Every securities-market rule a broker, exchange or listed company must obey traces back to a slim grant of power buried near the end of the parent statute. For the Securities Contracts (Regulation) Act, 1956, that grant is Section 31 — the power of the Securities and Exchange Board of India to make regulations. It is the constitutional hinge of market regulation: Parliament lays down the broad policy in the Act, the Central Government fleshes out the framework through rules under Section 30, and SEBI fills the operational detail through subordinate legislation. Understanding the source, scope and judicially-policed limits of this regulation-making power is essential for any judiciary or CLAT-PG aspirant, because almost every reported SEBI dispute ultimately turns on whether a particular regulation, circular or order stayed within the four corners of its parent provision.

Where the Power Sits in the Scheme of the Act

The regulation-making power is not free-standing; it sits inside a deliberately layered scheme that runs through the closing provisions of the Act. The reader should keep four sections in view together. Section 29 grants protection of action taken in good faith, Section 29A empowers the Central Government to delegate its powers to SEBI or the Reserve Bank of India, Section 30 confers the rule-making power on the Central Government, and Section 31 confers the regulation-making power on SEBI. The first three set the stage; the fourth is the operative grant we are studying.

To appreciate why Section 31 matters, it helps to recall the object and scheme of the Act. The SCRA was enacted to prevent undesirable transactions in securities by regulating the business of dealing therein and by providing for the recognition and supervision of stock exchanges. A statute with that purpose cannot anticipate every market innovation; it therefore equips a specialist regulator with a power to legislate in detail. Section 31 is that equipping provision, and the Securities Laws (Amendment) Act, 2004 expressly inserted SEBI as the repository of this power in step with SEBI's emergence as the apex market regulator.

The placement is significant. Because Section 31 comes after the substantive Chapters dealing with recognition of stock exchanges, bye-laws, listing and contracts, the regulations it authorises are necessarily ancillary — they carry the substantive scheme into effect rather than enlarge it. This architectural point is the seed of every later limitation discussed in this article.

The Text and Anatomy of Section 31

Section 31 has three sub-sections, and each does distinct work. Section 31(1) provides that, without prejudice to the provisions contained in Section 30 of the Securities and Exchange Board of India Act, 1992, SEBI may, by notification in the Official Gazette, make regulations consistent with the provisions of this Act and the rules made thereunder to carry out the purposes of this Act. Three textual limbs must be noticed: the regulations must be consistent with the Act, consistent with the rules made under it, and directed to carrying out the purposes of the Act. Each phrase is a built-in restraint, not mere surplusage.

The opening words — “without prejudice to the provisions contained in Section 30 of the SEBI Act, 1992” — are a coordinating clause. SEBI already enjoys a wide regulation-making power under its own constitutive statute; Section 31 of the SCRA confirms that the SCRA power operates in addition to, and not in derogation of, that parallel SEBI Act power. An aspirant must not confuse the two: the SCRA Section 31 power is anchored in the securities-contracts and stock-exchange regime, while the SEBI Act Section 30 power is anchored in SEBI's general mandate.

Section 31(2) is the only particularised head. It states that, in particular and without prejudice to the generality of the foregoing power, regulations may provide for the manner in which at least fifty-one per cent of the equity share capital of a recognised stock exchange is held within twelve months from the date of publication of the order under sub-section (7) of Section 4B by the public other than the shareholders having trading rights under sub-section (8) of that section. This is a demutualisation provision — it ties the regulation-making power directly to the corporatisation and demutualisation scheme in Section 4B. Section 31(3) then imposes the parliamentary-laying requirement, discussed separately below.

"Consistent With the Act and the Rules Made Thereunder"

The most litigated phrase in Section 31(1) is the requirement that regulations be consistent with the provisions of this Act and the rules made thereunder. This places SEBI's regulations on the third rung of a four-rung hierarchy of norms: the parent Act on top, the rules made by the Central Government under Section 30 next, the regulations made by SEBI under Section 31 below them, and circulars and directions at the bottom. Where any lower-tier instrument conflicts with a higher tier, the higher prevails and the lower is ultra vires to the extent of the conflict.

