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 recognised 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.”
Read the Judgment here.