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TMI Blog2003 (10) TMI 659X X X X Extracts X X X X X X X X Extracts X X X X ..... f the High Court. The High Court is requested to consider the claims of the respondents in the light of the observations made hereinbefore as also upon directing the Exchange to file a fresh statement of accounts, if it is found neat and proper. In the event, any doubt or dispute arises, the High Court would be entitled to appoint a competent person as CIT to go into the said accounts and submit a report to it at the cost of the Exchange, However, if it is found that the Governing Board has not specified any date in terms of cl. 7 of Bye-law 343, it shall issue such direction/directions as it may deem fit and appropriate for doing complete justice not only to the respondents but also to the other creditors similarly situated. In view of the fact that the respondents herein had obtained a decree in her favour as bank as on 15th Feb., 1994, we would request the High Court to consider the desirability of disposing of the matter as expeditiously as possible preferably within four months from the date of this order. This appeal is disposed of on the above terms with no order as to costs. X X X X Extracts X X X X X X X X Extracts X X X X ..... e under O. 21, r. 46 of the CPC, 1908 was issued on 27th July, 1994, for attaching the debt owed by the Exchange to C.S. Shah. A garnishee notice was also issued by the High Court on 7th Dec., 1994, in terms whereof the Exchange was called upon to pay to the respondent/Sheriff of Bombay a sum of ₹ 4,15,157.80. 5. Several affidavits were filed by the Exchange disclosing the amount lying in its hands. In the first affidavit filed on 12th Jan., 1995, it was disclosed that sufficient fund is available to meet the claim of the respondent. In an additional affidavit filed on 8th Dec., 1995, it was alleged that the total amount lying with the Exchange for distribution amongst the constituent creditors of C.S. Shah was ₹ 53,56,159. It was further contended that in addition to that amount each creditor constituent was entitled to receive a maximum sum of ₹ 25,000 from the petitioner's Customer Protection Fund towards his/her claim and the said available sum of ₹ 53,56,159 was required to be distributed on a pro rata basis in terms whereof the respondent would be entitled to receive a sum of ₹ 1,16,530 making an aggregate sum of ₹ 1,41,530. 6. A cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not entitled to attach any part of the said amount. 8. The learned Single Judge rejected the aforementioned contention of the Exchange and made the garnishee notice absolute pursuant whereto it was directed to pay over to the respondent a sum of ₹ 4,14,977.80. 9. Aggrieved thereby the appellant preferred an appeal before the Division Bench of the Bombay High Court wherein the contentions raised before the learned Single Judge were reiterated and in particular it was contended that the learned Single Judge erred in rejecting and refusing to take on record the Exchange's additional affidavit dt. 14th Dec., 1995. 10. The Division Bench while admitting the appeal passed an order taking on record the said additional affidavit and further granted leave to the respondent to file a rejoinder thereto. 11. By reason of the impugned judgment the said appeal was dismissed. 12. Before us also the following chart has been placed to show that even now the net shortfall is ₹ 70,00,000. Collection Rs. Distribution Rs. (1) Other assets collected by and vested in Defaulters' Committee under Bye-law 326 68,00,000 1) To 'Creditor Members' under Bye-law 326 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d being not a personal property of the defaulter, when sold, the proceeds thereof must be distributed amongst the creditors as 'liabilities relating to contracts' under r. 16(ii) makes no distribution between the claims of a member and non-member as Bye-law 219 defines a 'Contract Note' to include a contract between a member and a non-member. It was argued that the other assets of the defaulting member do not vest in the Exchange. The vesting of the other assets in the Defaulters' Committee is merely to a limited extent, viz. as a trustee, for the benefit and on account of the creditors members. Such vesting, Ms. Malhotra would contend, would be co-terminus with the satisfaction of the claims of the members and, thus, the surplus which remains at the hands of the Defaulters' Committee must be restored to the defaulting member in terms of r. 44 which would be available for discharge of his other dues. 17. As per the first affidavit of the Exchange, Ms. Malhotra would argue, a large amount of surplus money was available at its hand, and, thus, no illegality can be said to have been committed by both the Single Judge and the Division Bench of the High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(f) 'recognised stock exchange; means a stock exchange which is for the time being recognised by the Central Government under s. 4; " 22. Sec. 3 of the Act deals with application for recognition of Stock Exchanges which reads as