1992 (3) TMI 277 - HC - Companies Law

Articles of association - Regulations required in case of unlimited company, company limited by guarantee or private company limited by shares, Power to make rules

Issues Involved:
1. Comparative analysis of applications for stock exchange recognition.
2. Legitimacy of recognition granted to Coimbatore Limited instead of Indian Chamber.
3. Eligibility of Coimbatore Limited to apply for recognition under the Securities Contracts (Regulation) Act, 1956.
4. Fairness in the Government's action in granting recognition.
5. Disqualification of signatories to the memorandum of association of Coimbatore Limited.

Issue-wise Detailed Analysis:

1. Comparative Analysis of Applications for Stock Exchange Recognition:
The appellants argued that the Government should have considered all applications together and performed a comparative analysis before granting recognition. They cited the case of Madhubhai Amathalal Gandhi v. Union of India to support their contention. However, the court found that the Act does not mandate a comparative analysis of all applications. The Government had given personal hearings to the petitioners and considered their applications on individual merits before rejecting them. The court concluded that there was no requirement under the Act for a comparative analysis of the applications.

2. Legitimacy of Recognition Granted to Coimbatore Limited Instead of Indian Chamber:
The appellants contended that recognition should have been granted to the Indian Chamber, not Coimbatore Limited. The court noted that Coimbatore Limited was promoted by the Indian Chamber, which had taken steps to form the stock exchange and register it as a company. The Indian Chamber had submitted the draft memorandum and articles of association and incurred significant expenses in promoting Coimbatore Limited. The court concluded that the recognition granted to Coimbatore Limited was valid as it was effectively promoted by the Indian Chamber.

3. Eligibility of Coimbatore Limited to Apply for Recognition:
The appellants argued that Coimbatore Limited was not eligible to apply for recognition as it was not carrying on the business of a stock exchange at the time of application. The court referred to the definition of "stock exchange" under section 2(j) of the Act, which includes any body constituted for the purpose of assisting, regulating, or controlling the business of buying, selling, or dealing in securities. The court found that Coimbatore Limited met this definition and was eligible to apply for recognition.

4. Fairness in the Government's Action in Granting Recognition:
The appellants contended that the Government did not show fairness in action while granting recognition to Coimbatore Limited. They cited cases to support their argument for fairness in statutory functions. The court found that the Government had followed due process by giving personal hearings to the petitioners and considering their applications on merits. The court concluded that there was no violation of principles of natural justice or fairness in action.

5. Disqualification of Signatories to the Memorandum of Association of Coimbatore Limited:
In the review applications, the petitioners argued that four of the seven signatories to the memorandum of association of Coimbatore Limited were disqualified under rule 8(1)(f) of the Securities Contracts (Regulation) Rules, 1957. The court noted that the disqualification under rule 8(1)(f) is a curable one, as the Central Government can permit a recognized stock exchange to suspend the enforcement of this clause. The court found that the automatic admission of the signatories as members of the recognized stock exchange did not make the recognition bad. The court also noted that the argument regarding the bad registration of Coimbatore Limited under the Companies Act was not raised in the original writ petitions or during the arguments.

Conclusion:
The court dismissed the writ appeals and subsequent writ petitions, finding no merit in the arguments presented by the appellants. The recognition granted to Coimbatore Limited was upheld, and the review applications were also dismissed. The court emphasized that the Government had followed due process and acted within the framework of the law in granting recognition to Coimbatore Limited.

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