TMI Blog2015 (1) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... a fundamental right to carry on trade in securities at a particular Stock Exchange only, yet the petitioners as the Trading Members, if prohibited in any manner or are unable to trade on account of the restrictions imposed, it would not prevent them from challenging the constitutionality of the circular or the regulations itself on the ground that it offends against the fundamental right guaranteed under Article 19(1) (g) of the Constitution of India by showing that the restrictions goes in excess of the object or because the activities which are not pernicious are included within the sweep of the statute or because the procedure laid down in the statute is unreasonable or unjust or arbitrary – thus, the preliminary objection raised by the respondents is rejected. Validity of notice issued by the VSEL - Legality and validity of the circulars dated 30th May 2012 and 13th December 2012 and the Securities Contracts (Regulation) (Stock Exchange and Clearing Corporations) Regulations, 2012, issued by the Securities Exchange Board of India (for short, 'SEBI') - Whether the circulars, regulations and notice are ultra vires the Constitution of India and are contrary to the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise of the statutory power conferred on the SEBI as a statutory authority - whether a circular issued by a statutory authority would be binding or not, or whether the same has a statutory force or not, would depend upon the nature of the statute - For the said purpose, the intention of the Legislature must be considered - the issue as regards the statutory force of a circular has been considered in BOI. Finance Ltd. Versus Custodian [1997 (3) TMI 457 - SUPREME COURT OF INDIA] - a circular issued by the RBI which stated that the banks were advised to follow the Guidelines given thereunder, the word 'advised' cannot be read in isolation and the said document was meant to be binding on the banking companies – thus, the circular dated 30th May 2012 passed by the SEBI in exercise of its powers under Sections 11(1) and 11(2)(j) of the SEBI Act, 1992 read with Section 5 of the SCRA Act, 1956, which is the subject matter of challenge in this petition, could be termed as a statutory circular having a force of law and binding to all the Stock Exchanges in the country. Legality and validity of the regulations – Held that:- Petitioner contended that after the approval of the Scheme und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI to make such consultations before framing the regulations or issuing the circulars. Justification and the rationale in imposing the condition of turnover of ₹ 1000 crore in the circular – Held that:- There is no prohibition in the circular which prevents the petitioners from carrying on trade and earn livelihood as traders or brokers - it is very difficult to accept the submissions of the petitioners that they have a fundamental right under Article 19(1)(g) of the Constitution of India to trade at a particular Stock Exchange only and that is the Vadodara Stock Exchange - it is not for this Court to comment on the economic policy of the SEBI. There should be judicial restraint in fiscal and economic regulatory measures - The State should not be hampered by the Court in such measures unless they are clearly illegal or unconstitutional - all administrative decisions in the economic and social spheres are essentially ad hoc and experimental - Since economic matters are extremely complicated, this inevitably entails special treatment for distinct social phenomena. The State must therefore be left with wide latitude in devising ways and means of imposing fiscal or regulato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, the petitioners are not entitled to any of the reliefs as prayed for in the petition – Decided against petitioner. - SPECIAL CIVIL APPLICATION NO. 17040 OF 2012 WRIT PETITION (PIL) NO. 211 OF 2012 - - - Dated:- 7-5-2014 - BHASKAR BHATTACHARYA, AND J.B. PARDIWALA, JJ. Mihir Thakore and Ms. Amrita M. Thakore for the Petitioner. Anshin H. Desai, S.N. Shelat, Ms. Dharmishta Raval and Ms. Shaili A. Kapadia for the Respondent. JUDGMENT J.B. Pardiwala, J. - As the issues raised in both the above captioned petitions are the same, those were heard analogously and are being disposed of by this common judgment and order. However, we have considered the Special Civil Application No.17040 of 2012 filed by the Trading Members and shareholders of the Vadodara Stock Exchange Limited as the lead matter. 2. By this writ application under Article 226 of the Constitution of India, the petitioners herein claiming to be the Trading Members and shareholders of the Vadodara Stock Exchange Limited (for short, 'VSEL') seeks to challenge the legality and validity of the circulars dated 30th May 2012 and 13th December 2012 and the Securities Contracts (Regulation) (St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, the VSEL has initiated several steps to establish and upgrade its systems and infrastructure keeping the interest of investors in mind and in order to expand its activities. The VSEL introduced computerised system for settlement of transactions and installed systems to disseminate vital and timely information of price movement of various scrips to the investors and also set up the Investor Protection Fund to ensure increased protection of customers. Pursuant to reforms introduced whereby corporate membership in Stock Exchanges was introduced, the VSEL admitted corporate members. Recognising and appreciating the necessity of introducing Screen Based Trading at Vadodara which required a large premises, the VSEL acquired and owns a nine-storey-building having an aggregate area of 156238 sq.ft. in Vadodara and another premises admeasuring 4183 sq.ft. also at Vadodara. In 1996, the VSEL went live for electronic trading. Thereafter, the VSEL signed an agreement with one CMC Limited for implementing fully automated stock trading, settlement and clearing system. The VSEL has actively focused on empowerment of investors by establishing Investor Services Centres, Investor Education/Trai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough the trading platform of the BSE or NSE as the case may be. This enabled RSEs to once again become active Stock Exchanges without having to spend huge sums of money to make their own trading platform operational or create their own trading platform where none existed. The VSEL has also recently entered into such an MOU with the NSE which has been approved by the SEBI and the bye-laws thereof have also been approved by the SEBI and are awaiting publication in the Official Gazette. 11. Initially, the membership card bestowed ownership and trading rights upon the Trading Members of the Stock Exchanges. During the period 2000-06, the Stock Exchanges all over the world including India underwent a process of corporatisation (whereby the Stock Exchange would be succeeded by another Stock Exchange which would be a company) and demutualisation (whereby the ownership and management would be segregated to some extent from trading rights). For such purpose, the SCRA was amended in the year 2004 to provide for the Demutualisation and Corporatisation of Stock Exchanges. 12. The newly inserted Section 4A provided for corporatisation and demutualisation of all recognised Stock Exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r may not be a Trading Member. 8. Shareholding Rights 8.1 VSEL shall ensure that at least 51% of its equity shares are held by public other than shareholders having trading rights in the manner and within the period prescribed in sub-section (8) of section 4B of the SCRA. 8.2 On and from the Appointed Date, VSEL shall ensure that public other than shareholders having trading rights continuously hold at least 51% of equity shares. 8.3 On and from Due Date, no Shareholder, who is a Trading Member of any recognised Stock Exchange, shall have voting rights (taken together with voting rights held by him and by persons acting in concert with him) exceeding 3% of the voting rights in VSEL. 9. Memorandum and Articles of Association, etc. 9.1 The Memorandum and Articles of Association, Rules, Bye-laws and Regulations of VSEL on the day preceding the Due Date shall, unless contrary to or inconsistent with or excluded by this Scheme, apply to it on and from the Due Date. 9.2 VSEL shall incorporate the provisions of this Scheme appropriately in its Memorandum and Articles of Association, Rules, Bye-Laws and Regulations on or before the Due Date. 9.3 Memorandum and Artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Some of the relevant clauses or extract thereof as per the said letter are reproduced hereunder: 1.0: Governing Board of Vadodara Stock Exchange Limited 1.1 Board Composition on and from Due Date till Appointed Date. On and from Due Date, as defined in clause 2.1 of Vadodara Stock Exchange (Corporatisation and Demutualisation) Scheme, 2005, composition of Governing Board shall be as under: 1.1.1 Trading Member Directors shall constitute maximum of one-fourth of the total strength of the Governing Board. 1.1.2 Public Interest Directors shall constitute the balance of the Governing Board. 1.2: Board composition on and from Appointed Date On and from Appointed Date, as may be notified by SEBI under Section 4A of the Securities Contracts (Regulation) Act, 1956, the composition of the Governing Board shall be as under: 1.2.1 Trading Member Directors shall constitute maximum of one-fourth of the total strength of the Governing Board. 1.2.2 Public Interest Directors shall constitute one-fourth of the total strength of the Governing Board. 1.2.3 Shareholder Directors shall constitute the balance of the Governing Board. In case, the Exchange has strategic part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by the public other than shareholders having trading rights. From the aforesaid, it is clear that, even after the Appointed Date, Trading Members were entitled to have a representation on the Governing Board to the extent of one-fourth. It is clear that the SEBI had exercised its powers under Section 4B(6) of the SCRA read with Clause 3.1 of the Scheme. 19. As could be seen from the provisions of the SCRA, the Scheme and the subsequent letter dated 21st September 2005, at the time of approval of the Scheme and even thereafter, there was no condition imposed that the VSEL (or any Stock Exchange), for getting or retaining its recognition under the SCRA, was required to have a minimum net worth of any prescribed amount or an annual turnover of any particular amount. 20. Pursuant to this, on 13th November 2006, the SEBI issued the Securities Contracts (Regulation) (Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges) Regulations, 2006. The said regulations were applicable to all the recognised Stock Exchanges in respect of which the Scheme for corporatisation and demutualisation had been approved by the SEBI and prescribed by the manner in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusively on the derecognised RSE would have to either seek listing at another Stock Exchange or provide exit option to shareholders as per SEBI Delisting Guideline. 