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2010 (1) Supreme 280
SUPREME COURT OF INDIA
Altamas Kabir, and Cyriac Joseph, JJ.
Mahesh Ratilal Shah — Petitioner
versus
Union of India & Ors. — Respondents
Special Leave Petition (C) No. 21686 of 2006
Decided on : 19-01-2010
2. Securities Contracts (Regulation) Act, 1956- Section 4-Publication of Rules in existence from long before the enactment of 1956 Act not required-Since the said Rules and Bye-laws had been in existence from long before the enactment of 1956 Act and the grant of recognition to the Stock Exchange, the same did not require publication in terms of Section 4 of the 1956 Act- In any event, all amendments to the Rules and Bye-laws made after grant of recognition had been duly published in the Gazette-Agreeing with the views expressed by the High Court, held that the Petitioner had not been able to make out any case of malafides or irregularity on the part of the Bombay Stock Exchange with regard to the listing and subsequent de-listing of the scrip of M/s Presto Finance Ltd. -Publication of the Rules and Bye-laws of the Stock Exchange was not intended in the Securities Contract (Regulation) Act, 1956, as otherwise some provision would have been made in the Act with regard to pre-recognition Rules and Bye-laws- While the Act provides for publication of amendments to the Rules and Bye-laws after grant of recognition, the Act is silent with regard to the publication of the pre-recognition Rules or Bye-laws which were already in existence and had been acted upon all along. (Paras 23, 26)
3. Securities and Exchange Board of India Act, 1992- Section 11B – Action taken by SEBI against defaulting company on complaint- No order of de-recognition required- High Court observed that upon complaints made to SEBI, action had been initiated against the Company as far back as in 1998-99 under Section 11B of the SEBI Act and SEBI had come to a finding that all the Directors of the Company, including one Hitendra Vasa, were guilty of dealing in fake and bogus shares and cheating the investing public at large- High Court also observed that the market regulator had taken due steps in the matter of individual transactions and the remedy of the petitioner, who was aggrieved by the acts of the promoters of the company in question, as well as its Directors, would be in approaching the appropriate Court to initiate criminal prosecution against the offenders- Observing that it would not be appropriate to issue any blanket writ, as claimed by the Petitioner, when admittedly his case was restricted to dealing in shares of one of the companies listed at the Stock Exchange, the High Court summarily dismissed the writ petition- While doing so, the High Court also noted that no material had been produced by the petitioner for issuing directions for de-recognition of the BSE or to declare its Rules, Bye-laws and Regulations to be illegal, void and ultra vires. (Para 24)
Facts of the case:
A writ was filed before the High Court for a direction upon the Union of India and SEBI to withdraw the recognition granted to BSE for alleged non-compliance with the provisions of Sections 7 and 9 of the Securities Contracts (Regulation) Act, 1956. A further direction was also sought for cancellation of SEBI registration of all relevant 90 members of the Stock Exchange for fraudulently inducing investors to trade in forged scrips of M/s Presto Finance Ltd. and to declare the Rules, Bye-laws and Regulations of the BSE as illegal, void and ultra vires the Securities Contracts (Regulation) Act, as also the Constitution of India. The Petitioner’s cases was that he was induced by the BSE and its Members to buy 4,50,800 shares of “Presto Finance Ltd.” and under assurance of the Exchange, he deposited the entire purchase amount, amounting to Rs.71,19,817.30 with the Exchange. The Exchange and its Members had intentionally and deliberately cheated him by giving him delivery of 1,56,100 forged share certificates and refused to cancel the said dealing when the same was discovered and instead asked the Petitioner to go to the Liquidator of Presto Finance Ltd. for claiming damages.
