1. Challenge to stock exchange membership expansion, selection criteria, and differential deposit requirements under the Securities Contracts (Regulation) Act, 1956. (Para 1 , 2 , 3 )
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1994 Supreme(SC) 61
SUPREME COURT OF INDIA
(BEFORE A.M. AHMADI AND M.M. PUNCHHI, JJ.)
RAJESH KUMAR MAHESHWARI
Versus
DELHI STOCK EXCHANGE ASSOCIATION LTD. AND OTHERS UNION OF INDIA AND OTHERS.
Civil Appeal Nos. 4711-12 of 1990{From the Judgment and Order dated May 7, 1990 of the Delhi High Court in W.P. No. 1357 of 1990}OM PRAKASH POPLAI AND
With
Writ Petition (C) No. 878 of 1989{Under Article 32 of the Constitution of India}
KAMLESH KUMAR JAIN
Versus
UNION OF INDIA AND OTHERS.
Civil Appeal Nos. 4711-12 of 1990 with Writ Petition (C) No. 878 of 1989 with I.As. Nos. 13-16, decided on January 14, 1994
Advocates appeared :
Ashwani Kumar, H.N. Salve, V.C. Mahajan, R.P. Bhatt and R.K. Jain, Senior Advocates (Sandeep Bhuraria, P.M. Gupta, Ms Smitha Inna, S.S. Shroff, Sudarsh Menon, Manoj Swarup, D.N. Mishra, N.P.S. Panwar, S.N. Bhat, Rajiv Sahai Endlaw, Navin Prakash, K.B. Rohtagi, S. Ganesh, Ms Lata Krishnamurthy, Ashok Mathur, Prem Pd. Juneja, Sanjeev Puri, N. Ganapathy, Hemant Batra, R. Sasiprabhu, Gopal Subramaniam, S. Muralidhar, R.F. Nariman, R.N. Keshwani, Arvind Kumar, Ms Laxmi Arvind, Sanjeev Anand, Dr Roxna Subramaniam Swamy, K. Ram Kumar, Rajiv Dutt and Vipin Nair, Advocates, with them) for the appearing parties.
Important Points
The Court held that classification for membership deposits based on expertise is not discriminatory under Article 14. It further ruled that courts will not interfere with the selection process of an expert body unless there is cogent evidence of bias, caprice, or arbitrariness.
Subject
Constitutional Law - Article 14 - Right to Equality
Act Referred
Companies Act, 1913
Securities Contracts (Regulation) Act, 1956: S.4
Constitution of India: Art.32, Art.14
Securities Contracts (Regulation) Act, 1956: S.4
Constitution of India: Art.32, Art.14
Headnote
Constitution of India,1950 - Articles 14 and 32 - Securities Contracts (Regulation) Act, 1956 - Companies Act, 1913 - Section 4 - Dilution of existing shareholding - Argument regarding discrimination - Delhi Stock Exchange Association Ltd. came to be incorporated under the Companies Act, 1913 - Securities Contracts (Regulation) Act, 1956 was brought into force with effect with a view to preventing undesirable transactions in securities by regulating business of dealing therein - Certain other incidental provisions prescribing prohibitions were also made - Section 4 provided for necessity to secure recognition for transacting business in securities - Pursuance thereof, Delhi Stock Exchange secured recognition from Central Government. passage of time volume of work increased and total number of members who could transact business in securities in Delhi Stock Exchange being limited certain difficulties were experienced in the matter of servicing the investors – Held, petitioner/appellant in this behalf - Insofar as selection is concerned we think her explanation is quite satisfactory - Petitioner is concerned he too has not laid any foundation, besides stating his educational qualifications and past experience to enable Court to doubt the selection process - Request for enhancing the number of members is not a matter in regard to which this Court would like to issue a mandate – Court have pointed out earlier was worked out carefully after extended correspondence between the Delhi Stock Exchange and Central Government and in such matters of policy Court is always reluctant to interfere – Appeals are dismissed
Legal Category Hierarchy
Table of Contents
2. Allegations of arbitrary selection, discriminatory deposit requirements, and biased committee composition in violation of Article 14 of the Constitution. (Para 1 , 2 , 3 )
3. Selection based on objective criteria with limited interview weight; differential deposits justified by non-homogeneous classes; committee composition not arbitrary. (Para 3 , 4 , 5 )
4. Courts will not interfere with expert body selections unless cogent evidence proves the process was biased, capricious, whimsical, or arbitrary. (Para 5 )
