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1960 (8) TMI 95 - SC - Indian LawsPetition under article 32 of the Constitution for the issue of a writ of mandamus or a writ in the nature of mandamus or any other appropriate direction, order or writ to direct the respondent, the Union of India, to withdraw or cancel the notification dated August 31, 1957, recognising the Stock Exchange, Bombay under section 4 of the Securities Contracts (Regulation) Act, 1956 (XLII of 1956) Held that - The Act, the validity of which he has not chosen to question, enables the State to give or refuse recognition to any stock exchange and it has chosen to give recognition to the Stock Exchange, Bombay, subject to the conditions prescribed. The restrictions in our view, are not unreasonable, having regard to the importance of the business of a stock exchange in the country s national economy and having regard to the magnitude of the mischief sought to be remedied in the interest of the general public. At another place we have already dealt with the necessity for stringent rules governing this type of business. For the reasons mentioned we reject the first contention that that under rule 20 a candidate for admission falls under two categories, namely, (1) a candidate who must obtain a nomination in the manner provided in the rules, i.e., rule 11(a) and (b ); and (2) a candidate applying for a membership vesting in the exchange; and, therefore, these two categories exhaust the candidates for admission. The record discloses that the Central Government in recognising the stock exchange sought to avoid the consequential hardship on the members of the rival stock exchange and therefore imposed the said condition on the Stock Exchange, Bombay, as a condition for its recognition. The condition germane to the recognition of the stock exchange and is therefore, a condition within the meaning of any other conditions in clause (b) of sub-section (1) of section 4 of the Act. The Indian Stock Exchange Limited became moribund in a few ears and to revive its activities it allowed the members of the East India Chamber of Commerce, by relaxing its entrance fee and security deposit requirements in 1950-51 and created a new class of associate members, which facilitated the enrolment of hundreds of associated members on payment of a nominal entrance fee of ₹ 100. The Government on a consideration of the necessary data and presumably having regard to the record of the activities of the various members fixed the activities in the crucial year 1956-57 as the standard of activity for membership. The burden which lie upon the petitioner who impeached the validity of the classification to show that it violates the guarantee of equal protection has been discharged. On the material placed before us we cannot say that the period fixed by take Government as the standard for ascertaining the active membership is arbitrary or unreasonable. We must make it clear that this finding must be confined only to the validity of the impugned notification dated August 31,1956. Appeal dismissed.
Issues Involved:
1. Fundamental right to carry on business under Article 19(1)(g) of the Constitution. 2. Validity of the notification under Section 4 of the Securities Contracts (Regulation) Act, 1956. 3. Classification of members under Article 14 of the Constitution. Detailed Analysis: Issue 1: Fundamental Right to Carry on Business under Article 19(1)(g) of the Constitution The petitioner argued that the notifications dated August 31, 1957, and November 30, 1957, imposed unreasonable restrictions on his fundamental right to carry on business in shares, as guaranteed by Article 19(1)(g) of the Constitution. The petitioner claimed that these notifications effectively conferred a monopoly on the Stock Exchange, Bombay, excluding outsiders from becoming its members without obtaining a nomination. The Court analyzed the relevant provisions of the Stock Exchange Rules, Bye-laws, and Regulations, 1957, and concluded that the rules do not impose a limitation on the eligibility of a person to be elected as a member. The rules allow any person to apply for membership, provided they agree to abide by the conditions imposed therein. The Court held that the Stock Exchange Rules do not operate as a bar against the petitioner becoming a member of the Stock Exchange, subject to the rules governing such application. The Court further noted that the petitioner can still do business in spot delivery contracts and can apply to become a member of the Stock Exchange, subject to the conditions laid down by the rules. The restrictions imposed by the Act and the notifications were deemed reasonable, given the importance of the business of a stock exchange in the country's national economy and the magnitude of the mischief sought to be remedied in the interest of the general public. Issue 2: Validity of the Notification under Section 4 of the Securities Contracts (Regulation) Act, 1956 The petitioner contended that the condition 2(1)(a) of the notification, which allowed only active members of the Indian Stock Exchange Limited to apply for membership of the Stock Exchange, Bombay, was not sanctioned by the provisions of Section 4 of the Act. The Court examined Section 4 of the Act, which empowers the Central Government to recognize stock exchanges subject to certain conditions. The Court found that while the condition may not fall under clause (a) of Section 4(1), it is covered under clause (b), which allows the Central Government to impose "any other conditions" germane to the recognition of a stock exchange, after consultation with its governing board. The Court held that the condition 2(1)(a) was a condition within the meaning of "any other conditions" in clause (b) of Section 4(1) of the Act. Issue 3: Classification of Members under Article 14 of the Constitution The petitioner argued that the classification of members of the Indian Stock Exchange Limited into active and inactive members was arbitrary and infringed Article 14 of the Constitution, which guarantees equality before the law. The Court acknowledged the weighty considerations raised by the petitioner but emphasized that a classification must have a reasonable relation to the object sought to be achieved. The object of the notification was to prevent undesirable transactions in securities and to assuage the hardship that recognition of only one stock exchange would cause to the members of the other association. The classification aimed to exclude nominal members who would add dead weight to the recognized association and to include those who were actively interested in the business. The Court found that the classification between active members and inactive members was justified, as active members demonstrated sustained interest in the business, while inactive members showed continued indifference. The Court also noted that the period of 12 months immediately preceding August 6, 1957, was fixed based on representations made on behalf of both stock exchanges and the facts pertaining to the course of business conducted by the Indian Stock Exchange Limited. The Court held that the petitioner failed to discharge the burden of proving that the classification violated the guarantee of equal protection. The period fixed by the Government as the standard for active membership was not arbitrary or unreasonable. Conclusion The petition was dismissed with costs, as the Court found no merit in the contentions raised by the petitioner. The restrictions imposed by the notifications were deemed reasonable and necessary for regulating the business of stock exchanges in the interest of the general public.
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