Findings of the Court :
Agreeing with the views expressed by the High Court, it was held that the Petitioner has not been able to make out any case of malafides or irregularity on the part of the Bombay Stock Exchange with regard to the listing and subsequent de-listing of the scrip of M/s Presto Finance Ltd. and the publication of the Rules and Bye-laws of the Stock Exchange was not intended in the Securities Contract (Regulation) Act, 1956, as otherwise some provision would have been made in the Act with regard to pre-recognition Rules and Bye-laws. While the Act provides for publication of amendments to the Rules and Bye-laws after grant of recognition, the Act is silent with regard to the publication of the pre-recognition Rules or Bye-laws which were already in existence and had been acted upon all along.
Result : Petition dismissed.
JUDGMENT
Altamas Kabir, J. —
1. Claiming to be a Sub-broker with one Yogesh B. Mehta, a Member of the Bombay Stock Exchange (hereinafter referred to “BSE”), the petitioner herein filed a writ petition before the Bombay High Court under Article 226 of the Constitution against the Union of India, the Securities and Exchange Board of India (hereinafter referred to as the “SEBI”) and the BSE, inter alia, for a direction upon the Union of India and SEBI to withdraw the recognition granted to BSE for alleged non- compliance with the provisions of Sections 7 and 9 of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as “the 1956 Act”). A further direction was also sought for for cancellation of SEBI registration of all relevant 90 members of the Stock Exchange for fraudulently inducing investors to trade in forged scrips of M/s Presto Finance Ltd. and to declare the Rules, Bye- laws and Regulations of the BSE as illegal, void and ultra vires the 1956 Act as also the Constitution of India. Various ancillary and interim reliefs were also prayed for connected with the main reliefs.
2. The case of the Petitioner is that he had been induced by the BSE and its Members to buy 4,50,800 shares of “Presto Finance Ltd.” and under the assurance of the Exchange, he had deposited the entire purchase amount, amounting to Rs.71,19,817.30 with the Exchange. It is the Petitioner’s further case that the Exchange and its Members had intentionally and deliberately cheated him by giving him delivery of 1,56,100 forged share certificates and refused to cancel the said dealing when the same was discovered and instead asked the Petitioner to go to the Liquidator of Presto Finance Ltd. for claiming damages.
3. Appearing in support of the Special Leave Petition, Mr. Manohar Lal Sharma, learned Advocate, submitted that the SEBI as a statutory body established under Section 3 of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the “SEBI Act”), was empowered under Section 11 of the Act to protect the interests of the investors in securities and to promote the development of and to regulate the securities market by such measures as it thought fit for prohibiting fraudulent and unfair trade practice relating to the securities market.
4. Mr. Sharma further submitted that the BSE is a body of individuals which has been granted recognition as a “Stock Exchange” under Section 4 of the 1956 Act, subject to the provisions of Section 9 thereof, to function as a Stock Exchange in Bombay. Under Section 12 of the SEBI Act, SEBI has granted registration to the Members of the BSE to deal in the securities market in the country within the ambit of the said Act and the Regulations made thereunder. Mr. Sharma submitted that the main object of the BSE is to protect the interests both of the brokers and dealers and of the public interested in securities. Rules, Bye- laws and Regulations had, therefore, been framed by the BSE for trading and settlement of shares through the BSE terminal. Mr. Sharma submitted that the said Rules, Bye-laws and Regulations were contrary to the provisions of the 1956 Act, and were, therefore, void and ultra-vires the Act and the Constitution. The Writ Petitioner had, therefore, been compelled to move the High Court in its writ jurisdiction, inter alia, for the reliefs indicated hereinabove.
5. Referring to the Prospectus of M/s Presto Finance Ltd., Mr. Sharma pointed out that since it had been indicated out therein that the shares of Presto Finance Ltd. were to be listed both on the Regional Exchange at Ahmedabad and in the BSE, the Petitioner and other investors were induced into investing in the shares of the company which were ultimately de-listed from trading in both the Stock Exchanges on account of fraudulent dealings, which left the Petitioner holding a large number of forged shares traded by the Company from the BSE. Mr. Sharma urged that the BSE had completely failed to protect the interest
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