INVESTMENT LAW

MODULE 2

Introduction to the Securities Contracts (Regulation) Act, 1956

The Securities Contracts (Regulation) Act, 1956 (SCRA) was enacted to prevent undesirable
transactions in securities by regulating the business of dealing therein. The Act empowers the
Securities and Exchange Board of India (SEBI) to regulate stock exchanges and securities
markets in India.
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Key Features of the SCRA

1. Regulation of Stock Exchanges: The Act provides a framework for the
recognition, regulation, and governance of stock exchanges in India.
2. Regulation of Securities Transactions: It governs contracts for the purchase
or sale of securities, ensuring they are conducted in a lawful and orderly manner.
3. Prevention of Undesirable Transactions: The Act aims to prevent undesirable
transactions in securities by regulating the business of dealing therein and providing for
matters connected therewith.
4. Regulation of Derivatives: It includes provisions related to derivatives,
including commodity derivatives, ensuring they are traded in a regulated environment. 
5. Penalties for Non-Compliance: The Act prescribes penalties for non-
compliance with its provisions, deterring fraudulent and unethical practices in the securities
market.
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Functions of the SCRA

1. Regulation of Stock Exchanges: The Act provides for the recognition of stock
exchanges by the Central Government, ensuring they operate in a regulated environment.
2. Regulation of Securities Transactions: It regulates contracts for the purchase
or sale of securities, ensuring they are conducted in a lawful and orderly manner.
3. Prevention of Undesirable Transactions: The Act aims to prevent undesirable
transactions in securities by regulating the business of dealing therein and providing for
matters connected therewith.
4. Regulation of Derivatives: It includes provisions related to derivatives,
including commodity derivatives, ensuring they are traded in a regulated environment.
 5. Investor Protection: The Act aims to protect investors by ensuring fair
practices in the securities market.
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⚖️Powers Under the SCRA

1. Power to Grant Recognition to Stock Exchanges: The Central Government
has the authority to grant recognition to stock exchanges, ensuring they operate in a regulated
environment.
2. Power to Withdraw Recognition: The Central Government can withdraw
recognition from a stock exchange if it fails to comply with the provisions of the Act.
3. Power to Call for Periodical Returns: The Central Government can call for
periodical returns from recognized stock exchanges to assess their functioning and
compliance with the Act.
4. Power to Direct Inquiries: The Central Government can direct inquiries to be
made into the affairs of a stock exchange to ensure transparency and adherence to regulations.
5. Power to Make Rules: The Central Government has the authority to make
rules for carrying out the provisions of the Act.
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📜 Definitions Under Section 2

• “Contract”: Refers to a contract for or relating to the purchase or sale of
securities.
• “Securities”: Includes 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; derivatives; units or any other instrument issued by any collective
investment scheme to the investors in such schemes; Government securities; such other
instruments as may be declared by the Central Government to be securities; and rights or
interests in securities.
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🔍 Provisions Related to Transparency, Fraud Prevention, and Investor Protection

Transparency
• Disclosure Requirements: The Act mandates that companies disclose material
information to the public, ensuring that all investors have equal access to information.
 • Regulation of Stock Exchanges: It ensures that stock exchanges operate in a
transparent manner, with rules and procedures that are clear and accessible.

Fraud Prevention
• Regulation of Contracts: The Act ensures that contracts in securities are
entered into in a lawful manner, reducing the risk of fraudulent transactions.
• Penalties for Violations: It imposes penalties for contravention of the
provisions of the Act, deterring fraudulent activities.

