1989 (6) TMI 257 - HC - Companies Law

Stock exchange, Central Government s power to call for periodical returns, etc. and Power to make rules

Summary

Issues:
1. Arbitrariness and illegality of conditions in the application form for enrolment as a member of a stock exchange.
2. Constitution of a screening committee and approval of 200 members before official recognition.
3. Legality of conditions requiring recommendations for membership.
4. Discretion of the council of management to reject applications.
5. Consideration of applications invited in 1987-88.

Analysis:

The petitioners challenged the conditions in the application form for membership enrolment at a stock exchange, alleging arbitrariness and illegality. They contested the formation of a screening committee and the approval of 200 members before official recognition. The petitioners argued that the requirement for recommendations by existing members or directors was arbitrary and vested undue power. They also challenged the council of management's discretion to reject applications and the consideration of applications from 1987-88.

The High Court noted that the stock exchange was recognized by the Central Government under the Securities Contracts (Regulation) Act, 1956. The court highlighted the provisions under the Act and Rules, emphasizing the Central Government's control over recognized stock exchanges. The court rejected the argument that no member could be enrolled before recognition, citing the Act's provisions regarding membership qualifications and experience.

Regarding the requirement for recommendations by existing members/directors, the court found it reasonable and necessary for assessing applicants' background and suitability, especially when dealing with public securities. The court referenced a precedent emphasizing the importance of such restrictions in the national economy's interest.

The court addressed the petitioners' concerns about the screening committee's independence and the council of management's discretion. It noted the Central Government's oversight and the composition of the screening committee, which included government nominees. The court found the screening committee's decision-making process reasonable and in line with established practices.

Ultimately, the court dismissed the writ petitions, finding no merit in the challenges raised by the petitioners. The court did not delve into the question of whether the stock exchange fell within the definition of "State" under Article 12 of the Constitution, as the petitions were deemed without merit.

In conclusion, the High Court upheld the validity of the conditions for membership enrolment at the stock exchange, including the role of the screening committee and the council of management. The court emphasized the regulatory framework under the Act and Rules, affirming the Central Government's authority over recognized stock exchanges.