5. Appeals and writ petition dismissed. (Para 6 )
6. When is a classification considered discriminatory under Article 14 in the context of membership requirements?
Discrimination is not established unless the persons dissimilarly treated constitute a homogeneous class. Different requirements for the general public versus those with existing expertise are permissible as they belong to different groups. (Para 3 )
7. To what extent can a court review the decisions of an expert selection committee?
The court's role is limited and it does not act as an appellate authority over an expert body's selection unless there is cogent and convincing evidence that the process was biased, capricious, whimsical, or arbitrary. (Para 5 )
8. Does the selection of a large number of candidates from a specific professional background necessarily indicate bias?
No, provided the selection is based on objective criteria and the professional background provides special knowledge relevant to the role, such as financial and capital issue expertise possessed by Chartered Accountants. (Para 5 )
9. Will courts interfere with policy decisions regarding the number of members in a professional body?
Courts are generally reluctant to interfere in matters of policy, such as the determination of the total number of members, especially when such decisions result from careful deliberation between the entity and the government. (Para 5 )
Judgment
AHMADI, J.-The Delhi Stock Exchange Association Ltd. came to be incorporated under the Companies Act, 1913 on June 25, 1947. The Securities Contracts (Regulation) Act, 1956 was brought into force with effect from February 20, 1957, with a view to preventing undesirable transactions in securities by regulating the business of dealing therein. Certain other incidental provisions prescribing prohibitions etc. were also made therein. Section 4 provided for the necessity to secure recognition for transacting business in securities. In pursuance thereof, the Delhi Stock Exchange secured recognition from the Central Government. With the passage of time the volume of work increased and the total number of members who could transact business in securities in the Delhi Stock Exchange being limited certain difficulties were experienced in the matter of servicing the investors. On the one hand there was the problem of servicing the investors; with the number of members being small there was also considerable difficulty experienced on account of the paucity of accommodation. Correspondence ensued between the Delhi Stock Exchange and the Central Government in this connection to find the ways and means to improve the working of the Delhi Stock Exchange with a view to providing improved services to the investors. Ultimately on February 5, 1987, the Government of India while replying to the letter of the Delhi Stock Exchange dated January 15, 1987, conveyed its approval to the proposal for increasing membership subject to certain conditions as under:
"(i) The membership of the Stock Exchange be increased by 250 members, that is:
(a) 125 members through public issue of shares; and
(b) 125 members through dilution of shareholding of each member from two shares to one share."
It was provided that all new members shall have to pay an admission fee of Rs 1 lakh. New members admitted through public issue of shares and through dilution of existing shareholding were required to pay to the Delhi Stock Exchange an additional non-refundable deposit of Rs 3 lakhs and Rs 1 lakh respectively which amount was to be utilised by the Delhi Stock Exchange for making provision to improve the services and providing a better infrastructure. The selection of 250 members was to be made on objective criteria taking into consideration the experience, professional qualifications and other relevant factors through an Expert Committee to be constituted for that purpose. The issue of shares through dilution of existing members was, however, restricted to authorised assistants of members of Delhi Stock Exchange, daughters/sons or direct dependents of the members. The Delhi Stock Exchange was directed to take immediate steps to increase the membership on the aforesaid terms and conditions. By a subsequent letter dated February 12, 1987, the Central Government modified the term in regard to the deposit money by making it transferable. While this correspondence was in progress a writ petition was filed by one Mr Saigal, being Civil Writ Petition No. 12223 of 1985, in which certain interim orders were made. It is, however, not necessary to refer to the same because after the Central Governments approval conveyed by the letter of February 5, 1987, that writ petition became infructuous and was so disposed of by the order dated February 18, 1987. However, on June 10, 1987, one Rajesh Kumar Maheshwari filed a writ petition in the High Court of Delhi questioning the terms of the approval granted by the Central Government on the ground that they were arbitrary, illegal and void being discriminatory and contrary to public policy and prejudicial to public interest. Obviously, the challenge was based on Article 14 of the Constitution. The constitution of the Expert Committee was also questioned as violative of Article 14 on account of the inclusion of Directors/Members of the Delhi Stock Exchange in the Expert Committee. The High Court rejected the contentions urged in support of t
