2003 Supreme(SC) 1044

2003(7) Supreme 641
SUPREME COURT OF INDIA
(From Bombay High Court)
V.N. Khare, CJI., S.B. Sinha, J.
Bombay Stock Exchange -Appellant
versus
Jaya I. Shah & Anr. -Respondents
Civil Appeal No. 8297 of 1997
Decided on 17-10-2003
Counsel for the Parties :
For the Appellant : Dushyant A. Dave, Senior Advocate Pesy Mody, P. Venugopal, P.S. Sudheer for K.J. John, Advocate.
For the Respondent : Ms. Indu Malhotra, Advocate.

IMPORTANT POINT
Under the Securities Contract (Regulation) Act, 1956, while determining right of a third party to realise dues out of corpus of Defaulters Committee, there does not exist any distinction between a member and a non-member and in the event the amount of the card money available at the hands of the Stock Exchange is not sufficient to satisfy all the claims, the same has to be distributed on a pro-rata basis. However, any amount remaining surplus even thereafter would be subject to a decision of the Governing Board.

Headnote:Securities Contract (Regulation) Act, 1956-Sections 3, 4 and 9-Stock Exchange Rules, Bye Laws and Regulations 1957-Rules 5, 10, 11, 16, 43, 44, 53, 54, 70-Bye laws 67, 226, 251, 328, 330, 343, 248, 249, 254, 259, 282, 284, 316 to 353A-Right of a third party to realise dues out of corpus of Defaulters Committee-One CS, a registered broker, a member of Bombay Stock Exchange carried on his business as a stock broker-He was entitled to a personal privilege-He was declared a defaulter in terms of Bye-law No. 316 whereupon he ceased to be a member of the Exchange-Defaulters Committee constituted took charge of his assets as were within the control of the Exchange-Respondent had certain claims against the said CS broker-Appellant Exchange was called upon to pay to respondent/Sheriff of Bombay a sum of Rs. 4,15,157-Exchange having received around 100 claims from creditor constituents of defaulted member aggregating to Rs. 24 lakhs-Observations made by the Supreme Court regarding liability of Appellant Exchange to distribute assets.

       Held : It is not in doubt or dispute that membership conferred upon a person is a personal privilege. He holds such privilege so long as he complies with the rules, bye-laws and regulations framed by the Exchange. In the event of a default committed by a member, having regard to Rule 53 as also Bye-law 316, he would cease to enjoy any right as such. His right in terms of Rule 54 lapses and vests in the Exchange immediately upon a declaration that he has become a defaulter. His right of nomination in view of Rule 9 ceases upon default and vests in the Exchange. In terms of Rule 10, the membership belongs absolutely to the Exchange free of all rights, claims or interests in such a manner as it may think fit. Rule 16 provides for the order of priority in terms whereof dues of the Exchange and clearing house would have priority, whereafter all the liabilities relating to contract are required to be discharged. Rule 16, however, does not make any distinction between the claim of a member or a non-member. In the event there being any surplus, the amount collected by the Exchange by auctioning the right of membership is to be dealt with in such a manner as the Exchange may think fit and proper. (Para 35)

       Unfortunately no clear picture emerges from the rules and bye-laws as there does not appear to be any provision how the card money as also other assets belonging to the defaulting member can be handled by the Defaulters Committee. But the rules and bye-laws have to be read harmoniously. They have to be read together so as to make them effective and workable. So read, the Defaulters Committee constituted in terms of bye-laws would apply to the other assets, dues, payments of the members on a pro rata basis whereafter the dues of the non-member can be disbursed. While doing so, however, such claims can be determined only having regard to the cut-off date which must be prescribed by the Governing Board in terms of clause 7 of Bye-law 343. So far as card money is concerned, the same must be disbursed having regard to the priority clause contained in Rule 16, in which event, upon discharge of the dues of the Exchange and clearing house, the same has to be distributed to the dues of the members and non-members. It bears repetition to state that there does not exist any distinction between a member and a non-member in terms of Rule 16 and in the event the amount of the card money available at the hands of the Exchange is not sufficient to satisfy all the claims, the same has to be distributed on a pro-rata basis. However, any amount remaining surplus even thereafter would be subject to a decision of the Governing Board. The Governing Board may in a given situation having regard to the hardship which may be faced by the members and non-members in realising their dues may direct that such amount would be available for disbursement towards the said dues. It, however, we may hasten to add, is free to apply the surplus for a different purpose which, evidently cannot be de hors the purpose and object for which the Exchange has been constituted. (Para 57)

       The learned Single Judge noted the admission made by the Exchange to the effect that the Defaulters Committee called in and realised the security and margin money and securities deposited by the defaulted member and recovered monies, securities and other assets due, payable or deliverable to the defaulted member. It noticed that a sum of Rs. 50 lakhs which the Defaulters Committee would distribute ratably on pro rata basis amongst the creditor constituents of the defaulter member. It also noted that till 12-1-1995, the Exchange had received around 100 claims from the creditor constituents of the defaulted member aggregating to Rs. 24 lakhs and in that view of the matter the Exchange agreed to make part payment of Rs. 2,96,000/- to the respondents. (Para 60)

       Before the Division Bench, the Exchange did not question the factual statement of fact. It may be true that the additional affidavit filed by the Exchange was taken on record by the Division Bench but in its impugned judgment it refused to look thereinto on the ground that the same was not filed within a reasonable time. Had the Exchange disclosed the cut-off date for the purpose of entertaining the claims of the members and non-members specified by the Governing Board such a contingency would not have arisen. Furthermore, in the instant case by reason of the orders of the court a sum of Rs. 55 lakhs had been directed to be deposited in a fixed deposit in January 1996. The amount of interest earned therefrom has not been disclosed. (Para 61)

       For the reasons aforementioned, we are of the opinion that the matter be considered afresh by the learned Single Judge of the High Court. The High Court is requested to consider the claims of the respondents in the light of the observations made hereinbefore as also upon directing the Exchange to file a fresh statement of accounts, if it is found meet and proper. In the event, any doubt or dispute arises, the High Court would be entitled to appoint a competent person as Commissioner to go into the said accounts and submit a report to it at the cost of the Exchange. However, if it is found that the Governing Board has not specified any date in terms of clause 7 of Bye-law 343, it shall issue such direction/directions as it may deem fit and appropriate for doing complete justice not only to the respondents but also to the other creditors similarly situated. (Para 62)