9911796707
TMI Blog2002 (1) TMI 1224X X X X Extracts X X X X X X X X Extracts X X X X ..... ars that in exercise of power under section 3(2), the Custodian has notified certain persons and entities and issued a public notice to that effect. In the said list of persons and entities which has been disclosed in this writ petition the name of Shri Ajoy Kayan figures as the proprietor of the petitioner-company. The precise notification against Shri Ajoy Kayan ( notified person ) is in the following terms : "Notification New Delhi, the 20th November, 2001 No. Custodian/13/2001 I, D.K.Tyagi, appointed as Custodian under section 3(1) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 vide Government of India, Ministry of Finance, Department of Economic Affairs (Banking Division) No. E4/3/94-SCS/VIG, dated 4-9-2001, having been satisfied on information received that the persons/entities named below had been involved in offences relating to transactions in securities after the 1st day of April, 1991 and on and before 6th June, 1992, hereby notify them in exercise of powers vested in me by section 3(2) of the Act : 1. Shri Ajoy Kayan ( a )Proprietor, M/s. C. Mackertich and Co. Stock Brokers, Kolkata. ( b )S/o Shri G.S. Kayan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to withdraw the trading facility of the petitioner-company with effect from 5-12-2001, on the capital market segment of the National Stock Exchange till further notice. The petitioner-company wrote a letter to the assistant vice-president of the National Stock Exchange of India Ltd., praying for cancelling the withdrawal of the trading facilities from their terminals, inter alia , contending that as a result of notification against the notified person, the company a non-notified person, cannot suffer. Then comes the letter of the Calcutta Stock Exchange dated 10-12-2001, to the petitioner-company seeking certain clarifications from the petitioner-company. It was made clear in the said letter that the implications of the subsequent conversion of the proprietorship concern to a corporate entity under the Companies Act, 1956 and that of the erstwhile proprietor, who has now been notified, becoming a qualifying director/shareholder were being examined by the solicitors of the Calcutta stock exchange. The authorities of the said stock exchange, it was stated in that letter, would revert back to the petitioner-company on receipt of advice of the solicitors. 6. It may also be note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 3(2), 3(3) and 3(4) of the said Act; the learned counsel further submitted that the object of the said Act shows that the company should be allowed to function in the normal course of business and he further urges that the suspension of the business of the company is not beneficial either to the company or to others. The learned counsel further submits that the company is distinct from its directors and the assets of the company are not the assets of the members. 8. Further referring to the provisions of section 3(3), the learned counsel mentioned that the effect of the notification under section 3(3) is that any property, which is belonging to any person notified, shall be attached. The membership cards of the company have not been attached nor the security deposit of the company. In fact, the learned counsel urged that those things could not be attached. It has been further urged that as a result of the notification the shares of the notified person may be attached. But the petitioner-company does not carry on business with its issued share capital. Issued shares are liabilities of the company and are so reflected in the balance sheet of every company. The share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Offences Relating to Transactions in Securities) Amendment Act, 1994, no court other than the Special Court shall have or be entitled to exercise any jurisdictional power or authority in relation to any matter or claim referred to in sub-section (1). The learned counsel further submitted that the Special Court consists of one or more sitting judges of the High Court to be nominated by the Chief Justice of the High Court within the local limits of whose jurisdiction the Special Court is situated. Such nomination shall have to be made with the concurrence of the Chief Justice of India. Against an order of the Special Court there is an appeal directly to the Supreme Court both on facts and on law. Under section 13 of the Act, its provisions have been given overriding effect notwithstanding anything inconsistent contained in any other law for the time being in force. The learned counsel also submitted that the said Act creates special liabilities and special rights and also creates special remedies. In view of the special provisions of the said Act, the writ court should not ordinarily interfere and in a situation which is covered by the provisions of the said Act the extraordinary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pass an order to stop the business of the petitioner company. In fact, no such order has been passed by the Custodian. As no such order has been passed by the Custodian, the Special Court has no jurisdiction in the matter. Since there is no jurisdiction of the Special Court over the questions which are at issue in the writ petition, there is no question of an alternative remedy being sought by the petitioner before that authority. In other words, learned counsel submitted that only against a notification issued under section 3(2) or an order under section 4(1), the Special Court can be moved under section 4(2) of the Act. The learned counsel further submits that the jurisdiction of Special Court in respect of civil matters has been prescribed under section 9A of the said Act and under section 9A(1)( a ) and 9A(1)( b ) of the Act the Special Court s jurisdiction has been defined. For a