under : "3. Application for recognition of Stock Exchange. (1) Any Stock Exchange, which is desirous of being recognised for the purposes of this Act, may make an application in the prescribed manner to the Central Government. (2) Every application under sub-s. (1) shall contain such particulars as may be prescribed, and shall be accompanied by a copy of the bye-laws of the Stock Exchange for the regulation and control of contracts and also a copy of the rules relating in general to the constitution of the Stock Exchange, and in particular, to : (a) the governing body of such Stock Exchange, its constitution and powers of management and the manner in which the business is to be transacted; (b) the powers and duties of the office bearers of the Stock Exchange; (c) the admission into the stock exchange of various classes of members, the qualifications for memberships, and the exclusion, suspension, expulsion and re-admission of mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) any other penalty of a like nature not involving the payment of money." 27. The Rules, Bye-laws and Regulations have been framed by the Exchange known as 'the Stock Exchange Rules, Bye-Laws and Regulations, 1957. The same has received the approval of the Central Government. The rules so framed govern the relationship of the member and Exchange. 28. Rule 5 provides that a membership is a personal privilege. If a member becomes a defaulter, the said privilege is put on auction and the money is deposited to the Exchange. Rule 10 provides that when a right of membership is forfeited to or vests in the Exchange, it shall belong absolutely to the Exchange free of all rights, claims or interest of such member or any person through such member and the governing Board shall be entitled to deal with or dispose of such right of membership as it thinks fit. 29. Rule 11 deals with nomination by members, with regard to nomination in case of defaulter sub-r. (c) provides as under : Nomination in case of defaulter "The forfeited right of membership of a defaulter shall be restored to him if he be re-admitted as a member within six months from the date of default but if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Exchange or on his working as a representative member or on his death all security not applied under the Rules, Bye-laws and Regulations of the Exchange shall at the cost of member be repaid and transferred either to him or as he shall direct or in the absence of such direction to his legal representatives." 32. Rules 53 and 54 deal with the effect of default and read as under : Default "53. A member who is declared a defaulter shall at once cease to be a member of the Exchange and as such ceased to enjoy any of the rights and privileges of membership but the rights of his creditor members against him shall remain unimpaired. Lapse of membership right 54. A member's right of membership shall lapse to and vest in the Exchange immediately he is declared a defaulter." 30. Rule 70 reads as under : FAILURE TO PAY SUBSCRIPTION AND OTHER FEES "70. Failure to pay subscription and other fees 'Save as otherwise provided in the Rules, Bye-laws and Regulations of the Exchange if a member fails to pay his annual subscription, fees, charges or other monies which may be due by him to the Exchange or to the Clearing House within two months after notice i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n pay or give the same to the Defaulters' Committee for the benefit and on account of the creditor members in the event of the default of such other members. 330. Distribution 'The Defaulters' Committee shall at the risk and cost of the creditor members pay all assets received in the course of realization into such bank and/or keep them with the Clearing House in such names as the Governing Board may from time to time direct and shall distribute the same as soon as possible pro rata upto sixteen annas in the rupee but without interest among the creditor members whose claims are admitted in accordance with these Bye-laws and Regulations. 343. Certain Claims Not to be entertained 'The Defaulters' Committee shall not entertain any claim against a defaulter : (vii) which is not filed with the Defaulters' Committee within such time of the date of declaration of default as may be prescribed by the Governing Body." 35. The provisions for arbitration between a member and a non-member and a member and a member are different and distinct. 36. The following bye-laws provide for arbitration between member and non-member: "248(a) Reference to arbitrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uance thereof and any question or dispute whether such bargains, dealings, transactions or contracts have been entered into or not shall be subject to arbitration and referred to the Arbitration Committee as provided in these bye-laws and regulations. 284. Application for arbitration. 'Whenever a claim, complaint, difference or dispute which under these Bye-laws and Regulations must be referred to the Arbitration Committee arises between members any member who is a party to such claim, complaint, difference or dispute may apply to the Arbitration Committee to inquire into and arbitrate in the dispute. 