This hierarchy was lucidly articulated by the Supreme Court in Securities and Exchange Board of India v. National Stock Exchange Members Association (Civil Appeal No. 435 of 2007, decided 13 October 2022). The Court arranged the SEBI Act in the second layer, the rules and regulations in the third layer, and a SEBI circular in the fourth and lowest layer, holding that if there is a conflict between the Act on the one hand and the rules, regulations or circular on the other, the Act prevails, and a circular that travels beyond the rules and regulations is ultra vires. The same reasoning governs SCRA regulations: a Section 31 regulation that contradicts a Section 30 rule, or the Act itself, cannot stand.

The principle is not peculiar to securities law. In Indian Express Newspapers (Bombay) (P) Ltd. v. Union of India (1985) 1 SCC 641, the Supreme Court laid down the classic grounds on which subordinate legislation may be questioned: that it does not conform to the parent statute, that it is contrary to some other statute, or that it is so manifestly arbitrary that it offends Article 14. Because delegated legislation “must yield to plenary legislation,” a regulation inconsistent with the SCRA simply falls. Aspirants should treat Indian Express Newspapers as the doctrinal backbone for every challenge to a SEBI regulation.

Regulations Made Under Section 31 Have the Force of Law

A regulation validly made within the four corners of Section 31 is not a mere administrative instruction; it has statutory force and binds SEBI itself. The foundational authority is Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi, AIR 1975 SC 1331 : (1975) 1 SCC 421, where a Constitution Bench held that regulations framed by statutory corporations under a power conferred by statute have the force of law and cannot be departed from unilaterally, because the source of the power is the statute itself. Translated to the securities context, once SEBI notifies a regulation under Section 31, SEBI cannot ignore or relax it by executive fiat; it can only amend it through the same regulation-making process.

This has a practical consequence that frequently appears in problem questions. If SEBI passes an order or issues a circular that is inconsistent with its own regulation, the order or circular yields, because the regulation — being subordinate legislation with statutory force — ranks higher than an executive instruction. The Sukhdev Singh doctrine thus operates as a discipline on the regulator as much as on the regulated, reinforcing the rule-of-law character of the framework.

It also explains why regulations, unlike internal guidance, are enforceable against third parties and can found penal or civil consequences. A market participant who breaches a Section 31 regulation breaches the law, not merely a departmental preference — a distinction that matters when SEBI later proceeds against the participant for the violation.

The Limits: Delegated Legislation Cannot Exceed the Parent

The dominant theme in the case law is that Section 31 is a power to subordinate-legislate, and subordinate legislation can never travel beyond, contradict or supplant its parent. The classic restatement is again Indian Express Newspapers (1985) 1 SCC 641: an enquiry into the vires of delegated legislation must be confined to whether it is contrary to the enabling statute or some other statute, or whether it is so arbitrary that it offends Article 14. There is no roving power to strike down regulations merely because a court thinks a different policy would have been wiser — the test is conformity and reasonableness, not desirability.

Two corollaries flow from this. First, a regulation cannot create a substantive liability or confiscate a right that the Act itself does not contemplate; the regulation may only provide the machinery for working out rights and duties the Act has already created. Second, where the Act prescribes a particular procedure or condition, a regulation cannot dispense with it. The Delhi High Court in National Stock Exchange Members Association v. Union of India (decided 7 November 2005) explored these boundaries in the context of broker registration, and the dispute ultimately reached the Supreme Court, which in 2022 clarified the registration regime and reaffirmed the strict hierarchy of norms described above.

For a fuller treatment of how these vires principles interact with the specific powers of the regulator over exchanges, the reader may compare the discussion under power to suspend business and withdrawal of recognition, where the same conformity discipline polices the exercise of executive, as opposed to legislative, power.

Fees, Conditional Legislation and the BSE Brokers Forum Case

One of the most instructive applications of the regulation-making power — though arising primarily under the SEBI Act and its Stock Brokers Regulations — is B.S.E. Brokers Forum, Bombay v. Securities and Exchange Board of India (2001) 3 SCC 482, decided on 1 February 2001. Brokers challenged Regulation 10 of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992, read with Schedule III, under which SEBI levied registration and turnover-based fees. The principal argument was that the levy was a tax that required a strict quid pro quo with services rendered.