23. According to the requirements of law, the SEBI directed the corporatisation and demutualisation of several Stock Exchanges, including the VSEL, during the period 2004 to 2007 and asked them to go ahead and invite various investors to purchase a total of 51% equity shares, thereby causing innocent persons to invest their monies for purchasing shares in Stock Exchange under the belief that such recognised Corporatised and Demutualised Stock Exchanges, having complied with all the requirements of law, would continue to be recognised and be allowed to carry on their business unhindered by any constraints/conditions (other than those already existing at the time of corporatisation and demutualisation). 24. In the year 2010, the SEBI constituted a committee under the Chairmanship of Dr.Bimal Jalan, Former Governor of the Reserve Bank of India. Although the provisions regarding ownership structure and board composition of Stock Exchanges, listing of Stock Exchanges, etc. had already been provided for in the SCRA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir subsidiary company which will function as a normal broking entity. The Circular also contains provisions with regard to treatment of assets of derecognised Stock Exchanges including provisions to the effect that valuation would be done by the SEBI appointed agency, up to 20% of the assets post tax would have to be contributed towards the SEBI Investor Protection and Education Fund, that dues of brokers would have to be paid by such Stock Exchange and also that such Stock Exchanges cannot alienate any assets without taking prior approval of the SEBI. The Circular appears to have been issued in exercise of purported powers under Section 11 of the SEBI Act and Section 5 of the SCRA. 28. Thereafter, in purported exercise of powers under Sections 4, 8A and 31 of the SCRA read with Sections 11 and 30 of the SEBI Act, on 20th June 2012, the SEBI has issued the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012. 29. By way of the Regulations, the composition of the Governing Board was sought to be altered contrary to the provisions of the Scheme and the time period for this to be done was only three months. Hence, as on 20th September ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of mandamus or any other appropriate writ, order or direction holding and declaring that the provisions of the schemes for corporatisation and demutualisation, which are approved by SEBI and are published as per the requirements of Section 4B of the Securities Contracts (Regulation) Act, 1956, have full effect and are binding. C. Pending the admission, hearing and final disposal of the present petition, this Hon'ble Court be pleased to stay and suspend the operation and implementation of the Circular dated 30.5.2012 at Annexure H hereto, the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 at Annexure I hereto, the notice dated 28.11.2012 at Annexure J hereto and the Circular dated 13.12.2012 at Annexure K hereto. D. Pending the admission, hearing and final disposal of the present petition, this Hon'ble Court be pleased to restrain the respondent no. 3 herein from taking any steps in furtherance of the notice dated 28.11.2012 at Annexure J hereto. E. Ex parte ad interim reliefs in terms of prayers C and D hereinabove be granted. F. Such other and further reliefs as deemed just and expedient be granted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Exchange has opposed to the desire of the Trading Member shareholders of the Stock Exchange. As the Trading Member shareholders are unable to convince the majority of the public shareholders, this petition has been filed challenging the policy decision of the SEBI. (5) The total number of Trading Members of the VSEL are 289. The petition has been filed only by 52 persons holding 405812 shares of the VSEL, which constitute 7% of the total share capital of the Stock Exchange. (6) As the petition has not been filed by the Stock Exchange nor the Stock Exchange has lodged their objections to the provisions of the new regulation and the exit circular, this petition is not maintainable as it is intended to serve the interest of few Trading Member shareholders of the VSEL, i.e. 7% of the Trading Members only. (7) The appropriate forum for redressing the grievance would be the Company Law Board and not by filing a writ-petition invoking the writ jurisdiction of the High Court under Article 226 of the Constitution of India. (8) The SEBI has introduced the policy to serve the interests of the stakeholders concerned and is done more in public interest. A handful of Trading Members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged may prove to be detrimental to the safety of the securities market as such exchanges could be used as a platform to conduct manipulation practices in the securities market. II. Overall stance of the SEBI : 34. The SEBI has been established under the Securities and Exchange Board of India Act, 1992 as a statutory and regulatory body to protect the interest of the investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto. The SEBI is an expert body in the securities market. 35. Under Section 11(2)(a) of the SEBI Act, it has authority to regulate business in Stock Exchanges and other securities market. Further, in terms of Section 11(2)(j) of the SEBI Act, it performs such functions and exercise such powers under the provisions of the Securities Contracts (Regulation) Act, 1956 as may be delegated to it by the Central Government. 36. The object of the SCRA is to prevent undesirable transactions in securities by regulating business of dealing therein and by providing for certain other matters connected therewith. That Section 29A of the Securities Contracts (Regulation) Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interests of the investors and the securities market and performs functions for the benefit of public/investors and thus performs a public duty. 39. The Stock Exchanges are considered as Infrastructure Institutions for Securities Market of a country. This is because financial institutions like Stock Exchanges are central to the national economy and at the core; there would be the issue of safety of the wealth of the citizens who avail the services they offer. Therefore, for the economic health of the country which encompasses public good also, it is of utmost importance that Stock Exchanges perform their functions in a manner which contributes to economic benefit of the Country. For this purpose, their sound financial health, good management and ownership and substantial business activities are foremost. All these aspects are taken care of in the provisions of the SEBI Act, the SCRA, the Rules and Regulations framed thereunder including the directives issued by the SEBI from time to time. 40. The Central Government announced its proposal to corporatize and demutualise the Stock Exchanges by which, inter alia, ownership, management and trading rights would be segregated fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4B(6)); power to restrict the right of shareholders to appoint the representatives on the governing board, (Section 4B(6)); the manner in which at least 51% of equity share capital of a recognized Stock Exchange is held by the public other than the shareholder having trading rights Section 4B(8)); and power of SEBI to make rules relating, inter alia, to the governing body of the Stock Exchange, its constitution and powers of management, duties of office bearers of the Stock Exchange, etc (Section 8 read with section 3). 42. Under Section 11 of the SCRA, the Central Government/SEBI may supersede the governing board of a Stock Exchange. This power is conferred with the objective to provide a mechanism of regulation of business and prevention of undesirable transactions in securities in the Stock Exchange and to ensure that its functioning does not adversely affect the interest of the investors, securities market and further to ensure the compliance of the provisions of the SCRA, the SEBI Act or rules and regulations framed thereunder or directives issued thereunder. 43. The powers exercisable by Central Government under SCRA are also exercisable by the SEBI by virtue of genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned regulations have been framed by the SEBI in exercise of the powers conferred by Sections 4, 8A, and 31 of the SCRA read with Sections 11 and 30 of the SEBI Act. As stated above in terms of Section 11 of the SEBI Act, the SEBI has been entrusted with the task of protection of investors and development of securities market. Scope and objective of the said section has been extensively dealt with by the Hon'ble Supreme Court in its recent judgments, and the Hon'ble Supreme Court has held that under the said section the SEBI has wide powers to protect the interest of investors and for the development of securities market. Under Section 12-A of the SCRA, the SEBI also has powers to issue directions to Stock Exchanges, listed companies and other persons associated with the securities market, inter alia, in the interest of investors or orderly development of securities market, to prevent the affairs of any recognized Stock Exchange or clearing corporation from being conducted in a manner detrimental to the interests of investors or securities market; and to secure proper management of such Stock Exchange or clearing corporation or any other persons providing trading or cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers on the board of Stock Exchanges will have inherent conflict in this regard. (e) Some of the real incidents of conflict which has damaged the integrity of the securities market are highlighted below: 50. In the year 2001, the President of the Bombay Stock Exchange who was also a Trading Member had illegally obtained some price/market sensitive information, from an officer of the surveillance department in the presence of certain other brokers. During the investigation the transcripts of telephonic conversation revealed that the President had obtained information in respect of certain specific scrips and brokers. In this regard SEBI restrained the President from acting as a Director Member of the Governing Board of the Stock Exchange, Mumbai. The said SEBI order was upheld by the Hon'ble Bombay High Court in Anand Rathi v. SEBI [2001] 32 SCL 227. 