2003 (2) TMI 348 - HC - Companies Law

Summary

Issues Involved:
1. Review application for judgment in O.S.A. No. 158 of 1988.
2. Legality of expulsion from stock exchange membership.
3. Validity of Articles 38(c) and 152 of the Madras Stock Exchange.
4. Interpretation of Rule 8(1)(f) and 8(3)(f) of the Securities Contracts (Regulation) Rules, 1957.
5. Contempt application and related sub-applications.

Detailed Analysis:

1. Review Application for Judgment in O.S.A. No. 158 of 1988:
The review application sought to revisit the judgment rendered on February 22, 1994, which was based on an assumption that the order under appeal was an interim order. The original application filed under rule 9 of the Companies (Court) Rules, 1959, sought a declaration that the applicant continued as a member of the Madras Stock Exchange despite an expulsion order dated August 3, 1988. The learned Company Judge had dismissed this application, rejecting the arguments that Articles 38(c) and 152 were void and that Regulations 8(1)(f) and 9(3)(f) of the Securities Contracts (Regulation) Act, 1956, were wrongly applied. The review petition was allowed due to apparent errors, and the appeal O.S.A. No. 158 of 1988 was restored.

2. Legality of Expulsion from Stock Exchange Membership:
The appellant challenged his expulsion from the stock exchange, which was executed under Articles 38(c) and 152 of the Exchange's Articles of Association. The expulsion was due to the appellant's role as managing director of another company, which was considered a contravention of Rule 8(3)(f) of the Securities Contracts (Regulation) Rules, 1957. The court found that the Stock Exchange had the authority to expel members who did not meet the qualifications prescribed under the Securities Contracts (Regulation) Act and its rules. The appellant had accepted these conditions upon his admission to the Exchange.

3. Validity of Articles 38(c) and 152 of the Madras Stock Exchange:
The appellant argued that these articles were inconsistent with the Companies Act, 1956, and therefore void under section 9(b) of the Act. The court held that the provisions for expulsion in the Stock Exchange's Articles were necessary to maintain discipline among its members and were not inconsistent with the Companies Act. The Stock Exchange, being a regulatory body for stock brokers, required such provisions to ensure compliance with the Securities Contracts (Regulation) Act.

4. Interpretation of Rule 8(1)(f) and 8(3)(f) of the Securities Contracts (Regulation) Rules, 1957:
Rule 8(1)(f) prohibits a member from engaging in any business other than that of securities unless they sever their connection with such business upon admission. Rule 8(3)(f) extends this prohibition to existing members. The appellant, by becoming the managing director of another company, breached this rule. The court affirmed that the rule was clear in its prohibition and that the appellant had knowingly accepted these conditions upon his membership.

5. Contempt Application and Related Sub-Applications:
The contempt application alleged wilful disobedience of the court's order by the Stock Exchange. The court found that the order directing the Exchange to permit the appellant to trade was based on a judgment that had been reviewed and set aside. The appellant's expulsion remained effective, and the Exchange was not liable for any compensation. The court dismissed the contempt application and related sub-applications, noting that the Exchange had acted within its legal rights and obligations.

Conclusion:
The court upheld the expulsion of the appellant from the Madras Stock Exchange, affirming the validity of the relevant articles and rules. The review application was allowed due to apparent errors in the original judgment, and the subsequent appeals and contempt applications were dismissed. The Stock Exchange's actions were found to be lawful and consistent with the regulatory framework governing stock exchanges and stock brokers.