TMI Blog2003 (2) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... eview application and directed him to address arguments on the restored Original Side Appeal No. 158 of 1988. Counsel has been heard on the merits of that appeal. We will first take up the review application. The order sought to be reviewed was made on February 22, 1994, and is a short order which reads thus : "Mr. Subba Reddy has appeared for the appellant. No one has appeared for the respondent. This application is limited to the question whether any interim order should be issued to continue the appellant as a member of the defendant stock exchange company. The trial court has declined to grant the application. In the appeal, however, the appellant has preferred a miscellaneous petition, in which there has been order for a stay of the letter, under which he has been expelled thus the expulsion of the petitioner from the membership of the respondent-company has been stayed. The petitioner has, on the basis of the above, continued to be a member of the respondent-company. There has been no complaint of any kind in the functioning of the appellant as a member of the respondent-company. The management has not found any conduct of the appellant which in its opinion, is objectiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been stated that the appellant before it was continuing to be a member and was functioning as such, and that there was no complaint about his functioning as a member. That statement was made without any material. It has been now submitted before us by his learned Counsel that after the date of the expulsion, he has not functioned as a member and has not done any trade on the exchange. 5. The order under review, therefore, suffers from more defects than one and proceeds on certain assumptions which are patently erroneous. The errors clearly are errors which are apparent on the face of the record. The review petition is, therefore, required to be and is allowed. The appeal viz. , O.S.A. No. 158 of 1988 is restored to file. O.S.A. No. 158 of 1988 : In this appeal the appellant challenges the order made by the learned Company Judge on an application filed by S.S.R. Rajkumar who was aggrieved by his expulsion from the appellant Stock Exchange by a resolution dated August 3, 1988. That resolution reads as under : "Resolved to withdraw the privileges of membership granted to Shri S.S.R. Rajkumar, member of the Exchange, partner of M/s. Chitra and Co., and expel him from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling, suspend him from all or any of the rights and privileges of a member for such period as the Council may deem fit or until the member has carried out or performed any lawful condition imposed by the Council in that behalf." The Madras Stock Exchange Limited was incorporated as a company limited by guarantee on April 25, 1997. The objects for which the company was established are, inter alia, "To facilitate, assist, regulate and control the trade or business in securities; To support and protect the character and status of brokers, jobbers and dealers and to further the interest of brokers, jobbers and dealers and of the public interest in securities; To maintain high standards of commercial honour and integrity; to promote and inculcate honourable practices and just and equitable principles of trade and business; to discourage and suppress malpractices; To apply for and obtain from the Government of India, recognition of the exchange as a recognised Stock Exchange for the purpose of regulating and controlling the business of purchase, sale, dealings and transactions in securities within the meaning of the Securities Contracts (Regulation) Act, 1956; To regulate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons eligible to become members of the exchange, viz., individuals, companies subject to the conditions specified therein, certain public financial institutions and their subsidiaries, as also subsidiaries of nationalised banks set up to provide merchant banking services, buying and selling securities and other similar activities. Article 7( b ) requires an individual seeking membership to apply in the prescribed form. Article 8( a ) provides that an applicant will not be eligible to be admitted to the membership of the exchange "unless he/institutions referred to hereinabove satisfies the requirements prescribed in that behalf under the Securities Contracts (Regulation) Act, 1956, and the Rules framed thereunder". 8. Article 23 prohibits the formation of partnerships, unless all the partners are members of the exchange. A non-member may not be a partner in the business carried on by the member in the exchange. No member can be a partner in more than one such partnership firm. Article 33 provides that so long as the firm continues, all the business shall be transacted only on account of the firm and, in the event the firm ceases to exist, the erstwhile partner would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry person admitted to the membership of the Exchange is required to contribute a sum of Rs. 10,000 or higher sum as may be prescribed by the Council to that fund. To the fund is also to be credited the turnover/transaction charges collected at the rate of 0.01 per cent of the aggregate turnover of sales and purchases of each member or at such other percentage of the aggregate turnover as may be prescribed by the Council from time to time. The fund is to be utilised, inter alia , to meet the shortfall and deficiencies arising out of the failure of any member to meet his commitments to the clearing house for the settlement and clearing of bargains and transactions made by him with other members. Failure to pay contribution to the fund can result in the expulsion of the member as provided in sub-clause ( VII ) of article 136. 