Evolution of Securities and Investment Laws in India

The earliest stock exchange was set up in Amsterdam in 1602 and it was
involved in buying and selling of shares for Dutch East India Company.

The first real stock exchange started in Philadelphia in the United States
during the late 18th century. Later, the New York Stock Exchange became
popular and Wall Street became the hotspot of brokerage activities.

Security Trading in India goes back to the 18th century when East India
Company began trading in loan securities.

Corporate shares with the stock of Bank and Cotton presses started being
traded in the 1830s in Mumbai with Bombay Cotton Trade Association
being the first to start future trading in 1875 in the arena of commodities
trading and by the early 1900s, India had one of the world’s largest futures
industry.

Going back to 1850s the roots of stock exchanges in India sprouting when 22
stockbrokers began trading opposite the Town Hall of Bombay under a
banyan tree. The tree is still present in the area and is known as Horniman
Circle.

The shift was an ongoing one and number of brokers gradually increased finally
settling in 1874 at what is known as Dalal Street.

The group of 318 people came together to form “Native Shares and Stock
Brokers Association” and the membership fee was Re 1. This association is
now known as Bombay Stock Exchange (BSE) and in 1965 it was given
permanent recognition by the Government of India under the Securities
Contracts (Regulation) Act (SCRA), 1956.

Another development in the history of stock exchanges began with the Calcutta
stock exchange opening up in 1908 and began trading shares of plantations and
jute mills. It was followed by Madras Stock Exchange starting in 1920.

Post-independence Era and Reforms in the market

There were a series of reforms in the stock market between 1993 and 1996
which further lead to the development of exchange-traded equity derivatives
markets in India.
There was a certain element of the trading system called “Badla” involving
some elements of forwards trading which had been in existence for decades.
This practice led to the growth of undesirable market practices and to check this
development it was prohibited off and on till it was banned in 2001.

In the 1990s stock market witnessed a steady increase in stock market crises. An
aspect of these crises was market manipulation on the secondary market.
Following are the incidents which prompted the development of the stock
market:- -

1992: Harshad Mehta – The first “stock market scam” was one which
involved both the GOI bond and equity markets in India. Thereafter,
manipulation was based on inefficiencies in the settlement system in GOI
bond market transactions. Inflation came about in the equity markets and the
market index went up by 143% between September 1991 and April 1992 and
the amount involved in the crises was Rs 54 billion.

1994: MS Shoes – Here the dominant shareholder of the firm, took large
leveraged positions through brokers at both Delhi and Bombay stock
exchanges, to manipulate share prices prior to the rights issue. After the share
prices crashed, broker defaulted and BSE shut down for three days in a
consequence.

1995: Bad deliveries of physical certificates: When anonymous trading and

the nationwide settlement became the norm by the end of 1995, there was an
increased incidence of fraudulent shares being delivered into the market. It has
been the expected cost of encountering fake certificates in equity settlement in
India at the time was as high as 1%.

1997: CRB. C.R. Bhansali created a group of companies, called the CRB
group, which was a conglomerate of finance and non-finance companies.
Market manipulation was an important focus of group activities. The non-
finance companies routed funds to finance companies for price manipulations.
The non-finance companies were tasked with sourcing funds from external
sources, using manipulated performance numbers. The CRB episode was
particularly important in the way it exposed extreme failures of supervision on
part of RBI and SEBI. The amount involved in the episode was Rs 7 billion.
1998: BPL, Videocon and Sterlite – This is an episode of market
manipulation involving the broker that engineered the stock market bubble
of 1992, Harshad Mehta. He seems to have worked on manipulating the share
prices of these three companies, in collusion.

2001: Ketan Parekh. This was triggered by a fall in the prices of IT stocks
globally. Ketan Parekh was seen to be a leader of the episode, with leveraged
positions onset of stocks called the “K10 stocks”. There are allegations of fraud
in this crisis with respect to an illegal “Badla” market at the Calcutta Stock
Exchange and banking fraud.

In the post-independence era, the BSE dominated the volume of trading.

However, the low level of transparency and undependable clearing and
settlement systems, apart from other macro factors, increased the need for a
financial market regulator, and the SEBI was born in 1988 as a non-
statutory body. Later it was made a statutory body in 1992.

Although in the wake of Harshad Mehta scam in 1992, there was a pressing
need for another stock exchange large enough to compete with BSE and
bring transparency to the stock market. It leads to the development of the
National Stock Exchange (NSE).