The Supreme Court upheld the levy. It held that the fee charged was a regulatory fee, not a tax in the strict sense, and that a precise quid pro quo is not essential for a regulatory fee — a broad correlation between the levy and the cost of the regulatory apparatus suffices. Crucially, the Court treated the prescription of fees through subordinate legislation as a valid exercise of delegated power, while directing SEBI to rationalise the fee structure in line with the R. S. Bhatt Committee recommendations. The case is the leading authority for the proposition that a regulator may, through regulations, prescribe fees to fund its regulatory functions, provided the levy is reasonably related to the regulatory purpose.

For SCRA purposes the parallel is exact: where Section 30 or Section 31 authorises the prescription of fees or financial conditions — for instance in connection with the recognition of stock exchanges or listing — such prescription through subordinate legislation is constitutionally sound so long as it remains regulatory in character and stays within the enabling provision.

The single particularised head in Section 31(2) deserves close attention because it is the only matter the legislature thought worth naming expressly. It empowers SEBI to make regulations governing the manner in which at least fifty-one per cent of the equity share capital of a recognised stock exchange is to be held by the public — that is, by persons other than shareholders having trading rights — within twelve months of the order approving the exchange's corporatisation and demutualisation scheme.

This dovetails with Section 4B of the Act, which sets out the procedure for corporatisation and demutualisation of stock exchanges. Under Section 4B(7), SEBI publishes the order approving an exchange's scheme; under Section 4B(8), the exchange must then issue shares to the public so that at least fifty-one per cent of its equity capital is held by the public other than trading-right holders, with SEBI empowered to extend the twelve-month window for sufficient cause and in the public interest. Section 31(2) supplies the regulation-making power to operationalise this ownership-management separation — the conceptual heart of demutualisation.

The policy is to break the historic conflict of interest in mutual exchanges, where the members who traded on the exchange also owned and ran it. By mandating broad public ownership and segregating ownership from trading rights, the Act seeks a neutral, governance-sound market infrastructure. That the legislature singled out this matter in Section 31(2) signals its centrality; an aspirant should be ready to connect Section 31(2) to Section 4B in any question on demutualisation.

Laying Before Parliament: The Section 31(3) Safeguard

Delegated legislation is constitutionally tolerable only because it remains subject to legislative oversight. Section 31(3) supplies that oversight for SEBI's regulations. Every regulation made under the Act must be laid, as soon as may be after it is made, before each House of Parliament while it is in session, for a total period of thirty days, which may be comprised in one session or in two or more successive sessions. If, before the expiry of the session immediately following, both Houses agree in making a modification or agree that the regulation should not be made, the regulation thereafter takes effect only in such modified form, or is of no effect, as the case may be — but any such modification or annulment is without prejudice to the validity of anything previously done under the regulation.

This is the familiar “laying with negative resolution” procedure. Note two features that recur in examinations. First, the regulation is effective from notification and operates during the laying period; parliamentary modification or annulment is prospective and does not unravel acts already done. Second, the identical laying mechanism applies to rules made by the Central Government under Section 30(3), so the rule-making and regulation-making powers are subjected to the same parliamentary discipline. The symmetry reflects the constitutional principle that the delegate legislates under the continuing supervision of the delegating legislature.

Rules Under Section 30 Versus Regulations Under Section 31

A perennial point of confusion is the difference between rules and regulations under the Act. The distinction is functional and hierarchical. Rules are made by the Central Government under Section 30; regulations are made by SEBI under Section 31. Section 30(1) is broadly framed — the Central Government may make rules to carry into effect the objects of the Act — and Section 30(2) enumerates illustrative heads, including the manner of applications, the conditions for recognising stock exchanges, the particulars of periodical returns, the documents to be maintained under Section 6, the licensing of dealers under Section 17, the requirements for getting securities listed, and the grounds for delisting and appeals to the Securities Appellate Tribunal.

The Securities Contracts (Regulation) Rules, 1957 were framed under this Section 30 power and remain the principal rules under the Act. Regulations made by SEBI under Section 31 operate beneath these rules and must be consistent with them. Thus, where the same subject — say, a requirement connected with listing of securities — is addressed both in a Section 30 rule and a Section 31 regulation, the rule prevails in the event of conflict.

