SCRA prevails over Contract Act and Sale of Goods Act: SC (latest judgment on 11th July,2016

Securities and Exchange Board of India Act, 1992 (hereinafter referred to as `the Act’), Section 15-Z. Issue is the manner of getting excessive number of shares in an irregular manner, which would adversely affect Retail Individual Investors- SEBI aims to ensure Stock Exchanges of the country and the persons connected therewith do not indulge themselves into illegalities or irregularities in IPOs- Held, before coming to a conclusion contrary to the findings arrived at by the lower authority, the appellate authority, SAT in the instant case, the SAT(Securities Appelate Tribunal), ought to have recorded specific reasons for arriving at different conclusion. SEBI appeals allowed. Apex Court Bench comprising of Justices Anil R. Dave and R. Banumathi has held that the Securities Contracts (Regulation) Act, 1956 (SCRA) is a special law to regulate the sale and purchase of shares and securities and hence it prevails over the provisions of the Indian Contract Act, 1872 and Sale of Goods Act, 1930. This observation was made by the Supreme Court in Securities and Exchange Board of India vs. M/s. Opee Stock-Link Ltd. & Anr while disposing of appeals filed by SEBI against the order by Securities Appellate Tribunal, Mumbai. The Whole Time member of SEBI had observed that the transfer of shares by the company did not comply with the requirements of the provision of either Section 13 or Section 2(i) of the SCRA. Therefore, the off market trading indulged into by the company was held to be per se illegal by the Whole Time Member. Upholding the observations made by Whole Time Member and setting aside the order of SAT, the court observed: “We also note that the Securities Contracts (Regulation) Act, 1956 (SCRA) has been enacted to prevent undesirable transactions in securities by regulating the business of dealing therein, by providing for certain other matters connected therewith like regulating functioning of recognized stock exchanges and working of the members of such stock exchanges. The SCRA is a special law to regulate the sale and purchase of shares and securities and hence it prevails over the provisions of the Indian Contract Act, 1872 and Sale of Goods Act, 1930, insofar as the matters which are specifically dealt with by the SCRA. The contracts for sale and purchase of securities, as envisaged under the SCRA, can be entered into only in a prescribed manner in a notified area and that can only be effected through registered members of a recognised stock exchange (i.e. stock brokers) and the only exception to this is a Spot Delivery Contract.”