1979 (2) TMI 175 - SC - Companies Law

Whether after the imposition of the ban on all forward trading in shares with effect from the close of June 27, 1969, the outstanding contracts that had remained to be performed as on that date were permitted to be closed or liquidated under the proviso in accordance with the rules, bye-laws and regulations of the respondent or not? Held that - Appeal dismissed. The true and proper construction of the notification in question it will be clear that the directions issued by the respondent to all its members including appellant No. 2 on June 28, 1969, in regard to their outstanding transactions as at the close of June 27, 1969, were proper and legal and the appellants stand was clearly erroneous. It cannot be disputed that ample opportunity was given to appellant No. 2 to comply with the directions, but the appellant persisted in his erroneous contention and failed to comply with those directions with the result that the respondent had no alternative but to declare him a defaulter. In our view, the directions dated June 28, 1969, as well as the two resolutions passed by the respondent on July 2, and July 3, 1969, were proper and justified and the appellants case on merits was rightly rejected by the High Court.

Summary

Issues Involved:
1. Maintainability of the writ petition.
2. Scope and ambit of the proviso in the notification dated June 27, 1969.
3. Legality of the directions issued by the Delhi Stock Exchange on June 28, 1969.
4. Validity of the resolutions passed by the Delhi Stock Exchange on July 2 and 3, 1969.

Issue-wise Detailed Analysis:

1. Maintainability of the Writ Petition:
The respondent raised a preliminary objection to the maintainability of the writ petition, arguing that the relationship between the appellant and the respondent was contractual, arising from the memorandum and articles of association, and the rules, bye-laws, and regulations made under those articles. Since the grievance related to contractual rights and obligations, and no statutory right or obligation was involved, the remedy under writ jurisdiction was not available. However, the court decided to address the merits of the case without ruling on the preliminary objection.

2. Scope and Ambit of the Proviso in the Notification Dated June 27, 1969:
The central issue was the proper construction of the proviso in the notification, which banned all forward trading in shares from June 27, 1969, but allowed existing forward contracts to be closed or liquidated. The appellants contended that the demand for interim margins by the respondent amounted to a "carry over" of forward transactions, which was illegal under the ban. The respondent argued that the proviso permitted the closing or liquidation of outstanding transactions in the normal manner under its rules, bye-laws, and regulations.

The court held that the notification had three parts: the first part banned all forward trading, the second part (the proviso) allowed the closing or liquidation of existing forward contracts, and the third part subjected new forward contracts to the rules, bye-laws, and regulations of the recognized stock exchange. The court concluded that the proviso permitted the closing or liquidation of existing outstanding transactions by entering into a forward contract in accordance with the rules, bye-laws, and regulations of the respondent.

3. Legality of the Directions Issued by the Delhi Stock Exchange on June 28, 1969:
The respondent issued directions on June 28, 1969, requiring its members to submit lists of outstanding transactions and deposit interim margins based on specified rates. The appellants argued that this demand was illegal and amounted to a "carry over" of forward transactions. The court found that the directions were proper and legal, as they were in accordance with the proviso in the notification, which allowed the closing or liquidation of outstanding transactions in the normal manner under the respondent's rules, bye-laws, and regulations.

4. Validity of the Resolutions Passed by the Delhi Stock Exchange on July 2 and 3, 1969:
The respondent passed a resolution on July 2, 1969, declaring the appellant a defaulter for failing to comply with the directions, and another resolution on July 3, 1969, demanding additional security of Rs. 20,000. The appellants challenged these resolutions as illegal and unjust. The court held that the resolutions were proper and justified, as the directions issued on June 28, 1969, were legal, and the appellant had failed to comply with them despite ample opportunity. The court rejected the appellants' contention that their fundamental right to carry on business under Article 19(1)(f) of the Constitution had been infringed.

Conclusion:
The court dismissed the appeal, upholding the legality of the directions issued by the respondent on June 28, 1969, and the resolutions passed on July 2 and 3, 1969. The appellants' case on merits was rightly rejected by the High Court, and the appeal was dismissed with costs.