A second distinction lies in the delegate's identity and accountability. Rules emanate from the political executive answerable to Parliament; regulations emanate from an expert statutory regulator. The legislature reserved the broad framework choices for the Central Government and entrusted the technical, fast-moving operational detail to SEBI, which can respond to market developments far more nimbly than the rule-making machinery. This division of labour is the practical justification for having two tiers of subordinate legislation under a single Act.

Regulations, Retrospectivity and Procedure

Can a regulation operate retrospectively? The general principle is that subordinate legislation is presumed to be prospective and cannot be given retrospective effect unless the parent statute expressly or by necessary implication authorises it. A delegate has only such retrospective power as the legislature has conferred. Where, however, a change is purely procedural, courts more readily apply it to pending matters, because no one has a vested right in a particular procedure.

This distinction was applied by the Supreme Court in Securities and Exchange Board of India v. Ajay Agarwal (2010) 3 SCC 765, decided on 25 February 2010. The question was whether directions could be issued under Section 11B of the SEBI Act for conduct that pre-dated the introduction of that provision. The Court held that Section 11B, being procedural in nature, could apply to past conduct and pending proceedings, observing that a law affecting matters of procedure prima facie applies to all actions, pending as well as future. While Ajay Agarwal arose under the SEBI Act, its reasoning on the prospective-substantive versus retrospective-procedural divide governs SCRA regulations equally, and aspirants should deploy it whenever a question raises the temporal reach of a regulation.

The corollary is a caution: a regulation that purports to create or enlarge a substantive liability for past acts — as opposed to merely altering the forum or procedure — will be vulnerable unless the SCRA itself sanctions retrospective regulation-making, which Section 31 does not in general terms.

Substance Over Form: The Sahara Case and the Reach of Regulation

The most celebrated demonstration of how far the securities-regulation framework reaches is Sahara India Real Estate Corporation Ltd. v. Securities and Exchange Board of India (2013) 1 SCC 1, decided on 31 August 2012. Two Sahara group companies had raised tens of thousands of crores from crores of investors through Optionally Fully Convertible Debentures (OFCDs), contending that the issue was a private placement outside SEBI's reach. The Supreme Court rejected the argument and directed refund of the amounts collected with interest.

The decision matters for the regulation-making power in two ways. First, it confirmed that the regulator's writ follows the substance of an instrument, not its label — an OFCD is a “security,” and an offer to fifty or more persons is a public issue attracting the listing and disclosure regime regardless of how the issuer characterises it. The expansive definition of securities in Section 2(h) of the SCRA, read with the listing obligations, thus underpins the entire regulatory architecture that SEBI's regulations elaborate. Second, the case vindicated the policy purpose that Section 31 regulations serve: investor protection and market integrity. The Court read the statutory scheme purposively, ensuring that the framework which SEBI's regulations operationalise could not be defeated by clever instrument-design.

Sahara is therefore the case to cite when a question asks why the SCRA and SEBI Act confer such wide subordinate-legislative power — because only a flexible, substance-driven regulatory framework can keep pace with ingenious attempts to raise public money outside the regulator's gaze.

The Outer Constitutional Limit: No Abdication of Essential Functions

Beyond the statutory limits, the regulation-making power is bounded by a constitutional principle of delegation: the legislature may delegate the working out of details, but it cannot abdicate its essential legislative function — the laying down of policy and the enactment of binding rules of conduct as a guide. A delegation that hands the delegate uncanalised, arbitrary power, with no policy or standard to guide it, is itself unconstitutional, quite apart from any individual regulation.

Section 31 survives this test comfortably because the policy and standards are embedded in the Act. The regulator must act “consistent with the provisions of this Act and the rules made thereunder” and only “to carry out the purposes of this Act.” The purposes — preventing undesirable transactions in securities, regulating dealings, and supervising stock exchanges — are spelt out in the long title and worked through the substantive sections. These furnish the guiding policy that legitimises the delegation. The regulator is therefore a filler of interstices, not a substitute legislature.

