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CHAPTER II

RECOGNISED STOCK EXCHANGES

Application for recognition of stock exchanges

3. (1) Any stock exchange, which is desirous of being recognised for the purposes of this Act may make an application in the prescribed manner to the Central Government.

(2) Every application under sub- section (1) shall contain such particulars as may be prescribed, and shall be accompanied by a copy of the bye- laws of the stock exchange for the regulation and control of contracts and also a copy of the rules relating in general to the constitution of the stock exchange and in particular, to-

    1. the governing body of such stock exchange, its constitution and powers of management and the manner in which its business is to be transacted;
    2. the powers and duties of the office bearers of the stock exchange;
    3. 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;
    4. 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 authorised representatives and clerks.
Grant of recognition to stock exchanges

4. (1) If the Central Government 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:

(a) that the rules and bye-laws of a stock exchange applying for registration are in conformity with such conditions as may be prescribed with a view to ensure fair dealing and to protect investors;   (b) that the stock exchange is willing to comply with any other conditions (including conditions as to the number of members) which the Central Government, 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) that 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 prescribed.

     (2) The conditions which the Central Government may prescribe under clause (a) of sub-section (1) for the grant of recognition to the stock exchanges may include, among 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 Central Government on each of the stock exchanges by such number of persons not exceeding three as the Central Government 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 Central Government.

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

   (4) No rules of a recognised stock exchange relating to any of the matters specified in sub- section (2) of section 3 shall be amended except with the approval of the Central Government. Withdrawal of recognition 5. If the Central Government 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 the public interest, be withdrawn, the Central Government may serve on the governing body of the stock exchange a written notice that the Central Government 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 Central Government may withdraw, by notification in the Official Gazette, 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 Central Government 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 Central Government to call for periodical returns or direct inquiries to be made 6. (1) Every recognised stock exchange shall furnish to the [Securities and Exchange Board of India]9such periodical returns relating to its affairs as may be prescribed.

   (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 Central Government, after consultation with the stock exchange concerned, may prescribe 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 [Securities and Exchange Board of India]. 10

   (3) Without prejudice to the provisions contained in sub- sections (1) and (2), the [Securities and Exchange Board of India]11, 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,-

  1. call upon a recognised stock exchange or any member thereof to furnish in writing such information or explanation relating to the stock exchange as the [Securities and Exchange Board of India]12 may require; or
  2. appoint one or more persons to make an inquiry in the prescribed 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 [Securities and Exchange Board of India].13
   (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, every partner, manager, secretary or other officer of the firm; and

(d) every other person or body of persons who has had dealings in the course of business with any of the persons mentioned in clauses (a), (b) and (c) 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 Central Government by stock exchanges 7. Every recognised stock exchange shall furnish the Central Government with a copy of the annual report, and such annual report shall contain such particulars as may be prescribed. Power of recognised stock exchange to make rules restricting voting rights, etc. 7A. (1) A recognised stock exchange may make rules or amend any rules made by it 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 Central Government and published by that Government in the Official Gazette and, in approving the rules so made or amended, the Central Government may make such modifications therein as it thinks fit, and on such publication, the rules as provided by the Central Government shall be deemed to have been validly made, notwithstanding anything to the contrary contained in the Companies Act, 1956 (1 of 1956). Power of Central Government to direct rules to be made or to make rules 8. (1) Where, after consultation with the governing bodies of stock exchanges generally or with the governing body of any stock exchange in particular, the Central Government 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 therefor, direct recognised stock exchanges generally or any recognised stock exchange in particular, as the case may be, to make any rules or to amend any rules already made in respect of all or any of the matters specified in sub-section (2) of section 3 within a period of [two months]14from 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 Central Government may make the rules for, or amend the rules made by, the recognised stock exchange, either in the form proposed in the order or with such modifications thereof as may be agreed to between the stock exchange and the Central Government.