Investor Protection
• Regulation of Stock Exchanges: Ensures that stock exchanges operate in a
manner that protects investor interests.
• Listing Requirements: Mandates that companies meet certain standards before
listing their securities, ensuring that only credible companies are accessible to investors.
• Investor Education: Promotes investor awareness and education, empowering
investors to make informed decisions.
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Key Sections of the SCRA

Section 2: Definitions
This section provides essential definitions to interpret the Act accurately. Key definitions
include:
• “Securities”: Includes 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; derivatives; units or any other instrument issued by any collective
investment scheme to the investors in such schemes; Government securities; such other
instruments as may be declared by the Central Government to be securities; and rights or
interests in securities.
• “Contract”: Refers to a contract for or relating to the purchase or sale of
securities.
These definitions are pivotal for understanding the scope and application of the Act.
Section 7: Annual Reports to be Furnished to the Central Government by Stock
Exchanges
Every recognized stock exchange is required to furnish the Central Government with a copy
of its annual report, containing particulars as prescribed. This provision ensures that the
government is kept informed about the operations and financial health of stock exchanges,
promoting transparency.

Section 8: Power of Central Government to Direct Rules to be Made or to Make Rules

This section empowers the Central Government to direct a recognized stock exchange to
make rules or to make rules itself concerning:
• The manner of conducting business on the exchange.
• The regulation of contracts in securities.
• The protection of investors.
This provision allows for the formulation of rules that ensure the orderly conduct of securities
transactions and safeguard investor interests.

Section 20: Power of Central Government to Make Rules

The Central Government has the authority to make rules for carrying out the provisions of the
Act. These rules may pertain to:
• The recognition of stock exchanges.
• The regulation of contracts in securities.
• The protection of investors.
This section provides the legal framework for the creation of detailed regulations that support
the objectives of the Act.

Section 21: Listing of Securities by Public Companies

This section mandates that a public company must apply to a recognized stock exchange for
listing its securities. The company must comply with the conditions specified by the
exchange for listing. This provision ensures that only companies meeting certain standards
are allowed to list their securities, thereby maintaining the quality and integrity of the
securities market .

Penalties under Section 23

Section 23 prescribes penalties for various contraventions:
 • Subsection (1): Any person who contravenes provisions related to
requisitions, contracts in contravention of the Act, or operates unauthorized places for
securities transactions may be punished with imprisonment up to ten years, a fine up to ₹25
crore, or both.
• Subsection (2): Failure to comply with provisions related to contracts,
agreements, or orders of SEBI may also attract imprisonment up to ten years, a fine up to ₹25
crore, or both.

Key Sections of the SCRA

Section 3: Application for Recognition of Stock Exchanges

• Purpose: This section mandates that any stock exchange desiring recognition
under the Act must apply to the Central Government.
• Procedure: The application must be in the prescribed form and accompanied
by the necessary documents.
• Considerations: The Central Government considers factors such as the
constitution of the stock exchange, its bye-laws, and the adequacy of its infrastructure before
granting recognition.

Section 4: Grant of Recognition to Stock Exchanges

• Granting Recognition: The Central Government may grant recognition to a
stock exchange if it is satisfied that the exchange complies with the provisions of the Act and
other relevant regulations.
• Conditions: The recognition is subject to conditions specified by the Central
Government, which may include compliance with certain rules and regulations.
• Duration: Recognition is typically granted for a specified period, after which
it may be renewed based on the exchange’s performance and compliance.

Section 6: Power of Central Government to Call for Periodical Returns or Direct

Inquiries to be Made
• Monitoring Compliance: The Central Government has the authority to require
stock exchanges to submit periodical returns to assess their functioning and compliance with
the Act.
• Conducting Inquiries: The government can also direct inquiries to be made
into the affairs of a stock exchange to ensure transparency and adherence to regulations.
• Purpose: These powers are exercised to maintain the integrity and efficiency
of the securities market.
Section 13: Contracts in Notified Areas
• Notification: The Central Government has the authority to notify areas where
securities contracts can be legally entered into. 
• Regulation: This section ensures that securities transactions are conducted in
areas where the necessary infrastructure and regulatory mechanisms are in place.
• Objective: To prevent the proliferation of unauthorized or illegal securities
markets.

