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

Two private parties, Kiran Agro Ltd and a Mumbai trader, wish to enter into a derivative contract that is neither traded on a recognised stock exchange nor settled on its clearing house. Under which route could it still be legal and valid under Section 18A?

The contract can be valid only under clause (c) of Section 18A: it must be between such parties and on such terms as the Central Government has specified by notification in the Official Gazette. Being companies, stamp registration or a SEBI letter does not validate it.

  1. AIf both parties are companies registered in India
  2. BIf the contract is registered with the nearest stamp office
  3. CIf SEBI issues an observation letter for that contract
  4. DIf it is between such parties and on such terms as the Central Government specifies by notification in the Official GazetteCorrect

Explanation

Section 18A(c), inserted in 2015, validates derivative contracts between such parties and on such terms as the Central Government specifies by notification in the Official Gazette. Company status, stamp registration and a SEBI letter are not routes given in the section.

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