proper appreciation of the controversy at issue, those sub-sections ( a ) and ( b ) of section 9A(1) are set out below : "Section 9A. (1)( a ) relating to any property standing attached under sub-section (3) of section 3; ( b ) arising out of transactions in securities entered into after the 1st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the case of expulsion of a member by the stock exchange writ will not lie. It appears from the facts of the case that the petitioner in that case was a member of the Bangalore Stock Exchange and one Gopal Krishnan lodged a complaint that the petitioner has fraudulently pre- pared a contract in collusion with one Ramchandran and collected some amount directly from one C.R. Thimia and some amount from the default committee. Therefore, the matter was being heard by the Disciplinary Committee and while the Disciplinary Committee was overruling all the objections of the petitioner in the midst of that proceeding, the petitioner filed a writ petition. On those facts, the learned judge in para 7 opined that the first question which arises for consideration is whether a writ of mandamus would lie to the stock exchange in respect of its action to expel a member. This court in para 10 of the judgment after considering some decisions came to the conclusion that the stock exchange while exercising its power under the articles of association in the matter of admission or expulsion of a member does a duty to that particular member and not to the public at large and does not discharge any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly, the object behind clause 3( cc ) is to decide questions and disputes affecting the members of the association and to appoint arbitration committees. Similarly, the object behind clause 3( kkk ) is to improve and elevate the technical and business knowledge of persons engaged or about to be engaged in the trade, to provide for delivery of lecture and classes and so on. 23. To this court it appears that those activities of the said stock exchanges are conducted in public interest. Similarly, from the constitution and object of the Mumbai Stock Exchange, it is clear that the main object is to protect in public interest the character and status of the brokers and the public interest in securities and to assist, regulate and control in public interest dealing in securities to ensure fair dealing. [Emphasis supplied] 24. This Court finds that those objects/Memorandum of associations were adopted in the extraordinary general meeting of the stock exchanges in question and they are confirmed either by the CLB or by the Government. 25. Similarly, in the case of National Stock Exchange, it appears that the objectives are to establish a nationwide trading facility for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso been drawn to the provisions of the Securities and Exchange Board of India Act, 1992. The long title of the said Act also suggests that the said Act was meant for establishing a Board to protect the interest of the investors in securities and to promote the development and regulation of the securities markets and for matters connected therewith or incidental thereto. Under section 3(1), the Central Government by a notification is to appoint a Board called the Securities and Exchange Board of India (Board). From section 4 of the said Act, this Court finds that the composition of the said Board is overwhelmingly controlled by the Central Government. Section 11 of the said Act provides for the functions of the Board and section 12(2)( a ) shows one of the main functions of the Board is regulating the business of the stock exchange. All the other functions of the Board would show that section 11 empowers the Board to control and regulate the business of the stock exchange through various enabling provisions. Section 29 of the SEBI enables the Central Government to make rules for carrying out the purposes of the Act. The purposes of the Act have already been referred to. 29. Sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e context of these overwhelming materials pointing out the Governmental control over the activities of the stock exchanges, it is difficult for this court to hold that the stock exchanges do not carry out any public functions. In this connection, this court finds that while considering some of the statutory functions which have been noted above, the Kerala High Court in the case of Satish Nayak s ( supra ), held that the Act, viz., SCRA, is purely regulatory in character (para 25 of the judgment) and the learned judges held in para 26 of the said judgment that these regulatory measures by itself are not sufficient to establish that the stock exchange carried on any public function. 32. Reference in this connection may be made to the decision of the constitution Bench of the Hon ble Supreme Court in the case of Madhubhai Amathalal Gandhi v. Union of India [1960] 30 Comp. Cas. 667 . In the said judgment, the learned judges of the Hon ble Supreme Court considered the provisions of the SCRA and considering the provisions of the SCRA, Justice Subba Rao (as His Lordship then was), speaking for the court held in para 3 pages 23 and 24 of the report in short, the Act confers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the judgment of the learned judge in the said unreported judgment of the case of Mahadeo Agarwal s ( supra ) and this Court is entitled to differ from the view taken by the learned single judge as the relevant aspects have not been considered in depth and the facts in that case were totally different. Now the question is one of propriety and judicial discipline. Whether I can, as a judge of a co-ordinate Bench, differ with the judgment of another learned judge of a co-ordinate Bench. I am humbly of the view that if the judge, subsequently deciding similar questions, is convinced that that the earlier