It was incorporated in 1992, became recognised as a stock exchange in

1993, and trading began on it in 1994. It was the first stock exchange on
which trading was conducted electronically. In response to this competition,
BSE also introduced an electronic trading system known as BSE Online
Trading (BOLT) in 1995.

Thereafter, BSE launched its own sensitivity index, the Sensex, known at
present as the S&P BSE Sensex, in 1986 with 1978-79 as the base year. This is
an index of 30 companies and is a benchmark stock index, measuring the
overall performance of the exchange.

NSE launched its benchmark exchange, the CNX Nifty, now known as
Nifty 50, in 1996. It comprises of 50 stocks and functions as a performance
measure of the exchange.

After incorporation of BSE and NSE, 23 stock exchanges were added not
including the BSE. At present, there are 23 approved stock exchanges in
India out of which 6 are functional:- -
1. BSE Ltd - 2. Calcutta Stock Exchange - 3. India International Exchange
(India INX) - 4. Metropolitan Stock Exchange - 5. NSE - 6. NSE IFSC Ltd

Thus, from the times when buyers and sellers had to assemble at stock
exchanges for trading till the present times when the dawn of IT has made the
operations at stock exchanges electronic hence making stock markets paperless.

Concept of Securities and Kinds of Securities

Introduction - “Securities” refers to substitutable and tradable financial
instruments with a particular monetary value. This represents the ownership
of a listed company through its shares.

For laymen, securities are financial assets of monetary value that investors
use to invest in a company, while companies use them to raise capital.

Essentials Of Security

Monetary value is the value of something measured in currency. Almost

everything relevant to a modern economy can be measured by its monetary
value. The price, or monetary value, of something is determined in the
marketplace and is based upon the law of supply and demand.

Trading instruments refer to the different types of markets you can trade.
Sometimes called securities, they range from commodity futures to stocks and
CFDs, to currencies and metals, and more.

Section 9 of The Depositories Act, 1996: Securities in depositories to be in

fungible form: All securities held by a depository shall be dematerialised and
shall be in a fungible form.

In Simple Terms: Every security that a depository has will be in an electronic

form and can be interchanged with other securities of the same type.

Securities and Exchange Board of India (Depositories and Participants)

Regulations, 2018 – Mandatory Online Form Of Security.

Historical Context

The Indian Contract Act, 1872 - One of the earliest legal foundations for
securities transactions was laid by the Indian Contract Act, which established
the basic legal framework for contracts, including those related to securities.
The Companies Act, 1913- This Act introduced statutory provisions for the
issuance and trading of securities by companies. It established regulatory
oversight by requiring companies to file prospectuses with the Registrar of
Companies.

The two exclusive legislations that governed the securities market till early
1992 were the Capital Issues (Control) Act, 1947 (CICA) and the Securities
Contracts (Regulation) Act, 1956 (SCRA).

Under CICA, the Controller of Capital Issues was set up- granted approval for
issue of securities and determined the amount, type and price of the issue.

 CICA was repealed in 1992- as a part of liberalization process to allow the

companies to approach the market directly; provided they issue securities in
compliance with prescribed guidelines relating to disclosure and investor
protection.

 The Government appointed the A. D. Gorwala Committee in 1951 to

formulate a legislation for the regulation of the stock exchanges and of
contracts in securities.

SCRA was enacted in 1956 to provide for: -

1. direct and indirect control of securities trading

2. running of stock exchanges, and
3. to prevent undesirable transactions in securities.

 It gives Central Government regulatory jurisdiction over –

1. stock exchanges through a process of recognition and continued

supervision,
2. contracts in securities, and
3. listing of securities on stock exchanges

Current Legal Regime

SECURITIES CONTRACTS (REGULATION) ACT, 1956

Section 2(h) - “securities” include- (i) 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;
  [(ia) derivative;
 (ib) units or any other instrument issued by any collective investment
scheme to the investors in such schemes;]
 [(ic) security receipt as defined in clause (zg) of section 2 of the
Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002;]
 [(id) units or any other such instrument issued to the investors under
any mutual fund scheme;]
 (ii) Government securities;
 (iia) such other instruments as may be declared by the Central
Government to be securities; and
 (iii) rights or interest in securities;

The term 'Securities' under Section 2(81) of the Companies Act, 2013

(81) ―securities means the securities as defined in clause (h) of section 2 of the
Securities Contracts (Regulation) Act, 1956 (42 of 1956).

Section 2(7) in The Sale Of Goods Act, 1930

“goods” means every kind of movable property other than actionable claims
and money; and includes stock and shares, growing crops, grass, and things
attached to or forming part of the land which are agreed to be severed before
sale or under the contract of sale.

