CHAPTER VI
 
RECOGNISED STOCK EXCHANGES

 

 Recognition of Stock Exchange 20. (1) No person shall, except with the previous recognition of the Board, organise or assist in organising or be a member of any stock exchange (other than a recognised stock exchange) for the purpose of assisting in, entering into or performing any contracts in securities.

(2) Any stock exchange, which is desirous of being recognised under this Act, may apply in the manner specified by the Board.

(3) Every application under sub-section (2) shall contain such particulars, as may be specified and shall be accompanied by a copy of the proposed rules and bye-laws of the stock exchange, for the regulation and control of contracts, and also a copy of the proposed rules relating in general to the constitution of the stock exchange, and in particular, to -

(a) the governing body of such stock exchange, its constitution and powers of management, and the manner in which its business is to be transacted;

(b) the powers and duties of the office bearers of the stock exchange;

(c) the admission into the stock exchange of various classes of members, the qualifications for membership, and the suspension, expulsion and re-admission of members therefrom or thereunto; and

(d) the procedure for the registration of partnerships as members of the stock exchange, or corporate bodies, or corporate composite membership both in cases where the rules provide for such membership and the nomination and appointment of authorised representatives and clerks.

 (4) The rules and bye-laws of a stock exchange which is promoted by other recognised stock exchanges shall specifically provide for the regulation and enforcement of rights and obligations of trading members who are members of promoting stock exchanges and the taking of disciplinary action against such trading members in the event of default being committed by them, in respect of transactions entered into through the stock exchange, promoted by the member-stock exchanges. Grant of recognition to stock exchanges 21. (1) If the Board is satisfied, after making such inquiry, as may be necessary in this behalf, and after obtaining such further information, if any, as it may require, that :- (a) the rules and bye-laws of a stock exchange applying for registration are in conformity with such conditions, as may be specified, with a view to ensure fair dealing and to protect investors;

(b) the stock exchange is willing to comply with any other conditions (including conditions as to the number of members) which the Board, after consultation with the governing body of the stock exchange, and having regard to the area served by the stock exchange and its standing and the nature of the securities dealt with by it, may impose for the purpose of carrying out the objects of this Act; and,

(c) it would be in the interest of the trade and also in the public interest to grant recognition to the stock exchange,

 it may grant recognition to the stock exchange, subject to the conditions imposed upon it, as aforesaid, and in such form, as may be specified.

(2) The conditions which the Board may specify under clause (a) of sub-section (1) for the grant of recognition to the stock exchanges may include, amongst other matters, conditions relating to-

(i) the qualifications for membership of stock exchanges;

(ii) the manner in which contracts shall be entered into and enforced, as

between members;

(iii) the representation of the Board on each of the stock exchanges, by such number of persons, not exceeding three, as the Board may nominate in this behalf; and

(iv) the maintenance of accounts of members and their audit by Chartered accountants, whenever such audit is required by the Board.

 (3) Every grant of recognition to a stock exchange under this section shall be, published by a notification in which the principal office of the stock exchange is situate, and such recognition shall have effect from the date of its publication in the notification.

(4) 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, and the reasons for such refusal shall be communicated to the stock exchange in writing.

(5) Notwithstanding anything contained in the Companies Act, a recognised stock exchange shall also have the power to make rules for the proper working of the stock exchange and for the better regulation of trade.

(6) No rules of a recognised stock exchange shall be amended, except with the prior approval of the Board.

 Withdrawal of recognition 22. If the Board is of the opinion that the recognition granted to a stock exchange under the provisions of this Act should, in the interest of the trade or in public interest, be withdrawn, the Board may serve on the governing body of the stock exchange, a written notice that the Board is considering the withdrawal of the recognition for the reasons stated in the notice and after giving an opportunity to the governing body to be heard in the matter, the Board may withdraw, by issuing notification, the recognition granted to the stock exchange.

Provided that no such withdrawal shall affect the validity of any contract entered into or made before the date of the notification, and the Board may, after consultation with the stock exchange, make such provision as it deems fit in the notification of withdrawal or in any subsequent notification similarly published, for the due performance of any contracts outstanding on that date.

 Power of Board to call for periodical returns or direct inquiries to be made 23. (1) Every recognised stock exchange shall furnish to the Board such periodical returns relating to its affairs, as may be specified.

(2) Every recognised stock exchange and every member thereof, shall maintain and preserve for such periods not exceeding five years such books of account, and other documents as the Board, after consultation with the stock exchange concerned, may specify in the interest of the trade, or in the public interest and such books of account, and other documents shall be subject to inspection, at all reasonable times by the Board.

