TMI Blog1960 (8) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... For the reasons mentioned we reject the first contention that that under rule 20 a candidate for admission falls under two categories, namely, (1) a candidate who must obtain a nomination in the manner provided in the rules, i.e., rule 11(a) and (b ); and (2) a candidate applying for a membership vesting in the exchange; and, therefore, these two categories exhaust the candidates for admission. The record discloses that the Central Government in recognising the stock exchange sought to avoid the consequential hardship on the members of the rival stock exchange and therefore imposed the said condition on the Stock Exchange, Bombay, as a condition for its recognition. The condition germane to the recognition of the stock exchange and is therefore, a condition within the meaning of " any other conditions " in clause (b) of sub-section (1) of section 4 of the Act. The Indian Stock Exchange Limited became moribund in a few ears and to revive its activities it allowed the members of the East India Chamber of Commerce, by relaxing its entrance fee and security deposit requirements in 1950-51 and created a new class of associate members, which facilitated the enrolment of hundreds o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a railway, to convert it into cash by disposing of his share in the enterprise' to someone else . Without the stock exchange, capital would become immobilized. The proper working of a stock exchange depends upon not only the moral stature of the members but also on their calibre. It is a trite saying that a jobber or dealer is born and not made. In the words of the same author, a jobber must be a man of good nerve, cool judgment, and ready to deal under any ordinary conditions, and he must be a man of financial standing, considerable experience, with an understanding of market psychology. There are three modes of dealing in shares and stocks, namely, (i) spot delivery contract, i.e., a contract, which provides for the actual delivery of securities on the payment of a price thereof either on the day of the contract or the next day, excluding perhaps the period taken for the despatch of the securities or the remittance of money from one place to another; (2) ready delivery contract, which means a contract for the purchase or sale of securities for the performance of which no time is specified and which is to be performed immediately or within a reasonable time ; (3) forwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a question of fact. This Act did not achieve its purpose, for under section 6 thereof contracts entered into in contravention of the provisions of that section were not made illegal but only void, with the result that even members of a stock exchange not recognised under that Act were able to do business in that line. What is more, the explanation to the definition of ready delivery contract which is excluded from the operation of the Act was so elastic that in the name of ready delivery contracts unrecognised stock exchanges and individuals were able to carry on business in forward contracts. Gambling in shares went unchecked in Bombay as elsewhere. After the second world war, the post-war boom gave an unhealthy impetus to the stock exchange transactions. Various expert committees appointed by the Government from time to time considered the question of regulation of stock exchanges, and the latest of those committees was the Gorwalla Committee. The report of that Committee was circulated to the principal stock exchanges, chambers of commerce, and other interested associations and individuals. After considering the reports of the committees and the comments made thereon by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bombay Securities Contracts Control Act, 1925. Its rules and bye-laws were approved by the Government of Bombay and it was doing business in both forward as well as ready transactions. It has a clearing house and was doing extensive business in different kinds of securities. The other, namely, the Indian Stock Exchange Limited was a company incorporated under the Indian Companies Act, 1913 as a company limited by guarantee without any share capital. The said company had been functioning since 1937, but was not registered under the Bombay Securities Contracts Control Act, 1925. It was mainly doing business in Tata ordinary and Bombay dyeing shares and had hardly any investment business. Not being registered under the Bombay Securities Contracts Control Act, 1925, it could only deal in ready delivery contracts; and as the definition of ready delivery contract under that Act was elastic and as forward contracts were not made illegal thereunder, this exchange was also doing speculative business mainly in the said two shares. After the Act came into force,, both the exchanges applied for recognition under the Act. The Government, after considering the relative merits and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umdas, learned counsel for the petitioner, raised before us the following contentions : (i) under article 19 (i)(g) of the Constitution the petitioner has a fundamental right to carry on the business in shares and the notification dated August 31, 1957 and the subsequent notification dated November 30, 1957, imposed unreasonable restrictions on his said right; (2) the notification dated August 31, 1957 is void inasmuch as it is not sanctioned by the provisions of section 4 of the Act; and (3) the condition 2 (i)(a) of the said notification classifying members of the Indian Stock Exchange Limited as active members and members who were not active infringes the fundamental right enshrined in article 14 of the Constitution and that as the said condition is not severable the entire notification is bad. Learned Solicitor-General in addition to controverting the said contentions pressed on us to hold that as the vires of the Act was not questioned, the notification issued thereunder could not be questioned by the petitioner on the ground that it contravened one or other of the said fundamental rights. It would be convenient to take first the contention of the learned Solicit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under clause (6) of the said article to make any law imposing in the interest of the general public reasonable restrictions on the exercise of the said right. Briefly stated, the argument is that the combined effect of the two notifications is that the petitioner is driven out of his business of stock exchange inasmuch as, it is said, they confer a monopoly on the Stock Exchange, Bombay, and the rules of the said stock exchange exclude any outsider from