51. In the year 2001, a settlement crisis arose in the Calcutta Stock Exchange, wherein the Trading Members were also involved in the management of the Stock Exchange. In this regard, Joint Parliamentary Committee, 2001 which conducted investigation into the said crisis had brought out in detail the reasons for the crisis in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... locations to raise capital and to provide an opportunity to the investors to participate in the securities market. However, with the various technological advances in the securities market, the scope of operations of the Regional Stock Exchanges became limited, investors preference for using the platform of such regional Stock Exchanges reduced, and the trading in these smaller Stock Exchanges came down sharply and reduced in the case of most exchanges including VSE to nil in the past few years. The entities transact their business in their Stock Exchanges including the investors have been effected adversely as they do not have the opportunity to transact in the securities market. 54. The SEBI, in recent past, has withdrawn the recognition granted to the Hyderabad Stock Exchange and Saurashtra Kutch Stock Exchange Ltd., while it has refused renewal of recognition to Mangalore Stock Exchange, Magadh Stock Exchange Ltd. There are 21 recognized Stock Exchanges in the country and excepting NSE and BSE which account for almost 100% of the total turnover in the equity and equity F O Segment, only Calcutta Stock Exchange has a trading operations while the business in all other smalle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tension of nationwide reach of BSE and NSE which offered a large and liquid market to investors across the country; b. the introduction of uniform rolling settlement from June 2001 in place of account period settlement with varying settlement cycles; c. the abolition of the concept of regional listing; and d. the liquidity being limited to National Stock Exchanges like NSE and BSE. e. fair and transparent price discovery with large number of companies being listed. f. better redressal mechanism in the other Stock Exchanges. g. preference of investors 57. Considering the aforesaid facts and to secure interest of the investors in the market, the SEBI, from time to time and wherever required, appointed expert's committee to examine the important aspects of the securities market and to recommend actions in a specific areas in the interest of the market as well as investors. As stated above the Stock Exchanges are centre institutions to the securities market. Its stability, financial health and continued sustainability are of vital importance to the safety and integrity of the securities market. Hence, it would be reasonable to stipulate that only those entities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Stock Exchanges having nationwide trading terminal. 60. The continued existence of defunct Stock Exchanges requires the SEBI to carry out various regulatory, supervisory and administrative activities which are unproductive and is a regulatory burden. This would have an adverse impact on the interest of investors as well. Consequently, and also based on recommendations of the Ministry of Finance, an exit policy for Stock Exchanges was formulated and brought into effect vide the SEBI Circular dated December 29, 2008. The new Circular dated May 30, 2012 is under review of the earlier circular of 2008. The Exit Circular issued by the SEBI on May 30, 2012 was issued after deliberation of the matter in the Secondary Markets Advisory Committee (SMAC). One of the members of the SMAC is the FISE i.e. Federation of Indian Stock Exchanges which has many Stock Exchanges including respondent no.2, as its members. The FISE had also given its detailed comments on the said policy, as a member of the SMAC. Therefore, even the policy relating to the Exit Circular had been finalized after consultation with the concerned market participants, though the SEBI is not statutorily mandated to undertake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ISE Nil Nil Nil Jaipur Nil Nil Nil Ludhiana Nil Nil Nil Madras Nil Nil Nil MPSE Nil Nil Nil OTCEI Nil Nil Nil Pune Nil Nil Nil Vadodara Nil Nil Nil Total 38,52,579 55,18,469 46,85,034 61. The amount of trading turnover required i.e. 1000 crore, is in itself a very small figure when compared to the total trading turnover in the country on an annual basis. If a Stock Exchange is not able to satisfy even this minimum amount, it may be inferred that investors are not interested in using the platform of such an exchange to deal in securities. The continued existence of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00-01 10 Ludhiana Stock Exchange 2002-03 11 Madhya Pradesh Stock Exchange 2002-03 12 Madras Stock Exchange 2007-08 13 OTCEI 2004-05 14 Pune Stock Exchange 2003-04 15 Uttar Pradesh Stock Exchange 2010-11 16 Vadodara 2003-04 63. The impugned circular prescribes that the Stock Exchanges if they are unable to achieve a turnover of ₹ 1000 crore within a period of two years will have to exit. In this situation investors of exclusively listed companies who are unable to exit will be provided an opportunity to exit through Dissemination Board on the NSE and BSE. While this responsibility of providing exit to investors of exclusively listed companies is primarily of the concerned Stock Exchange through trading operations, however in view of nil trading this could not be achieved. 64. The trading at al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Government may serve on the governing body of the Stock Exchange a written notice that the Central Government is considering the withdrawal of the recognition for the reasons stated in the notice and after giving an opportunity to the governing body to be heard in the matter, the Central Government may withdraw, by notification in the Official Gazette, the recognition granted to the Stock Exchange. 65. The amount of trading turnover required i.e.1000 crore, is in itself a very small figure when compared to the total trading turnover in the country on an annual basis. If a Stock Exchange is not able to satisfy even this minimum amount, it may be inferred that neither the investors nor the Trading Members of VSEL, are interested in using the platform of such an exchange to deal in securities. The continued existence of such exchanges would be detrimental to the health and safety of the securities market. The trading volumes (equity and equity F O) on all the Stock Exchanges during the last three years, is as follows: Trading Turnover details (Amount in Rs. crore) Name of the Stock Exchange 2009-10 2010-11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above the contention of the petitioners that he condition of imposing an annual trading turn over of ₹ 1000 crore is unreasonable restriction does not deserve any consideration and deserves to be rejected. 69. It is further submitted that the Stock Exchanges, in view of the provisions of the SCRA, do not have right to state that the regulator cannot impose any terms and conditions regarding the functioning and administration of the Stock Exchange. It is further submitted that when the share holders invested in the VSE, there was no trading activity being carried out at the VSE and the Stock Exchange was more in the nature of a defunct Stock Exchange. The major sources of income for the VSEL, as provided in its Annual Reports, may be seen as under: Major Revenue income of the VSE for last 4 Years. Particulars 2008-09 2009-10 2010-11 2011-12 DP operations 18,325,670 19,990,851 19,926,000 16,309,848 Interest income 9,504,888 21,521,099 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmitment and integrity. Secondly, statistics of attendance of public interest Directors in the meetings of the Governing Boards of various RSEs is an indicator as regards the interest that Public Interest Directors have displayed. Some statistics on this aspect is as follows: ATTENDANCE OF PUBLIC INTEREST DIRECTORS OF VADODARA Stock Exchange LTD TILL DATE Shri Nilknath Jani Dr.Samir Joshi Shri Yogendra Shukla Year No. of Meetings held No. of Meetings Attended No. of Meetings held No. of Meetings Attended No. of Meetings held No. of Meetings Attended 2007-08 2 01* 2 01* 1 01** 2008-09 9 9 9 9 9 8 2009-10 7 7 7 7 7 4 2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 100 crore USEIL - ₹ 109 crore 74. Sections 4A and 4B were inserted in the SCRA to give effect to the Government policy to corporatize and demutualise Stock Exchanges by which ownership, management and trading rights would be segregated from each other. In terms of Section 4B Schemes for Corporatisation and Demutualisation of a Stock Exchange is to be submitted by the concerned exchange for approval by the SEBI. Section 4B provides the SEBI the discretion to approve a scheme and in terms of Section 4B (6), a scheme having such approval would not be restricted in its ambit by any other law in force. In fact, under Section 4B (6), the SEBI may, by order, restrict the voting rights of shareholders who are stock brokers, right of shareholders to appoint representatives on the governing boards and restrict the maximum number of representative of stock brokers to be appointed on the governing board. Approval given by the SEBI of such a scheme reinforces the fact that the SEBI has wide ranging statutory powers to regulate Stock Exchanges in a manner that is in the best interests of the investors and the securities market. 75. The Schemes approved by the SEBI under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... policy was framed without due consultation is not factually correct. 78. Section 5 provides the power to withdraw recognition of Stock Exchanges. This power given to the Central Government is exercised by the SEBI in terms of the notification delegating the power to it. Therefore in terms of Section 5, if the SEBI is in the opinion that the recognition grated to a Stock Exchange under the provisions of the SCRA should, in the interest of trade or public interest, be withdrawn, it may do so after following due procedure under the Act. The reasons for forming such opinion are not objectively outlined in the Act. Therefore the reason on the basis of which such opinion may be formed is left to the discretion of SEBI and may be outlined by way of regulations, circular or any other regulatory direction. 79. For the purposes of grant of recognition and continuous recognition, the SEBI is empowered to issue conditions and the direct that the rules of Stock Exchange the amendment, if any, and if Stock Exchange fails to amend the rules then the SEBI itself can amend the Rules. 80. It is open to the SEBI to issue directions as per the provisions of Section 12 (A) to a Stock Exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts to stating that under the provisions of the SCRA, the SEBI has divested its own powers in favour of the Ministry of Corporate Affairs (MCA) and the Registrar of the Companies (RoC). 