Capital Market and Securities Laws · Securities Contracts (Regulation) Act, 1956

Contracts in Securities and Listing under SCRA 1956

Updated 11 October 2026 · Fact-checked

Under the SCRA, 1956, a recognised stock exchange regulates contracts and listing through bye-laws made with SEBI's previous approval (section 9). Bye-laws can cover listing, margins, settlement, disputes and penalties. Breach of specified bye-laws can make a contract void, and members can be fined, suspended or expelled.

Understand Contracts in Securities and Listing

A recognised stock exchange is not just a place where people trade. It is also a regulator of its own members. The SCRA, 1956 gives it the power to write its own rulebook. That rulebook is called the bye-laws.

Section 9(1) says a recognised stock exchange may make bye-laws for the regulation and control of contracts, subject to the previous approval of SEBI. Section 9(2) then lists what the bye-laws may cover, without limiting the general power. Examples are trading hours, the clearing house, blank transfers, carry-over (budla) facilities, settlement days, margin requirements, the terms of contracts, listing of securities, dispute settlement including arbitration, fees, fines and penalties, brokerage scales, emergencies in trade, dealings by members for their own account, and the duty of members to give information and documents the governing body asks for.

Listing is one of these matters. Under section 9(2)(m), bye-laws may provide for the listing of securities, the inclusion of any security for dealings, and the suspension or withdrawal of securities. They may also provide for suspension or prohibition of trading in specified securities. The wider listing framework, including section 17A, is covered in a separate topic.

Bye-laws also carry consequences. Under section 9(3)(a), they may specify which bye-laws, if contravened, make a contract entered into otherwise than in accordance with them void under section 14(1). Under section 9(3)(b), contravention may make the member liable to a fine, expulsion, suspension for a specified period, or any other like penalty not involving payment of money.

Bye-laws take effect only after a process. They are subject to prescribed conditions of previous publication. When SEBI approves them, they are published in the Gazette of India and in the Official Gazette of the State where the exchange's principal office is. They take effect from the date of publication in the Gazette of India. If SEBI is satisfied that in the interest of trade or the public interest bye-laws should be made immediately, it may dispense with previous publication by a written order stating its reasons.

Two other powers sit around this. Section 7A lets an exchange make rules on voting rights, and those rules need Central Government approval. Section 11 lets the Central Government supersede the governing body of an exchange. Section 31 gives SEBI power to make regulations.

Key rules to remember

Bye-law making power: Section 9(1): recognised stock exchange + previous approval of SEBI = bye-laws for regulation and control of contracts; The approving authority is SEBI, not the Central Government. The Central Government was replaced by SEBI by an amendment effective 30-1-1992.
Listing in bye-laws: Section 9(2)(m): listing, inclusion for dealings, suspension or withdrawal of securities, suspension or prohibition of trading; Listing is one item in the list of matters bye-laws may cover. The list is illustrative, not exhaustive.
Void contracts: Section 9(3)(a): specified bye-laws, if contravened, make a contract void under section 14(1); Only bye-laws specified for this purpose have this effect. Not every breach makes a contract void.
Punishment of members: Section 9(3)(b): fine, expulsion, suspension for a specified period, or any other like penalty not involving money; These are the four heads of punishment the bye-laws may provide.
Effect of bye-laws: SEBI approval, then publication in the Gazette of India and the State Gazette; effective from the date of publication in the Gazette of India; SEBI may dispense with previous publication by a written order giving reasons, in the interest of trade or the public.
Voting rights rules: Section 7A: one member, one vote; restriction of proxies; rules effective only after Central Government approval and publication; Approval here is by the Central Government.
Supersession of governing body: Section 11: written notice, hearing, then notification in the Official Gazette; Members of the governing body cease to hold office from the date of the notification.
SEBI regulations: Section 31: SEBI makes regulations by notification in the Official Gazette, laid before Parliament for 30 days; Parliament may modify a regulation or annul it, without affecting anything done earlier.

How to solve Contracts in Securities and Listing questions

Use this method for any question on bye-laws, validity of contracts, listing or governing body powers under the SCRA.

1Read the question and identify the issue: bye-law making, validity of a contract, listing, penalty on a member, voting rights, or supersession.
2Name the authority involved: the exchange, SEBI or the Central Government. Approval of bye-laws is SEBI. Approval of voting rules and supersession is the Central Government.
3State the provision in plain words, with the section number where you are certain, such as section 9, 7A, 11 or 31.
4Match the facts to the clause. For example, a margin dispute fits section 9(2)(j) and a suspension of a security fits section 9(2)(m).
5Check the conditions: previous approval, publication, notice and hearing, or Parliament laying, as the section requires.
6Write a clear conclusion that answers the exact question asked, such as whether the contract is void or what punishment is possible.

Quickest way: Authority and consequence check

When to use it: Use this for short-answer questions and for the first few lines of a long answer when time is tight.

Ask who acts: exchange, SEBI or Central Government.
Ask what act: bye-laws, rules, regulations or supersession.
Write the approval or procedure step in one line.
Write the consequence in one line, such as void contract, fine, expulsion or loss of office.

