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TMI Blog1993 (5) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors challenging the order of the court below. No appeal as such has been filed by the first defendant-company. As noticed, these appeals directed against the interim injunction granted by the trial court came up before the vacation court on April 13, 1993. The plaintiff in the suit, the Cochin Stock Exchange Ltd. had filed caveats before this court and opposed the application for stay of operation of the order made by the defendants in these appeals. Counsel appearing m all these appeals at that stage requested the court to hear and dispose of the civil miscellaneous appeals themselves and, consequently, the appeals themselves were heard during the vacation by consent of parties and are being disposed of by this judgment. The suit, O.S. No. 175 of 1993 is filed by the Cochin Stock Exchange Ltd., a company incorporated under the Indian Companies Act and recognised as a stock exchange within the meaning of the Securities Contracts (Regulation) Act, 1956, for a declaration that the defendants are not authorised to carry on or establish or organise or assist in organising dealings in securities in any manner within the Ernakulam District and for a decree of permanent injunction r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In effect the plaintiffs claimed relief on the footing that the plaintiff as a recognised stock exchange is alone entitled to carry on business in securities or permit others to carry on business in securities or shares in its premises and is entitled to prevent any other rival from carrying on the said activities in Ernakulam District. Along with the suit the plaintiff also filed LA. No. 1357 of 1993 for an interim injunction restraining the defendants from carrying on their activities pending the suit. There is some controversy before me as to whether the first defendant-company was properly served in the suit or not. Defendants Nos. 2 to 5 take the stand that there was no proper service of notice on the first defendant in the trial court. But, according to learned counsel, for the plaintiff since the summons taken out to the first defendant-company in the address of its registered office was returned, the plaintiff applied for service of notice on the first defendant on its managing director, the second defendant by invoking Order 29, rule 2 of the Code of Civil Procedure, 1908, and that the same was allowed and notice was hence served on the second defendant on behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been made to the Government of Kerala to prevent the activities of the first defendant-company. The defendants in their turn produced exhibits B-1 to B-9 essentially attempting to show that they are entitled to carry on business and "spot delivery contracts", that they had applied under section 12 of the Securities and Exchange Board of India Act, 1992, for registration and that they are entitled to carry on their business. The court below found that the suit is maintainable, that the plaintiff has made out a cause of action for preventing the defendants from carrying on their proposed activities in their premises in Ernakulam, that the defendants are liable to be prevented from violating section 19 of the Securities Contracts (Regulation) Act and that the plaintiff is entitled to an order of injunction as claimed by it. It is the correctness of this order that is challenged before me by the various appellants who are defendants Nos. 2 to 5 in the suit. The question of the maintainability of the suit was rather elaborately argued before me by learned counsel for the appellant appearing in C.M.A. No. 87 of 1993 and was reiterated by counsel in the other appeals. According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncorporated company under that Act and its directors. In my view there is no impediment in the plaintiff maintaining the suit for itself without recourse to Order 1, rule 8 of the Code of Civil Procedure. It is also not possible to accept the argument that when the plaintiff is seeking to restrain the defendants from running a parallel exchange they are claiming an interest in common with others within the meaning of Order 1, rule 8 of the Code of Civil Procedure. The argument based on section 91 of the Code of Civil Procedure is also to some extent sought to be linked with the contention based on Order 1, rule 8 of the Code of Civil Procedure. According to learned counsel, when the plaintiff seeks to prevent the defendants from carrying on their business they are in fact seeking a relief in respect of an act that is likely to affect the public. In my view, there is no question of any public right involved in the nature of the present suit and, therefore, section 91(1) of the Code of Civil Procedure will also have no application. On the other hand, it appears to me that even assuming that section 91(1) of the Code of Civil Procedure is attracted this would be a case where the plain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S) 336, at page 356, in the following passage : "There are three classes of cases in which a liability may be established founded upon statute. One is, where there was a liability existing at common law, and that liability is affirmed by a statute which gives a special and peculiar form of remedy different from the remedy