2024 (11) TMI 555 - HC - Companies Law

Transfer of shares - issuance of duplicate share certificate - whether a Writ would lie against Respondent No. 3-NSE? - HELD THAT - Respondent No. 3-NSE in their affidavit-in-reply in paragraph No. 5 have stated that they have been incorporated to facilitate, promote, assist, regulate and manage the public interest and dealings in securities of all kinds, and to provide specialized, advanced, and modern facilities for trading, clearing and settlement of securities with a high standard of integrity and honour and to ensure trading in transparent, fair and open manner - The impugned communication dated 4 October 2007 states that stop transfer direction is given on account of default by trading member in not making payments to the exchange. There can be no doubt that stock exchange is an economic barometer of any economy and renders vital public duties as admitted by Respondent No. 3 in their reply. The Supreme Court in the case of K. C. Sharma Vs. Delhi Stock Exchange and Ors. 2005 (4) TMI 292 - SUPREME COURT has held that the stock exchange is covered by the definition of State under Article 12 of the Constitution of India and amenable to writ jurisdiction of the High Court - It is surprising that inspite of issue being put to rest, such a plea is being taken contrary to binding decisions. In any event, if the stock exchange acts unfairly or arbitrarily in the discharge of its public functions, an aggrieved party can invoke a public remedy, and a writ could be issued to the stock exchange. Section 23L(1) provides for an appeal to the Tribunal if a person is aggrieved by an order or decision of the recognised stock exchange. The communication impugned, in the present proceeding, dated 4 October 2007 is neither an order nor a decision but a direction to Respondent No. 5-Transfer agent to stop transfer of the shares belonging to the Petitioner - the impugned communication does not fall within the term order or decision , provisions of Section 22E of the SCRA would not be applicable and in any case a Writ Court cannot be treated as Civil Court for Section 22-E and, therefore, even on this count also the contention raised by Respondent No. 3-NSE is rejected. Respondent No. 3-NSE has failed to show any authority vested in them for issuing such communication, by which the share transfer forms on the basis of which Respondent No. 3 is basing its claim clearly demonstrate that the shares under consideration did not constitute assets of the defaulting member - the Petitioner s claim is only for the issue of duplicate share certificates of shares that the Respondent No. 4-Company admits on the affidavit, shares are still recorded in the Petitioner s name. Even dividends on these shares are issued to the Petitioner, though not actually credited to the Petitioner s account due to the objections raised by NSE. The impugned communication dated 4 October 2007 and consequential proceedings issued/taken by Respondent No. 3-NSE to/against Respondent No. 5- Transfer Agent of the shares of Respondent No. 4-Company is quashed and set aside - petition allowed.

Summary

Issues Involved:

1. Whether a writ petition is maintainable against the National Stock Exchange (NSE) under Article 226.
2. Legality of the communication dated 4 October 2007 issued by NSE directing the stop transfer of shares.
3. Whether the shares in question belong to the defaulting member of the exchange.
4. The locus standi of the Petitioner to file the present proceeding.
5. The availability of an alternative remedy before the Securities Appellate Tribunal.
6. Delay and laches in filing the petition.

Detailed Analysis:

1. Maintainability of Writ Petition Against NSE:

The court examined whether a writ petition could be entertained against the NSE. It was established that the NSE, by virtue of its functions and duties, falls under the definition of 'State' as per Article 12 of the Constitution of India. The court referred to precedents, including the Supreme Court's decision in K. C. Sharma Vs. Delhi Stock Exchange, which affirmed that stock exchanges are amenable to writ jurisdiction. The court rejected NSE's contention that it is not subject to writ jurisdiction, emphasizing that if a stock exchange acts unfairly or arbitrarily, an aggrieved party can seek a public remedy.

2. Legality of the Communication Dated 4 October 2007:

The impugned communication directed the stop transfer of shares due to a default by a trading member. The court scrutinized the basis of this communication and found no evidence that the shares in question were assets of the defaulting member. The transfer forms did not list the defaulting member as a transferee, and no claims were lodged by the named transferees. The court concluded that the NSE lacked the authority to issue such a direction, thereby infringing the Petitioner's right to property under Article 300A of the Constitution.

3. Ownership of Shares:

The court noted that the shares remained in the Petitioner's name, as confirmed by the company and the transfer agent. The NSE failed to demonstrate that the shares were assets of the defaulting member. The court highlighted that merely possessing transfer forms does not confer ownership rights. The absence of any steps taken by NSE to transfer the shares in its name since 1998 further weakened its claim.

4. Locus Standi of the Petitioner:

The Petitioner was found to have the standing to file the petition, as the shares were still recorded in his name. The court rejected NSE's argument that the Petitioner had transferred the shares, noting that the transfer forms did not support this claim.

5. Alternative Remedy Before Securities Appellate Tribunal:

The court addressed the argument that the Petitioner should have approached the Securities Appellate Tribunal. It clarified that the impugned communication was neither an order nor a decision, thus not falling under the purview of Section 23L of the Securities Contracts (Regulation) Act, 1956. Consequently, the Petitioner was not required to seek redressal through the Tribunal.

6. Delay and Laches:

The court dismissed the argument of delay and laches, noting that the Petitioner only became aware of the impugned communication in November 2007. The court emphasized that the NSE had no authority to issue the communication, rendering the delay argument irrelevant. The Petitioner's actions were consistent with asserting his rights, and there was no evidence of him sleeping over his rights.

Conclusion:

The court quashed the impugned communication dated 4 October 2007 and directed the issuance of duplicate share certificates to the Petitioner. It also ordered the transfer of dividends to the Petitioner's account. The court refrained from commenting on NSE's conduct but noted that the NSE should not have obstructed the issuance of duplicate certificates without statutory authority. The rule was made absolute without any cost order.