1994 (1) TMI 211 - SC - Companies Law

Stock Exchanges - Grant of recognition to - With a view to providing improved services to investors, Central Government while replying to letter of Delhi Stock Exchange conveyed its approval on 5-2-1987 to proposal for increasing membership by 250 members - New members admitted through public issue of shares and through dilution of existing shareholding were required to pay to Delhi Stock Exchange a deposit of Rs. 3 lakhs, and Rs. 1 lakh respectively - Selection of members was to be made on objective criteria taking into consideration experience, professional qualifications and other relevant factors through an Expert Committee to be constituted for that purpose - On writ, terms of approval granted by Central Government were questioned on ground that they were arbitrary, illegal and void and violative of article 14 -Constitution of Expert Committee was also challenged as violative of article 14 on account of inclusion of directors/members of Delhi Stock Exchange therein -Whether members of public and authorised assistants of members of Delhi Stock Exchange did not constitute a homogeneous group and condition in regard to higher deposit from those belonging to first category as compared to those belonging to second category was constitutionally valid - Held, yes - Whether as selection of members of Expert Committee was purely by members of Board of Directors, it would be wrong to say that constitution of Expert Selection Committee was arbitrary - Held, yes - Whether selection of members of Stock Exchange could be set aside merely on ground that a large number of chartered accountants were selected and merely because some of them had qualified only recently - Held, no - Whether Supreme Court can issue a mandate for enhancing number of members of stock exchange - Held, no

Issues Involved:
1. Legality of the approval granted by the Central Government for increasing the membership of the Delhi Stock Exchange.
2. Constitutionality of the conditions imposed for new memberships.
3. Validity of the selection process and constitution of the Expert Committee.
4. Allegations of discrimination and favoritism in the selection process.
5. Request for increasing the total membership of the Delhi Stock Exchange.

Detailed Analysis:

1. Legality of the Approval Granted by the Central Government:
The Delhi Stock Exchange Association Ltd. sought to increase its membership to better service investors due to the limited number of members and accommodation issues. The Central Government approved the proposal on 5-2-1987, subject to conditions including the increase of 250 members through public issue of shares and dilution of existing shareholding. The High Court upheld this approval, finding no violation of legal principles.

2. Constitutionality of the Conditions Imposed for New Memberships:
The approval required new members to pay an admission fee and an additional non-refundable deposit. A writ petition challenged these terms as arbitrary and discriminatory under Article 14 of the Constitution. The High Court rejected this challenge, stating that members of the public and authorized assistants of existing members do not constitute a homogeneous class. The classification was based on the expertise acquired by those working in the stock exchange over the years, thus forming distinct groups.

3. Validity of the Selection Process and Constitution of the Expert Committee:
The selection of new members was to be based on objective criteria, including experience, professional qualifications, and other relevant factors. The Expert Committee consisted of members from the board of directors of the Delhi Stock Exchange, including government nominees. The High Court found no arbitrariness in the Committee's constitution or its selection process, noting that only 20% of the marks were reserved for interviews, limiting the scope for subjective bias.

4. Allegations of Discrimination and Favoritism in the Selection Process:
Petitioners alleged that the selection process favored chartered accountants and was biased against them. The High Court dismissed these allegations, noting the lack of concrete evidence. It emphasized that the majority of marks were allocated based on objective criteria, and the interview component was minimal. The Court also found no merit in the claim that the selection of Smt. Nirmala Kumari Jain was based on favoritism, as her selection was justified by her status as a joint shareholder with her late husband.

5. Request for Increasing the Total Membership of the Delhi Stock Exchange:
One petitioner requested an increase in the total membership to 500 and a fresh advertisement for applications. The Court declined to issue a mandate on this matter, considering it a policy issue best left to the discretion of the Delhi Stock Exchange and the Central Government. The policy had been carefully worked out after extended correspondence and was not deemed arbitrary or capricious.

Conclusion:
The Supreme Court upheld the High Court's dismissal of the writ petitions and appeals, finding no violation of constitutional principles or arbitrariness in the approval granted by the Central Government, the conditions imposed for new memberships, or the selection process conducted by the Expert Committee. The Court emphasized the importance of objective criteria in the selection process and the limited role of the judiciary in policy matters.

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