(3) Without prejudice to the provisions contained in sub-sections (1) and (2), the Board, if it is satisfied that it is in the interest of the trade or in the public interest so to do, may, by order in writing :-

(a) call upon a recognised stock exchange or a member thereof to furnish in writing such information or explanation relating to the stock exchange, as the Board may require; or

(b) appoint one or more persons to make an inquiry in the specified manner in relation to the affairs of any of the members of the stock exchange in relation to the stock exchange and submit a report of the result of such inquiry to the Board.

 (4) Where an inquiry in relation to the affairs of a recognised stock exchange or the affairs of any of its members, in relation to the stock exchange, has been undertaken under sub-section (3) :- (a) every director, manager, secretary or other officer of such stock exchange;

(b) every member of such stock exchange;

(c) if the member of the stock exchange is a firm or corporate member, every partner, director, Manager, secretary or other officer of the firm or corporate member; and

(d) every other person or body of persons who has had dealing in the course of business with any of the persons mentioned in clauses (a), (b) and

(e) whether directly or indirectly;

 shall be bound to produce before the authority making the inquiry, all such books of account, and other documents in his custody or power relating to or having a bearing on the subject matter of such inquiry and also to furnish the authorities within such time, as may be specified, with any such statement or information relating thereto, as may be required of him. Annual Reports to be furnished to Board by Stock Exchange 24. Every recognised stock exchange shall furnish to the Board, a copy of the annual report, and such annual report, shall contain such particulars, as may be specified. Power of recognised stock exchange to make rules restricting voting rights, etc: 25. (1) A recognised stock exchange may make rules or amend any rules made by it, with the prior approval of the Board, to provide for all or any of the following matters, namely : (a) the restriction of voting rights to members. only in respect of any matter placed before the stock exchange at any meeting;

(b) the 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, irrespective of his share of the paid-up equity capital of the stock exchange;

(c) the restriction on the right of a member to appoint another person as his proxy to attend and vote at a meeting of the stock exchange; and

(d) such incidental, consequential and supplementary matters, as may be necessary, to give effect to any of the matters specified in clauses (a), (b) and (c).

 (2) No rules of a recognised stock exchange made or amended in relation to any matter referred to in clauses (a) to (d) of sub-section (1) shall have effect until they have been approved by the Board, and published by notification and, in approving the rules so made or amended, the Board may make such modifications therein as it thinks fit, and on such publication, the rules as provided by the Board, shall be deemed to have been validly made, notwithstanding anything to the contrary contained in the Companies Act.

(3) Notwithstanding anything contained in the Companies Act or any other law for the time being in force, the rules made or amended in pursuance of the above referred provisions shall have the same effect as if the same had been made or amended by the recognised stock exchange or stock exchanges, as the case may be.

 Power of the Board to direct rules to be made or amended 26. (1) Where, after consultation with the governing bodies of stock exchanges in general, or with the governing body of any stock exchange in particular, the Board is of the opinion that it is necessary or expedient so to do, it may, by order in writing, together with a statement of the reasons therefore, direct recognised stock exchanges in general, or any recognised stock exchange in particular, as the case may be, to make any rules or to amend any rules already made, within a period of two months from the date of the order.

(2) If any recognised stock exchange fails or neglects to comply with any order made under sub-section (1) within the period specified therein, the Board may make the rules for, or amend the rules, either in the form proposed in the order, or with such modifications thereof, as may be agreed to, between the stock exchange and the Board.

(3) Notwithstanding anything contained in sub-section (3) of Section 25 and to the contrary contained in the Companies Act or in any other law for the time being in force, the rules made or amended under sub-section (1) or (2), shall have effect, as if they had been made or amended by the recognised stock exchange or stock exchanges, as the case may be.

 Power of recognised stock exchanges to make bye-laws 27. (1) Any recognised stock exchange may, subject to the previous approval of the Board, make bye-laws for the regulation and control of contracts.

(2) In particular, and without prejudice to the generality of the foregoing power, such bye-laws may provide for:

(a) the opening and closing of markets and the regulation of the hours of trade;

(b) a clearing house or corporation for the periodical settlement of contracts and differences thereunder, the delivery of and payment for securities, the passing on of delivery orders and the regulation and maintenance of such clearing house;

(c) the submission to the Board by the clearing house or corporation, as soon as may be, after each periodical settlement, of all or any of the following particulars, as the Board may, from time to time require, namely:

(i) the total number of each category of security carried over from one settlement period to another;

(ii) the total number of each category, of security contracts in respect of which have been squared-up during the course of each settlement period;

(iii) the total number of each category of security actually delivered at each clearing;

 (d) the publication by the clearing house or corporation of all or any of the particulars submitted to the Board under clause (c) subject to the directions, if any, issued by the Board in this behalf ;

