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2024 Supreme(Online)(Mad) 77408
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Anita Sumanth, J
Vimal Kumar Gupta – Appellant
Versus
National Stock Exchange of India – Respondent
W.P.No.13813 of 2023
For the Appellants/Petitioners: K.Jagannathan
For the Respondents: P.Giridharan, C.Prasanna Venkatesh
A regulatory cut-off date that classifies similarly situated individuals for the purpose of granting financial relief without a rational basis is arbitrary, discriminatory, and violates the principle of equality, necessitating judicial intervention.
Headnote:(A) Constitution of India - Article 226 - Judicial review of regulatory circulars - Challenge to a cut-off date stipulated in a circular for the refund of penalized margins - Whether the creation of a chronological classification among similarly situated investors for the purpose of financial remediation is arbitrary and violative of the principle of equality. (Paras 11, 35, 36)
(B) Administrative Law - Policy decisions - Regulatory bodies must ensure that criteria for eligibility are not whimsical or discriminatory - Provisions that differentiate between classes of individuals under identical circumstances without a transparent or rational basis may be held invalid. (Paras 31, 37)
Facts of the case:
The petitioner challenged a circular issued by a regulatory body regarding the refund of penalties collected from investors for short or non-collection of margins. The circular mandated that penalties would be refunded only if the burden had been passed to the investor after a specific cut-off date. The petitioner argued that this stipulation left investors affected by similar penalties prior to that date without remedy, creating unjustified discrimination among individuals in identical financial positions.
Findings of Court:
The court observed that the selection of the cut-off date lacked any discernible rationale and resulted in the discriminatory treatment of two groups of investors who were similarly placed. It was held that since the investor had no control over the timing of the penalty, the restriction imposed an undue and arbitrary barrier to financial relief.
Issues: The primary issue was whether the imposition of a temporal cut-off date for the refund of mistakenly collected penalties constitutes an arbitrary classification violating the right to equality and fair treatment.
Ratio Decidendi: Regulations and circulars issued by authorities must adhere to the principle of proportionality. When a policy decision creates a distinction between individuals based on a time factor that has no logical nexus to the underlying objective, such a restriction is discriminatory and fails to meet the standard of reasonableness, thereby warranting judicial interference.
Result: Petition allowed. The discriminatory cut-off date mentioned in the circular was quashed and the matter restored to the grievance resolution authority for fresh consideration without the restrictive date.
| Table of Content |
|---|
| 1. parties and nature of the writ petition. (Para 1 , 2 , 3) |
| 2. maintainability of the writ petition despite previous grc proceedings. (Para 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11) |
| 3. parties' contentions regarding arbitrary cut-off dates in circulars. (Para 12 , 13 , 14 , 15 , 16 , 17 , 18) |
| 4. historical development of margin penalty circulars and their scope. (Para 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28) |
| 5. discrimination via arbitrary cut-off dates violates article 14. (Para 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37) |
| 6. contextual grc findings and eligibility for refund. (Para 38 , 39) |
| 7. quashing arbitrary dates and directing grc to re-hear. (Para 40 , 41) |
PRAYER: Writ Petition filed under Article 226 of the Constitution of India praying to issue a Writ of Declaration, to declare the Circular dated 02.09.2022 vide Ref No.NSE/INSP/53525 issued by the 1st Respondent to all Trading Members as illegal, arbitrary, non-est, perverse and contrary to law in as much it advises the Trading Members to refund the penalty levied on account of the “short/non-collection of upfront margins” to clients if the same has been passed on to the clients after 11th October, 2021.
O R D E R
1. An interesting issue arises for decision in this matter. The petitioner is an investor, and a trader in shares and securities. He is a client of HDFC Securities Limited (in short ‘HDFC’), which is a trading member (in short ‘TM’)/stock broker with the National Stock Exchange of India (in short ‘NSE’/’R1’).
2. HDFC is not a party to this Writ Petition and there have been some submissions by respondents counsel urging that the Writ Petition is not maintainable for want of necessary/proper party. I will deal with this shortly.
3. The prayer in the Writ Petition is for a declaration to declare Circular dated 02.09.2002 issued by R1 as illegal, arbitrary, non-est, perverse and contrary to law inasmuch as it advises the trading member to refund the penalty levied on account of short/non-collection of upfront margin to clients, if the same has been passed on to the clients after 11.10.2021.
4. The first objection to the prayer is that Circular dated 02.09.2022 is a beneficial Circular and by seeking declaration of this nature, the petitioner has, in fact, sought removal of a benefit that has been granted by the respondents. In arguing so, I believe that the respondents have lost sight of the fact that the challenge is qua the fixation of the date, 11.10.2021 and not to the Circular perse. What the petitioner is aggrieved by is the restriction under the Circular to refund the penalty levied on account of short/non-collection of upfront margin to clients, if the same has been passed on to the clients after 11.10.2021.
5. The benefit of the Circular has been made unavailable to those situations where the penalty has been passed on to clients prior to 11.10.2021. A distinction is thus made between those clients who have received demands of penalty before and after the stipulated date, that is, 11.12.2021 which is what the petitioner assails. I am of the view that the objection raised in this regard is myopic, does not have any merit and reject the same.
6. There is yet another objection on maintainability. The petitioner was aggrieved with the levy of penalty by the TM /HDFC and had also challenged the same before the GRC. An order has also been passed by the GRC on 31.03.2023. However the petitioner has neither challenged that order nor has he disclosed the litigation in that regard in the pleadings.
7. It is right that the Writ affidavit does not contain any discussion with regard to the proceedings before the GRC or the order passed by it. The writ affidavit proceeds as though the matter is a Public Interest Litigation. However, the explanation tendered is that the GRC was statutorily bound by the Circulars issued by the NSE and could not have adopted a stand contrary to the same. Hence, there would have been no purpose served in challenging that order.
