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

Ganga Stock Exchange submits a corporatisation and demutualisation scheme to SEBI. The scheme proposes to give members trading rights in place of their membership cards and to pay dividends to members out of the exchange's accumulated reserves. How will SEBI deal with this scheme under the SCRA?

SEBI cannot approve the scheme. Section 4B(3) prohibits approval where shares, trading rights in lieu of membership cards, or dividends to members are proposed out of the exchange's reserves or assets, so a dividend from accumulated reserves makes the scheme ineligible.

  1. AIt may approve it, since members are entitled to dividends from reserves
  2. BIt cannot approve it, because dividends to members out of reserves or assets are barred in the schemeCorrect
  3. CIt must approve it but reduce the dividend by one-fourth
  4. DIt may approve it only after the exchange issues shares to the public

Explanation

Section 4B(3) bars approval where the scheme proposes issue of shares for lawful consideration, trading rights in lieu of membership cards, or dividend payment to members out of any reserves or assets of the exchange. Here both trading rights and dividends are proposed out of reserves, so SEBI cannot approve.

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