83. Further, certain provisions of the SCRA have been given explicit overriding effect over the Companies Act or any other law for the time being in force. Such provisions include : (a) power to make rules including the rules restricting voting rights of members, providing restriction on the right of a member to appoint proxy, providing regulation of voting rights so that each member may be entitled to have only one vote irrespective of his share in the paid up equity capital in the Stock Exchange (Section 8 read with Section 7A); (b) power to restrict the representation of the stock broker on the governing board {Section 4B(6)}; (c) power to restrict the right of shareholders to appoint the representatives on the governing board, (Section 4B(6)); (d) the manner in which at least 51% of equity share capital of a recognised Stock Exchange is held by the public other than the shareholder having trading rights Section 4B (8)); and power of SEBI to make rules relating inter alia to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pective Stock Exchanges, once approved by the SEBI, was required to be incorporated in the Articles of Association/Rules of the respective Stock Exchanges. The SEBI has power under the SCRA to amend the Articles of Association/Rules of Stock Exchanges without any distinction as to whether such Articles of Association/Rules contains the provisions, as approved in the C D Scheme or other provisions not so approved. 88. The SEBI is the statutory regulator of the securities market cast with the function of protecting the interests of the securities market, promotion of the development of and regulation of the securities market. Need for granting deference to the views of the expert body has been judicially recognised both globally and within India. In the case of MCXSX v. SEBI Ors.,the Hon'ble High Court of Bombay (judgment dated March 14, 2012) noted that the SEBI is an expert statutory body and that the High Court would not be justified in substituting the view of an expert adjudicator observed: While assessing the challenge...the Court must bear in mind that the interference of the Court under Article 226 of the Constitution is confined to certain well settled, if res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been entrusted with various regulatory responsibilities for ensuring market integrity and for protecting the interest of investors. Stock Exchanges, therefore, cannot be seen only as providers of electronic platforms for executing trades. Investor Protection, Better Transparency, Market Integrity, Market Efficiency, Quality of Supervision and Competitiveness of Financial Markets are very important for building confidence in any financial market. Confidence in financial markets is the main driver encouraging cross‐border retail and institutional investment flows. Therefore, a Stock Exchange, apart from providing electronic platforms for executing trades, performs a number of other functions such as issuer regulation (listing, monitoring listing compliances, dissemination of information) member regulation (registration of members, inspection and enforcement action), trading regulation (setting and enforcing trading rules, market surveillance) and investor protection (dispute resolution, grievance redressal, investor protection fund). Securities and Exchange Board of India product design Stock Exchanges also undertake support functions such as training and education, techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of directors. To achieve this, either the NSE model may be followed or any of the other patterns followed by international Stock Exchanges which have been corporatized and demutualised could be adopted. Under the NSE pattern there is no broker representation on the Board of the National Stock Exchange of India Limited. NSE has an Executive Committee which has broker representation. 93. The JPC Report stated that there are several models of demutualisation globally. In any case, the JPC recognised the need for Stock Exchanges to be corporatized and demutualised to bring in greater transparency an efficiency of the exchanges and also segregation of trading and ownership. 94. The recent failure of the National Spot Exchange Limited (NSEL) illustrates the need for adequate capitalization, liquidity and complete separation of management and the interests of Trading Members. The order of the Forward Markets Commission (FMC) dated 17th December 2013 held that certain promoters and directors of the National Spot Exchange Ltd (NSEL) were not fit and proper persons. The order also reveals certain facts summarised below, which point to the need for better regulation of market infrastr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.174.72 crore ₹ 8.58 crore Rs.166.14 crore 24.09.2013 Rs.174.72 crore Rs.11.45 crore Rs.163.27 crore Post Dated Cheques deposited with the NSEL were dishonoured on a regular basis. As a result, investors have suffered greatly. It is estimated that around 5500 crore rupees are owed to various investors. (iii) The gross mismanagement seen in the NSEL matter was further compounded by the lack of adequate net worth leading to the defaults illustrated in para 5. The FMC, in its order dated 17th January 2013 has observed the following ...establish the fact that the entire governance of the company including planning, directing and controlling of its activities was utterly lacking in transparency, integrity, competence, compliance with law, and most importantly an honesty of intent to meet its stated objectives of offering a platform for genuine trading in commodities. (iv) The NSEL issue as brought out in the above paragraphs clearly illustrates the desperate need for ensuring that the management is independent of control and manipulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Shareholder. None of the Members of the Governing Board of the Exchange is interested or concerned in these Resolutions. Registered Office : 3rd Floor, Fortune Tower Sayajigunj By Order of the Board, VADODARA - 390 005. For VADODARA Stock Exchange LTD. Sd/ (M.G.Sheikh) Officiating Managing Director Date : 28th November, 2012 96. The total strength of the Governing Board shall not exceed twelve (excluding the Managing Director) comprising of atleast 50% public interest directors and the balance shall be the shareholders' directors. 97. It has been denied that the impugned notice dated 28th November 2012 issued by the Governing Board of the VSEL is illegal or unreasonable in any manner. IV. Submissions on behalf of the petitioners : 98. Mr.Mihir Thakore, the learned senior advocate assisted by Ms.Amrita Thakore, the learned advocate appearing for the petitioners, vehemently submitted that the provisions of the circular and the regulations are violative of Articles 14 and 19(1)(g) of the Constitution of India. They do not constitute reasonable restrictions and are, therefore, ultra vires the Constitution of India and could be termed as arbitr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30 of the Act, 1956. 103. Mr.Thakore placed reliance on Section 11 of the SEBI Act and submitted that although Section 11 speaks of the powers and functions of the Board, but at the same time speaks of the measures by law, and the circular cannot be termed as law. 104. Mr.Thakore submitted that Section 8 of the Act, 1956 is confined only to Section 3(2) of the Act and, therefore, the condition of ₹ 1000 crore turnover could not have been imposed in exercise of powers under Section 8(1) of the Act. 105. Mr.Thakore submitted that the conditions could have been prescribed only by the Central Government. Section 4(B) of the Act, 1956 could not have been exercised by the SEBI in exercise of powers under Section 11 of the SEBI Act. 106. Mr.Thakore laid much emphasis on the fact that the Scheme was approved by the SEBI and people were invited to invest at a time when there was no condition to achieve turnover of ₹ 1000 crore. To achieve the turnover of ₹ 1000 crore, adequate platform needs to be created and such a platform has to be created by the Board. 107. Mr.Thakore, in such circumstances referred to above, prays that there being merit in this petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also empowered to issue directions to Stock Exchanges, listed companies and other persons associated with the securities market, inter alia, in the interest of the investors or orderly development of the securities market. 114. Mr.Shelat submitted that with such objective in mind, the impugned circular and the regulations have been framed by the SEBI, and for such purpose, the SEBI relied on the Bimal Jalan Committee report as well as the report of the group on Corporatisation and Demutualisation of Stock Exchanges, headed by Justice M.H.Kania, Former Chief Justice of India, dated 30th January 2003. 115. Mr.Shelat submitted that the circular has a force of law and could be termed as a statutory circular. 116. Mr.Shelat lastly submitted that the SEBI is the statutory regulator of the securities market with the function of protecting the interest of the securities market, promotion of development of and regulation of the securities market. Being an expert statutory body, this Court may not substitute the views of such an expert adjudicator. Mr.Shelat submitted that the laws relating to economic activities should be viewed with greater latitude than laws touching the civil r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uffered a legal wrong or injury, in the sense that his interest, recognised by law, has been prejudicially and directly affected by the act or omission of the authority, complained of ? Is he a person who has suffered a legal grievance, a person against whom a decision has been pronounced which has wrongfully deprived him of something or wrongfully refused him something, or wrongfully affected his title to something ? Has he a special and substantial grievance of his own beyond some grievance or inconvenience suffered by him in common with the rest of the public ? Was he entitled to object and be heard by the authority before it took the impugned action? If so, was he prejudicially affected in the exercise of that right by the act of usurpation of jurisdiction on the part of the authority ? Is the statute, in the context of which the scope of the words 'person aggrieved' is being considered, a social welfare measure designed to lay down ethical or professional standards of conduct for the community ? Or is it a statute dealing with private rights of particular individuals ? 125. In the aforesaid context, we propose to also rely upon the following observations of the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the VSEL established a subsidiary called 'VSE Stock Services Limited' (VSSL) for acquiring membership of BSE and NSE. The SCRA was amended to provide for corporatisation (whereby the Stock Exchange would be succeeded by another Stock Exchange which would be a company) and demutualisation (whereby the ownership and management would be segregated to some extent from the trading rights) of Stock Exchanges. In this regard, Sections 4A and 4B were inserted in the SCRA, inter alia, containing the provisions whereby a scheme was required to be approved by the SEBI for corporatisation and demutualisation of each Stock Exchange. 