Sahara India Real Estate Corporation Limited and Others v. Security and
Exchange Board of India (Sahara vs SEBI) 2012

Facts of the case –

From 25th April 2008 to 13th April 2011, Sahara India Real Estate Corporation
Limited (SIRECL) and Sahara Housing Investment Corporation Limited
(SHICL) floated an issue of Optionally Fully Convertible Debentures (OFCDs)
and started collecting subscriptions from investors.

The company had over Rs. 17,656 crore during that period. In the guise of
“Private Placement”, the amount was collected from about 30 million investors.
This act was performed without complying with the requisites relevant to the
public offerings of the securities. The Whole Time Member of SEBI was taking
cognizance of the act.
Issue: Whether the hybrid OFCDs comes under the definition of
“Securities” within the meaning of SEBI Act, Companies Act and The
Securities Contracts (Regulation) Act (SCRA) for vesting SEBI with the
jurisdiction to adjudicate and investigate.

Judgment: The OFCDs issued two companies which are in the nature of
“hybrid” instruments. The Supreme Court held that even though the OFCDs
had issued that, it do not cease to be a “Security” within the meaning of the
SEBI Act, Companies Act, and SCRA.

It says in spite of having the definition of “Securities” under section 2(h) of

SCRA, it doesn’t contain the term “hybrid instruments”. The definition which is
provided in the Act is covering all the “Marketable securities”.

In this case such OFCDs were offered to number of people, so the question
about the market ability of such instrument do not arise. Additionally, since the
name itself was comprise of the term “Debenture”, it is considered as a security
according to the provisions of the SEBI Act, Companies Act and SCRA.

Kinds of Securities
The term security refers to just about any negotiable financial instrument, such
as a stock, bond, options contract, or shares of a mutual fund.

Equity Securities: Equity refers to stocks and shares. It represents the

ownership interest held by shareholders in a company. The earnings of a
shareholder are usually in the form of dividends. Also, listed equity
securities are volatile and are the prices rise or fall as per the market conditions.

Debt Securities: Debt or fixed income securities represent that the money is
borrowed and shall be repaid with interest upon maturity. These securities
include government bonds, certificate of deposits, corporate bonds,
treasury bills etc. These are bought and sold with a promise to repay the same
with interest. Also, the debt agreement predetermines the rate of interest, the
amount borrowed, the maturity and renewal date.

Derivative Securities: The value of derivatives securities depends on the

underlying asset. The underlying asset can be stocks, bonds, interest rates,
market indices, interest rates, or goods. It is a contract between two or more
parties. Where the value of the investment is derived from underlying financial
assets.
The main purpose of derivatives is to minimise risk. One can achieve it by
insuring against the price fluctuations. The different types of derivatives are
future, forwards, options, and swaps.

Hybrid Securities: Hybrid security is a type of security that has both debt
and equity securities characteristics. Many institutions use hybrid securities
to borrow money from investors. Examples of hybrid securities are
convertible bonds, where the bondholder can convert to equity stocks during
the bond tenure or at maturity. Preferred stocks, these allow the holder to
receive dividends prior to common stockholders.

What Are The Different Types Of Derivative Contracts

Options: Options are derivative contracts that give the buyer a right to buy/sell
the underlying asset at the specified price during a certain period of time. The
buyer is not under any obligation to exercise the option. The option seller is
known as the option writer. The specified price is known as the strike price.
You can exercise American options at any time before the expiry of the option
period. European options, however, can be exercised only on the date of the
expiration date.

Futures: Futures are standardised contracts that allow the holder to buy/sell the
asset at an agreed price at the specified date. The parties to the futures contract
are under an obligation to perform the contract. These contracts are traded on
the stock exchange. The value of future contracts is marked to market every
day. It means that the contract value is adjusted according to market movements
till the expiration date.

Forwards: Forwards are like futures contracts wherein the holder is under an
obligation to perform the contract. But forwards are unstandardised and not
traded on stock exchanges. These are available over-the-counter and are not
marked-to-market. These can be customised to suit the requirements of the
parties to the contract.

Swaps: Swaps are derivative contracts wherein two parties exchange their
financial obligations. The cash flows are based on a notional principal amount
agreed between both parties without exchange of principal. The amount of cash
flows is based on a rate of interest. One cash flow is generally fixed and the
other changes on the basis of a benchmark interest rate.
Interest rate swaps are the most commonly used category. Swaps are not traded
on stock exchanges and are over-the-counter contracts between businesses or
financial institutions.