(e) the regulation of business of spot delivery contracts

(f) the number and classes of contracts in respect of which settlements shall be made or differences paid through the clearing house;

(g) the regulation, or prohibition of badlas or carry-over facilities or forward contracts;

(h) the fixing, altering or postponing of days for settlements;

(i) the determination and declaration of market rates, including the opening, closing, highest and lowest rates for securities;

(j) the terms, conditions and incidents of contracts, including the prescription of margin requirements, or exposure limited, if any, and conditions relating thereto, and the forms of contracts in writing;

(k) the regulation of the entering into, making rescission and termination, of contracts, including contracts between members or between a member and his constituent or between a member and a person who is not a member, and the consequences of default or insolvency on the part of a seller or buyer or intermediary, the consequences of a breach or omission by a seller or buyer and the responsibility of members who are not parties to such contracts;

(l) the regulation of taravani or jobbing business including the placing of limitation thereon;

(m) the listing or delisting of securities on the stock exchange, the inclusion of any security for the purpose of dealings and the suspension or withdrawal of any such securities, and the suspension or prohibition of trading in any specified securities;

(n) the method and procedure for the settlement of claims or disputes, including settlement by arbitration;

(o) the levy and recovery of fees, fines and penalties;

(p) the regulation of the course of business between parties to contracts in any capacity;

(q) the fixing of a scale of brokerage and other charges;

(r) the making, comparing, settling and closing of bargains;

(s) the emergencies in trade which may arise, whether as a result of poor syndicated operations or cornering or otherwise, and the exercise of powers in such emergencies including the power to fix maximum and minimum prices for securities;

(t) the regulation of dealings by members for their own account;

(u) the separation of the functions of jobbers and brokers;

(v) the limitations on the volume of trade done by any individual member in normal and exceptional circumstances;

(w) the obligation of members to supply such information or explanation and to produce such documents relating to the business as the governing body may require;

(x) the inter-connectivity of stock exchanges, inter-relation between the apex and federal stock exchange, promoting stock exchanges and trading members of stock exchanges inter se,

(y) the trade guarantee fund for guaranteeing settlement or trade; and

(z) the regulation or prohibition of options, futures and derivative contracts;

and all matters incidental or consequential thereto.

 (3) The bye-laws made under this section may: (a) specify the bye-laws, the contravention of which shall make a contract entered into otherwise than in accordance with the bye-laws, void under sub-section (1) of section 42; and

(b) provide that the contravention of any of the bye-laws shall render the person concerned liable to one or more of the following punishments, namely:

(i) fine or penalty,

(ii) expulsion from membership or cancellation of registration,

(iii) suspension from membership for a specific period,

(iv) any other penalty of a like nature not involving the payment of money.

 (4) Any bye-laws made under this section shall be subject to such conditions in regard to previous publication as may be specified, and when approved by the Board, 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, and shall have effect only from the date of its publication in the Gazette of India:

Provided that if the Board is satisfied in any case that in the interest of the trade or in public interest, any bye-laws should be made immediately it may, by an order in writing specifying the reasons therefor, dispense with the condition of previous publication.

 Power of the Board to make or amend bye-laws of recognised stock exchange - 28. (1) The Board may, either on a request in writing received by it in this behalf by the governing body of a recognised stock exchange or on its own motion, if it is satisfied after consultation with the governing body of the stock exchange that it is necessary or expedient so to do, and after recording its reasons for so doing, make bye-laws, for all or any of the matters specified in section 27 or amend any bye-laws made by such stock exchange under that section. 

(2) Where in pursuance of this section any bye-laws have been made or amended, the bye-laws so made or amended 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, and on the publication thereof in the Gazette of India, the bye-laws so made or amended shall have effect, as if they had been made or amended by the recognised stock exchange concerned.

(3) Notwithstanding anything contained in this section, where the governing body of a recognised stock exchange objects to any bye-laws made or amended under this Section by the Board on its own motion, it may, within two months of the publication thereof in the Gazette of India under sub-section (2), apply to the Board for revision thereof. The Board may, after giving an opportunity to the governing body of the stock exchange to be heard in the matter, revise the bye-laws so made or amended, and where any bye-laws so made or amended are revised as a result of any action taken under this sub-section, the bye-laws so revised shall be published and shall become effective, as provided in sub-section (2);

(4) The making or the amendment or revision of any bye-laws under this section shall in all cases be subject to the conditions of previous publication:

Provided that if the Board is satisfied in any case that in the interest of the trade or in public interest any bye-laws should be made, amended or revised immediately, it may, by order in writing specifying the reasons therefor, dispense with the condition of previous publication.