12. Article 142 provides that subject to the provisions of the Securities Contracts (Regulation) Act, 1956 and the Rules framed thereunder, the Council shall be empowered to make Rules, Bye-laws and Regulations from time to time, for any or all matters relating to the conduct of the business of the Exchange, the business and transactions of its members betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any time, are, or have been, members of the Exchange. 18. Article 174 which deals with "winding up" provides that in the case of winding up or dissolution or merger or amalgamation of the Exchange with any other Stock Exchange, trade or commercial body, the net surplus assets of the Exchange after meeting all liabilities and the expenses of winding up or dissolution or merger or amalgamation, shall not be paid to or distributed among the members of the Exchange but shall be transferred or handed over to any other body or organisation or a company having objects of the Exchange or to any body constituted mainly for the benefit of the public in the advancement of knowledge, commerce, or with objects beneficial to the advancement of any other of general public utility and the promotion of industry, commerce and art. 19. Prior to the formation of registration of this company in the year 1957, the Stock Exchange that functioned at Madras was Madras Stock Exchange Association (Private) Limited which had been registered on August 12, 1937, under the Indian Companies Act of 1913. After the coming into force of the Securities Contracts (Regulation) Act, 1956, which enactment was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the stock exchange and having regard to the area served by the stock exchange and its standing and the nature of the securities dealt with by it, may impose for the purpose of carrying out the objects of this Act; and ( c )that it would be in the interest of the trade and also in the public interest to grant recognition to the stock exchange; it may grant recognition to the stock exchange subject to the conditions imposed upon it as aforesaid and in such form as may be prescribed. (2) The conditions which the Central Government may prescribe under clause ( a ) of sub-section (1) for the grant of recognition to the stock exchanges may include, among other matters, conditions relating to, ( i )the qualifications for membership of stock exchanges; ( ii )the manner in which contracts shall be entered into and enforced as between members; ( iii )the representation of the Central Government on each of the stock exchange by such number of persons not exceeding three as the Central Government may nominate in this behalf; and ( iv )the maintenance of accounts, of members and their audit by chartered accountants whenever such audit is required by the Central Government." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii )nothing herein shall affect members of a recognised stock exchange, permitted under the proviso to clause ( f ) of sub-rule (1) to suspend the enforcement of the aforesaid clause, for so long as such suspension is effective, except that no member of such exchange shall engage in forward business of any kind whether in goods or commodities or otherwise and, if actually so engaged on the date of such application, he shall sever his connection with any such business within a period of three years from the date of the grant of recognition." 24. The appellant s contention is that the provision for expulsion contained in the articles of Madras Stock Exchange are of no effect by reason of section 9( b ) of the Companies Act which, inter alia , provides that, "( b )any provision, contained in the memorandum, articles, agreement or resolution aforesaid shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be." 25. The submission is that the provisions relating to expulsion in the articles of the exchange contravene the provisions of the Companies Act and, therefore, of no effect. Reliance is placed by the appellant on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28. The Companies Act lays down a framework within which the State enables groups of persons with common object to obtain a corporate identity by their subscribing to a memorandum in which is set out the objects for which the company has been formed, and registering the same together with the articles of association which are not repugnant to the provisions of the Companies Act. Section 29 of the Companies Act in its proviso recognises the need for flexibility in the articles to be adopted by companies which are formed with different purposes, and provides that, that Act is not to be regarded as prohibiting a company to include in its articles "additional matters" insofar as they are not inconsistent with the provisions contained in the form in Tables C, D and E. 29. As to whether the provisions contained in the articles of the exchange are