AMENDMENTS TO SECURITIES CONTRACTS (REGULATION) ACT, 1956 BY FINANCE BILL, 2018

[Mr. M. GOVINDARAJAN]

The Finance Bill, 2018 also brings certain amendments to Securities Contracts (Regulation) Act, 1956 in Part VI of the Bill vide clause 143 to clause 156. 

Commencement of the amendment

Clause 143 of the Bill provides that the provisions of Part VI shall come into force on such date as the Central Government may, by notification, in the official gazette, appoint.

Power to issue directions

Section 12A of the Act gives powers to SEBI to issue directions.  Clause 144 of the Bill proposes to renumber section 12A as 12A(1) and also proposes to insert section 12A (2).  The newly inserted section 12A (2) provides that without prejudice to the provisions of section 12A(1) and section 23-I (power to adjudicate), the SEBI may, by an order, for reasons to be recorded in writing, levy penalty under-

• Section 23A (Penalty for failure to furnish information, returns etc.,)
• Section 23B (Penalty for failure by any person to enter into an agreement with clients)
• Section 23C (Penalty for failure to redress investors’ grievances)
• Section 23D (Penalty for failure to segregate securities or moneys of client or clients)
• Section 23E (Penalty for failure to comply with the provisions of listing conditions or delisting conditions or grounds)
• Section 23F (Penalty for excess dematerialization or delivery of unlisted securities)
• Section 23G (Penalty for failure to furnish periodical returns etc.,)
• Section 23GA (Penalty for failure to conduct business in accordance with rules, etc.,)
• Section 23H (Penalty for contravention where no separate penalty has been provided)

after holding an inquiry in the prescribed manner.

Amendment to section 23

Section 23(1) deals with penalties.  This section provides that any person who contravention of the provisions of this Act or rules made there under shall, without prejudice to any award of penalty by the Adjudicating Authority under this Act, on conviction, shall be punishable with imprisonment for a term which may extend to ten years or with fine, which may extend to ₹ 25 crores, or with both.

Clause 145 of the Bill proposes to insert the words ‘or the Securities and Exchange Board of India’ after the words ‘Adjudicating Authority’.

Amendment to section 23A (a)

Clause 146 of the Bill proposes to amend Section 23A(a) of the Act.  After amendment the section will provide that any person, who is required under this Act or any rules made there under to  furnish  any  information,  document,  books,  returns  or  report  to  a  recognized stock exchange, or who furnishes false, incorrect or incomplete information, document, books, return or report fails to furnish the  same  within the time  specified  there for in the listing  agreement  or  conditions  or  bye-laws  of  the  recognized  stock  exchange,  shall  be  liable  to  a  penalty which  shall  not  be  less  than  one  lakh  rupees  but which  may  extend  to  one  lakh  rupees  for  each  day  during  which  such  failure continues subject to a maximum of one crore rupees for each such failure.

Amendment to section 23E

Clause 147 of the Bill proposes to amend section 23E of the Act.  After amendment the section will provide that if a company or any person managing collective investment scheme or mutual fund, or real estate investment trust or infrastructure investment trust or alternative investment fund fails  to  comply  with  the  listing  conditions  or  delisting  conditions  or  grounds or commits a breach thereof, it or he shall  be 115[liable to a penalty which shall not be less than five lakh rupees but which may extend to twenty-five crore rupees.

Amendment to section 23G

Clause 148 of the Bill proposes to amend section 23G of the Act.  After amendment the section will provide that If a recognized stock exchange fails or neglects to furnish periodical returns  or furnishes false, incorrect or incomplete periodical returns to the Securities and Exchange Board of India or fails or neglects to make or amend its rules or bye - laws as directed by the Securities and Exchange Board of India or fails to comply  with  directions  issued  by  the  Securities  and  Exchange  Board  of  India,  such recognized  stock  exchange  shall  be liable  to  a  penalty  which  shall  not  be  less than five lakh rupees but which may extend to twenty - five crore rupees.

Insertion of new section 23GA

Clause 149 of the Bill proposes to insert a new section 23GA.  This section provides for penalty for failure to conduct business in accordance with rules etc.,  This section provides that where a stock exchange or a clearing corporation fails to conduct its business with its members or any issuer or its agent or any person associated with the securities markets in a manner not in accordance with the rules or regulations made by SEBI and the directions issued by it under this Act, the stock exchange or the clearing Corporation, as the case may be, shall be liable to penalty which shall not be less than ₹ 5 crores but which may extend to ₹ 25 crore rupees or three times the amount of gains made out of such failure whichever is higher.

Amendment to section 23J

Clause 151 of the Bill proposes to amend section 23J of the Act.  It proposes to substitute the marginal heading as ‘Factors to be taken into account while adjudging quantum of penalty’ instead of the present heading ‘Factors to be taken into account by adjudicating officer’.  The amended section 23J provides that while adjudging the quantum of penalty under section 12A or section 23-I, the SEBI or the adjudicating officer shall have due regard to the following factors, namely-

• the amount of disproportionate gain or unfair advantage wherever quantifiable, made as a result of default;
• the amount of loss caused to the investor or group of investors as a result of the default;
• the repetitive nature of the default.

