TMI Blog1998 (2) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 and as to why the orders of suspension and expulsion (Annexures 1/1 and 1 /3) and the auction of the membership of the petitioner in favour of opposite party No. 4 should not be quashed; and ( ii )if the opposite parties fail to show cause and/or show insufficient and/or false cause, to make the said rule nisi absolute ; and ( iii )to issue any other relief/reliefs to which the petitioner is entitled; and (iv) allow the writ application with costs...." 2. It is placed on record that the stock exchange, opposite party No. 1, was incorporated under the Companies Act, 1956 in the year 1989-90, in the name and style of 'Bhubaneswar Stock Exchange Association Ltd.' The Central Government duly recognised the said opposite party No. 1 for a period of five years. In the present writ petition opposite party No. 1 is Bhubaneswar Stock Exchange, opposite party No. 2 is Union of India, opposite party No. 3 is Securities and Exchange Board of India and opposite party No. 4 is Megha Finance India Ltd. It is also placed on record that the Central Government by notification established and incorporated the Securities and Exchange Board which came into force on 4-4-1992. Section 12 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... council without applying its mind to the reply filed by the petitioner to the notice to show cause and without conducting any enquiry whatsoever expelled him from the membership branding him as a defaulter and it was notified that such expulsion should be effective from 15-7-1992. 7. It is disclosed that the petitioner previously filed a writ petition bearing O.J.C. No. 5296 of 1993 challenging the action of opposite party No. 1 compelling him to pay margin money by compulsorily carrying forward the transactions of fifth settlement to sixth settlement of 1993. The said writ petition was, however, disposed of in terms of the order dated 26-8-1993, directing the petitioner to move the civil court within a stipulated period and there was direction that the opposite party would not auction the membership card of the petitioner for a stipulated period. 8. Pursuant to such direction of this court, the petitioner filed Title Suit No. 119 of 1993 in the court of the Munsif for declaration that the orders of suspension and expulsion were illegal and without jurisdiction and for permanent injunction and other reliefs. The petitioner also filed an application under order 39, rules 1 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has sought for the reliefs as indicated above. 12. Opposite party No. 1 filed a comprehensive counter-affidavit. It is disclosed, inter alia, that opposite party No. 1 association was incorporat- ed under the Companies Act, in the year 1989-90 and the said association has been recognised by the Central Government in terms of the provisions of the Securities Contracts (Regulation) Act, 1956. The Government of India in order to facilitate smooth functioning of the stock exchanges, operating in the country brought the Securities and Exchange Board of India Act, 1992, as well as the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992, into force. The aforesaid regulations came into force with effect from 23-10-1992. Anoth-er set of rules, viz., the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules, 1992, was also brought into force with effect from 20-8-1992. 13. It is submitted that the condition precedent for a stock broker to be registered with the Securities and Exchange Board of India is that he has to be a member of a stock exchange and has to abide by the rules, regulations and bye-laws of that stock exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r recovery of the liabilities incurred by the petitioner during settlement No. 5 of 1993. Since the stock exchange has the responsibility of regulating the transactions and consequently make payments through the clearing house of the stock exchange, no fault can be found with the stock exchange either for suspending or expelling the petitioner or auctioning the card of the petitioner for recovery of any amount. 17. A separate counter-affidavit has been filed by opposite party No. 3 namely, the Securities and Exchange Board of India (SEBI). It is submitted by opposite party No. 3 that opposite party No. 1 has the right and power to expel the petitioner in terms of its articles, bye-laws and regulations. It is also submitted that membership of a self-regulatory organisation like stock exchange is different from registration of various intermediaries in securities by the Securities and Exchange Board of India. It is also submitted that on expulsion of membership of the exchange the petitioner has ceased to meet eligibility criteria stipulated for registration of brokers under rule 4( a ) of the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules. The pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted that opposite party No. 4 was not interested to enter into any controversy between the petitioner and opposite party No. 1 and, therefore, without prejudice to the rights of opposite party No. 1, opposite party No. 4 expressed its readiness to give up the membership purchased by it in auction in favour of the petitioner or opposite party No. 1 whomsoever this court will decide provided opposite party No. 4 receives back the price of Rs. 17,10,000 along with incidental costs and interest/compensation on the amount which it has paid to opposite party No. 1 as consideration for membership. The other allegations have been controverted. 21. Mr. Bijay Ray, the learned senior counsel for the petitioner, has mainly argued that the acts done and/or caused to have been done by opposite party No. 1 in suspending and cancelling the membership of the petitioner and thereafter auction-selling the membership card are contrary to and inconsistent with the provisions of law. He has specifically drawn the attention of the court to articles 158, 159 and 167 of the articles of association and bye-laws 315, 347 and 348 which are to be construed as ultra vires. Bhubaneswar Stock Exchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board of India. He has argued that the penal provisions for suspension and expulsion have been made by way of section 29 of the Securities and Exchange Board of India Act. He submits that auction of membership card is beyond the powers of the president of the company as there is no provision for auction of the membership and the auction is contrary to article 167( b ) which confers right to be exercised by the expelled member. 23. Mr. Mohapatra, the learned counsel appearing for Bhubaneswar Stock Exchange, argues that a combined reading of sections 26,27,28 and 29 of the Act makes it clear that articles of association of a company not limited by shares shall also be in such, one of the forms of table C, D and E of Schedule I as may be applicable or in a form as near thereto as circumstances admit. Proviso has been added to section 29 of the Com-panies Act by 1960 amendment that nothing in the section shall be deemed to prevent a company from including any additional matters in its articles so far as they are not inconsistent with the provisions contained in the form of tables C, D and adopted by the company. In the instant case, according to Mr. Mohapatra, there is no disput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and contain such particulars according to rules and shall be accompanied by a copy of bye-laws of the stock exchange for the regulation and control of the contracts and also a copy of rules (memorandum and articles of association) relating in general to the constitution of the stock exchange, and in particular to clauses (a), ( b ), ( c ) and ( d ) of sub-section (2) of section 3. The bye-laws of opposite party No. 1 were round in conformity with the 1956 Act and the rules made thereunder. Section 9 was cited on behalf of opposite party No. 1 to show that a recognised stock exchange may with previous approval of the Central Government make bye-laws for regulation and control of con- tracts. Reliance was placed on sub-section (3) of section 9 to show that the provisions of the 1956 Act have not been infringed by the articles of association or bye-laws of opposite party No. 1. 26. Regarding the 1992 Act, it is submitted that this Act provides for establishment of a Board to protect the interest of the investors in securities, to promote development, to regulate security market and for matters connected therewith or incidental thereto. Provision in the 1992 Act read with rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the argument of Mr. Ray, as to how the articles of association and the bye-laws offend the Companies Act. We have noted the argument of Mr. Mohapatra in this regard as indicated above. 31. By reading the offending articles as challenged by the petitioner and the relevant bye-laws as indicated above, we do not find that those infringe the provisions of the Companies Act or the 1992 Act as claimed. If there are two distinctive rights there is the right of a member to vote and right of a member to retain his membership. The right to vote may be curtailed or restricted on certain grounds or the voting right cannot be curtailed if the right so ( sic ) . But retention of membership is certainly dependent upon compliance with certain eligibility criteria. If the articles of association envisage that in case of default, the defaulting member will lose the membership, the same cannot be contrary to and inconsistent with the provisions of the Act. It is very much clear in the 1992 Act as to the securities to investors, regulations and registration of stock brokers or sub-brokers. Such regulation by registration is dependent upon the continuity of membership with the respective stock ..... X X X X Extracts X X X X X X X X Extracts X X X X
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