inconsistent with the provisions of the Companies Act has to be considered in the light of the law governing the stock exchanges and the provisions of the Companies Act. The enactments being statutes framed by Parliament, neither can be so read or so interpreted as to nullify what has been mandated by other. Stock exchanges registered u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion for expulsion in the articles would not per se be inconsistent with the requirements of the Companies Act. In a club registered under the Companies Act, the privileges that accompany membership being personal to the member, the collective welfare of the members would require that each one of them conform to a discipline which all of them agree to observe. Breaches of such discipline would require to be penalized, and if the conduct of the member is such as to make his continued presence wholly undesirable amidst other members, there is nothing in principle that would come in the way of such a member being expelled. 34. So far as the stock exchanges are concerned, the need for such a provision is self-evident. The profession of stock broking is regulated through the agency of the Stock Exchange. Though after the enactment of the Securities and Exchange Board of India Act, 1992 (Act 15 of 1992) and the framing of the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules, 1992 every stock broker must be registered with the Securities and Exchange Board of India and should in addition be a member of a registered stock exchange. The exchange is to regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knew about the effect of this rule and had undertaken to abide by the same when he applied for membership of the Exchange and answered the questionnaire which he was required to. That questionnaire, inter alia, required the applicant to answer the following questions: "Are you engaged as principal or employee in any business other than that of securities ? If so, please give full particulars. Are you aware that on admission to membership of the Stock Exchange you will have to cease forthwith to be so engaged ?" 39. The applicant had answered this query and had given the answer "Yes". He was admitted to the membership of the Exchange in the year 1985. Two years thereafter, the company by name Central Scientific Supplies Company Ltd., wrote to the Exchange informing the Exchange that Rajkumar has been appointed as its managing director. The Exchange asked for his explanation after informing him that he cannot be managing director of another business while being a member of the Exchange and warned him that he will lose his membership, if he does not give up that position. The Stock Exchange gave him opportunities on two occasions to state this case before the Council, and on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the applicant was entitled. The impugned judgment is set aside and the applications filed before the learned Company Judge in Company Application Nos. 1793 and 1794 of 1993 are dismissed. L.P.A. Nos. 123 and 129 of 2000 and Contempt Appeal No. 11 of 2000 : 44. The contempt appeal is against the order of the learned Single Judge holding that the three respondents in Contempt Petition No. 745 of 1999 are guilty of contempt and directing each one of them to pay Rs. 10,00,000 to the applicant. The contempt alleged is the disobedience of the order made by the learned Single Judge on February 1, 1995, on Company Application Nos. 1793 and 1794 of 1993. That order is the subject-matter of O.S. A. Nos. 64 and 65 of 1995 which appeals have now been allowed by us, as a consequence of which those applications have been dismissed. 45. The two sub-application Nos. 268 and 269 of 1999 made in that contempt application, sought payment of Rs. 75 lakhs as compensation and a direction to the exchange to furnish particulars regarding the sale of the membership ticket in earlier years. Letters Patent Appeal Nos. 123 and 129 of 2000, are directed against the order made on those two sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Application Nos. 1793 and 1794 of 1993 seeking a direction that he be permitted to carry on trade by himself with a new name "Dhanalakshmi Company", and for other directions. That prayer was made without complying with the requirements of article 33 and without discharging the liabilities of the firm. The applicant was not entitled to the permission so sought. Despite that, the learned Single Judge granted such permission which we have now set aside. 49. The exchange cannot be faulted for observing its articles scrupulously. The exchange is not required to jeopardise its own position as a recognised exchange by permitting trade in the exchange by persons who are not qualified to carry on such trade. The Securities and Exchange Board of India Act, 1992 (Act 15 of 1992) by section 12 requires that stock broking be done only by those duly registered under the Act. The applicant did not at any time register himself under the Act. No application was made for that purpose either directly or through the exchange. The applicant was not entitled to trade in the exchange without such registration. Under rule 4( a ) of the Securities and Exchange Board of India (Stock Brokers and Sub Br ..... X X X X Extracts X X X X X X X X Extracts X X X X
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