   (3) Where in pursuance of this section any rules have been made or amended, the rules so made or amended shall be published in the Gazette of India and also in the Official Gazette or Gazettes of the State or States in which the principal office or offices of the recognised stock exchange or exchanges is or are situate, and, on the publication thereof in the Gazette of India, the rules so made or amended shall, notwithstanding anything to the contrary contained in the Companies Act, 1956 (1 of 1956), or in any other law for the time being in force, have effect as it they had been made or amended by the recognised stock exchange or stock exchanges, as the case may be. Power of recognised stock exchange to make bye-laws 9. (1) Any recognised stock exchange may, subject to the previous approval of the [Securities and Exchange Board of India],15 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 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 [Securities and Exchange Board of India]16 by the clearing house as soon as may be after each periodical settlement of all or any of the following particulars as the [Securities and Exchange Board of India]17 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 of all or any of the particulars submitted to the [Securities and Exchange Board of India]18 under clause (c) subject to the directions, if any, issued by the [Securities and Exchange Board of India]19 in this behalf;

(e) the regulation or prohibition of blank transfers;

(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;

(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, if any, and conditions relating thereto, and the forms of contracts in writing;

k) the regulation of the entering into, making, performance, 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 business including the placing of limitations thereon;

(m) the listing 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;

(s) the emergencies in trade which may arise, whether as a result of pool or 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 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.

    (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 14;

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

  (i) fine,
(ii) expulsion from membership,
(iii) suspension from membership for a specified 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 prescribed, and, when approved by the [Securities and Exchange Board of India],20 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 as from the date of its publication in the Gazette of India: Provided that if the [Securities and Exchange Board of India]21 is satisfied in any case that in the interest of the trade or in the public interest any bye-laws should be made immediately, it may, by order in writing specifying the reasons therefor, dispense with the condition of previous publication. Power of [Securities and Exchange Board of India]22 to make or amend bye-laws of recognised stock exchanges 10. (1) The [Securities and Exchange Board of India]23 may, either on a request in writing received by it in this behalf from 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 9 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 [Securities and Exchange Board of India]24 on its own motion, it may, within [two months]25 of the publication thereof in the Gazette of India under sub-section (2), apply to the [Securities and Exchange Board of India]26 for revision thereof the [Securities and Exchange Board of India]27 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 condition of previous publication:

Provided that if the [Securities and Exchange Board of India]28 is satisfied in any case that in the interest of the trade or in the 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 Central Government to supersede governing body of a recognised stock exchange 11. (1) Without prejudice to any other powers vested in the Central Government under this Act, where the Central Government is of the opinion that the governing body of any recognised stock exchange should be superseded, then, not withstanding anything contained in any other law for the time being in force, the Central Government may serve on the governing body a written notice that the Central Government 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 notification in the Official Gazette 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, and where more persons than one are appointed, may appoint one of such persons to be the chairman and another to be the vice- chairman thereof.

   (2) On the publication of a notification in the Official Gazette under sub-section (1), 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 sub-section (1) 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-section (1) 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.    (3) Notwithstanding anything to the contrary contained in any law or the rules or bye-laws of the recognised stock exchange the governing body of which is superseded under sub-section (1), the person or persons appointed under that sub-section shall hold office for such period a may be specified in the notification published under that sub-section and, the Central Government may from time to time, by like notification, vary such period.

   (4) The Central Government may at any time before the determination of the period of office of any person or 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 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 exchanges 12. If in the opinion of the Central Government an emergency has arisen and for the purpose of meeting the emergency the Central Government considers it expedient so to do, it may, by notification in the Official Gazette, for reasons to be set out therein, direct a recognised stock exchange to suspend such of its business for such period not exceeding seven days and subject to such conditions as may be specified in the notification, and if, in the opinion of the Central Government, the interest of the trade or the public interest requires that the period should be extended may, by like notification extend the said period from time to time.

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 the recognised stock exchange has been given an opportunity of being heard in the matter.


9 Substituted for "Central Government" by the Securities and Exchange Board of India Act, 1992, w.e.f. 30-1-1992.
10Ibid
11Ibid
12Ibid
13 Ibid
14 Substituted by the Securities Laws (Amendment) Act, 1995, w.e.f. 25-3-1995 for "six months".
15 Substituted for "Central Government" by the Securities and Exchange Board of India Act, 1992, w.e.f. 30-1-1992.
16 Ibid
17 Ibid
18 Ibid
19 Ibid
20 Ibid
21 Ibid
22 Ibid
23 Ibid
24 Ibid
25 Substituted by the Securities Laws (Amendment) Act, 1995, w.e.f. 25-1-1995 for "six months".
26 supra n.13
27 Ibid
28 Ibid