The following are the main difference between debt securities and equity
securities:

In Debt securities the rate of interest, the amount borrowed and the maturity and
renewal date is predetermined while equity securities are volatile and rise and
fall in accordance with the market conditions.

Debt securities are basically loans that pay interest over a period of time while
equity securities confer an investor with ownership rights over the company he
has bought shares of.

In Debt securities, the return is in the form of fixed income while in equity
securities the return comes in the form of dividends.

Role of Stock Exchange under It - Powers and Functions under

SEBI Act, 1992
Introduction

SEBI is a statutory regulatory body that stands for Securities And Exchange
Board Of India which is responsible to regulate the Indian capital markets.

It was set-up to prevent malpractices in the capital market and to promote

the development of the capital market because people were losing confidence in
the stock market, so the government felt a sudden need to set up an authority to
regulate the working and to reduce malpractices.

History of SEBI

Before SEBI was created, the Capital Issues (Control) Act, of 1947, which gave
the Controller of Capital Issues the authority to regulate, served as the
regulating body.

The Indian stock market faced numerous frauds during the 1970s and
1980s, including unauthorised private placements, insider trading, disregard for
the Companies Act’s requirements, market manipulation, rule violations, price
manipulation, and delays in the distribution of shares, among other things.
The Committee on the Regulation of the Stock Market was established by
the government in 1984, and it made recommendations for the creation of a
regulatory organisation to monitor and control the securities market. The
committee’s recommendations led to the establishment of SEBI in 1988
through a law passed by Parliament. SEBI was established with the purpose of
preventing fraud and preserving market transparency.

After being established in 1988 as a non-statutory organization, the

Securities and Exchange Board of India became a statutory body in 1992 with
the enactment of the Securities and Exchange Board of India Act, 1992.

Besides its headquarters in Mumbai, the establishment has several regional

offices nationwide, including New Delhi, Ahmedabad, Kolkata and Chennai.

Financial Market : Money Market and Capital Market

The Indian financial system has two major components: the money market and
the capital market. The money market fulfils short-term liquidity needs, while
the capital market offers a platform for long-term investing.

What is a Money Market?

A money market is a market for short-term, highly liquid securities. It caters to

immediate cash requirements of the economy and helps mobilise funds across
different sectors. Money market interest rates serve as a benchmark for other
debt securities and are used by RBI and the government to frame monetary
policy.

Major players in the money market include the Reserve Bank of India (RBI),
banks, NBFCs, acceptance houses, mutual fund houses and All India Financial
Institutions (AIFI). Regulated by RBI

What is a Capital Market?

Capital market is a market for long-term investments that helps businesses raise
funds for long-term projects. It also helps to mobilise savings to investments
and enables faster valuation of financial securities that are listed on the stock
exchange. Capital markets in India are highly regulated and organised and have
the potential to give good returns in the long run. Regulated by SEBI
The Harshad Market Scam 1992
The 1992 stock market scam is often referred to by the perpetrator’s name who
brought about the downfall of the stock market: Harshad Shantilal Mehta. The
scam featured an embezzlement of Rs 1439 crores ($3 billion) that led to a
severe crunch and drastic loss of wealth in the life savings of many investors
that amounted to Rs 3542 crores ($7 billion). Harshad Mehta is also framed as
a victim due to alleged political alliances that included prominent governmental
figures. However, it remains true that Mehta exploited the loopholes for his
personal benefit, manipulated the market and was heavily involved in many
banking frauds.

What is a ‘ready forward’ deal?

Bank A, which temporarily required cash to meet the CRR rule, would sell
securities to Bank B. After a few days, Bank A would buy the securities back
from Bank B at a slightly higher rate. The difference in the purchase and sale
price of securities was the interest paid for borrowing the funds. This would be
higher than the call money rate. Note, the coupon rate or yield on the securities
had no connection to the trade, which was a pure financing deal.

Objectives of SEBI
Safeguard the investors of the stock market: The SEBI was established to
secure the interest of investors in the financial market. It aims to provide a safe
environment for the stock market participants by continuous improvement in its
guidelines and measures.

Prevents fraud and malpractices: SEBI's main purpose was to prevent unfair
trade and malpractice in the stock market. SEBI has an independent online
complaint cell where anyone can complain and resolve their queries. After the
establishment of SEBI, the fraud activities in the stock market have reduced and
become more transparent than before.

Fair functioning: The SEBI safeguards the activities in the stock market. In
case of fraud activity, one can file a complaint directly on SEBI's website or
complain to SEBI's headquarters.