Section 23: Penalties

• Contravention: This section outlines penalties for contravening provisions
related to requisitions, contracts, or operating unauthorized places for securities transactions.
• Punishments: Offenders may face imprisonment for up to 10 years, a fine up
to ₹25 crore, or both.
• Specific Offenses: Includes penalties for unauthorized trading, operating
unrecognized places for securities transactions, and misrepresentation.

Case laws

1. Delhi Stock Exchange v. K.C. Sharma (1995)

• Issue: The case involved allegations against K.C. Sharma, a member of the
Delhi Stock Exchange, for misconduct and violation of exchange rules.
• Outcome: The court upheld the disciplinary actions taken by the exchange,
emphasizing the importance of maintaining discipline and adherence to exchange rules.

2. Harshad Mehta v. State of Maharashtra (2001)

• Issue: Harshad Mehta was implicated in a securities scam involving fraudulent
transactions and manipulation of stock prices.
• Outcome: The case led to significant reforms in the securities market,
including stricter regulations and oversight to prevent market manipulation.

3. NSE Co-location Scam (2015)

• Issue: The National Stock Exchange was alleged to have provided preferential
access to certain brokers through its co-location facility, leading to unfair trading advantages.
• Outcome: SEBI conducted investigations, and the case underscored the
importance of transparency and fairness in market infrastructure.
4. Sahara India Real Estate Corp. Ltd. v. SEBI (2012)
• Issue: Sahara Group was found to have raised funds from the public without
complying with regulatory norms.
• Outcome: The Supreme Court directed Sahara to refund the money to
investors, emphasizing the role of SEBI in protecting investor interests.

SEBI Act, 1992 - Key Sections, Case Laws, and Guidelines

The Securities and Exchange Board of India (SEBI) Act, 1992 was enacted to provide the
necessary framework for the regulation of the securities markets in India. This legislation is
fundamental for safeguarding the interests of investors and ensuring the orderly development
of the securities market. Let’s delve into the key sections, case laws, and guidelines on
various topics including IPO allotments and fairness in allotment.
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Key Sections of the SEBI Act, 1992

Section 15G: Penalty for Failure to Furnish Information or Return

• Provision: This section imposes a penalty on any person or entity that fails to
provide information or return required by SEBI under the regulations.
• Penalty: A penalty of ₹1 lakh to ₹25 lakh is levied if an entity or individual
refuses to provide the necessary information. The penalty can be enhanced in case of repeated
offenses.
• Purpose: This section ensures that market participants and entities comply
with SEBI’s information-gathering mechanisms, which helps in ensuring transparency and
good governance within the securities market.

Section 12: Registration of Intermediaries

• Provision: This section mandates the registration of intermediaries (such as
brokers, sub-brokers, merchant bankers, etc.) with SEBI.
• Functionality: Intermediaries are required to adhere to SEBI’s regulations, and
their actions are monitored to prevent market manipulation and fraud.
• Importance: Ensuring that only authorized and compliant entities can operate
in the market helps in protecting investors’ interests.
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Landmark Case Laws

1. Sahara India Real Estate Corporation Ltd. v. SEBI (2012)

• Issue: The Sahara Group raised funds from the public through Optionally
Fully Convertible Debentures (OFCDs) without following the regulations set by SEBI,
specifically the provisions of the Companies Act and SEBI guidelines regarding public
issues.
• Outcome: The Supreme Court ruled against Sahara Group, ordering them to
return the money to investors with interest. This case underscored the importance of adhering
to SEBI’s regulatory framework for public issues and protecting investor interests.
• Significance: The ruling marked a significant point in the regulation of
unregistered collective investment schemes and enforced SEBI’s powers in protecting
investor interests in the securities market.

2. SEBI v. Shriram Mutual Fund (2006)

• Issue: SEBI alleged that Shriram Mutual Fund had violated regulations by
failing to disclose material facts and engaging in market manipulation.
• Outcome: The Supreme Court held that SEBI had the authority to regulate the
mutual fund industry, and this case established that SEBI’s role is not just advisory but also
regulatory, with enforcement powers.
• Significance: This case reinforced SEBI’s role as a regulator with powers to
enforce compliance, protect investor interests, and ensure market integrity.