131. In 2005, the VSEL was converted into a company limited by shares and submitted its Corporatisation and Demutualisation Scheme, 2005, providing, inter alia, that 51% share holding would be of the public. Therefore, a share holding of the Trading Members like the petitioners was reduced to 49%. 132. On 30th May 2012, the SEBI issued a circular stipulating a condition upon the Stock Exchanges of achieving a turnover of ₹ 1000 crore on a continuous basis on their own platform, failing which the SEBI would proceed to derecognise such Stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... individuals or a society registered under the Societies Registration Act, 1860 (21 of 1860), by another Stock Exchange, being a company incorporated for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities carried on by such individuals or society; (ab) demutualisation means the segregation of ownership and management from the trading rights of the members of a recognised Stock Exchange in accordance with a scheme approved by the Securities and Exchange Board of India; (ac) derivative includes-- (A) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; (B) a contact which derives its value from the prices, or index of prices, of underlying securities (b) 'Government security' means a security created and issued, whether before or after the commencement of this Act, by the Central Government or a State Government for the purpose of raising a public loan and having one of the forms specified in clause (2) of section 2 of the Public Debt Act, 1944 (13 of 1944); (c) 'member' means a membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Security Interest Act, 2002;] (id) units or any other such instrument issued to the investors under any mutual fund scheme; 12[(ie) any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receiveable including mortgage debt, as the case may be; (ii) Government securities; and (iii) rights or interests in securities; (i) spot delivery contract means a contract which provides for,- (a) actual delivery of securities and the payment of a price therefore either on the same day as the date of the contract or on the next day, the actual period taken for the despatch of the securities or the remittance of money therefore through the post being excluded from the computation of the period aforesaid if the parties to the contract do not reside in the same town or locality; (b) transfer of the securities by the depository from the account of a beneficial owner to the account of another beneficial owner when such securities are dealt wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and its standing and the nature of the securities dealt with by its, 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 Exchanges 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 wherever such audit is required by the Central Government. (3) Every grant of recognition to a Stock Exchange under this section shall be pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to in sub-Section (1), the Securities and Exchange Board of India may, after making such enquiry as may be necessary in this behalf and obtaining such further information, if any, as it may require and if it is satisfied that it would be in the interest of the trade and also in the public interest, approve the scheme with or without modification. (3) No scheme under sub-Section (2) shall be approved by the Securities and Exchange Board of India if the issue of shares for a lawful consideration or provision of trading rights in lieu of membership card of the members of a recognised Stock Exchange or payment of dividends to members have been proposed out of any reserves or assets of that Stock Exchange. (4) Where the scheme is approved under sub-Section (2), the scheme so approved shall be published immediately by - (a) the Securities and Exchange Board of India in the Official Gazette; (b) the recognised Stock Exchange in such two daily newspapers circulating in India, as may be specified by the Securities and Exchange Board of India, and upon such publication, notwithstanding anything to the contrary contained in this Act or any other law for the time being in force ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (7), by the public other than shareholders having trading rights: Provided that the Securities and Exchange Board of India may, on sufficient cause being shown to it and in the public interest, extend the said period by another twelve months.'.] Section 5 - Withdrawal of recognition 5(1). Withdrawal of recognition. (1) If the Central Government is of opinion that the recognition granted to a Stock Exchange under the provisions of this Act should, in the interest of the trade or in the public interest, be withdrawn, the Central Government may serve on the governing body of the Stock Exchange a written notice that the Central Government is considering the withdrawal of the recognition for the reasons stated in the notice, and after giving an opportunity to the governing body to be heard in the matter, the Central Government may withdraw, by notification in the Official Gazette, the recognition granted to the Stock Exchange; Provided that no such withdrawal shall affect the validity of any contract entered into or made before the date of the notification, and the Central Government may, after consultation with the Stock Exchange, make such provision as it deems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 30) exercisable by it under any provision of this Act shall, in relation to such matters and subject to such conditions, if any, as may be specified in the order, be exercisable also by the Securities and Exchange Board of India or the Reserve Bank of India constituted under section 3 of the Reserve Bank of India Act, 1934. Section 30 - Power to make rules (1) The Central Government may, by notification in the Official Gazette, make rules for the purpose of carrying into effect the objects of this Act. (2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for (a) the manner in which applications may be made, the particulars which they should contain and the levy of a fee in respect of such applications; (b) the manner in which any inquiry for the purpose of recognizing any Stock Exchange may be made, the conditions which may be imposed for the grant of such recognition, including conditions as to the admission of members if the Stock Exchange concerned is to be the only recognised Stock Exchange in the area; and the form in which such recognition shall be granted; (c) the particulars which should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule. Section 31 - Power of Securities and Exchange Board of India to make regulations 31. Power of Securities and Exchange Board of India to make regulations. (1) Without prejudice to the provisions contained in section 30 of the Securities and Exchange Board of India Act, 1992, the Securities and Exchange Board of India, 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. (2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters, namely: (a) the manner, in which at least fifty-one per cent, of equity share capital of a recognised Stock Exchange is held within twelve months from the date of publication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Magistrate of the first class having jurisdiction, for a period not exceeding one month, one or more bank account or accounts of any intermediary or any person associated with the securities market in any manner involved in violation of any of the provisions of this Act, or the rules or the regulations made thereunder: Provided that only the bank account or accounts or any transaction entered therein, so far as it relates to the proceeds actually involved in violation of any of the provisions of this Act, or the rules or the regulations made thereunder shall be allowed to be attached; (f) direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation: Provided that the Board may, without prejudice to the provisions contained in sub-section (2) or subsection (2A), take any of the measures specified in clause (d) or clause (e) or clause (f), in respect of any listed public company or a public company (not being intermediaries referred to in section 12) which intends to get its securities listed on any recognized Stock Exchange where the Board has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal may be filed before the Securities Appellate Tribunal under section 15 -T and the fees payable in respect of such appeal;] (e) the form and the manner in which returns and report to be made to the Central Government under section 18; (f) any other matter which is to be, or may be, prescribed, or in respect of which provision is to be, or may be, made by rules. Power to make regulations. 30. (1) The Board may, [***] by notification, make regulations consistent with this Act and the rules made thereunder to carry out the purposes of this Act. (2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters, namely: (a) the times and places of meetings of the Board and the procedure to be followed at such meetings under sub-section (1) of section 7 including quorum necessary for the transaction of business; (b) the terms and other conditions of service of officers and employees of the Board under sub section (2) of section 9; (c) the matters relating to issue of capital, transfer of securities and other matters incidental thereto and the manner in which such matters s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end in view Government decided to clothe SEBI immediately with statutory powers required to deal effectively with all matters relating to capital market. 139. Section 3 of the Act provides for establishment of a Board namely the Securities and Exchange Board of India , for the purposes of the Act. The purposes of the Act according to its preamble are to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected there with or incidental thereto 140. Chapter IV of the Act is on powers and functions of the Board. Section 11 therein enumerates the functions of the Board. Sub section (1) of section 11 provides that subject to the provisions of the Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. Sub section (2), provides without prejudice to the generality of sub section (1) certain specific measures for the purpose. One of the specific measures provided therein is the provision for registering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary law for various reasons has become illusory. Various legislations and regulations permitting the State to intervene and protect interest of the consumers have become a haven for unscrupulous ones as the enforcement machinery either does not move or it moves ineffectively, inefficiently and for reasons which are not necessary to be stated. The importance of the Act lies in promoting welfare of the society by enabling the consumer to participate directly in the market economy. It attempts to remove the helplessness of a consumer which he faces against powerful business, described as ' a network of rackets' or a society in which, producers have secured power' to 'to the rest' and the might of public bodies which are degenerating into storehouses of inaction where papers do not move from one disk to another as a matter of duty and responsibility but for extraneous consideration leaving the common man helpless, bewildered and shocked. The malady is becoming so rampant, widespread and deep that the society instead of bothering, complaining and fighting against it, is accepting it as part of life . 