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High Court Of Delhi
RAJESH KUMAR MAHESHWARI - Appellant
Versus
UNION OF INDIA - Respondent
Civil 1838 of 1987
Decided On : 04/18/1990
DELHI STOCK EXCHANGE - MEMBERSHIP INCREASE - DILUTION OF SHAREHOLDING - PUBLIC ISSUE - EXPERT SELECTION COMMITTEE - VALIDITY - SECURITIES CONTRACTS (REGULATION) ACT, 1956 - ARTICLES OF ASSOCIATION.
Fact of the Case:
Petitioner, a citizen of India and a graduate in commerce and law, challenged the Government of India's letter dated 5th February, 1987, regarding increasing the membership and dilution of shareholding of the Delhi Stock Exchange. The Delhi Stock Exchange sought to increase membership from 125 to 250 by dilution of shareholding from two to one and admitting authorized assistants. The Government, however, wanted to increase membership by induction of the public generally. The Supreme Court, in a writ petition filed by Mr. N. N. Saigal, directed the Government to increase membership by 100% within six months. The Delhi Stock Exchange proposed a modified proposal to increase membership to 250 by dilution and public issue. The Government approved the proposal subject to certain conditions, including selection of new members by an Expert Committee. The petitioner challenged the Government's directions as arbitrary, illegal, and void.
Finding of the Court:
The Court held that the Government's directions were not arbitrary, illegal, or void. The classification of members into two groups, authorized assistants and the general public, was reasonable and based on the object of providing adequate facilities to investors and broad basing the Stock Exchange membership. The difference in the amount of deposit required from authorized assistants and the general public was also reasonable, as the authorized assistants had gained experience over the years in the Stock Exchange. The Court also held that the constitution of the Expert Selection Committee, which included some members of the Board of Directors of the Delhi Stock Exchange, was not violative of Article 14 of the Constitution, as the selection of members was to be done on the basis of objective criteria.
Issues: 1. Whether the Government's directions regarding increase in membership and dilution of shareholding of the Delhi Stock Exchange were arbitrary, illegal, and void? 2. Whether the classification of members into two groups, authorized assistants and the general public, was reasonable? 3. Whether the difference in the amount of deposit required from authorized assistants and the general public was reasonable? 4. Whether the constitution of the Expert Selection Committee was violative of Article 14 of the Constitution?
Ratio Decidendi: 1. The Government's directions were not arbitrary, illegal, or void as they were based on the object of providing adequate facilities to investors and broad basing the Stock Exchange membership. 2. The classification of members into two groups, authorized assistants and the general public, was reasonable as it was based on the fact that authorized assistants had gained experience over the years in the Stock Exchange. 3. The difference in the amount of deposit required from authorized assistants and the general public was reasonable as the authorized assistants had gained experience over the years in the Stock Exchange. 4. The constitution of the Expert Selection Committee was not violative of Article 14 of the Constitution as the selection of members was to be done on the basis of objective criteria.
Final Decision: The Court discharged the rule and dismissed the writ petition.
( 1 ) THE petitioner is a citizen of India and a graduate m commerce and law and has the requisite educational and professional qualifications to become a. member of the Delhi Stock Exchange. He is praying for a writ of ceitiorari to quash the letter dated 5th February, 1987 written by the Government of India to the President of the Delhi Stock Exchange regarding increasing the membership and dilution of share holding of the said Exchange.
( 2 ) IN order to appreciate the matter, it is necessary to set out the background of the case. The Delhi Stock Exchange Association Ltd. was incorporated on 25th Juna, 1947. The existing building was constructed in 1950 out of funds contributed by members. Initially, it was only necessary to hold one share to become a member but sometime in 1963 the eligibility criteria was changed to two shares. On 20th February, 1957, the Securities Contracts (Regulation) Act, 1956 (Act 42 of 1956) came into force. The object of the Act was to prevent undersirable transactions in securities by regulating the business of dealing therein, by prohibiting Operations and by providing for certain other matters connected therewith. The Central Government granted recognition to the Delhi Stock Exchange under secion 4 of the said Act.
( 3 ) AS the volume of work increased, the Delhi Stock Exchange sought the Government of India s permission to dilute every members share-holding from two to one and admit as members authorised assistants etc. who had worked for a long period in the Stock Exchange. The Union of India, however, was anxious that the membership of the Delhi Stock Exchange be increased by induction of members of the public generally.
( 4 ) ON 8th January, 1986 a large number of the members of the Delhi Stock Exchange wrote to the Board of Directors indicating the cnormous diffieulties being faced by them because of the small size of the trading hall and expressing their fear that these difficulties would became more acute if the membership was increased. Consequently, they suggested that the in crease in membership be done in a phased manner and a new building be constructed; further, members should be requited to sell one of the two shares held by them.
( 5 ) THEREAFTER, on 31st January, 1986, the Delhi Stock Exchange Association Ltd. wrote to the Director (Investment ). Stock Exchange Division, Ministry of Finance. Government of India stating that a detailed discussion had taken place regarding the difliculties experienced by members due to inadequacy of space in the existing buflding and the need to provide services to the increasing number of investors. With a view to providitig better services to the investors and also keeping the interests of the existing members in mind, it was felt that the Articles "be amended to provide the eligibility of the membership of the Stock Exchange by holding one share" This would naturally increase the membership of the stock exchange from 125 to 250. it was further suggested that this increase. should take place in a phased manner spread over thres years in view of the space shortage. During this period, a member would be required to sell one share to another persons "willing and otherwise eligible to become a member". It Was also suggested that both the new member and the existing member would make a deposit of Rs. one lac each, resulting in a collection of Rs 2. 50 crores to. be utilized in the construction of the hew building. The Delhi Stock Exchange sought the appreval of the Government of India to its proposal.
( 6 ) ON 24th July, 1986, the Delhi Stock Exchange once again wrote to the Joint Secretary (Inv.), Government of India. regarding the intimation received for incrsase of membership of the Stock Exchange. It was indicated in the said letter that the Board was agreeable to the Government s suggestion regarding increase inmembership and felt that hundred per cent increase would provide enough opportunity; further its proposal was
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