JUDGMENT

R.F.Nariman, J.

1. The present matter arises as the result of a member of a Stock Exchange being declared a defaulter. The Income Tax Department claims that it has priority over all debts owed by the defaulter member, whereas the Stock Exchange, Bombay claims otherwise.

2. The facts necessary to appreciate the controversy are as follows:

By a notice dated 29th June 1994, the Stock Exchange, Bombay declared Shri Suresh Damji Shah as a defaulter with immediate effect as he had failed to meet his obligations and discharge his liabilities. By a notice dated 5th October 1995 issued under Section 226 (3) of the Income Tax Act, the Income Tax Department wrote to the Stock Exchange and told them that Shri Shah’s membership card being liable to be auctioned, the amount realized at such auction should be paid towards Income Tax dues of Assessment Year 1989-90 and 1990-91 amounting to Rs.25.43 Lakhs. The Stock Exchange, Bombay by its letter dated 11th October 1995 replied to the said notice and stated that under Rules 5 and 6 of the Stock Exchange the membership right is a personal privilege and is inalienable. Further, under Rule 9 on death or default of a member his right of nomina