1997 (9) TMI 462 - HC - Companies Law

Summary

Issues Involved:
1. Withdrawal of trading facility without notice.
2. Declaration of the appellant as a defaulter.
3. Alleged violation of principles of natural justice.

Issue-wise Detailed Analysis:

1. Withdrawal of Trading Facility Without Notice:
The appellant, a registered trading member of the National Stock Exchange (NSE), exceeded the gross exposure limit of Rs. 7 crores, reaching Rs. 33.05 crores on January 14, 1997. The NSE bye-laws stipulate that trading members must adhere to the rules and regulations, including maintaining exposure limits. Clause (26) of the bye-laws states that a trading member failing to deposit the required margin shall be suspended forthwith. The appellant argued that no notice or reasonable opportunity was given before the trading facility was withdrawn. However, the respondent countered that the appellant had been warned repeatedly through letters and telephone calls to reduce the exposure. Despite these warnings, the appellant continued to increase the limit, necessitating the withdrawal of the trading facility to protect investors' interests.

2. Declaration of the Appellant as a Defaulter:
The appellant was declared a defaulter on July 1, 1997, under Chapter XII of the NSE bye-laws for failing to fulfill obligations, specifically the payment of Rs. 2,70,69,979 towards normal and auction settlements and Rs. 3,23,410 in other dues. The appellant contested the declaration as illegal and unsustainable. The court noted that the appellant had exceeded the trading limits despite being cautioned and failed to make the necessary payments, justifying the declaration as a defaulter.

3. Alleged Violation of Principles of Natural Justice:
The appellant claimed that the withdrawal of the trading facility and the declaration as a defaulter were against the principles of natural justice, as no adequate notice or opportunity to respond was provided. The court examined the facts and found that the appellant had been given sufficient warnings and opportunities to reduce the trading limit through the letter dated January 13, 1997, and multiple telephone calls. The court emphasized that the requirements of natural justice depend on the circumstances of each case. In this case, immediate action was necessary to prevent potential losses to investors, and the repeated warnings constituted adequate notice and opportunity.

Conclusion:
The court concluded that the appellant had knowingly exceeded the trading limits and ignored repeated warnings, justifying the withdrawal of the trading facility. The declaration of the appellant as a defaulter was also upheld due to the failure to fulfill financial obligations. The court dismissed the appeal, finding no merit in the appellant's arguments and directing each party to bear its own costs.