Amendment to section 23JA

Section 23JA deals with the procedure of settlement of administrative and civil proceedings.  Clause  152  of the Bill proposes to insert sub section (5).  The newly inserted section 23JA (5) provides that all settlement amounts, excluding the disgorgement amount and legal costs, realized under this Act shall be credited to the Consolidated Fund of India.

Continuance of proceedings

Clause 154 of the Bill proposes to insert a new section 23JC. 

The newly inserted section reads as follows-

23JC(1) Where a person dies, his legal representative shall be liable to pay any sum which the deceased would have been liable to pay, if he had not died, in the like manner and to the same extent as the deceased:

Provided that, in case of any penalty payable under this Act, a legal representative shall be liable only in case the penalty has been imposed before the death of the deceased person.

(2) For the purposes of sub-section (1)-

(a) any proceeding for disgorgement, refund or an action for recovery before the Recovery Officer under this Act, except a proceeding for levy of penalty, initiated against the deceased before his death shall be deemed to have been initiated against the legal representative, and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased and all the provisions of this Act shall apply accordingly.

(b) any proceeding for disgorgement, refund or an action for recovery before the Recovery Officer under this Act, except a proceeding for levy of penalty, which could have been initiated against the deceased if he had survived, may be initiated against the legal representative and all the provisions of this Act shall apply accordingly.

(3) Every legal representative shall be personally liable for any sum payable by him in his capacity as legal representative if, while his liability for such remains undischarged, he creates the charge on disposes of or parts with any assets of the deceased, which are in, or may come into, his possession, but such liability shall be limited to the value of the asset so charged, disposed of or parted with.

(4) The liability of a legal representative under this section shall, be limited to the extent to which the estate of the deceased is capable of meeting the liability.\

Explanation.- For the purposes of this section ‘Legal representative’ means a person who in law represents the assets of a deceased person, and includes nay person who intermediates with the estate of the deceased and where a party sues or is used in a representative character, the person on whom the estate devolves on the death of the party so suing or sued.

Amendment to section 23M

Clause 155 of the Bill proposes to amend section 23M of the Act which deals with offences.  After the amendment section 23M (1)  will provide that  without  prejudice  to  any  award  of  penalty  by  the  adjudicating  officer  or Securities and Exchange Board of India under this  Act,  if  any  person  contravenes  or  attempts  to  contravene  or  abets  the contravention of the provisions of this Act or of any rules or regulations or bye - laws made  there under,  for  which  no  punishment  is  provided  elsewhere  in  this  Act,  he shall be punishable with imprisonment for a term which may extend to ten years, or with fine, which may extend to twenty - five crore rupees or with both.

Section 23M(2) will provide that If any person fails to pay the penalty imposed by the adjudicating officer or fails to  comply  with  the direction  or  order,  he  shall  be  punishable  with imprisonment  for  a  term  which  shall  not  be  less  than  one  month  but  which  may extend  to  ten  years, or  with  fine,  which  may  extend  to  twenty - five  crore  rupees,  or with both.

Amendment to section 24

Clause 156 of the Bill proposes to amend section 24 of the Act.  It proposes to substitute the margin heading as ‘Contravention by companies’ instead of ‘offences by companies’. 

After amendment section 24 of the Act reads as follows-

24. (1)  Where  an  offence  has  been  committed  by  a  company,  every  person  who,  at the time when the offence was committed, was in charge of, and was responsible to, the  company  for  the  conduct  of  the  business  of  the  company,  as  well  as  the company,  shall  be  deemed  to  be  guilty  of  the  offence,  and  shall  be  liable  to  be proceeded against and punished accordingly:

Provided  that  nothing  contained  in  this  sub-section  shall  render  any  such  person liable  to  any  punishment  provided  in  this  Act,  if  he  proves  that  the  offence  was committed  without  his  knowledge  or  that  he  exercised  all  due  diligence  to  prevent the commission of such offence.

(2)  Notwithstanding  anything  contained  in  sub-section  (1),  where  an  offence  under this Act has been committed by a company and it is proved that the offence has been committed  with  the  consent  or  connivance  of,  or  is  attributable  to  any  gross negligence  on  the  part  of  any  director,  manager,  secretary  or  other  officer  of  the company,  such  director,  manager,  secretary  or  other  officer  of  the  company,  shall also  be  deemed  to  be  guilty  of  that  offence  and  shall  be  liable  to  be  proceeded against and punished accordingly.

Explanation.- For the purpose of this section,-

(a) “company” means any body corporate and includes a firm or other association of individuals, and

(b) “director”, in   relation   to –

(i) a firm, means a partner in the firm;

(ii) any association of persons or a body of individuals, means any member controlling the affairs thereof.

(3) The provisions of this section shall be in addition to, and not in derogation of, the provisions of section 22A.