Composition of SEBI: Section 4 of the SEBI, Act provides for the

composition of the SEBI board as follows:
The board consists of nine members:

1. The Chairman – Nominated by the central government.

2. Two members of the officials of the Finance Ministry of the Central
Government.
3. One member who is an official of the Reserve Bank of India.
4. Other five members – Nominated by the Central Government. Among
these, at least 3 should be full-time members.

Powers and function of SEBI

Section 11 of the Securities and Exchange Board of India Act, 1992 deals
with the functions of SEBI.

Functions of SEBI: SEBI has three functions:

1. Protective Function: SEBI performs these functions to protect the

interest of investors and other financial participants.

(i)Safeguard the interests of traders and investors.

(ii)Limit price rigging, as some of them is already fix (price rigging) by the
corporate or group of corporate.

(iii)Prevent insider trading.

(iv)Promote fair practices, ensure that all the market transactions take place
smoothly and securely.

(v)Prohibits unfair trade practices.

2. Development Function: It brings freshness and innovations to the Indian

financial market.

(i) Offering training to financial intermediaries.

(ii) Introducing DEMAT form of securities.

(iii) Buying- selling mutual funds directly from AMC through a broker.

(iv) Encouraging self-regulating organisations.

(v) Promoting fair trade practices and reducing unfair trade practices.
3. Regulatory Function: This function ensures the smooth and transparent
functioning of the stock market.

1. It regulates the functioning of mutual funds and the takeover of

companies.
2. All intermediaries, brokers, sub-brokers, merchant bankers, trustees etc
register in SEBI.
3. Conducts inquiries and audit of exchanges.

Powers of SEBI: SEBI holds the following three main powers w.r.t. to the
Indian capital market:

Quasi-Judicial. To deliver judgments on practices relating to fraud as well as

unethical practices.

Quasi-Executive. To implement the regulations and judgments. Additionally,

take legal action against the violators. To inspect the Books of accounts and
other documents in case of any violation of the regulations.

Quasi-Legislative. To frame rules and regulations to protect the interests of the

investors. Few instances are insider trading regulations, listing obligations, as
well as disclosure requirements.

What is the Role of SEBI in Stock Exchange?

Securities issuers: These entities get listed on the stock exchanges and raise
funds by issuing shares. The SEBI makes sure that the initial public offering and
post-public offer take place transparently.

Investors: Investors are the most important part of the stock market and they
are the ones who actively participate in the stock market. SEBI protects these
investors by ensuring there is no fraud or stock market manipulation.

Financial sector intermediaries: These intermediaries between the issuers and

investors in the stock market make the financial transactions safe and smooth.
SEBI takes charge of the activity of the stock market intermediaries.
Conclusion: India’s securities markets are governed by SEBI, a statutory
regulatory organization. All investors in the Indian capital market are subject to
SEBI regulation. It seeks to promote financial markets while also aiming to
protect investors’ interests by enforcing several laws and regulations. The
presence of SEBI guarantees investors a hassle-free trading experience.

Stock exchange [Section 2(j)]: Any individual, whether incorporated or not,

constituted before corporatization and demutualization under sections 4A and
4B, or –

a body corporate incorporated under the Companies Act, 1956 whether under a
scheme of corporatization and demutualization or otherwise for the purpose of
assisting, regulating or controlling the business of buying, selling or dealing in
securities

 Recognized Stock exchange [Section 2(f)]: means a stock exchange which is

for the time being recognized by the Central Government under Section 4 of the
Act. (Under SCRA 1956)

Smt. Madhabi Puri Buch Current Chairperson of SEBI

CHAPTER IV

POWERS AND FUNCTIONS OF THE BOARD

11. Functions of Board

11A. Board to regulate or prohibit issue of prospectus, offer document or

advertisement

soliciting money for issue of securities

11AA. Collective investment scheme

11B. Power to issue directions

11C. Investigation

11D. Cease and desist proceedings

12. Registration of stock brokers, sub-brokers, share transfer agents, etc. ChpV

12A. Prohibition of manipulative and deceptive devices, insider trading and

substantial acquisition of securities or control. Chapter VA
 Dematerialisation of Shares
The traditional method of possessing shares involved holding a physical share
certificate. Dematerialized securities are securities that are not on paper and
a certificate to that effect does not exist. They exist in the form of entries in
the book of depositories.

This system works through a depository who is registered with the Securities
and Exchange Board of India (SEBI) to perform the functions of a depository as
regulated by SEBI.

The Companies Act, 1956 makes it mandatory for any Company making
an Initial Public Offer of Rs. 10 crore or more to issue shares in a
dematerialized form alone. (Section 68B, Companies Act, 1956). Thus, it is
clear that Dematerialization refers to conversion of a share certificate from its
physical form to electronic form.

