1997 (12) TMI 520 - HC - Companies Law

Summary

Issues Involved:
1. Whether the membership of a share broker in the Mumbai Stock Exchange is personal property or a personal privilege.
2. Whether rules 16 and 43 of the Mumbai Stock Exchange Rules are unconstitutional, arbitrary, and violative of the Law of Insolvency.

Summary:

Issue 1: Membership as Personal Property or Privilege
The petitioner contended that the membership card of a share broker is his personal property. The court referred to the Privy Council's judgment in Official Assignee of Bombay v. K.R.P. Shroff AIR 1932 PC 186, which held that a member who loses his membership also loses all interest in the property of the association and his card. The court reiterated that the membership is a personal privilege conferred by the Stock Exchange and not personal property. The relevant rules (5, 6, 7, 9, 53, and 54) of the Stock Exchange clearly state that membership is a personal privilege and rights of membership are inalienable.

Issue 2: Constitutionality and Legality of Rules 16 and 43
The petitioner argued that rules 16 and 43 are unconstitutional, arbitrary, and violate articles 14 and 19(1)(g) of the Constitution. Rule 16 outlines the allocation of consideration received from the sale of a membership card in a specific order of priority, while rule 43 provides for a first and paramount lien on the security provided by a member for any sum due to the Exchange or Clearing House. The court found these rules to be fair, just, and reasonable, ensuring the smooth and orderly functioning of the Exchange. The court emphasized that these rules are in the interest of both the public and the share brokers, maintaining trust and confidence in the Stock Exchange.

The court also addressed the petitioner's contention that the rules are contrary to the Law of Insolvency. Referring to the Privy Council's judgment, the court held that the membership card does not constitute property under section 12 of the Transfer of Property Act, 1882, and thus, the rules do not conflict with the Law of Insolvency.

Conclusion:
The court concluded that rules 16 and 43 are neither arbitrary nor unconstitutional. The petitioner's challenge was based on a wrong presumption that the membership card is personal property. The court dismissed the petition, stating that it has no power to direct the Stock Exchange to amend, alter, or delete its rules, as this is a legislative function. The petition was rejected with no order as to costs, and the request for leave to appeal to the Supreme Court was also denied.