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SEBI PENALTIES & NON-COMPLIANCE WITH SPOT DELIVERY CONTRACTS

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The Government of India and SEBI are empowered to declare under Securities Contracts (Regulation) Act, 1956 (SCRA), off – market transactions illegal or to prohibit entry into certain contracts if it considers necessary.

If an off – market transaction (a spot delivery contract) does not conclude in ‘actual delivery of securities and the payment of a price, either on the same day as the date of the contract or on the next day’, SEBI imposes heavy penalties upto 1 Crore for each delayed or non-settled transaction. This is done under Section 23H of SC(R)A for violation of Section 13, 16, 18 of SC(R)A read with SEBI Notification G.S.R. 219(E) dated March 2, 2000 and SEBI Notification No. LAD-NRO/GN/2013-14/26/6667 dated October 3, 2013. The heavy penalties are imposed for avoiding undesirable transactions as they encourage book entries and cause issues relating to title, holding, voting rights etc.

In a case, two purchase transactions of 2014 were not settled till date. The noticees argued that shares were not “purchased” but taken on “credit” and if the transferor is untraceable, liability under securities laws can not be foisted on transferee.

SEBI while considering the contentions levied a de minimis penalty of Rs. 1 lakh on each of the noticees. Sumit Agrawal and Shivali Shah i/b Regstreet Law Advisors represented the Noticees.

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