Two depositories called Central Depository Services India Limited (CDSL),

and National Securities Depository Limited (NSDL) is registered with the
Securities and Exchange Board Of India also known as SEBI.

Why Demat?

Share certificates were sometimes lost in transit. In that scenario, the investors
had to give an indemnity bond to the Company, which involved a cost to the
investor, besides depriving him of the opportunity to sell the shares at the
opportune time. Time taken to receive the shares was also quite long compared
to the present dematerialized environment.

TRADING IN THE PRE-INDEPENDENT ERA

Refer to the page no 1&2 of this PDF. Must Written TownHall + Banyan Tree +
BSE + BOLT 1995

Depositories Act, 1996

What is a depository?

To explain in simple terms a depository is a place where something is deposited

for security purposes. It could be a bank, a company or an institution that holds
securities and facilitates the exchange of the securities.
The definition of depositories under the Depositories Act, 1996

Section 2(e) “depository” is a company registered under the Companies Act,

1956. It would be granted a certificate of registration under Section 12
subsection (1A) of Securities and Exchange Board of India Act (SEBI),
1992. Hence the Depository becomes an organization like a central bank. The
main role of Depositories is to dematerialize the securities which mean
converting the securities from physical form to electronic form and enabling
transactions in electronic form.

 The National Securities Depository Limited, India’s first and largest

depository system, played a pivotal role as its key purpose was to create
a platform which would be similar to the standards followed by the
international market dealing with dematerialization of accounts.
 The Central Depository Services (India) Ltd came into existence in
the month of February 1999, which was supported by the Bombay
Stock Exchange. It was an attempt to create a joint venture with
nationalized banks like State Bank of India, Bank of Baroda.

Section 2(a) “beneficial owner” means a person whose name is recorded as

such with a depository.

Section 2(g) “participant” means a person registered as such under sub-section

(1A) of section 12 of the Securities and Exchange Board of India Act, 1992.

Section 2(m) “service” means any service connected with recording of

allotment of securities or transfer of ownership of securities in the record of a
depository.

Depository Participant

A Depository Participant (DP) is an agent of the depository through which it

interfaces with the investor. A DP can offer depository services only after it
gets proper registration from SEBI. Banking services can be availed through
a branch whereas depository services can be availed through a DP. The DP acts
as the link between the investor and the Depository. The DP is the
representative of the investor and the agent of the Depository. According to
SEBI guidelines, financial institutions, banks, custodians, stockbrokers, etc. are
eligible to act as DPs.
Working:

The physical share certificates of an investor are taken back by the Company
and an equivalent number of securities are credited in electronic form at the
request of the investor. An investor will have to first open an account with a
Depository Participant and then request for the dematerialisation of his share
certificates through the Depository Participant so that the dematerialised
holdings can be credited into that account. This is very similar to opening a
Bank Account. To avail the services of a depository an investor is required to
open an account with a depository participant of any depository.

Dematerialization process
The Dematerialization starts with opening a Demat account.

Step 1 Opening of Demat Account

Standardised Contract to be signed by Benficial Owner Prepared by DP.

Step 2 Surrender of Certificate of Security (Section 6)

(1) Any person who has entered into an agreement under section 5 shall
surrender the certificate of security, for which he seeks to avail the services of a
depository, to the issuer in such manner as may be specified by the regulations.

(2) The issuer, on receipt of certificate of security under sub-section (1), shall
cancel the certificate of security and substitute in its records the name of the
depository as a registered owner in respect of that security and inform the
depository accordingly.

(3) A depository shall, on receipt of information under sub-section (2), enter the
name of the person referred to in sub-section (1) in its records, as the beneficial
owner.

Step 3 Registration of BO Section 7

Every depository shall, on receipt of intimation from a participant, register the

transfer of security in the name of the transferee.

Step 4 Retention of Some Securities on the request of BO ( Sec 7(2) & S8)

Sec 7(2) If a beneficial owner or a transferee of any security seeks to have

custody of such security the depository shall inform the issuer accordingly.
Options to receive security certificate or hold securities with depository.

8. (1) Every person subscribing to securities offered by an issuer shall have the
option either to receive the security certificates or hold securities with a
depository.

(2) Where a person opts to hold a security with a depository, the issuer shall
intimate such depository the details of allotment of the security, and on receipt
of such information the depository shall enter in its records the name of the
allottee as the beneficial owner of that security.