which existed at common law ; there, unless the statute contains words which expressly or by necessary implication exclude the common law remedy, the party suing has his election to pursue either that or the statutory remedy. The second class of cases is, where the statute gives the right to sue merely, but provides no particular form of remedy ; there, the party can only proceed by action at common law. But there is a third class, viz ., where a liability not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it ... The remedy provided by the statute must be followed, and it is not competent to the party to pursue the course applicable to cases of the second class. The form given by the statute must be adopted and adhered to'. The rule laid down in this passage was approved by the House o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding the maintainability of the suit in the civil court. Great reliance was placed by learned counsel on the decision in Subramoniam v. Sreenivasan [1971] KLT 699 and particularly to paragraph 5 of that decision. In that case, it was held by His Lordship Justice Subramonian Poti (as he then was) that : "If a person has a right at common law and in regard to this matter a statute is enacted which statute provides a machinery for working out the remedy if the right is infringed, still such person will be entitled to resort to a civil court to seek his remedies in regard to the infringement of his rights unless the statute excludes such resort to the civil court and confines his remedies to that provided by the statute. That is because even de hors the statute such a person had a civil right and unless the provisions of the statute are to be so read as excluding resort to the civil court for vindicating such civil right ouster of jurisdiction of civil courts cannot be assumed. But this rule does not hold good where the statute creates rights for the first time. In such cases it is the machinery prescribed by the statute which creates such rights that will be available to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to maintain the suit in view of the fact that no legal right of the plaintiff has been infringed and no legal injury has been suffered by the plaintiff. According to the appellants, no legal injury has been suffered by the plaintiff because the defendants have not in any way interfered with the working of the plaintiff as a stock exchange. It is contended that the first defendant as an incorporated company has a right to carry on its business in accordance with its memorandum and articles of association and even if by the carrying on of such business by the first defendant the plaintiff suffers some loss in its business it cannot be said that the plaintiff sustains a legal injury so as to enable it to seek reliefs from a court of law. In this connection, it was pointed out that a rival in trade has no right to sue to restrain another from carrying on his business. The cases relating to objection by a rival mill owner or a rival licensee under the Cinema Regulations Act objecting to the grant of licence to a rival theatre or a rival rice mill were referred to. It was said that the plaintiff at best is only a rival running a stock exchange and in the light of the legal position tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is prima facie maintainable. I have dealt with this aspect somewhat elaborately in view of the fact that the major argument raised on behalf of the appellants was on the aspect of the maintainability of the suit. The next contention seriously urged is that the plaint and the affidavit in support of the application for injunction do not make out a cause of action to enable the plaintiff to get the remedy sought for by it. It is pointed out that in the affidavit in support of the application for injunction, there were no allegations which would show that any legal right of the plaintiff has been invaded and that the plaintiff has suffered any legal injury. It is also pointed out that there are no allegations to establish a prima facie case or to make out that the balance of convenience is in favour of the grant of an interim injunction in favour of the plaintiff. In answer it is submitted by learned counsel for the plaintiff that a reading of the plaint would clearly show that the plaintiff has put forward its case that it is the only recognised stock exchange and that the defendants are carrying on a business which can be carried on only by a stock exchange and that the defenda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntiff has made out a prima facie case of violation of any statutory provision by the defendants or an infringement of its claimed right to function as the sole stock exchange in the district of Ernakulam. It can be seen from exhibit A-1 dated May 8, 1989, that the Central Government had granted recognition to the plaintiff as an, exchange under section 4 of the Securities Contracts (Regulation) Act. Exhibit A-4 shows that in exercise of the powers conferred under section 13 of the Securities Contracts (Regulation) Act, the Central Government had declared that section 13 shall apply to the Ernakulam District of Kerala State and also that section 19 of the said Act had been made applicable with effect from May 10, 1979, in the area covered by Ernakulam District of Kerala State. Exhibit A-l coupled with exhibit A-4 would prima facie