142. The aforenoted observations, in our opinion, are applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ECB and Investment Division) NOTIFICATIONS New Delhi, the 13th September, 1994 S.O. 672(E). - In exercise of powers conferred by Section 29A of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Central Government hereby directs that the powers exercisable by it under section 3, sub-sections (1), (2), (3) and (4) of section 4, section 5, sub-section (2) of section 7A, section 13, sub-section (2) of section 18, section 22, and subsection (2) of section 28 of the Act shall also be exercisable by the Securities and Exchange Board of India. [F. No.1/57/SE/93] P.J. NAYAK, Jt.Secy. NOTIFICATION Mumbai, the 30th December 2013 No.LAD-NRO/GN/2013-14/35/7326.- The Securities and Exchange Board of India, having considered the application for renewal of recognition made under Section 3 of the Securities Contracts (Regulation) Act, 1956 by Vadodara Stock Exchange Limited having its registered office at 3rd Floor, Fortune Tower, Sayajigunj, Vadodara 390005 and being satisfied that it would be in the interest of the trade and also in the public interest so to do, hereby grants, in exercise of the powers conferred under Section 4 of the Securities Contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital market by increasing participation of the investors. In fact such enactment was necessary in order to ensure the confidence of the investors in the capital market by giving them some protection. 40. The said Act is pre-eminently a social welfare legislation seeking to protect the interests of common men who are small investors. 41. It is a well known canon of construction that when Court is called upon to interpret provisions of a social welfare legislation the paramount duty of the Court is to adopt such an interpretation as to further the purposes of law 18 and if possible eschew the one which frustrates it. 42. Keeping this principle in mind if we analyse some of the provisions of the Act it appears that the Board has been established under Section 3 as a body corporate and the powers and functions of the Board have been clearly stated in Chapter IV and under Section 11 of the said Act. 43. A perusal of Section 11, Sub-Section 2(a) of the said Act makes it clear that the primary function of the Board is to regulate the business in Stock Exchanges and any other securities markets and in order to do so it has been entrusted with various powers. 44. Section 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1956, so also in the SEBI Act, 1992 and Rules and Regulations framed therein to keep pace with the English Companies Act and related legislations. When we interpret the provisions of the SEBI Act and the Regulations relating to a company registered under the Companies Act, the provisions of the Companies Act have also to be borne in mind. For instance, in SEBI Act, there is no provision for keeping proper books of accounts by a registered company. 26. Section 209 of the Companies Act says that every company shall keep at the registered office proper books of accounts. Books of accounts should be so kept as to give true and fair view of the state of the company's affairs and explain transactions. Of course, the auditors of the company must examine whether the company has maintained proper cost accounting records as required by the rules. Companies whose securities are traded on a public market, it is trite law that the disclosure of information about the company is crucial for the correct and accurate pricing of the company's securities and for the official operation of the market. Section 210 of the Companies Act states that at every annual general meeting of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was violative of Articles 14 and 19(1)(g) of the Constitution of India. While considering the validity, the Supreme Court made the following observations in paras 22, 23 and 24, which are worth noting : '22. The RBI has not acted hastily. Before amending Section 45-S of the Act in 1997, it had the benefit of having with it the reports of number of committees, all of whom had recommended that the unincorporated business firms/individuals be brought under certain discipline and, if possible, non-banking financial business was not to be permitted to be carried on by the unincorporated bodies. It will be useful in this regard to refer to the report of the study group on non-banking financial intermediaries appointed by the Banking Commission in 1971. The study group after making a detailed study of the then existing non-banking financial intermediaries stated in respect of unincorporated bodies in para 8.25 of its report as under: 8.25 We, therefore, suggest that the Reserve Banks control may be extended to finance corporations and necessary enabling legislation be passed to that effect. We recognise that the administrative task of watching and regulating the operations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events self limitation can be seen to be the path to judicial wisdom and institutional prestige and stability. The court must always remember that legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to obstract units and are not to be measured by abstract symmetry that exact wisdom and nice adaptation of remedy are not always possible and that judgement is largely a prophecy based on meager and uninterrupted experience. Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... August 1957 recognising the Stock Exchange, Bombay, under Section 4 of the Securities Contracts (Regulation) Act, 1956. The Supreme Court noted briefly while examining the legality and validity of the notification how a Stock Exchange works and how it is controlled or regulated by the State. The following observations made by the Supreme Court are worth noting : 'At the outset it is necessary to notice briefly how a Stock Exchange is worked and how it is controlled or regulated by the State. 'Stock Exchange' means, any body of individuals, whether incorporated or not, constituted for the purpose of assisting or controlling the business of buying, selling or dealing in securities . The history of Stock Exchanges in foreign countries as well as in India shows that the development of joint stock enterprise would never have reached its present stage but for the facilities which the Stock Exchanges provided for dealing in securities. They have a very important function to fulfill in the country's economy. Their main function, in the words of an eminent writer, is 'to liquify capital by enabling a person who has invested money in, say, a factory or a railway, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the country. After the Act came into force, both the Exchanges applied for recognition under the Act. The Government, after considering the relative merits and the relevant circumstances, issued a notification dated August 31, 1957, recognising the Native Share and Stock Brokers' Association under the name 'The Stock Exchange, Bombay' subject to the conditions mentioned therein. One of the conditions imposed was that the members of the Indian Stock Exchange Limited would be entitled to apply for membership of the Stock Exchange, Bombay, provided they were active members of the Indian Stock Exchange Limited for 12 months immediately preceding August 6, 1957, and they were also eligible under R.8(1) of the Securities Contracts (Regulation) Rules, 1957, to be members of a recognised Stock Exchange. The notification further gave some concessions to such active members in the matter of payment of the membership fee. They had to apply for membership before October 15, 1957, or before such period as the Board of the recognised Stock Exchange might think fit to extend. It appears that within the extended time a number of active members of the Indian Stock Exchange Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of the ways mentioned thereunder. The words 'no person' in R.17 are comprehensive enough to take in any outsider seeking for election as a member. Rule 22 provides for an application for admission in the form prescribed in Appendix A to the Rules. This rule also does not impose any such limitation. The admission application form in Appendix A is also general in terms and enables any person of India to apply for membership provided he agrees to abide by the conditions imposed therein. In the form also there is no such limitation. But it is contended that a fair reading of the provisions of Rr. 20 and 21 makes it clear that a candidate for admission is confined only to two categories, viz., (1) a candidate nominated by a member or a legal representative of a deceased member seeking admission to membership in the place of' the deceased; and (2) a person recommended for admission to membership in the place of a member who has forfeited his right to membership. A careful scrutiny of the Rules does not bear out the contention; nor do they enable us to cut down the wide amplitude of Rr. 17 to 22. Rule 10 says: When a right of membership is forfeited to or vests in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confined only to the two categories comprehended by R.20. This argument appears to be plausible and even incontrovertible, if Rr. 20 and 21 are taken out of their setting and construed independently of other rules. But in the setting in which they appear they can bear only one meaning, namely, that R.20 provides for nomination only in the case of a candidate for admission who requires a nomination in the manner provided by the rule and R.21 provides, for all the candidates for admission, that they should be recommended by two members who have personal knowledge of the candidates. To put it in other words, under the Rules candidates for admission fall under three groups, viz., (1) candidates falling under R.11, (a) and (b); (2) candidates applying for membership vesting in the Exchange; and (3) other candidates. All the three categories of candidates must be recommended by two members. But the candidates belonging to the first category shall in addition be nominated in the manner provided by the Rules. We, therefore, hold that the Stock Exchange Rules do not operate as a bar against the petitioner becoming a member of the Stock Exchange subject to the rules governing such applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ange, Bombay. So far as the petitioner is concerned, he was admittedly not an active member, though lie now pretends that he was doing business through other members. There is also no material placed before us to support the said assertion. If the classification, between active members and others who were not, is justifiable-we hold it is-the Government has to draw a line somewhere and to fix a period of activity reasonable in its opinion as a standard to satisfy the test of active member . The burden which lies upon the petitioner who impeaches the validity of the classification to show that it violates the guarantee of equal protection has not been discharged. On the material placed before us we cannot say that the period fixed by the Government as the standard for ascertaining the active membership is arbitrary or unreasonable. We must make it clear that this finding must be confined only to the validity of the impugned notification dated August 31, 1956.' 