The bye-laws of a stock exchange do not override statutory provisions of the EPF Act, which provides for a first charge on deposits, and vesting of assets does not equate to ownership.

JUDGMENT :

(K. Kumaresh Babu, J.)

(Prayer : Writ Appeals have been filed under Clause 15 of Letter Patent against the order dated 27.03.2006 made in W.P.No.24857 of 2001.)

This Intra Court Appeal has been preferred challenging the order of the learned Single Judge wherein the learned Single Judge had upheld the order passed by the first respondent to disburse the amount withhold by the Appellant as security deposit on behalf of the second respondent for the default committed by the second respondent under the EPF Act.

2. Heard Mr.J.Shivanandharaj learned Senior Counsel appearing on behalf of Ms.Ridhina Sharma learned Counsel for Appellant and Mr.Vishnu Ramu, learned Counsel appearing for the first respondent.

3. Assailing the order, the learned Senior counsel would submit that the appellant is recognised stock exchange established under Securities Contract (Regulation) Act and it framed Rules, Regulations and bye-laws which has to be approved by the SEBI and House of Parliament. The SEBI Act and the Regulations/bye-laws framed under Securities Contract (Regulation) Act, (hereinafter referred to as 'SCR Act') give a priority to the Appellant over any other debts whatsoever of its trading member. The regulations/bye-laws of the appellant had been enacted to ensure trading in a transparent, free and open manner and to prevent any fraud that could directly hamper the stock market and to prevent the loss to investors. Moreover, the bye-laws or regulations has statutory force and would be enforceable in law. The Hon'ble Apex Court had approved the supremacy of the stock exchanges in regulating itself, as had been held in the judgment of the Hon'ble Apex Court in the case of Rusoday Securities Limited vs. National Stock Exchange of India Limited & Ors., reported in (2021) 3 SCC 401.

4. The second respondent herein had given an undertaking to adhere to the bye-laws, Rules and Regulations framed by the NSEIL from time to time. The second respondent had further agreed to furnish security deposits, pledge of securities, hypothecation of immovable lien on bank accounts or such other securities as may be required by the stock exchange from time to time, to secure recovery in case of default in payment and other incidental charges relating to default and other dues of the stock exchange and clearing house if any. Further, the second respondent has also agreed that they shall not be entitled to make any claim of refund of the security deposit for a minimum period of five years, even if it ceases or discontinues to trade on the capital market segment of the National Stock Exchange. The said undertaking given by the second respondent falls within the broad scheme of byelaws and is a quintessential requirement for obtaining registration as a stock broker. If a trading member defaults in honouring its commitment under the bye-laws, the trading membership would be expelled and further based upon the Defaulters' Committee decision, the assets of the stock broker namely the second respondent would vest in the exchange i.e., the appellant. He would submit that the second respondent herein had been declared as a defaulter and the membership was expelled and the assets including the security deposits, upon which the first respondent makes a claim had vested with the appellant and therefore, there is no amount of the second respondent is available with the appellant for the first respondent to be attached for the default committed by second respondent under the EPF Act.

5. He would further submit that apart from the vesting of the security deposit given by the second respondent, the bye-laws under Regulations gives the appellant a priority of charge, which cannot be whittled down by the EPF Act. In that context, he would submit that the EPF Act was general enactment and the SEBI Act and Regulations/bye-laws framed thereunder are a special enactment with a particular object. Therefore, he would submit that the priority under Section 11 of the EPF Act will be