Step 5 Dematerialization Commences Section 9

All securities held by a depository shall be dematerialised and shall be in a

fungible form.

Step 6 Rematerialization: Option to Opt Out (s. 14)

(1) If a beneficial owner seeks to opt out of a depository in respect of any

security he shall inform the depository accordingly.

(2) The depository shall on receipt of intimation under sub-section (1) make
appropriate entries in its records and shall inform the issuer.

(3) Every issuer shall, within thirty days of the receipt of intimation from the
depository and on fulfillment of such conditions and on payment of such fees as
may be specified by the regulations, issue the certificate of securities to the
beneficial owner or the transferee, as the case may be.

What is Rematerialisation ?

Rematerialisation is the process of converting securities that are in digital

format into physical certificates. Investors who have converted or have their
securities in electronic format stored in Demat accounts can opt for the
rematerialisation process. However, while securities are undergoing the
rematerialisation process, investors cannot trade them on the relevant exchange.
Differences Between Dematerialization Vs Rematerialisation

While dematerialization converts physical securities into electronic form,

Rematerialisation converts electronic holdings back into physical certificates.

dematerialization moving from physical to electronic form, and

Rematerialisation moving from electronic to physical form.

Dematerialization offers advantages such as enhanced efficiency, reduced

paperwork, and increased accessibility, while Rematerialisation provides
flexibility for investors who prefer physical certificates.

The convenience of Process: Dematerialisation is popular among investors

owing to its easy and transparent process. The only thing you need to utilise in
the dematerialisation process is a trusted Depository Participant of your choice
to open a Demat account. Meanwhile, rematerialisation is a much more difficult
and cumbersome process. The process can also take a long time and often
requires professional expertise to be done properly.

Ease of Trading: Dematerialisation is a smooth, transparent and

straightforward process. Since rematerialisation converts securities into physical
formats, investors must conduct all transactions physically by visiting the
required locations.

Costs of Maintenance: Rematerialised securities do not come with a

maintenance cost. However, dematerialised securities can only be held in a
Demat account that brokers and financial institutions provide. Therefore, they
levy a maintenance charge for the service.

Security: The matter of security of assets and transactions is an important

distinction between dematerialisation and rematerialisation. In this regard,
dematerialisation ensures a much higher level of security than rematerialisation.

Authority of Account: However, in dematerialisation, the account maintenance

authority rests with the depository participant (NSDL or CDSL). Since these
services are instituted by the Securities and Exchange Board of India (SEBI),
they are reliable and transparent.
Difference between MRTP Act, 1969 and Competition Act, 2002
Point of
MRTP Act, 1969 Competition Act, 2002
difference

The MRTP Act is India’s first

The Competition Act, 2002 was established to
competition law, consisting of laws
Meaning encourage and maintain economic competition
and regulations that govern
and protect commercial liberty.
discriminatory market practices.

MRTP Act 1969 was based on the The Competition Act, 2002 is based on a
Basis pre-liberalisation and pre- modernised economy after liberalisation and
globalisation phases. globalisation.

Purpose of the To prevent monopolistic markets To encourage competition and maintain

Act and unjust practices. business autonomy.

Nature of the MRTP Act, 1969 is reformatory in

Competition Act, 2002 is punitive in nature.
Act nature.

It only acknowledges four offences that are

It contains fourteen offences that
Offences regarded to be violative of the concept of
violate the notion of natural justice.
natural justice.

The chairman of the CCI will be chosen by a

The central government appointed panel composed of retired judges and other
Appointment of
the head of the MRTP professionals with expertise from various fields
the chairman
Commission. like trade, commerce, industries, finance, and
so forth.

There is no punishment for the

Penalty Offences under this Act are punishable.
violation.
 CHAPTER VII

COMPETITION ADVOCACY

Competition Advocacy Section 49

(1) The Central Government may, in formulating a policy on competition

(including review of laws related to competition) or any other matter, and
a State Government may, in formulating a policy on competition or on
any other matter, as the case may be, make a reference to the Commission
for its opinion on possible effect of such policy on competition and on the
receipt of such a reference, the Commission shall, within sixty days of
making such reference, give its opinion to the Central Government, or
the State Government, as the case may be, which may thereafter take
further action as it deems fit.]
(2) The opinion given by the Commission under sub-section (1) shall not be
binding upon the Central Government [or the State Government, as the
case may be] in formulating such policy.
(3) The Commission shall take suitable measures for the promotion of
competition advocacy, creating awareness and imparting training about
competition issues.