153. In the case of SEBI v. Alka Synthetics Ltd. [1999] 19 SCL 460, a Division Bench of this Court has observed as under : While considering the question as to whether the SEBI has the authority of law under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et by such measures as it thinks fit and such measures may be for any or all of the matters provided in subsection (2) of Section 11, and in due discharge of its duties cast upon the SEBI as part of its statutory function, it has been invested with the powers to issue directions under Section 11B. The SEBI is invested with the statutory powers to regulate the securities market with the object of ensuring investors' protection, orderly and healthy growth of securities market so as to make the SEBI's control over the capital market to be effective and meaningful. The SEBI has to regulate speculative market, and in case of speculative market, varied situations may arise and looking into the exigencies and requirements, it has been entrusted with the duties and functions to take such measures as it thinks fit. Section 11B of the SEBI Act is an enabling provision enacted to empower the SEBI Board to regulate securities market in order to protect the interest of the investors. Such an enabling provision must be so construed as to subserve the purpose for which it has been enacted. The SEBI is charged with the duty to protect the public and the integrity of the capital market, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave 100% stock broking subsidiaries) and outside non-shareholder directors. But even these two Stock Exchanges may if necessary, have to undergo changes in organizational structure consequential to the recommendations of the Group so that a common structural model is adopted by the all the Stock Exchanges. 4.3 The present status as above along with the details of the assets and liabilities of some major Stock Exchanges in India is enclosed in (Annexure 5A and 5B). 5.7 Demutualisation involves the segregation of members' right into distinct segments, viz. ownership rights and trading rights. It changes the relationship between members and the Stock Exchange. Members while retaining their trading rights acquire ownership rights in the Stock Exchange, which have a market value, and they also acquire the benefits of limited liability. The shareholders in a corporatised Stock Exchange may be a diverse group, as members may decide to retain their shares or to sell them. Demutualisation however, does not insulate them from competition. A Stock Exchange whose management does not effectively work to maintain its position in the market may soon become a take-over target. 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rship of a trading card, which subject to BSE's approval can be transferred for a consideration. Cards can be sold by members and also by the Stock Exchange when new members are introduced. Governance of the Stock Exchanges 9.22 The Group noted that in the past, in almost all the Stock Exchanges, the broker members of the governing boards have been critical in the governance of the Stock Exchanges. The reconstitution of the governing boards of the Stock Exchanges by SEBI, which reduced the broker representation on these boards to 50%, had helped in making the boards more independent and minimised the influence of brokers. However, in most Stock Exchanges on account of the brokers retaining posts of the officer bearers of the Stock Exchanges till recently viz. president, vice-president and treasurer, they continued to play a dominant role in the management of the Stock Exchange. The fall-out of this practice has been that most Stock Exchanges have failed to develop good corporate governance practices and strong management teams. This has not only been a perception but also a reality in most Stock Exchanges. Conflicts of interest have bedeviled the operations of the Stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sociation have represented to the Group that with the advent of NSE and the trading by NSE and BSE on a national scale, most of the Stock Exchanges have nil or negligible turnover. Further the regional Stock Exchanges have invested considerable sums in computerization and on-line trading systems which have now become virtually redundant. Many Stock Exchanges have therefore, formed subsidiary companies which have become members of NSE and BSE and members of the Stock Exchange function as sub-brokers of these companies. This has enabled brokers of these Stock Exchanges to trade on NSE and BSE without acquiring the membership of these Stock Exchanges. Under these circumstances, the prevailing view in most Stock Exchanges and among the brokers seems to veer towards closure of the Stock Exchanges. In this context, the overwhelming concern is one of finding a suitable exit route that will enable the members to recoup the investments made by them in those Stock Exchanges. 9.40 In order to explore the possibilities of utilisation of the existing IT infrastructure put in place by all these Stock Exchanges the Group examined the Euronext initiative in Europe, which has led to the merger ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icult to enforce the recommendations. The Group noted that the Stock Exchanges and the representatives of brokers have also suggested similar changes. The Group also noted that in several countries such as Australia and Singapore, a separate Act was passed to give effect to demutualisation. Among the statutes which require changes here are the Securities Contract (Regulations) Act, 1956, the Income Tax Act, 1961 and the Indian Stamps Act, 1899. The Group therefore recommends that- The relevant provisions of the Securities Contract (Regulations) Act, 1956, the Income Tax Act, 1961 and the Indian Stamps Act, 1899 be suitably amended to facilitate corporatisation and demutualisation of the Stock Exchanges and to grant fiscal exemptions to encourage this process. 4. Recommendations The recommendations of the Group are as follows:i. a) the Stock Exchanges which are set up as association of persons and those which are set up as companies limited by guarantee be converted into companies limited by shares; (b) a common model for corporatisation and demutualisation be adopted for all Stock Exchanges; and (c) the clause (j) of section 2 of SCRA be amended to mean that the St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Constitution of India, otherwise a circular will have no force of law. 158. We are not impressed by such submission of Mr.Thakore. First, in the circular issued by the SEBI, it has been stated that the same has been issued in exercise of powers conferred under Sections 11(1) and 11(2)(j) of the SEBI Act, 1992 read with Section 5 of the SCRA Act, 1956, to protect the interests of investors in securities and to promote the development of and to regulate the securities market. Thus, it is clear that the circular has been issued with a particular object and in exercise of the statutory power conferred on the SEBI as a statutory authority. Whether a circular issued by a statutory authority would be binding or not, or whether the same has a statutory force or not, would depend upon the nature of the statute. For the said purpose, the intention of the Legislature must be considered. 159. The Supreme Court, in the case of Sudhir Shantilal Mehta v. CBI [2009] 96 SCL 403, had considered an identical issue with the only distinguishing feature that in that case the circular was issued by the Reserve Bank of India exercising control over the banking companies. The Supreme Court mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve authority which confers power exercisable under a statute, and which thereby in substance modifies or adds to the statute, such conferment of powers must be regarded as having the force of law. ...' 160. The issue as regards the statutory force of a circular has been considered by the Supreme Court in connection with the binding nature of the Reserve Bank of India guidelines in the following two decisions : (i) B.O.I. Finance Ltd. v. Custodian [1997] 12 SCL 99 (SC) (ii) Central Bank of India v. Ravindra AIR 2001 SC 3095. 161. While examining the Securities Contracts (Regulation) Act and the Banking Regulation Act in B.O.I. Finance Ltd .(supra), the Supreme Court specifically dealt with the provisions of Section 36(1)(a) which empowers the RBI to auction or prohibit the banking companies generally or any banking company in particular against entering into any particular transaction and generally to give advice to any banking companies, and held that a circular issued by the RBI which stated that the banks were advised to follow the Guidelines given thereunder, the word 'advised' cannot be read in isolation and the said document was meant to be bindin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what were the conditions of service applicable immediately before the appointed day to the parties in that case. The conditions of service applicable included not merely the rules made under the proviso to Article 309 of the Constitution of India but also included the liability to be subjected to any other rule that might be made under that proviso. In respect of all Government servants who were allotted to the reorganized State of Bombay, Section 115(7) of the States Reorganisation Act, 1956 was made applicable. It was under the proviso to that section that the circular was issued by the Government of India. Under that circular, it was opened to the reorganized State of Bombay to make any rules for promotion of its servants which were not applicable to them before the formation of the reorganized State of Bombay. While considering such issue, the Supreme Court made the following observations : 'We may in this connection refer to s. 87 of the Bombay Reorganisation Act, 1960 which reads: 87. Territorial extent of laws.