 Power of the Board, to determine date for Publication of Amended Rules and Bye-laws and to dispense with the requirements. 29. Notwithstanding anything contained in sections 25, 26, 27 and 28, the Board may determine the date when the amended rules or bye-laws shall come into force and may, by order, dispense with the requirement of publication of such rules or bye-laws in the Official Gazette provided such amended rules or bye-laws are circulated by the stock exchange to all its members and due publicity is given in respect of such amended rules or bye-laws, in such other manner, including the publication in newspapers, as may be specified by the Board, while passing order in this behalf.

Power of the Board to supersede Governing Body of a Recognised Stock Exchange.

30. (1) Without prejudice to any other powers vested in the Board under this Act, where the Board is of the opinion that the governing body of any recognised stock exchange should be superseded, then, notwithstanding anything contained in any other law for the time being in force, the Board may serve on the governing body a written notice that the Board is considering the supersession of the governing body for the reasons specified in the notice and after giving an, opportunity to the governing body to be heard in the matter it may, by issuing a notification declare the governing body of such stock exchange to be superseded, and may appoint any person or persons to exercise and perform all the powers and duties of the governing body, and where more persons than one are appointed, may appoint one of such persons as Chairman and another to be the Vice-Chairman thereof.
    1. For the avoidance of doubt it is hereby declared that in a appropriate case the Board may not supersede the entire governing body of a recognised stock exchange and may pass an order for removal only in respect of some of the members of the governing board as deemed fit having regard to the exigency of the situation. It shall be open to the Board to include a few of the members of the governing body so superseded in the adhoc body to be appointed by the Board for such period as the Board thinks fits until reconstitution of the new governing body.
(3) On the publication of a notification under sub-sections (1) and (2), the following consequences shall ensue, namely:- (a) the members of the governing body which has been superseded shall, as from the date of the notification of supersession, cease to hold office as such members;

(b) the person or persons appointed under subsection may exercise and perform all the powers and duties of the governing body which has been superseded;

(c) all such property of the recognised stock exchange as the person or persons appointed under sub-sections (1) and (2) may, by order in writing, specify in this behalf as being necessary for the purpose of enabling him or them to carry on the business of the stock exchange shall vest in such person or persons.

 (4) Notwithstanding anything to the contrary contained in any law or the rules or bye-laws of such recognised stock exchange, whose governing body is superseded under sub-section (1), the persons appointed under that sub-section shall hold office for such period as may be specified in the notification published under that sub-section and, the Board may from time to time, by like notification, vary such period.

Provided that, if the Board considers it necessary to extend the period specified in the Notification, the Board shall first make an order in writing giving reasons for such extension.

(5) The Board may, at any time before the determination of the period of office of any person of persons appointed under this section, call upon the recognised stock exchange to reconstitute the governing body in accordance with its rules and on such re-constitution all of the property of the recognised stock exchange which has vested in, or was in the possession of, the person or persons appointed under sub- section (1), shall re-vest, as the case may be, in the governing body so re-constituted:

Provided that until a governing body is so re-constituted, the person or persons appointed under sub-section (1), shall continue to exercise and perform their powers and duties.

 Power to suspend business of recognised stock exchange 31. If in the opinion of the Board an emergency has arisen, and the Board considers it necessary and expedient so to do, it may, for reasons to be recorded in its order, publish a notification directing the recognised stock exchange to suspend such of its business for such period not exceeding seven days and subject to conditions as may be specified in the notification, and if, in the opinion of the Board, the interest of the trade or the public interest requires that the period of suspension should be extended, it may, by like notification extend the said period, from time to time, so however, that the total period does not exceed one month.

Provided that where the period of suspension is to be extended beyond the first period, no notification extending the period of suspension shall be issued unless the governing body of a recognised stock exchange has been given an opportunity of being heard in the matter.

 Clearing Corporation 32. (1) A recognised stock exchange may entrust the functions and responsibilities of clearing house to clearing corporation or the corporate entity separately constituted for periodical settlement of its contracts and trading, the delivery of and payment of its securities or passing on of delivery orders and the other ancillary matters, with the prior approval of the Board and the bye-laws of such clearing corporation can be framed by such corporation with the approval of the Board,

(2) the Board may grant approval to the clearing corporation to which the functions of a clearing house are entrusted by the stock exchange on such terms and conditions as the Board deems fit, and call for particulars or information from such clearing corporation from time to time, including periodical statements or returns, as may be considered necessary, for its regulation in the interest of the trade.

 Chapter VI not in derogation of Chapter V

33 - The provision contained in Chapter V of the Act shall also be applicable to a recognised stock exchange so far as the same are not inconsistent with the special provision pertaining to stock exchanges in this Chapter.

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