Competition Advocacy is one of the main pillars of modern competition law

which aims at creating, expanding and strengthening awareness of competition
in the market. Section 49 of the Competition Act, 2002 mandates the CCI to
undertake advocacy for promoting competition.

“Competition advocacy” means those activities which are conducted to

promote a competitive environment for economic activities. The main
beneficiaries of competition policy and law are the consumers, whose welfare is
its declared objective of competition Act. Advocacy is the act of influencing or
supporting a particular idea or policy.

Effective implementation of any policy and law largely depends upon the
willingness of the people to accept the law. In that sense advocacy always
plays a vital role in securing the willingness and acceptability of any policy and
law. Raising the level of awareness among the public is an important step
towards creating a competition culture within the country.
According to the Raghavan Committee - The role of CCI is not merely
enforcing the Competition Law. It has to participate in the formulation of the
country’s economic policies, which may adversely affect competitive market
structure, business conduct and economic performance. Therefore, Commission
has to act the role of a competition advocate also to bring about Government
policies that lower down the barriers to entry, promote de-regulation and trade
liberalization and promote competition in the market place. Therefore, there is a
direct relationship between competition advocacy and enforcement of
competition law.

In recognition of the importance of the various stakeholders, the Act lays

emphasis on competition advocacy initiatives to be taken by CCI at three levels

 The policy makers (Central and State Governments),

 The sectoral regulators and
 The public at large.

Tools of Advocacy or Role of CCI

Various competition advocacy tools are effectively utilized by competition

authorities. Seminars and workshops are effective tools for targeted audience.
Published brochures, guidelines, articles and posting them on website are able
to carry the message far and wide.

Glimpses of Competition Advocacy Initiatives Taken By CCI

(1) National and State level Workshops and Seminars

(2) Special lectures organised for CCI officers
(3) Papers and studies published for competition advocacy and for creating
awareness of competition issues.
(4) Capacity building of stakeholders or for CCI officials to participate in
competition regulatory process.
(5) Competition related sectoral/ regulatory impact assessment; market
studies and research projects carried out by the commission.
(6) Consultation papers published/ placed on website of the Commission.
(7) Press conferences and press releases
Powers and Functions of Competition Commission of India

The CCI can exercise power subject to the Act and the Rules. It should be
guided by the principles of natural justice and provisions of the act

1. The Commission shall have the powers to regulate its own procedure.
[Section 36 (1)]

2. Commission has a power of civil court [Section 36 (2)]

a. Summon & Enforcing Attendance of any person on oath

b. Requiring the Discovery and production of Document
c. Receiving evidence as affidavit
d. Issue commission for examination of witness or documents
e. Requisitioning any public record on document or copy of such
document form any office
f. Power to conduct enquiry

3. Commission may call the experts on respective field i.e Economics’,

Commerce,

Accountancy which may be necessary [Section 36 (3)]

4. Direct any person [Section 36 (4)]

I. Produce Book, Accounts or other documents

II. Furnish information about trade in procession of such persons

5. Issue cease and desist orders

6. Impose fines and penalties (Section 27)

7. Declare agreement having Appreciable adverse effect on competition

(AAEC) void

8. Pass orders modifying agreement

In case of abuse of dominance

9. order for division of dominant enterprise (Section 28)

In case of combinations: (Section 31)

10. Approve Combination

11. Approve with modifications

12. Direct that combinations shall not take effect

13. To order demerger

Other Powers

1. 14. In case of companies, individuals may also be held liable if consent,

connivance or neglect is proved
2. 15. CCI has extra-territorial reach
3. 16. To order cost for frivolous complaint

Functions of CCI

1. Make the markets work for the benefit and welfare of consumers.
2. Ensure fair and healthy competition in economic activities in the country
for faster and inclusive growth and development of economy.
3. Implement competition policies with an aim to effectuate the most
efficient utilization of economic resources.
4. Develop and nurture effective relations and interactions with sectorial
regulators to ensure smooth alignment of sectorial regulatory laws in
tandem with the competition law.
5. Effectively carry out competition advocacy and spread the information on
benefits of competition among all stakeholders to establish and nurture
competition culture in Indian economy.

Competition Appellant Tribunal Section 53A & 53B

i. Central Government shall by notification establish

competition appellant tribunal
ii. Any person aggrieved by the order of the commission may
appeal to CAT within 60days.
iii. CAT may accept the petition after 60days if it is satisfied
that there was sufficient cause for not filling appeal with in
specified time
iv. CAT may confirm/modify/setting side decision of
commission after giving opportunity to both parties
v. CAT shall send copy of order to parties to appeal
vi. CAT shall dispose the appeal within six months.