2020 Supreme(SC) 666

SUPREME COURT OF INDIA
A.M. KHANWILKAR, DINESH MAHESHWARI, JJ.
Rusoday Securities Ltd. – Appellant
Versus
National Stock Exchange of India Ltd. and Others – Respondents
Civil Appeal Nos. 2690 of 2009, 9571 of 2019
Decided On : 20-11-2020

IMPORTANT POINTS
(1) Expulsion from membership of National Stock Exchange of India Limited – Court by interpretative process ought not to limit efficacy of such a valid document by additional preconditions such as prior approval, not envisaged by lawmakers or regulation framing authorities.
(2) Conditions required for withdrawing trading facility are distinguishable from conditions required for suspension/expulsion of membership.
(3) Principles of constructive trust and fiduciary relationships are equitable principles and equity never operates in an absolute manner or in a vacuum.

Headnote:

Civil Appeal No.2690 of 2009

(A) Securities Contracts (Regulation) Act, 1956 – Section 9 – Expulsion from membership of National Stock Exchange of India Limited – Subject matter of Circular No. NSCC/CM/C&S/030 dated 19.05.1997, pertains to trading/exposure limits coupled with sanctions in case of noncompliance – That falls squarely within ambit of operational parameters which can be determined and notified by Exchange from time to time – Nothing is brought from text of this circular that it would militate against norm of fair dealing and protection of investors – In any case, no requirement of prior approval is provided for notifying such operational parameters – Power and mode of prescription of such circular falls within residuary powers reserved for Exchange – Terms “regulation” and “control” cannot be narrowed down and must receive a wide meaning – Power to regulate and control trading contracts enables Exchange not only to make Byelaws and Regulations but to provide for everything therein which might be necessary and permissible for ensuring efficacy. (Paras 29 and 30)

(B) Securities Contracts (Regulation) Act, 1956 – Sections 9 and 22F – Securities Contracts (Regulations) Rules, 1957 – Rule 9 – NSE Rules 1994 – Rules 31 and 32 of Chapter III – Securities and Exchange Board of India Act, 1992 – Circular No. NSCC/CM/C&S/030 dated 19.05.1997 – Expulsion from membership of National Stock Exchange of India Limited – Withdrawal of trading facilities of appellant – Expulsion of appellant from membership of Exchange was made primarily citing two reasons, failure to comply with requirement of maintaining IFSD and failure to meet continued admission norms despite suspension – Exchange provides a middle ground to stock brokers and investors dealing with public funds/investments and considering nature of activities undertaken in a stock market, it is bounden duty of Exchange to fortify public trust – In doing so, Exchange is required to prevent and remedy all possible mischief on a real time basis – To that end, it may prescribe a set of parameters for fulfilling its objective of regulating and controlling stock market – Actions taken by Exchange under Byelaws or Regulations by prescribing such operational parameters in form of a circular and in consequence thereof would assume enforceable character – Appellant having submitted undertaking to comply with such instructions, notice etc., cannot be heard to argue to the contrary – Court by interpretative process ought not to limit efficacy of such a valid document by additional preconditions such as prior approval, not envisaged by lawmakers or regulation framing authorities – To do so would entail in undermining authority of Exchange to regulate and control the stock market, directly or indirectly – Operational freedom of Exchange cannot be stifled on mere assumptions and burden lies on claimant to demonstrate a real conflict between exercise of power and source of power – Very fact that a member has overexposed itself in market while trading is enough to give rise to cause of action under the circular – Action of forthwith closing out is permissible under the scheme – Circular is not ultra vires clauses 17 and 18 of Byelaws – Appellant had subscribed to both statutory as well as contractual obligations with respondents for functioning as a stock broker – Any deviation from the circular could invite action under multiple provisions spreading across Byelaws of Exchange and Byelaws of Clearing Corporation, in addition to sanctions provided in circular itself – Appellant is squarely bound by circular and any breach of the same is to be viewed accordingly – Actions taken by Exchange were in accordance with law – Tribunal rightly confirmed order of expulsion. (Paras 31, 32, 35, 43, 47, 51, 62 and 64)

(C) Statute Law – Amendment by Implication – Principle of constructive amendment signifies that unless a clear case of repugnancy is made out, later provisions could not be treated as modification or abrogation, more so when such provisions further intent of source provisions. (Para 35)

Civil Appeal No. 9571 of 2019

(A) Securities Contracts (Regulation) Act, 1956 – Sections 9 and 22F – Rule 20(f) of Chapter IV of NSE Rules read with Chapter XII – Expulsion from membership of National Stock Exchange of India Limited – A member whose membership has been terminated or who has been expelled is not absolved from fulfilling his contractual or other obligations in any manner – When lien itself is a creation of Byelaws, Rules or Regulations etc., scope, extent and operation of such lien would also be governed by same scheme – Actual recovery qua appellant/defaulting member could only be made from “receiving securities” as those securities were due/deliverable to appellant and were withheld as a collateral for sole reason of non-payment – No third-party stake is involved therein – Corporation is empowered with a set of methods to close out outstanding deals against appellant – Upon vesting, it could have sold out withheld securities through an auction or by placing an order of sale in Exchange or in any other permissible manner – Constructive trust arises by operation of law in specific factual scenarios and not by any statute or contract – However, such trust, and rights and obligations under it would depend strictly upon prevailing set of facts and governing provisions – Respondents’ decision of not realising securities or taking any adverse action during pendency of multiple proceedings cannot be outrightly termed as abuse of discretion – Statutory appeal is a continuation of original proceedings and once an appeal was filed, question of expulsion remained subjudice unto these appeals – Quantum of amount due from appellant to respondents, being a question of fact, has been decided by Tribunal – No serious error has been pointed out in any factual determination made by Tribunal – Scope of Section 22F is limited to entertaining appeal on questions of law – Appeals disposed of with directions. (Paras 81, 84, 91, 102, 106, 116, 121 and 123)

(B) Equity – Operation – One who seeks equity must do equity – Principles of constructive trust and fiduciary relationships are equitable principles and equity never operates in an absolute manner or in a vacuum – Very basis of law of equity is its flexibility to take care of mutual concerns of parties – Equity is about balancing competing interests by preventing erosion of interests of one party while ensuring a free exercise of legally enshrined discretionary powers to other – Specific fiduciary duties could definitely be recognised in specific facts of case but manner of performance of such duties cannot be dictated in regulatory matters – Legal recognition of role of a trustee and fixing actual obligations to be performed under such role are two separate matters – Latter is dependent on nature of discretion and on diligence of other party. (Paras 108 and 110)

Facts of the case:

Expulsion from membership of National Stock Exchange of India Limited. order of expulsion was unsuccessfully challenged by appellant before the Tribunal at Mumbai. Present appeals under Section 22F of the Securities Contracts (Regulation) Act, 1956 take exception to the judgment and order passed by the Securities Appellate Tribunal at Mumbai in Appeal No. 84 of 2009 dated 13.01.2009 and in Appeal No. 118 of 2015 dated 04.06.2019.

Findings of Court:

Matters in issue in the present set of appeals are distinct from those involved in the stated special leave petition (criminal). Therefore, the loss caused to the Exchange due to return of interest free security deposit amount ought to be reckoned in determining the total liability of the appellant and the same ought to be adjusted by the respondents appropriately.

Result : Appeals disposed of with directions.