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Since the shares of private limited company are not freely transferable therefore it does not come under the purview of SCRA as the purpose of the Act was to control securities which were normally dealt on the stock exchange, that is to say Public Limited Companies. Thus since SCRA has no application to the Private Limited Companies a private company can enter into forward transactions of shares.
The object of the Securities Contracts (Regulation) Act, 1956 is stated as, “An Act to prevent undesirable transactions in securities by regulating the business of dealing therein, by providing for certain other matters connected therewith.”
Sub-clause (i) of Clause (h) of Section 2 of the Securities Contracts (Regulation) Act, 1956 defines the term “Securities” as follows:
“Securities” include – (i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate.”
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