support the case of the plaintiff that the plaintiff is a recognised stock exchange and that sections 13 and 19 have been extended to Ernakulam District thereby prohibiting any other person from carrying on business as a stock exchange. It is, therefore, prima facie clear that the first defendant could not function as a parallel stock exchange within Ernak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otification in the Official Gazette, declare that the provisions of section 17 shall also apply to such State or area in respect of spot delivery contracts generally or in respect of spot delivery contracts for the sale or purchase of such securities as may be specified in the notification, and may also specify the manner in which, and the extent to which, the provisions of that section shall so apply". "19. Stock exchanges other than recognised stock exchanges prohibited . (1) No person shall, except with the permission of the Central Government, organize or assist in organizing or be a member of any stock exchange (other than a recognised stock exchange) for the purpose of assisting in, entering into or performing any contracts in securities. (2) This section shall come into force in any State or area on such date as the Central Government may, by notification in the Official Gazette, appoint". "Spot delivery contract" is defined by section 2( i ) of the Securities Contracts (Regulation) Act thus : "'Spot delivery contract' means a contract which provides for the actual delivery of securities and the payment of a price therefor either on the same day as the date of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the price thereof either on the day of the contract or the next day, excluding perhaps the period taken for the despatch of the securities or the remittance of money from one place to another ; (2) ready delivery contract, which means a contract for the purchase or sale of securities for the performance of which no time is specified and which is to be performed immediately or within a reasonable time ; (3) forward contracts, i.e. , contracts whereunder the parties agree for their performance at a future date. If the stock exchange is in the hands of unscrupulous members, the second and third categories of contracts to buy or sell shares may degenerate into highly speculative transactions, or what is worse, purely gambling ones". In the said decision, though the question as to whether a spot delivery contract which is exempted by section 18 of the Act also comes within the prohibition of section 19 of the Act was not discussed as such, it has to be noted that their Lordships have referred to section 19 of the Act in the course of the judgment and have thereafter observed at the end of the said decision that in the absence of a notification under section 18(2) of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects are : "1.To carry on the business of buying, selling, dealing, investing, subscribing, jobbing, financing, underwriting, brokeraging, market making of securities and managing the funds of any persons or company in various avenues like growth fund venture capital fund and to pass benefits of such portfolio investments to its participants and to act as a clearing house for settlement of transactions and to hold the securities in its custody deposited by the participants and to render financial services to the public. 2.To apply for and obtain the membership in the stock exchange and generally deal in securities as the member of the stock exchange or to enter into any arrangements with members of the stock exchanges". The argument that spot delivery contracts are not prohibited but are really licensed and permitted as can be seen from exhibit B-2 does not enable the defendants to run a stock exchange as defined in section 2( j ) of the Securities Contracts (Regulation) Act. It appears to me that the attempt of the defendants is really to organise a stock exchange for the purpose of associating in, entering into or performing contracts in securities. In any view even if exhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em to get over the bar created by the statute. Moreover, I have found that the first defendant itself could do the business of spot delivery contracts and is not entitled to conduct a trading floor or permit its members to do business among themselves in such trading floors. It is not therefore a case where the entire business activities of the first defendant are prevented by the issue of an injunction. Moreover, if the policy of the law is to permit only one recognised stock exchange in a given area to function as stock exchange for the purpose of the Securities Contracts (Regulation) Act, it appears to me that the balance of convenience in law would always be in favour of the grant of injunction to enforce that statutory scheme rather than refusing an injunction so as to enable a person to bypass that scheme. Running a parallel stock exchange would also certainly affect the functioning of the recognised stock exchange, which is the plaintiff in this case. I am, therefore, of the view that the balance of convenience in this case is in favour of the grant of the injunction claimed by the plaintiff subject to the modification I have noted above. Mr. Krishnamoorthy, advocate, appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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