Common mistakes in Contracts in Securities and Listing

Saying the Central Government approves stock exchange bye-laws.
Older texts and section 7A and 11 mention the Central Government, so students mix them up.
Fix: Remember that under section 9 the approval is by SEBI. Central Government approval applies to voting rights rules under section 7A and to supersession under section 11.
Writing that every breach of a bye-law makes a contract void.
Students overstate the rule to keep the answer short.
Fix: State that only the bye-laws specified for the purpose under section 9(3)(a) make a contract void under section 14(1).
Treating the list in section 9(2) as complete.
The list is long, so it feels like a closed list.
Fix: Write that the list is 'in particular and without prejudice to the generality' of the power in section 9(1).
Forgetting the publication step and its effective date.
Students stop at SEBI approval.
Fix: Add that approved bye-laws are published in the Gazette of India and the State Official Gazette, and take effect from publication in the Gazette of India.
Skipping notice and hearing in supersession answers.
Students focus on the outcome, not the procedure.
Fix: Mention the written notice with reasons, the opportunity to be heard, and the notification in the Official Gazette before stating the consequences.
Listing only fines as the punishment for members.
Fine is the best known penalty.
Fix: Give all four: fine, expulsion, suspension for a specified period, and other like non-monetary penalty.

Worked examples

Example 1

A recognised stock exchange wants to make a bye-law fixing the scale of brokerage and providing that members who breach it may be suspended. Explain the powers of the exchange and the process to be followed.

Show the solution

Issue: the power of a recognised stock exchange to make bye-laws and punish members under section 9.
Section 9(1) allows the exchange to make bye-laws for the regulation and control of contracts, subject to SEBI's previous approval.
Section 9(2)(q) lists the fixing of a scale of brokerage and other charges as a matter the bye-laws may cover.
Section 9(3)(b) allows bye-laws to provide that contravention makes the member liable to fine, expulsion, suspension for a specified period or a like non-monetary penalty. Suspension is therefore permitted.
Process: the bye-law is subject to prescribed conditions of previous publication. After SEBI approves it, it is published in the Gazette of India and the State Official Gazette and takes effect from publication in the Gazette of India.
SEBI may dispense with previous publication by a written order stating reasons, if it is satisfied that the interest of trade or the public interest requires immediate action.

Answer: The exchange may make the bye-law on brokerage and provide for suspension of members, but only with SEBI's previous approval and after the required publication. It takes effect from its publication in the Gazette of India.

Example 2

The Central Government is of the opinion that the governing body of a recognised stock exchange should be superseded. State the procedure and the consequences.

Show the solution

Provision: section 11 of the SCRA, 1956.
Procedure: the Central Government serves a written notice on the governing body that it is considering supersession, with reasons.
It must give the governing body an opportunity to be heard.
It may then declare the governing body superseded by a notification in the Official Gazette and may appoint a person or persons to exercise its powers and duties. If more than one is appointed, it may name a chairman and a vice-chairman.
Consequences under section 11(2): members of the governing body cease to hold office from the date of the notification. The appointed persons exercise all powers and duties. Property of the exchange that they specify in writing as necessary vests in them.
Period and end: they hold office for the period in the notification, which the Central Government may vary. It may call on the exchange to re-constitute the governing body, and the property then re-vests in it. Until re-constitution, the appointed persons continue to act.

Answer: After written notice and a hearing, the Central Government may supersede the governing body by Official Gazette notification. The old members cease to hold office, the appointed persons run the exchange, and control returns when a new governing body is re-constituted.

Exam tips

Learn section 9 as three parts: power (9(1)), matters (9(2)) and consequences (9(3)). Then add the publication rule in 9(4).
Always name the correct authority. SEBI approves bye-laws, the Central Government approves section 7A rules and supersedes under section 11.
For listing questions, anchor on section 9(2)(m) first, then point to section 17A and the listing regulations covered elsewhere.
In case-style questions, finish with a one-line conclusion on validity or penalty, as ICSI answers expect.
Use the exact words: 'previous approval', 'void under section 14(1)', 'cease to hold office'.

Practice questions from Securities Contracts (Regulation) Act, 1956

Contracts in Securities and Listing in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Contracts in Securities and Listing: frequently asked questions

Who approves the bye-laws of a recognised stock exchange?

SEBI gives the approval under section 9. The exchange needs SEBI's previous approval before the bye-laws are made. After approval they are published in the Gazette of India and the State Official Gazette.

Does every breach of a bye-law make a contract void?

No. Only the bye-laws specified under section 9(3)(a) have that effect. A contract entered into otherwise than in accordance with those bye-laws is void under section 14(1).

What punishments can a stock exchange impose on members?

Section 9(3)(b) allows bye-laws to provide for a fine, expulsion from membership, suspension for a specified period, or any other like penalty not involving payment of money.

Can a stock exchange make rules on voting rights?

Yes, under section 7A. It can restrict voting to members, give each member one vote and restrict proxies. These rules have no effect until the Central Government approves and publishes them in the Official Gazette.

What is the role of SEBI regulations under section 31?

SEBI may make regulations by notification in the Official Gazette to carry out the purposes of the Act. Each regulation must be laid before Parliament for thirty days, and Parliament may modify it or annul it.