3. SEBI v. Bhushan Power & Steel Ltd. (2021)

• Issue: Bhushan Power & Steel Ltd. allegedly violated securities laws by
failing to make mandatory disclosures and engaging in fraudulent activities related to
financial statements.
• Outcome: SEBI took stringent actions against the company and its promoters,
issuing penalties and enforcing regulatory measures.
• Significance: The case highlighted SEBI’s proactive role in curbing corporate
fraud and promoting transparency within the capital markets.

4. Reliance Petroleum IPO Case (2007)

• Issue: The Reliance Petroleum IPO was subjected to an investigation by SEBI
due to concerns regarding the manipulation of its share price and the involvement of certain
market participants in activities violating securities laws.
 • Outcome: SEBI investigated the matter, but the issue was later resolved with
the company adhering to the prescribed market practices.
• Significance: This case is an example of SEBI’s role in maintaining the
integrity of the capital market and ensuring that IPOs adhere to fair practices and regulatory
standards.
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SEBI Guidelines on IPO Allotment

SEBI has established comprehensive guidelines for the allotment of shares during Initial
Public Offerings (IPOs) to ensure fairness and transparency in the market. These include
provisions related to investor categories, preferential allotment, anchor investment, and more.

1. Basis of Allotment: IPO Investor Categories

• Retail Investors: Investors with a maximum application amount of ₹ 2 lakh are
considered retail investors.
• Non-Institutional Investors (NIIs): Investors applying for more than ₹ 2 lakh
but less than ₹ 10 lakh.
• Qualified Institutional Buyers (QIBs): Includes institutional investors like
mutual funds, insurance companies, etc.

2. Proportional Allotment
• Explanation: If the demand for shares in an IPO exceeds the number of shares
available, the allotment is done on a proportional basis. This ensures that investors receive
shares in proportion to their application sizes.
• Example: If an investor applies for 1000 shares but the demand is higher than
supply, they may receive a percentage (proportional allotment) of their requested number of
shares.

3. Green Shoe Option

• Explanation: A Green Shoe Option allows the issuer to allocate additional
shares (typically up to 15% of the total offer) to stabilize the post-IPO price. This is
commonly used to absorb excess demand or market volatility.
• Benefit: It helps prevent excessive price fluctuations by allowing the company
to release additional shares if necessary.

4. Anchor Investment
 • Explanation: Anchor investors are institutional investors who are allotted
shares in large quantities before the opening of an IPO. This gives credibility and confidence
to retail investors about the IPO’s success.
• Significance: The presence of anchor investors provides stability to the IPO
pricing and encourages retail investors to participate.

5. Minimum Subscription Requirements

• Provision: An IPO is considered successful only if it achieves a minimum
subscription level (usually 90% of the issue size). This ensures that the company raises
sufficient capital to meet its objectives.
• Purpose: Prevents the company from issuing shares without meeting the
required demand, safeguarding investors and the market.

6. Reservation for Retail Investors

• Provision: SEBI mandates a certain percentage of shares be reserved for retail
investors in every IPO to encourage wider public participation in the equity market.
• Example: Typically, at least 35% of the total shares in an IPO are reserved for
retail investors.

7. Allotment in Right Issues

• Provision: In a rights issue, shares are offered to existing shareholders in
proportion to their holdings.
• Key Principle: The allotment should follow a fair process to ensure all
shareholders have equal access to the new shares being issued.

8. Preferential Allotment
• Explanation: In preferential allotment, shares are issued to specific investors,
typically institutional investors or promoters, at a predetermined price. This method is used to
raise capital quickly without a public offering.
• Regulation: SEBI ensures that preferential allotments are done in a fair and
transparent manner, preventing any manipulation or preferential treatment.