becoming its member without obtaining a nomination and that too only in /the place of an existing member. To put it differently, the argument proceeds that under the rules of the Stock Exchange, Bombay, membership is not thrown open to the public. This leads us to the consideration of the relevant provisions of the Stock Exchange Rules, Bye-laws and Regulations, 1957. Under rule 3 the membership of the exchange shall consist of such number of members as the exchange in general meeting may from time to time determine. It is common case that the membership of the exchange is not limited. Under the heading Election of New Members , the rules prescribe the conditions of eligibility for election as a member of the exchange. These rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in appendix C to these rules may with the sanction of the governing board nominate any person eligible under these rules for admission to membership of the exchange as a candidate for admission in the place of the deceased member. In considering such nomination the governing board shall be guided so far as practicable by the instructions set out in appendix C to these rules. Appendix B gives the nomination forms Nos. i and 2 to be filled by a member or a legal representative, as the case may be, under rule 11( a ) and ( b ). Now it would be convenient to read rules 20 and 21. They are as follows : Rule 20: A candidate for admission except a candidate applying for a membership, vesting in the exchange must obtain a nomination in the manner provided in these rules. Rule 21: A candidate for admission must be recommended by two members none of whom should be a member of the governing board. The recommenders must have such personal knowledge of the candidate and of his past and present circumstances as shall satisfy the governing board. The argument is that under rule 20 a candidate for admission falls under two categories, namely, (1) a candidate who must obta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the necessity for stringent rules governing this type of business. For the reasons mentioned we reject the first contention. Re. ( 2 ) : The second contention also has no merits The criticism is that condition 2(1)( a ) annexed to the notification cannot be supported on the basis of any of the provisions of section 4 of the Act. Condition 2 ( 1 ) reads as follows : The members of the Indian Stock Exchange Limited, Bombay, will be entitled to apply for membership of the Stock Exchange, Bombay, provided they fulfil or comply with the following terms and conditions: ( a ) they have been active members of the Indian Stock Ex change Limited, for twelve months immediately preceding the 6th August, 1957. Explanation : ' Active Members' for purpose of this condition means members who have themselves transacted business regularly on the floor of the Indian Stock Exchange Limited either on their own account or on account of their clients. To appreciate the argument it is also necessary to read the material provisions of section 4 of the Act. Section 4 : (1) If the Central Government is satisfied, after making such inquiry as may be necessary in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment; but the acceptance of this contention does not advance the case of the petitioner, for if the condition is not covered by clause ( a ) of section 4(1), it falls under clause ( 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 section 4( i )( 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 clause ( b ) of section 4(1) says. The conditions under clause ( b ) of section 4(1) no doubt shall be such as may be imposed by the Government, having regard to the aforesaid three considerations, but they need not necessarily be confined only to the said considerations. The Government may impose any conditions, no doubt germane to the recognition of a stock exchange, after consultation with its governing board, and having regard to the said considerations. It cannot be said that condition 2( i )( a ) imposed on the stock exchange is not a condition, germane to its recognition. The record discloses! that the Central Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness during the period of 12 months from August 6,1956, to August 6,1957, while excluding the aforesaid three categories who were equally active members and indeed more active than those included in the definition. It was further asked what was the justification for excluding a member who was an active member for years before the crucial year and irregularly conducted business' on the floor of the stock exchange during the crucial year while including a member who might have been a newcomer or who might have been earlier a nominal member but began to do business regularly only during the said-year. Emphasis was also laid upon the alleged elastic and indefinite content of the word regular and it was suggested that the said word could not possibly afford a precise standard. These are all weighty considerations and we must confess that there is force in them. But there is the other side of the picture. It is well settled that a classification must have reasonable relation to the object sought to be achieved. The standard of reasonableness is inextricably conditioned by the extent and nature of the evil and the urgency for eradicating the same. The object of the notification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which facilitated the enrolment of hundreds of associated members on payment of a nominal entrance fee of ₹ 100. The Government on a consideration of the necessary data and presumably having regard to the record of the activities of the various members fixed the activities in the crucial year 1956-57 as the standard of activity for membership. There is a presumption in favour of the State that there is a reasonable basis for the classification. Except the mere allegations in the affidavit which are not admitted, the petitioner has not placed before us any materials to ascertain that any other members, who were regularly doing business on the floor of the Indian Stock Exchange Limited before August 6, 1956, temporarily suspended their business for one reason or other over which they had no control. No statement from the accounts has been produced to enable us to evaluate the activities of the members before the crucial date so as to enable us to form a view that really active members were excluded by the fixing of this period. Nor are we in a position to verify whether any of the members excluded were regularly doing business during a part of the year in continuation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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