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TMI Blog1997 (12) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... ed before the Privy Council. It was held in the judgment in Official Assignee of Bombay v. K.R.P. Shroff AIR 1932 PC 186, as follows : "... So soon as membership ceases, whether on resignation, death, as a result of misconduct, or for non-payment of his subscription, all the interest of the member in the property of the Association is under the rules at an end. . . ." (p. 190). According to the Privy Council a member who has lost his membership for being a defaulter loses of Interest both in the property of the association in his card! The head, note of the said judgment is a complete ratio which is reproduced herein below: "The result in the case of a member of the Bombay Native Share and Stock Brokers' Association who has lost his membership for being a defaulter clearly enough is that he loses all interest both in the property of the association and in his card. In such a case no interest is reserved in the defaulter's card except to members of the association who have suffered by his lapse, or to the association itself. This is the result of rules 18,56,57 and 62. The defaulting member himself has no interest in the result of the sale provided for under these rules nor can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s efforts to get the rules amended/altered and, therefore, the petitioner has filed this petition under article 226 of the Constitution with a prayer that rules 16 and 43 of the Mumbai Stock Exchange Rules, Bye-laws and Regulations, 1957, should be declared as illegal, bad in law and ultra vires the Constitution of India. He has further prayed that the Mumbai Stock Exchange may be directed to amend/alter/delete rules 16 and 43. 6. According to the petitioner, the membership card of a share broker is his private/personal property and if it is sold by the Mumbai Stock Exchange, the consideration received from the said sale of the member ship card should be applied in accordance with the law of insolvency and not in accordance with rules 16 and 43. He further contends that the discretion vested by the said rules on the Stock Exchange to allocate the said sale consideration in the order of priorities stipulated in the said rules was bad in law and arbitrary and, therefore, violative of articles 14 and 19(1)(g) of the Constitution. The petitioner further submits that the impugned rules deprived a citizen of his share of dues from the assets of a defaulter/insolvent member of the Stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations of the Exchange or anything done in pursuance thereof." 9. A glance at rule 16 would reveal that it provides for the power to be exercised by the Governing Board, its right of nomination in respect of membership vesting in the Exchange, the consideration received therefore and it specifies how the consideration shall be applied in the order of priority, prescribed therein. The first priority is for the dues of Exchange and Clearing House to be paid by the former member whose right of membership would vest in the Exchange. It is but natural that the Exchange would recover as the first charge its dues from the consider- ation of sale of membership card and we do not find anything unusual, illegal or wrong in doing so. The second priority prescribed in the said rule is to clear the liabilities of the share broker, relating to his contracts and, therefore, the Board would apply the balance of consideration for the debts, liabilities, obligations and claims arising out of any contracts made by such former member. This rule further provides and according to us very fairly, that if the amount available would be insufficient to pay and satisfy all such debts, liabilities, obligatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinue to maintain public confidence. We feel that these rules are also in the interest of the share brokers. We, therefore, see no reason to hold that these rules are arbitrary or illegal. 11. The petitioner is seeking a writ of mandamus or a direction in the nature of writ of mandamus, directing the Stock Exchange to amend/ alter/delete the impugned rules 16 and 43 under article 226 of the Constitution. We have no power to issue such direction which are of legislative nature. We cannot direct the Stock Exchange to amend, alter or delete rules 16 and 43. It is the exclusive function of the Stock Exchange to frame its own Rules and Bye-laws for its members and their rights or privileges in accordance with its requirements. It is the well settled position in law that Courts have no jurisdiction to direct any authority to frame rules or amend or alter rules or delete any of such rules though Courts can declare any rule as unconstitutional being violative of the Constitution of India. 12. In the present case, we do not see that impugned rules are arbitrary, unreasonable or violative of articles 14 and 19(1)(g) of the Constitution as contended by the petitioner. The Stock Exchange has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r lapsed right of membership.-When a right of membership is forfeited to or vests in the Exchange under any Rule, Bye-law or Regulation of the Exchange for the time being in force it shall belong absolutely to the exchange free of all rights claims or interest of such member or any person claiming through such member and the Governing Board shall be entitled to deal with or dispose of such right of membership as it may think fit. 11 to 52****** 53. 'Defaulter'.-A member who is declared a defaulter shall at once cease to be a member of the Exchange and as such cease to enjoy any of the rights and privileges of membership but the rights of his creditor members against him shall remain unimpaired. 54. 'Lapse of Membership Right.-A member's right of membership shall lapse to and vest in the Exchange immediately he is declared a defaulter." [Emphasis supplied] The aforesaid Rules are binding between the Member and the Stock Exchange. To a large extent, it is a contract between the Member and the Stock Exchange. Once the Member has agreed to abide by the Rules, it would be clear that the membership of the Stock Exchange constitutes a permission from the Stock Exchange to exercise the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re facilitated and there is no chain of defaults affecting thousands of innocent investors and, consequently, the whole securities market. 16. We do not agree with the second contention of the petitioner that rules 16 and 43 are contrary to the Law of Insolvency and, therefore, the said rules were illegal. Before the Privy Council, in the case of Official Assignee of Bombay v. K.R.P. Shroof AIR 1932 PC 186, similar contention was raised and the Court has negatived the contention that, if the effect of the rules be that the proceeds of sale of the insolvent's card do not enure for the benefit of the general body of his creditors, the rules are contrary to Law of Insolvency and, separately, to the provisions of section 12 of the Transfer of Property Act, 1882. The Court held that, considering the nature and character of the Association and the Rules, a defaulting member who is expelled from the Association, no interest in his card remains in himself and none that can pass to his assignee whether his expulsion does or doesn't take place prior to the commencement of his insolvency. The Court further held that it is difficult to see how the assumption of membership involves at any stag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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