TMI Blog2024 (2) TMI 1028X X X X Extracts X X X X X X X X Extracts X X X X ..... ular object and in exercise of the statutory power conferred on the SEBI as a statutory authority. It has a force of law and is binding to all the stock exchanges in the country. In the said conspectus, we are unable to accede to Appellants s argument that Exit policy of SEBI is not in consonance with the provisions of the SCR Act. Regulations such as those which have been framed by the SECC Regulations, insofar as they define the conditions for recognition, of minimum net worth, composition of the board of directors, dispersal of ownership and norms for governance, do not infringe any legal right of the stock exchange. The challenge is, therefore, lacking in substance. Nothing has been indicated before the Court to establish that the determination of the threshold or the manner of its computation is untenable and is so disproportionately high so as to constitute the very negation of the right to carry on business. CSE cannot be accused of any offence or wrongdoing. It is a question of existence of an institution which had operated for more than a century and thereafter it was not being able to conduct its business due to mandatory imposition of a condition towards having a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BRATA CHAKRABORTY, J. 1. The present appeals have been preferred challenging the judgment dated 12th April, 2016 delivered in two writ petitions being W.P. No. 31846 (W) of 2014 and W.P. No. 27340 (W) of 2015 preferred by Calcutta Stock Exchange Limited (hereinafter referred to as CSE). The first writ petition was preferred challenging inter alia a letter dated 3rd November, 2014 issued by Securities and Exchange Board of India (hereinafter referred to as SEBI) calling upon CSE to apply for voluntary exit and aggrieved by the further steps taken by SEBI under the Exit circular, the second writ petition being WP No. 27340 (W) of 2015 was preferred. 2. Upon hearing the parties, the learned Single Judge framed the following issues: (i) Whether the Exit Policy of SEBI promulgated by the circular dated May 30, 2012 is in consonance with Section 5 of the SCR Act, 1965 ? (ii) Was the CSE obliged to apply for continuance of its clearing house business in terms of the SECC Regulations, 2012 ? (iii) Is the procedure undertaken by SEBI to close down the clearing house business CSE vitiated by the breach of the principles of natural justice ? (iv) In the facts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the CSE to either conform to the Exit policy or to apply for voluntary exit but even as on that date CSE failed to arrange any recognized clearing house to continue with its business and that in such circumstances SEBI as the regulator has little option than to enforce the various provisions of law for initiating the process for derecognition of CSE negating the explanation given by CSE that for stopping its clearing house facility by SEBI vide notice dated 3rd April, 2013, its business of clearance came to a stop and it was prevented from achieving the requisite turnover. 8. CSE was granted permanent recognition as a stock exchange under SCR Act by a notification dated 14th April, 1980 to operate with its two inalienable limbs being the trading platform and the inbuilt clearing house. Thereafter, the Securities Laws (Amendment) Act, 2004 introduced certain amendments in the SCR Act with effect from 12th October, 2004 making it mandatory for the stock exchanges to be corporatized and demutualized. CSE in compliance thereof, submitted a demutualization scheme to SEBI and the same was approved. SEBI thereafter by a letter dated 28th August, 2008 exempted CSE from transferring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form an opinion. Such delegation of authority by a notification cannot override the statutory compulsions and a statutory rule cannot be supplemented by an executive order. Subordinate legislation may be questioned on any of the grounds on which plenary legislation is questioned. It may further be questioned on the ground that it is inconsistent with the provisions of the Act or that it is contrary to some other statute applicable on the same subject. The Exit circular and the SECC Regulations can at best be administrative orders. The learned Single Judge glossed over the said issues and did not return any finding on the same. Such infirmity warrants interference in appeal. In support of such contention reliance has been placed upon the judgments delivered in the cases of National Securities Depository Limited Versus Securities and Exchange Board of India, reported in (2017) 5 SCC 517, Feroz Ahmad Versus Delhi Development Authority, reported in (2006) 10 SCC 399 and in the case of J.K. Industries Limited and Another Versus Union of India and Others, reported in (2007) 13 SCC 673. 11. He argues that the Exit circular refers to have been issued under/Section 5 of SCR Act read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Others, reported in (2010) 2 SCC 706. 14. He argues that Regulations 3, 36 and 37 of SECC, which make it mandatory to shut down inbuilt clearing house of a stock exchange and to either set up a separate clearing corporation or tie with an existing recognized clearing corporation, have been framed by purportedly deriving power from Section 8A of the SCR Act, however, a bare perusal of Section 8A will make it clear that the donee of the power conferred vide Section 8A is the stock exchange and not SEBI. Role of SEBI is triggered once a stock exchange decides to set up clearing corporation. If a stock exchange is successfully carrying on with its inbuilt clearing house, SEBI has no role to play and it cannot override Section 8A and usurp the discretionary power conferred upon the stock exchange. 