(D) Both Statement-I and Statement-II are true.
When a trading member fails to deliver securities on the pay-in day, the exchange puts the securities up for auction, purchases the required quantity, and delivers them to the buying trading member.
Both statements correctly describe the auction process used by stock exchanges to handle delivery defaults. Statement-I describes the trigger (non-delivery on pay-in day) and Statement-II describes the exchange's remedial action (buying in auction and giving securities to the buyer). Examiners expect students to know this settlement mechanism.