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Corporate Legal Framework

Notes stock exchanges through a process of recognition and continued supervision, (b) contracts in
securities, and (c) listing of securities on stock exchanges. As a condition of recognition, a stock
exchange complies with the prescribed conditions of the Central Government. Organised trading
activity in securities takes place on a specifi ed recognised stock exchange. The stock exchanges
determine their own listing regulations, which have to conform to the minimum listing criteria
set out in the Rules.

Depositories Act, 1996: The Depositories Act, 1996, provides for the establishment of depositories
in securities with the objective of ensuring free transferability of securities with speed, accuracy
and security by (a) making securities of public limited companies freely transferable subject to
certain exceptions; (b) dematerializing the securities in the depository mode; and (c) providing
for maintenance of ownership records in a book entry form. In order to streamline the settlement
process, the Act envisages transfer of ownership of securities electronically by book entry,
without making the securities move from person to person. The Act has made the securities of
all public limited companies freely transferable, restricting the company’s right to use discretion
in effecting the transfer of securities, and the transfer deed and other procedural requirements
under the Companies Act have been dispensed with.

Task Prepare an assignment on the functions and powers of SEBI in case of any
Merger and Acquisition of a listed company.

14.7 Regulators

The responsibility for regulating the securities market is shared by Department of Economic
Affairs (DEA), Ministry of Company Affairs, Reserve Bank of India (RBI) and SEBI. The activities
of these agencies are coordinated by a High Level Committee on Capital Markets. The orders of
SEBI under the securities laws are appellable before a Securities Appellate Tribunal.
Most of the powers under the SCRA are exercisable by DEA while a few others by SEBI. The powers
of the DEA under the SCRA are also concurrently exercised by SEBI. The powers in respect of
the contracts for sale and purchase of securities, gold related securities, money market securities
and securities are derived from these securities and the RBI exercises carry forward contracts in
debt securities concurrently. The SEBI Act and the Depositories Act are mostly administered by
SEBI. The powers under the Companies Act relating to issue and transfer of securities and non-
payment of dividend are administered by SEBI in case of listed public companies.

Regulation of Secondary Market

As noted above, Securities Contracts (Regulation) Act 1956 and the rules made there under,
namely the securities Contracts (Regulation) Rules, 1957 are the main laws governing stock
exchanges in India.
The Preamble to the Securities Regulation Act states that it is “an act to prevent undesirables
transaction in Securities by regulating the business of dealing therein, by prohibiting options
and by providing certain other matters connected therewith”. This Act provides for the direct
and indirect control of virtually all aspects of securities leading and the running of the stock

exchange. The Act makes every transaction in securities in any notified state area illegal and

punishable by fine and/or imprisonment if it is not entered into between or with members of a
recognized stock exchange in the state or area.
The Act thus prohibits the existence of other than recognized stock exchanges and provides
the mechanism recognizing stock exchanges. Appendix 5.2 gives the list of recognized stock
exchanges as of 1992. Application to the Central Government for recognition must include a copy

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