judgment of a co-ordinate Bench is erroneous, the judge is at liberty to respectfully differ from the earlier view taken by another learned judge. In this view which I am taking I am fortified by a Division Bench judgment of the Acting Chief Justice Asutosh Mookerjee, in the case of Virjiban Dass Moolji v. Biseswar Lal Hargovind AIR 1921 Cal. 169. At page 171 of the report the learned judge explained the position so elegantly that I must quote it in some detail. The learned judge said ". . . . No doubt, when a decision of a single judge on the original side of this court is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial control on the activities of the stock exchange exercised under various provisions of the Act. The stock exchanges also in view of the altered nature of business are increasingly discharging public functions. Its activities are constantly monitored by various circulars of the SEBI. Two such circulars dated 20-4-1993 and 3-12-1997, have been handed over to the court by Mr. Mitra appearing for the writ petitioner. The first circular dated 20-4-1993, has been issued under section 8. Under the said circular, there is a direction upon recognised stock exchanges including the Bombay and Calcutta Stock Exchanges for amendment of their respective rules of articles of associations to provide for the composition of the governing body. Therefore, it is clear that there is a direct control over the composition of the governing body of the Stock Exchange by the Central Government. The attention of this Court has also been drawn to a subsequent SEBI guidelines dated 3-12-1997 and it is clear that the same has been issued in public interest for the purpose of streamlining the management of the stock exchanges and also for the purpose of providing certain things for the benefit of the public, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles of natural justice or if it is vitiated by an apparent bias or mala fides of the authority taking the decision or if the decision has been taken in flagrant disregard of a fundamental statutory provision or if the situation is such that the remedy will become fruitless, viz., the authority which is to give remedy has already expressed its mind or has committed itself to an unalterable stand in the proceeding. In some cases, it has been held that once the writ petition is admitted and put up for final hearing, in such a situation, the writ court should not refuse to exercise its discretion on the ground of availability of an alternative remedy. The other exceptions are where the action taken is wholly without jurisdiction or it infringes any fundamental right of the person aggrieved or the petitioner has raised a prima facie and strong case that the action has been taken under a law which is ultra vires the Constitution. Those are generally the factors which control the discretion of a writ court in a situation where the maintainability of the writ petition in view of the alternative remedy is very much debated. These exceptions, as pointed out above, are howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the learned judges in Titaghur Paper Mills Co. Ltd. s case ( supra ) have followed the dictum of justice Willes in Wolverhampton New Water Works Co. v. Hawkesford [1859] 6 CB (NS) 336 and also various other judgments of the English Court and also of the Privy Council, where the aforesaid principles have been reiterated. Therefore, the said principles, viz., that where an Act provides for a complete machinery and gives a remedy in respect of a liability fastened under the Act itself, the legislative intent of exhausting that remedy cannot be by-passed and cannot be overlooked even by the writ court while exercising its discretion, on repeated reiteration have been hardened into a rule of law which operates as an autorestraint on the exercise of discretion by a writ court. 46. Reference, in this connection, can also be made to be Constitution Bench decision of the Apex Court in the case of Thansingh Nathmal v. Superintendent of Tax, Dhubri AIR 1964 SC 1419. Justice Shah speaking for the court in paragraph 7 has reiterated the same principles by saying that the jurisdiction of the High Court under article 226 of the Constitution of India even though couched in very w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the problems has been tested and found wanting. The consequence of these irregularities in securities and banking transactions are both financial and moral. During the period from July, 1991 to May, 1992, the most glaring proof of the nexus between the irregularities in banks and the overheating of the stock market which came to light is explained by the graphic representations of the BSE index and the fact that there was a sharp increase in securities transactions during the corresponding period of the banks involved in serious irregularities related with the scam. What is more apparent is the systematic and deliberate abuse of the system by certain unscrupulous elements. It is abundantly clear that the scam was the result of failure to check irregularities in the banking system and also liberalisation without adequate safeguards. There is also some evidence of collusion of big industrial houses playing an important role. It is because of these elements that the economy of the country had to suffer and while some gained thousands of crores, millions of investors lost their savings. The criminality of the perpetrators of the scam becomes all the more despicable as it was during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port). ( d ) In Harshad S. Mehta v. State of Maharashtra [2001] 107 Comp. Cas. 365 (SC) 2 , Justice Y.K. Sabharwal, speaking for a three-judge Bench held that section 9(4) confers (page 372) .......inherent powers on the Special Court to deal with any matter that may be brought before it and Special Court may adopt its own procedure consistent with principles of natural justice . [Emphasis supplied] (p. 372) 49. The contention of the writ petitioner considered in the background of the express legislative intent and the pronouncement of the Apex Court loses much of its substance. 