brokers, preventing malpractices, and providing for regulatory supervision and dispute resolution, the SCRA ensures a transparent, efficient, and fair securities market in India.