This is why challenges to SEBI regulations almost never succeed on the ground that Section 31 itself is an excessive delegation; they succeed, if at all, on the narrower ground that a particular regulation has strayed outside the policy and the enabling words. The constitutional sufficiency of the delegation and the vires of individual regulations are distinct enquiries, and a careful answer keeps them separate.

Practical Significance for the Securities Market

Drawing the threads together, the practical significance of Section 31 is that it is the legal engine behind virtually the entire body of operational securities-market law. Listing agreements and continuous-disclosure obligations, the conditions attached to recognition of stock exchanges, the ownership norms that flow from demutualisation, and the detailed machinery for the listing of securities — all draw their force, directly or indirectly, from the interplay of the rule-making power in Section 30 and the regulation-making power in Section 31, read with SEBI's parallel power under the SEBI Act, 1992.

For the student, the takeaways are crisp. The power is a delegated, subordinate-legislative power vested in an expert regulator; it must be exercised by notification in the Official Gazette; it is confined to matters consistent with the Act and the rules and directed to the Act's purposes; it is hierarchically inferior to the Act and the Central Government's rules; it is policed by courts on the vires grounds in Indian Express Newspapers; and it is subject to parliamentary laying under Section 31(3). The leading illustrations — Sukhdev Singh on statutory force, BSE Brokers Forum on regulatory fees, Ajay Agarwal on procedural retrospectivity, SEBI v. NSE Members Association on the hierarchy of norms, and Sahara on the substantive reach of the regime — together map the doctrine an aspirant needs.

To revise the surrounding provisions and place this power in its setting, return to the SCRA notes hub and read this section alongside the recognition, suspension and listing chapters.

Frequently asked questions

Under which section of the SCRA does SEBI have the power to make regulations?

SEBI's power to make regulations is conferred by Section 31 of the Securities Contracts (Regulation) Act, 1956. Section 31(1) lets SEBI, by notification in the Official Gazette, make regulations consistent with the Act and the rules made thereunder to carry out the purposes of the Act — a power expressed to be without prejudice to SEBI's parallel power under Section 30 of the SEBI Act, 1992.

What is the difference between rules under Section 30 and regulations under Section 31?

Rules are made by the Central Government under Section 30 (the Securities Contracts (Regulation) Rules, 1957 being the main example), while regulations are made by SEBI under Section 31. Regulations rank below rules in the hierarchy of norms and must be consistent with them; in any conflict between a rule and a regulation, the rule prevails.

Can a SEBI regulation override the SCRA or the rules made under it?

No. A regulation is subordinate legislation and must be consistent with the parent Act and the rules. If it conflicts with either, it is ultra vires to that extent. This four-tier hierarchy — Act, rules, regulations, circulars — was confirmed in SEBI v. National Stock Exchange Members Association (Civil Appeal No. 435 of 2007, decided 13 October 2022), and the vires grounds were classically stated in Indian Express Newspapers (Bombay) (P) Ltd. v. Union of India (1985) 1 SCC 641.

Do regulations made under Section 31 have the force of law?

Yes. Regulations framed under a statutory power have the force of law and bind the regulator itself, as held by a Constitution Bench in Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi, AIR 1975 SC 1331 : (1975) 1 SCC 421. SEBI cannot, therefore, depart from its own regulation by a mere executive order or circular; it must amend the regulation through the regulation-making process.

What does Section 31(2) specifically empower SEBI to regulate?

Section 31(2) is the only particularised head. It empowers SEBI to make regulations governing the manner in which at least fifty-one per cent of the equity share capital of a recognised stock exchange is held by the public (other than trading-right holders) within twelve months of the demutualisation order. It dovetails with Section 4B(7) and 4B(8), which set out the corporatisation and demutualisation scheme for stock exchanges.

Are SEBI's regulations subject to any parliamentary control?

Yes. Under Section 31(3), every regulation must be laid before each House of Parliament for thirty days while in session. Both Houses may modify it or resolve that it should not be made, in which case it takes effect only as modified, or has no effect — though any modification or annulment is without prejudice to anything already done under the regulation. The identical “laying” procedure applies to rules under Section 30(3).