9. Fairness in Allotment (Lottery System)

• Explanation: In cases of oversubscription, SEBI mandates the use of a lottery
system to ensure fairness in allotment to all applicants.
 • Benefit: It eliminates bias and ensures that all investors, regardless of their
application amount, have an equal chance to get allotted shares.
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Depositories Act, 1996 – Expanded Overview

The Depositories Act, 1996 is a pivotal piece of legislation in India designed to facilitate the
efficient handling, transfer, and settlement of securities in electronic form. This act regulates
the functioning of depositories, which are institutions that hold securities in an electronic
format, aiming to enhance the transparency, security, and efficiency of the securities market.
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1. Meaning
The Depositories Act, 1996 refers to a law that provides for the establishment of depositories
in India. A depository is an entity that holds securities in electronic form, eliminating the need
for physical certificates. These securities can be stocks, bonds, or other financial instruments.
The Act allows for the creation, registration, and transfer of securities in electronic form,
making securities trading safer, faster, and more transparent.

Example: The conversion of a physical share certificate into an electronic format and the
transfer of these securities between accounts via the depository system.
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2. Objectives
The key objectives of the Depositories Act, 1996 are to streamline the functioning of
securities markets, reduce inefficiencies, and make the process more secure. Some of the
specific objectives are:
1. Promote Dematerialization: The Act aims to encourage the conversion of
physical securities into electronic form to minimize the risks associated with physical
certificates.
2. Enhance Market Transparency: By introducing electronic systems, the Act
ensures that investors have real-time information and transparent records regarding their
securities holdings.
3. Faster Settlement and Transfer of Securities: The Act facilitates quicker and
more efficient securities transactions through electronic transfer, thus improving settlement
time.
4. Minimize Risks of Fraud: By eliminating physical certificates, the risks of
forgery, loss, and theft of securities are significantly reduced.
 5. Encourage Foreign Investment: The depository system ensures that India’s
securities market aligns with global standards, making it more attractive to foreign investors.
6. Simplify Corporate Actions: Corporate actions like dividends, bonus shares,
or stock splits can be processed seamlessly and more efficiently.
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3. Features
The Depositories Act, 1996 incorporates several key features that contribute to the
modernization of India’s securities market. These include:
1. Dematerialization and Rematerialization: Investors can convert their
physical securities (such as share certificates) into electronic format and vice versa.
Dematerialization eliminates physical certificates, whereas rematerialization is the reverse
process.
2. Settlement of Transactions: The depository system facilitates smooth and
efficient transfer of securities between parties involved in transactions. This helps in reducing
settlement risk.
3. Pledging and Hypothecation: Securities in electronic form can be easily
pledged or used for borrowing. This is much more convenient and safer compared to physical
securities.
4. Record Keeping and Reporting: The depository system allows for accurate
record-keeping of securities. Investors and brokers can view their holdings, monitor trades,
and receive statements electronically.
5. Corporate Actions Handling: Corporate actions, such as dividend payments,
rights issues, bonus shares, etc., are handled electronically by the depositories, ensuring
timely and transparent distribution.
6. Electronic Transfers and Settlements: Securities can be transferred or sold
quickly and with reduced administrative costs, providing a secure and transparent system.
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4. Functions
The primary functions of a depository under the Depositories Act, 1996 include:
1. Holding of Securities: A depository holds securities in electronic form,
enabling investors to trade them electronically. Investors maintain an account with the
depository to hold their securities.
2. Transfer of Securities: Depositories act as intermediaries to facilitate the
transfer of securities between investors. This transfer is done electronically, ensuring faster
and more efficient settlement of transactions.
 3. Dematerialization and Rematerialization: The depository facilitates both
dematerialization (conversion of physical securities into electronic form) and
rematerialization (conversion of electronic securities back into physical certificates).
4. Clearing and Settlement: The depository helps in clearing and settling
securities transactions by maintaining the records of trade execution, clearing, and delivery.
5. Corporate Actions: Depositories facilitate the processing of corporate