50. A closer look at the provisions of the Act would show that under sub-section (2) of section 4, the categories of persons who can go before the Special Court are as follows : ( a )any person aggrieved by the notification under sub-section (2) of section 3; ( b )any person who is aggrieved by any cancellation under sub-section (1) of section 4; ( c )or any person aggrieved by any other order made by the Custodian in exercise of his power conferred by him under section 3 or section 4. 51. In the instant case, the petitioners are admittedly aggrieved by the action taken by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as this court does not deal with the said question. 55. Having regard to the nature and enormity of the problem and for dealing with which the Act has been introduced and the Special Court has been set up, it will not be a sound exercise of discretion on the part of this court to decide the writ petition on the merits when a proper forum is created for this special purpose and before which the petitioner can seek a redressal of his grievances. On this aspect of the matter, this court is of the view that the principles decided in the case of Titaghur Paper Mills Co. Ltd. ( supra ) are very much attracted. Apart from that, on a construction of section 9A(1)( b ) and 9(3), this court finds that the Special Court has the exclusive jurisdiction to deal with any matter or claim arising out of the transaction in securities entered into during the material period in which a person notified under sub-section (3) is involved either as a party, broker, intermediary or any other manner . It is, therefore, clear that the sweep of this section is extremely wide because of two expressions, viz., involved and any other manner . The intention of the Legislature pursuant to the recom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a for the petitioner relied on the decision in the case of Tejkumar Balakrishna Ruia v. A.K. Menon [1996] 87 Comp. Cas. 539 1 to contend that since a notified person is even allowed to carry on business, the petitioner, a non-notified person should be allowed to carry on business by this Hon ble Court and the writ petition should be entertained without exhausting the statutory remedy. In Tejkumar Balakrishna Ruia s case ( supra ) the appellant petitioned the Special Court for a declaration that the income earned by him by way of consultancy fees is not liable to attachment and a prayer was made "to open a new bank account". The Special Court refused the prayers. On appeal, the Hon ble Supreme Court allowed the prayers of the appellant by holding that the rejection of the appellant s prayer on the interpretation of the Special Court would amount to depriving the appellant of his opportunity to earn his livelihood and to face him to beggary and even then the alms could be attached. Such an interpretation would make section 3(3) unconstitutional. The Hon ble Supreme Court, therefore, allowed the petitioner s income from consultancy on the basis of his appointment as adviser, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Certain proceedings were pending before the statutory authority and the appellant s suit against Chinar Trust was pending in the Delhi High Court in which the grant of interim order was affirmed on contest right up to the Apex Court. At this juncture a show-cause notice was issued by the registrar asking the appellant to show-cause why its certificate of registration will not be cancelled. A writ petition, challenging that notice, was filed by the appellant in the Bombay High Court and the Bombay High Court dismissed it. Challenging that decision, the appeal was filed in the Supreme Court. 66. Examining the scope of the writ court s power vis-a-vis the alternative remedy under the statute, the Apex Court summarised the legal principles in paragraphs 14, 15 and 20 of the judgment. The Apex Court found on the merits that the show-cause notice issued by the Registrar was without jurisdiction and quashed the same and held that if any order is passed without jurisdiction by a statutory Tribunal, the aggrieved person, without submitting to the proceeding initiated without jurisdiction, can challenge the same by a writ petition. There can be no doubt about the said settled princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its jurisdiction in view of the existence of a forum where all questions can be more effectively thrashed out. In fact, learned counsel appearing for the custodian submitted before this court that because of the intervention of this court and the consequential passing of an order dated 20-12-2001, with certain interim directions, the custodian has not made any application before the Special Court under the Act. Had here been no intervention by this court, the custodian might have made the application. 72. This court, therefore, makes it clear that it is open either to the petitioner or the custodian to take appropriate proceedings before the Special Court. This court observes that if the proceedings are initiated before the Special Court within a period of a fortnight from today, the Special Court may entertain the same without insisting on the period of 30 days limitation as mentioned in section 4(2). 73. The factual basis necessary to decide the question of lifting the veil has not been laid before this court, as affidavits were not filed by the respondents. The said question is kept open. 74. In the facts of this case and for the reasons discussed above, this writ p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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