-The provisions of Part II shall not be deemed to have effected any change in the territories to which any law in force immediately before the appointed day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Indramani Pyarelal Gupta v. W.R. Natu AIR 1963 SC 274, to which a reference has been made in paras 26 and 27 above. Again, in the case of the Trustees of the Port of Madras v. Aminchand Pyarelal AIR 1975 SC 1935 the Apex Court observed that a bye-law is an ordinance affecting the public, or some portion of the public, imposed by some authority clothed with statutory powers, ordering something to be done or not to be done, and accompanied by some sanction or penalty for its non-observance. 38. We may at this stage refer to the dictionary meaning of the word enactment . In The Oxford Companion to Law by David M.Walker, 1980 edition at page 401, the word enactment has been defined to include a statutory instrument, bye-law or other statement of law made by a person or body with legislative powers by the appropriate means. The exact definition may be reproduced. Enactment A general term for a statute or Act of Parliament, statutory instrument, bye-law or other statement of law made by a person or body with legislative powers by the appropriate means. In the dictionary of Modern Legal Usage, second edition, by Bryan A. Garner, at page 313, the word enactment has been defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts shall be on the Governing Board on any recognized Stock Exchange or recognized Clearing Corporation. 168. The challenge to the regulation 2(r) and regulation 23(7) of Chapter V is to the following effect : A. Vadodara Stock Exchange Corporation and Demutualization Scheme, 2005 is sanctioned by order under Section 4(B)(6) read with Section 4(B)(7) of the SCR Act and the regulations cannot modify the sanction Scheme. B. 4.2 of the Scheme provides for representations of the Trading Members not to exceed one-fourth of the total strength of the Governing Board. Once the Scheme is sanctioned, the SEBI is not competent to amend the Scheme. 169. The above takes us to the submission canvassed on behalf of the petitioners that after the approval of the Scheme under Section 4(B)(2) of the SCRA Act, 1956, the SEBI could not have imposed any new condition in the form of a circular, directing that if the Stock Exchange is not able to achieve the prescribed turnover of ₹ 1000 crore on continuous basis or does not apply for voluntary surrender of recognition and exit before the expiry of two years from the date of the circular, it shall proceed with compulsory derecognition a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernance structure. While granting sanction under Section 4(B)(6) and 4(B)(7), it is specifically provided that sanction is conditional reserving right to amend, alter or modifying the Scheme is in the public interest and in furtherance of the objects of the Corporatisation and Demutualisation of the Stock Exchanges. Therefore, in view of clause (8) of the order, the SEBI is competent to impose further condition as regards voting rights of the Trading Members and deny voting rights to the Trading Members and deny right to vote for electing Shareholders' Director. The Scheme is incorporated in the Article of Association of the Stock Exchange. The Article of Association are rules within the meaning of Section 2(g) of the SCR Act, 1956. Under Section 7(A) recognized Stock Exchange has enabling power restricting voting rights (Articles of Association). Under Section 8, the SEBI has power to direct modification of rules (Articles of Association). Under Section 12A of the Act, the SEBI can issue direction to secure proper management of the Stock Exchange. Therefore, there is ample power under the Act to make regulation. The Vadodara Stock Exchange is granted renewal every year, and wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or course of action intended to obtain some object, any course of action proposed or adopted by a Government . 174. If the SEBI's powers to modify the scheme for individual Stock Exchanges under Section 4(B) is recognised, then as a measure of necessary corollary considering the SEBI's broad regulatory powers under the Act, it could be said that the SEBI also has power with regard to ownership and governance of all Stock Exchanges in general. Such power has been exercised by way of framing of the regulations. Such aspects of the ownership and governance that needed to be clarified by way of circulars, was done so, and accordingly, the impugned circular dated 13th December 2013 was issued. 175. It appears from the materials on record that the SECC Regulations as well as the impugned Exit Circular dated 30th May 2012 were issued by the SEBI after due consultation with all the stakeholders including the recognized Stock Exchanges although there is no such statutory mandate for the SEBI to make such consultations before framing the regulations or issuing the circulars. The VSEL also had submitted its views on the Bimal Jalan Committee Report and the SMAC Committee decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 1000 crore in the circular. According to the petitioners, there is no valid reason or rationale behind the regulations and the circulars. On the contrary, by imposing such a harsh condition, according to the petitioners, it virtually amounts to infringement of the right to trade as enshrined under Article 19(1)(g) of the Constitution of India. 180. We are not impressed even by this submission canvassed on behalf of the petitioners for the simple reason that there is no prohibition in the circular which prevents the petitioners from carrying on trade and earn livelihood as traders or brokers. However, we find it very difficult to accept the submissions of the petitioners that they have a fundamental right under Article 19(1)(g) of the Constitution of India to trade at a particular Stock Exchange only and that is the Vadodara Stock Exchange. 181. So far as the imposition of the condition of turnover of ₹ 1000 crore is concerned, we have made it very clear that it is not for this Court to comment on the economic policy of the SEBI. 182. In Shri Sitaram Sugar Co. Ltd. v. Union of India AIR 1990 SC 1277, the Supreme Court observed in para 57 as under: 'Judi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since economic matters are extremely complicated, this inevitably entails special treatment for distinct social phenomena. The State must therefore be left with wide latitude in devising ways and means of imposing fiscal or regulatory measures, and the Court should not, unless compelled by the statute or by the Constitution, encroach into this field. 185. We should not be understood to have meant that the judiciary should never interfere with administrative decisions. However, such interference should be only within the narrow limits e.g. when there is clear violation of the statute or a constitutional provision, or there is arbitrariness in the Wednesbury sense. It is the administrators and legislators who are entitled to frame policies and take such administrative decisions as they think necessary in the public interest. The Court should not ordinarily interfere with policy decisions, unless clearly illegal. 186. If, for non-fulfilment of the conditions imposed by the SEBI in its circular, the VSEL gets derecognized, then it cannot be said that with such derecognition the fundamental right of the petitioners to trade in shares at the VSEL would get infringed under Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Constitution. No restriction has been imposed on the trading activity of dealers in pumpsets in the state of Kerala including northern region comprising eight districts. Even in such area, a dealer is free to carry on his business. Such dealer, even in the absence of the said circular, cannot claim as a matter of fundamental right guaranteed under Article 19(1)(g) that a farmer or agriculturist must enter into a business deal with such trader in the matter of purchase of pumpsets. Similarly, such trader also cannot claim that the Government should also accept him as an approved dealer of the Government. The trading activity in dealership of pumpsets has not been stopped or even controlled or regulated generally. The dealer can deal with purchasers of pumpsets without any control imposed on it to carry on such business. The obligation to purchase from approved dealer has been fastened only to such farmer or agriculturist who has volunteered to accept financial assistance under the scheme on various terms and conditions. 34.To ascertain unreasonableness and arbitrariness in the context of Article 14 of the Constitution, it is not necessary to enter upon any exercise for f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) enables only the active members of the Indian Stock Exchange Limited to apply for membership of the Stock Exchange, Bombay and that such a condition can be imposed only if it amounts to a qualification of membership within the meaning of sub-s. (2) of s. 4, as the other conditions in that sub-section are obviously inapplicable. It is further pointed out that sub- s. (2) refers back to sub-s.(i)(a) and under that clause the condition imposed must only be that prescribed by the Rules made under the Act and that the condition imposed by the notification is not a condition so prescribed. There is force in this argument; but, the acceptance of this contention does not advance the case of the petitioner, for, if the condition is not covered by cl. (a) of s. 4(1), it falls under cl. (b) thereof. Under that clause, the Central Government may grant recognition to a Stock Exchange if the said Stock Exchange is willing to comply with any other conditions . It is said that the other conditions in s. 4 (1) (b) must only be conditions relating to the area served by the Stock Exchange, its standing and the nature of the securities dealt with by it. This is not what cl. (b) of s. 4(1) says. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this regard, Mr.Shelat submitted that the words 'not exceeding' could also mean zero number of brokers on the Governing Board. 195. The denial of right to be on the Board of Management and/or denial of right to vote for Shareholders' Director is because with the experience gained it has been found by the SEBI that there is total conflict of interest if the Trading Members are on the Board of Directors. It was found that the Trading Members were influencing the decision making process. The importance of the net worth has been explained in the Bimal Jalan Report. Even as a shareholder, the petitioners' other rights are protected. The petitioners have a right to attend the General Meeting, Special Meeting, and by majority, can participate in the decision making policy at the General Board. The Directors are not within the control of the SEBI, as is alleged. The Public Interest Directors are independent Directors and it is erroneous to suggest that only the Trading Members can alone provide for greater turnover and/or net worth. 196. For the foregoing reasons, we do not find any merit in any of the submissions canvassed on behalf of the petitioners. We are of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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