actions, such as dividends, rights issues, bonus issues, and stock splits, on behalf of issuers
and investors.
6. Providing Investor Services: Depositories offer various services such as
transaction statements, account opening services, and assistance with transfer procedures for
investors.
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5. Challenges
Despite its advantages, the Depositories Act, 1996 also faces certain challenges:
1. Cybersecurity Risks: As all securities are held in electronic form, the system
is vulnerable to cyber-attacks, data breaches, and technical failures. This poses a significant
risk to the security of investor assets.
2. Awareness Among Retail Investors: A large portion of retail investors in
India remains unaware of the benefits of holding securities in electronic form and the
procedures involved in dematerialization.
3. Technological Infrastructure: Although urban areas have access to robust
infrastructure, remote regions still face challenges such as unreliable internet access and
limited technology adoption.
4. Regulatory Compliance: As regulations evolve, depositories, issuers, and
market participants must adapt to new requirements, which can be cumbersome and costly.
5. Operational Risks: The system may face operational issues, such as delays or
technical errors, especially during periods of high trading volume, which could disrupt
services.
6. Fraud Risks: Although the electronic system reduces many risks, it cannot
fully eliminate the possibility of fraudulent activities, such as hacking, unauthorized access,
and identity theft.
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6. Purpose
The Depositories Act, 1996 serves several important purposes in the Indian securities market:
 1. Promotion of Dematerialization: Encourages the shift from physical to
electronic securities, reducing administrative and operational inefficiencies.
2. Enhancement of Market Transparency: By using electronic systems, the
Act ensures transparency in the handling and transfer of securities.
3. Reducing the Risk of Physical Securities: The Act aims to reduce fraud,
theft, and loss associated with the handling of physical certificates.
4. Efficiency in Settlement Processes: By promoting the use of electronic
transfers, the Act ensures that securities transactions are settled faster and more efficiently.
5. Investor Protection: Safeguarding investors’ holdings and providing them
with the tools to securely transfer their securities.
6. Alignment with Global Best Practices: The Act aligns India’s securities
markets with international standards, making it more attractive for foreign investors.
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7. Advantages
The Depositories Act, 1996 brings numerous advantages to the Indian securities market:
1. Reduced Risk of Loss, Theft, or Forgery: Since securities are held
electronically, there is no physical possession involved, thus reducing the risk of theft or loss.
2. Increased Efficiency: The speed and ease of transferring securities
electronically reduce the need for paperwork and administrative work.
3. Investor Protection: By keeping investors’ securities in electronic form, they
are protected against unauthorized actions or mistakes.
4. Cost-Effectiveness: Dematerialization reduces the costs associated with
printing, maintaining, and transferring physical certificates.
5. Global Integration: The electronic trading system allows for better
integration with international securities markets, increasing foreign investment opportunities.
6. Streamlined Corporate Actions: Investors can receive dividends, rights
issues, and bonus shares directly in their demat accounts without delay or paperwork.
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Major Depositories in India

1. National Securities Depository Limited (NSDL):

• Established: 1996, NSDL was the first depository in India and is one of the
largest in terms of market share.
 • Role: It provides electronic securities services, including dematerialization,
transfer, settlement, and pledging.
• Affiliation: It is a subsidiary of the National Stock Exchange (NSE) and is
regulated by SEBI.

2. Central Depository Services Limited (CDSL):

• Established: 1999, CDSL is the second depository in India.
• Role: CDSL provides similar services as NSDL and is primarily associated
with the Bombay Stock Exchange (BSE).
• Affiliation: It is a subsidiary of BSE and is also regulated by SEBI.
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Legal Framework: Key Sections

Section 12: Rights of Depository, Beneficial Owner, and Issuer

• Rights of Depository: The depository has the right to hold securities in
electronic form, facilitate the transfer of securities, and maintain an electronic register of
securities.
• Rights of Beneficial Owner: The beneficial owner has the right to hold,
transfer, and receive securities, along with any associated corporate benefits like dividends or
bonus shares.
• Issuer’s Obligations: The issuer must ensure that securities are issued in
electronic form, credit them to the depository’s account, and comply with the regulations
under the Depositories Act.

