1998 (2) TMI 517 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the suspension and expulsion of the petitioner by the Bhubaneswar Stock Exchange.
2. Legality of the auction of the petitioner's membership.
3. Compliance with the principles of natural justice.
4. Vires of the Articles of Association and Bye-laws of the Bhubaneswar Stock Exchange.
5. Jurisdiction of the Securities and Exchange Board of India (SEBI).

Issue-wise Detailed Analysis:

1. Validity of the Suspension and Expulsion:
The petitioner, a registered stock broker, challenged the suspension and expulsion by the Bhubaneswar Stock Exchange (opposite party No. 1). The petitioner alleged that the opposite party No. 1 and its council of management indulged in mischievous activities to recruit their own nominees by suspending and expelling bona fide members. The petitioner's membership was suspended under article 158 of the Articles of Association, and he was subsequently expelled without a proper inquiry, branding him a defaulter. The court noted that the petitioner was a defaulter and had conceded his inability to clear the liabilities. The Articles of Association and Bye-laws supported the cancellation of membership for defaulting members. Therefore, the suspension and expulsion were found to be valid and in compliance with the Articles and Bye-laws.

2. Legality of the Auction of Membership:
The petitioner contended that the auction of his membership was foreign to the provisions of the relevant statutes and regulations. He argued that neither the Articles of Association nor the Bye-laws permitted such an auction. The court found that the auction was conducted to recover the petitioner's liabilities during settlement No. 5 of 1993. Opposite party No. 4, Megha Finance India Ltd., purchased the membership card in the auction. The court held that the auction was not prohibited by any provisions and was conducted following the principles of natural justice. The auction was deemed legal and valid.

3. Compliance with the Principles of Natural Justice:
The petitioner alleged that the suspension and expulsion were carried out without following due process and without a proper inquiry. The court noted that the petitioner was given a notice to show cause regarding the default, and he had replied to the notice. The court found that the principles of natural justice were complied with, as the petitioner was given an opportunity to respond before the suspension and expulsion were finalized.

4. Vires of the Articles of Association and Bye-laws:
The petitioner challenged the vires of articles 158, 159, and 167 of the Articles of Association and bye-laws 315, 347, and 348, claiming they were ultra vires the Companies Act, 1956, and the Securities and Exchange Board of India Act, 1992. The court examined the provisions and found that the Articles and Bye-laws did not infringe the provisions of the Companies Act or the 1992 Act. The court held that the Articles and Bye-laws were valid and enforceable.

5. Jurisdiction of the Securities and Exchange Board of India (SEBI):
The petitioner argued that the suspension and expulsion of his membership were within the domain of SEBI and not the stock exchange. Opposite party No. 3, SEBI, supported the stock exchange's actions, stating that the membership of a stock exchange is different from the registration of brokers with SEBI. The court held that the stock exchange had the right and power to expel the petitioner in terms of its Articles, Bye-laws, and regulations. The expulsion did not affect the registration with SEBI, as the registration was contingent upon the continuity of membership with the stock exchange.

Conclusion:
The court dismissed the writ petition, holding that the suspension, expulsion, and auction of the petitioner's membership were valid and in compliance with the relevant Articles, Bye-laws, and statutory provisions. The court found no merit in the constitutional challenges raised by the petitioner and upheld the actions of the Bhubaneswar Stock Exchange and SEBI. The petitioner's request for relief was denied, and the auction sale of the membership was confirmed.