15. According to Mr. Mookherjee, the SECC Regulations in its object reflect that it is made in exercise of powers conferred under Sections 4, 8A and 31 of the SCR Act. The said Regulations can only compliment the SCR Act and cannot operate in derogation to any other Act or law in force. Section 32 of the SEBI Act also contemplates that any provision or exercise of powers or authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and the SECC Regulations were upheld by the Division Bench of the Allahabad High Court in the case of U.P. Stock Exchange Brokers Association, Kanpur and Others versus SEBI and Another, reported in 2014 SCC Online All 8608 and by the Gujarat High Court in the case of Nikhil T. Parikh Sole Proprietor of Parikh Parikh 55 Others versus Union of India through the Secretary 14 Others, reported in 2014 SCC OnLine Guj 359. 19. In reply, Mr. Mookherjee submits that a judgment is a precedent for the issue of law that is raised and decided and not the observations made in the facts of any particular case. Plentitude of pronouncements leaves cleavage in the opinions formed in the respective cases. The judgment in the case of Nikhil T. Parikh (Supra) the writ petition was filed by the trading members of the stock exchange challenging the alteration of Governing Body composition contrary to the demutualization scheme. The lis was thus not pertaining to the compulsive act of SEBI towards setting up of a clearing corporation contrary to Section 8A of the SCR Act and towards derecognition of the stock exchange. The judgment in the case of U.P. Stock Exchange Brokers Associ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the securities market and it exercise powers concurrently with the Central Government under the SCR Act. In the circular issued by the SEBI, it has been stated that the same has been issued in exercise of powers conferred under Section 11(1) and 11(2) (j) of the SEBI Act, 1992 read with Section 5 of the SCR Act to protect the interest 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. It has a force of law and is binding to all the stock exchanges in the country. In the said conspectus, we are unable to accede to Mr. Mookherjee s argument that Exit policy of SEBI is not in consonance with the provisions of the SCR Act. 24. A regulation of the stock exchange is nothing but a regulation of the platform through which transactions in securities are implemented. Such regulation is permissible because there is a serious element of public interest involved in the activities of stock exchanges. Stock exchanges produce, as the Jalan Committee noted, a public good. The public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... among CSE and SEBI continued thereafter for about two years. Subsequent thereto, SEBI issued letters on 3rd November, 2014, 18th May, 2015, 22nd June, 2015 and 15th September, 2015 relating to compulsory exit and appointment of valuation agencies for the purpose of the assets and liabilities of CSE as per Exit circular dated 30th May, 2012. The writ petition filed thereafter being W.P. No. 31846 (W) of 2014 challenging, inter alia, the letter dated 3rd November, 2014 came up for hearing on 9th December, 2014 when the Court observed, inter alia, that the petitioners are ready and willing to comply with the regulations of SEBI and there appears to be no animosity between the two parties. While SEBI does not want to pressurize the writ petitioners to exit, the writ petitioners also seek to exercise its fundamental rights to carry on business in accordance with SEBI s regulation. Therefore, there appears to be no dispute between the parties. But the only reason may be for the writ petitioners to approach the Court is the letter dated 3rd November, 2014 which is a threat for it to exit. Without going into the said issue, it would be best if SEBI s representatives along with its coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. On the next date of hearing on 31st July, 2019 it was submitted that CSE had submitted a written proposal to SEBI on 17th July, 2019 to accord permission to function as it meets all criteria except the one which relates to the net worth which ought to be in excess of Rs. 100/- crore and that the funds available with CSE is to the tune of Rs.52 crore and it had approached a clearing corporation by the name of Metropolitan Clearing Corporation of India Limited but no firm response had been received. In view thereof, the matters were adjourned for four weeks. The interim order has thereafter continued for more than seven years and SEBI did not take any steps for vacating the same. From such sequence it appears SEBI had not been inimical to CSE and had chosen not to pressurize the writ petitioners to exit. Pertaining to the issue as regards compulsory exit, the contradictions are essentially non-antagonistic in nature. In the said conspectus and taking into account the fact that when the Exit circular was issued, it did not apply to CSE since it had a turnover much higher than the requirement. It had a turnover above Rs. 11,979/- crore for the year ending 2011-2012 and an annual tur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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