Section 19 & 20: Penalties

• Section 19: Imposes penalties for unauthorized participation in the depository
system, such as unauthorized transactions or non-compliance with rules.
• Section 20: Specifies penalties for failing to comply with provisions of the
Depositories Act. Violations may lead to fines or imprisonment depending on the severity of
the breach.

Section 2: Definitions
• Depository: A system or entity that holds securities in electronic form.
 • Beneficial Owner: The person who is the ultimate owner of the securities,
even though they may be held in the name of a nominee or depository participant.
• Participant: Intermediaries who link investors with depositories, such as
brokers or banks.
• Issuer: Any company or entity that issues securities to the public, such as a
corporation or government.
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Case Laws

1. NSDL v SEBI (2004)

• Issue: SEBI imposed penalties on NSDL for violations in its operations related
to the handling of securities.
• Outcome: The court upheld SEBI’s authority to impose penalties, emphasizing
the importance of regulatory compliance for the smooth functioning of the market.

2. CDSL v Karvy (2018)

• Issue: Karvy was accused of misusing clients’ securities to obtain loans.
• Outcome: The case underscored the need for stricter monitoring of securities
held with depositories and the importance of maintaining investor confidence in the
depository system.
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Correct Penalties Under Sections 19 & 20

Under Section 19, penalties for unauthorized participation in the depository system can result
in fines and imprisonment for individuals found guilty of breaches. Section 20 specifies
penalties for non-compliance with various provisions of the Depositories Act, including
imprisonment for up to 5 years or fines up to ₹ 25 lakh, or both, depending on the offense.

Dematerialization (DEMAT) system in India:

Meaning
Dematerialization is the process of converting physical share certificates into electronic form,
enabling easier and safer management of securities.

Objectives
• Safety: Eliminate risks like theft, loss, or damage of physical certificates.
• Efficiency: Streamline the transfer and settlement of securities.
• Accessibility: Facilitate easier access to the securities market for investors.
• Transparency: Enhance transparency in transactions and holdings.
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Features
• Electronic Holding: Securities are held in digital form.
• Easy Transfer: Simplified process for transferring securities.
• Consolidated Portfolio: Hold various securities like stocks, bonds, and mutual
funds in one account.
• Automatic Updates: Corporate actions like dividends and bonuses are updated
automatically.
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Functions
• Safekeeping: Secure storage of securities.
• Settlement: Efficient settlement of buy and sell transactions.
• Pledging: Securities can be pledged for loans.
• Corporate Actions Management: Handling dividends, rights issues, etc.
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⚠️Challenges
• Cybersecurity Risks: Vulnerability to hacking and data breaches.
• Technical Glitches: System outages can disrupt trading.
• Cost Implications: Maintenance fees may affect small investors.
• Limited Awareness: Some investors may lack understanding of DEMAT
operations.
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🎯 Purpose
• Modernization: Transition from paper-based to electronic systems.
• Investor Confidence: Provide a secure platform for trading.
• Market Growth: Encourage participation by simplifying investments.
• Regulatory Compliance: Align with global standards.
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✅ Advantages
• Safety: Reduced risk of physical certificate issues.
• Convenience: Simplified buying, selling, and transferring of securities.
• Speed: Faster settlement cycles.
• Cost-Effective: Lower expenses related to physical handling.
• Transparency: Clear records of holdings and transactions.
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🏦 Major Depositories in India

• National Securities Depository Limited (NSDL): Established in 1996, NSDL
was the first depository in India, providing services for holding and transferring securities
electronically.
• Central Depository Services Limited (CDSL): Established in 1999, CDSL
offers similar services and is known for its user-friendly platforms catering to a wide range of
investors.
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