1993 (5) TMI 126 - HC - Companies Law

Contracts in notified areas illegal in certain circumstances, Stock exchanges other than recognized stock exchange prohibited, Securities & Exchange Board of India Act, 1992

Issues Involved:
1. Maintainability of the suit.
2. Locus standi of the plaintiff.
3. Disclosure of a cause of action.
4. Prima facie case and balance of convenience.
5. Applicability of sections 13, 18, and 19 of the Securities Contracts (Regulation) Act, 1956.

Detailed Analysis:

1. Maintainability of the Suit:
The defendants argued that the suit was not maintainable for several reasons, including the lack of representative capacity under Order 1, Rule 8 of the Code of Civil Procedure, the necessity of sanction under Section 91 of the Code, and the claim that the Securities Contracts (Regulation) Act provides a special remedy that must be exclusively followed. The court held that the plaintiff, as a recognized stock exchange, was not one among numerous persons having an interest in the subject matter and thus did not need to proceed under Order 1, Rule 8. The court also found that Section 91(1) of the Code of Civil Procedure did not apply as there was no public right involved. The court rejected the argument that the plaintiff should have sought remedy exclusively through the Securities Contracts (Regulation) Act, noting that the Act did not provide a specific machinery for redressal, thus allowing the civil court's jurisdiction.

2. Locus Standi of the Plaintiff:
The defendants contended that the plaintiff had no locus standi as no legal right of the plaintiff was infringed and no legal injury was suffered. The court found that the plaintiff was claiming an exclusive right to function as a stock exchange within Ernakulam District and was alleging that the defendants were violating statutory provisions. The court cited precedents that allowed a citizen to sue for the violation of a statute even if not personally affected, thereby affirming the plaintiff's locus standi.

3. Disclosure of a Cause of Action:
The defendants argued that the plaint and the affidavit did not disclose a cause of action. The court found that the plaint sufficiently alleged that the plaintiff was the only recognized stock exchange and that the defendants were carrying on activities prohibited by sections 13 and 19 of the Securities Contracts (Regulation) Act. The court held that the plaint disclosed a cause of action as it claimed a right to function exclusively and alleged statutory violations by the defendants.

4. Prima Facie Case and Balance of Convenience:
The court examined whether the plaintiff had made out a prima facie case of statutory violation and infringement of its exclusive right. The court found that the plaintiff had shown prima facie that it was a recognized stock exchange and that sections 13 and 19 had been extended to Ernakulam District, prohibiting other persons from carrying on stock exchange activities. The court rejected the defendants' argument that they were only doing "spot delivery contracts," noting that the plaintiff had made out a prima facie case for an injunction. On the balance of convenience, the court found it favored the plaintiff, as the statutory scheme aimed to permit only one recognized stock exchange in a given area.

5. Applicability of Sections 13, 18, and 19:
The court analyzed sections 13, 18, and 19 of the Securities Contracts (Regulation) Act. Section 13 prohibits contracts in notified areas unless between members of a recognized stock exchange. Section 18 excludes "spot delivery contracts" from this prohibition. Section 19 prohibits organizing or assisting in organizing any stock exchange other than a recognized one. The court noted that while "spot delivery contracts" are exempt from section 13, they are not exempt from section 19. The court concluded that the defendants' activities, as described, would violate section 19, except for spot delivery contracts.

Conclusion:
The court modified the trial court's order to clarify that the first defendant could carry on spot delivery contract business but could not permit its members or others to trade among themselves in its premises. The appeals were substantially dismissed, affirming the injunction with the stated modification.

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