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TMI Blog1996 (10) TMI 370X X X X Extracts X X X X X X X X Extracts X X X X ..... the period 3-7-1996 and 9-7-1996. The petitioners have dealt with the stock brokers who are accredited to the 1st respondent stock exchange and are referred to as trading members. We are concerned here only with respect to the shares and trades involving shares of Maruthi Organics Ltd. ('MOL') which have taken place between the period 3-7-1996 to 9-7-1996 governed by Settlement No. 27 of 1996. 3. The National Stock Exchange was incorporated in 1992 and is an exchange registered under the Securities Contracts (Regulation) Act, 1956 ('SCR Act, 1956'). One of the main objects of the NSE is to facilitate, promote, assist, regulate and manage, in the public interest, dealings in securities of all kinds [which shall include all securities defined as such under the Securities Contracts (Regulations) Act, 1956, and all other instruments of any kind including money market instruments] and to provide specialised advanced automated and modern facilities for trad- ing, clearing and settlement of securities, with a high standard of integrity and honour, and to ensure trading in a transparent, fair and open manner with access to investors from areas in or outside India. 4. Respondent No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at every trading member shall enter into an agreement with each of his constitu- ents before accepting or placing orders on behalf of the constituent and a specimen copy of such agreement is also prescribed. Apart from the mechanism prescribed by NSE, the trading member (stock broker) is also governed by rules and regulations framed under SCR Act, 1956. 9. With regard to the postponement of the Settlement No. 27, the respon-dents have in their counters stated that a number of complaints were received from trading members in respect of the shares of MOL of a committed well planned fraud by increasing the price of the scrip on a day-to-day basis which facilitated sale of large quantity of shares of that particular company (MOL) at a higher price. From the complaints so received, NSE was prima facie satisfied that there appeared to be a case of manipulating the market and that the same have been carried out on an organised basis and the NSE thereupon deferred settlement of the transactions in respect of MOL. The NSE by its letter dated 9-7-1996 apprised the Securities and Exchange Board of India ('SEBI') and sought permission for suspending trading in MOL shares beyond two days ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lement No. 1996027 (trading period 3rd to 9th 1996) and that the suggested annulment of trade may affect some of the genuine investors. Therefore, the process of segregation of genuine investors by verification of their claims can only be carried out and completed by the SEBI and it is further submitted that unless the process of investigation is completed in all respects, and appropriate directions are given by SEBI, the NSE on grounds of expediency did not want to implement the decision for annulment of the trades. 12. SEBI has also filed an additional counter-affidavit wherein it is stated that SEBI has received an interim investigation report from NSE and that on receipt of the said report, some further information and clarifications were sought from SEBI which have since been furnished by NSE to SEBI and after perusal of the said report, clarifications of NSE and after making preliminary enquiry, it was found that there is sufficient material to investigate into the matter. The investigation report of NSE, it is stated, mainly revealed names of the brokers and to ascertain full facts of the persons or clients who placed such orders in respect of the said scrip needs to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NSE and NSCC have by their public announcements assured investors of the best price and fair deal in the market apart from safety of the security, early settlement and trade guarantee scheme formulated by setting up a settlement fund. The petitioners have parted with their shares and thus fulfilled their part of the obligation whilst pay-out-date has been indefinitely postponed. 14. Sri Y. Ratnakar and Sri P. Muralikrishna, the learned advocates on behalf of NSE and NSCC countered the above contentions and, inter alia, submitted that the petitioners are not trading members and are not therefore, entitled to question the actions of the NSE and that the above writ petitions are premature. It was further submitted by the learned counsel for respondents that the petitioners have entered into contracts with trading members and they are bound by the redressal procedure prescribed in the contract note for the grievance, if any, that either of them may have in relation to the settlement of transaction relating to MOL and the petitioners are not justified in invoking the extraordinary jurisdiction of this Court under Article 226 of the Constitution of India. That there is every justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made, it ceases to be operative. These provisions clearly show that regulations are legislative in nature and statutory in character, and bear the seal of approval by Parliament, after they are made for their continued existence. 18. In exercise of the aforesaid power and in furtherance of the object to keep a check on manipulative or fraudulent transaction which are not bona fide and genuine transactions of sale and purchase, SEBI has framed SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 ('Regulations, 1995'). 3 19. Regulation 3 prohibits the buying or selling of or dealing with securities in a fraudulent manner. Regulation 4 prohibits manipulative trade prac- tices which include entering into any transactions with the intention of artificially raising or depressing the prices of securities thereby inducing other persons to sell or buy securities; which is calculated to create a false or misleading appearance of trading on the securities market; which results in reflection of prices of securities based on transactions that are not genuine trade transactions; which are not intended to effect transfer of benefic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... powers SEBI to issue appropriate directions in the interest of investors in securi- ties and the securities market if after making or causing to be made an enquiry, SEBI is satisfied that it is necessary to issue such directions. In the instant case, no relief is claimed by the petitioners against SEBI nor any of the actions of the SEBI have been impugned in the above proceedings. It was no doubt contended that SEBI should not have allowed NSE to postpone the settlement. The only directions SEBI has issued to NSE are to be found in the letter No. IEMI/MID(N)/2727 of 1996, dated 11-7-1996 and the same read as under : "This is with reference to your letter No. NSCCL/MORG/4943 dated 9 July, 1996, on the above-mentioned subject requesting permission from SEBI to suspend the scrip until further notice. We hereby approve your request for indefinite suspension of the above-mentioned scrip. You may intimate the other exchanges also accordingly. However, you are advised to initiate investigations immediately and complete the same within 15 days and send a report to us." 27. The above directions are with regard to according approval to the request of NSE for indefinite suspension of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settlement of the transaction entered into during the period of Settlement No. 27. 29. The reasons given by NSE justifying postponement of Settlement No. 27 are neither irrelevant nor insufficient to support the exercise of the power. It cannot also be said that the broadcast for postponement was issued by NSE for any oblique or extraneous considerations. It is not for this Court to go into the adequacy or inadequacy of the material so long as it is found that there was some material or information which was sufficient to form an opinion that there existed a case to extend or postpone the settlement by involving the provisions of Regulation 2.16 extracted above. In the circumstances, this Court in writ jurisdiction cannot hold that the impugned action of NSE in postponing the Settlement No. 27 is without jurisdiction. 30. NSE has conducted a preliminary investigation to the extent and within the ambit of its powers. The postponement of the settlement, however, is an interim measure pending investigation and NSE has yet to take a final decision in the matter based on the outcome of its investiga-tion. The postponement of any scheduled settlement can only be an interim measur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age is also extracted herein: "...The stock exchange is, inter alia, established to assist, regulate and control dealings in securities and to ensure fair dealings. These are objects of public interest. Therefore, looking to the wide interpretation given to Article 226 of the Constitution, the first respondent can be considered, for the purpose of this petition, as amenable to the jurisdiction of the High Court under Article 226 of the Constitution." (p. 32) 35. In determining whether the decision of a particular body is subject to judicial review, the Court is not confined to considering the source of that body's powers and duties, but also the nature of the duty. In the instant case, NSE is registered under SCR Act, 1956, and the bye-laws and regulations applicable to NSE being framed only with the approval of SEBI or as directed by it, NSE is amenable to writ jurisdiction in the light of the judgment in Rakesh Gupta's case ( supra ) and the nature of duty per- formed by NSE being in public interest. It is a public duty and NSE is, therefore, subject to public law and its decision subject to judicial review under article 226. 36. The contention of the learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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