As a law firm specializing in securities law, we believe it is important to inform Non Resident Indians (NRI) about the Securities Contracts (Regulation) Act, 1956 and its provisions regarding registration of stockbrokers. Section 6 of this Act clearly states that no person shall carry on the business of issuance, buying, selling or dealing in securities unless such person is registered as a stockbroker under this Act.
This provision has been put in place to regulate the conduct of actors within the securities market so as to ensure accountability and transparency in their actions while also safeguarding investors’ interests. In order for anyone to participate in any form of dealing with securities, they must first register themselves as a stockbroker under this act.
Furthermore, non-compliance will lead to serious consequences including criminal prosecution which could result into imprisonment or payment of hefty fines. Any breaches committed by an individual or entity may invite severe legal action from regulators like SEBI who have been appointed for overseeing the capital markets and regulating it effectively.
There are several cases where regulatory authorities took stern action against those who violated these regulations. One such example is SEBI’s recent action taken against Karvy Stock Broking Limited for violating rules laid down by it pertaining to clients’ collateral management system leading suspension/cancellation of their license.
Another case where similar violations were committed was Sahara India Real Estate Corporation Ltd., wherein SEBI conducted an investigation with respect to irregularities found by them during public issues offered between 2008-2011 whereby inter alia alleged misuse/submission/fraudulent documents pertaining know your customer norms led impositions towards penalty upholding regulations enacted under SCRA and SEBI regulation’
The relevance of Section 6 becomes even more pronounced when considering NRIs investing or dealing with Indian securities from overseas locations as there is higher risk involved due to lack of local knowledge/understanding on regulatory framework prevalent locally hence making them vulnerable towards fraudulent practices carried out by unscrupulous elements operating in the market.
One such recent example is considered of Bangalore based investment firm IMA that raised over Rs 2000 crore from investors, including NRIs and then absconded without repaying them resulting into losses for these investors despite regulatory authorities’ warnings to avoid investing with this firm.
In conclusion, we at our law firm strongly advise NRIs participating in securities dealings or investments in India to familiarize themselves with all relevant provisions of SCRA and SEBI regulations. They should ensure to only deal with registered stockbrokers through legally recognized channels whilst avoiding any unsolicited offers promising high returns on their capital. Failing which, they could end up falling prey to fraudulent schemes leading towards financial loss and legal hassles while violating strict statutory enactments that govern their trading activities.