290. Appeal to Arbitration Committee. 'A party to a reference who is dissatisfied with any award of the arbitrators may appeal to the Arbitration Committee against such award within seven days of the receipt by him of such award. 292. Hearing of appeal. 'When the deposit certificate is annexed to the appeal the Arbitration Committee shall itself proceed to hear the appeal and arbitrate in the reference. 295. Appeal to the Governing Board : If the sum involved in dispute is ten thousand rupees of more' the party dissatisfied with the award of the Arbitration Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et before the balance amount can be utilised for payment of debts, liabilities, obligations, etc. arising out of any contract made by the former member. If the amount available is insufficient to pay all such debts, liabilities, etc. then the payment is to be made pro rata. If, however, any surplus still remains the same is to be disposed of or applied in such manner as the exchange in general meeting may decide. 11. The High Court, in our opinion was, therefore, right in coming to the conclusion that on a default being committed the share broker ceases to become a member of the Exchange and all his rights, privileges, etc. as a member come to an end. If he does not clear the dues within six months the governing body then has a right of nomination in respect of such membership. It will be incorrect to state that on the stock broker ceasing to be a member, he still retains any right or interest in the permission which has been granted to him by the Exchange to carry on business as a member. The membership card of a share broker is not his personal property which, on default being committed by him and his ceasing to be a member, can be sold and the proceeds distributed amongst his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention urged on behalf of the respondent that Rajesh Shah could not be declared a defaulter after his death and, therefore, on his purported default the question of membership vesting in the Stock Exchange would not arise need not be gone into in the present case, for that r. 9 stipulates that both in case of death or default or a member his right of nomination shall cease and vest in the Exchange. In the case in hand, on the death of Rajesh Shah his right of nomination ceased and vested in the Exchange and his legal representatives and heirs did not exercise the right of nomination by expressing their inability to meet the liabilities of the deceased." 41. How the card money is to be dealt with has been provided under the rules. A dichotomy, however, has been created under rules and bye-laws as regard the amount received by sale of membership card and amount recovered from defaulter's other assets. On a plant reading of the rules and bye-laws it appeared that the authority to deal with the card money and the liability of the members by the Defaulters' Committee is different, but having regard to the scheme of distribution of the liabilities of the Exchange, Clearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Vesting of such assets of the defaulter in the Defaulters' Committee is not absolute. Defaulters' Committee is merely a trustee. It holds the said amount vested in it for the benefit and on account of the creditor members. Once and liabilities of the creditors from the defaulters are paid to the member, in terms of r. 44. 49. The assets devolve upon the Defaulters' Committee in terms of Bye-law 326 for a limited purpose and as contra-distinguished from the rules, in terms whereof the card may vest in the Exchange, do not vest in it absolutely. 50. The Defaulters' Committee takes in its custody the amount realised from other assets not as an owner thereof and the vestment thereof would, thus, be co-terminus with the satisfaction of the claim of the member. It, as soon as the purpose of Bye-law 326 is satisfied, comes to an end. 51. The assets of the defaulting member can broadly be divided into two categories, namely, card membership and other assets. 52. How the asset obtained from card membership are to be applied would appear from rr. 5, 6, 7, 9 and 10, 53, 54, 54-A and 70 of the Rules. 53. However, so far as other assets are concerned, the same are to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly different footing. Not only it is an internal matter of the Exchange, an award made in such a proceeding is an appealable one. Only when determination is made in relation to a claim by and between the member and the defaulting member, the same becomes final and enforceable. 60. There cannot, however, be any doubt that so long as the claim of the awardees both the members as also non-members are dealt with by the Defaulters' Committee, the Exchange or the Defaulters' Committee would not be a debtor in relation to an awardee. But once the Defaulters' Committee determines such claims and surplus is available at the hands of the Defaulters' Committee, as the surplus amount would become payable to the defaulting members, the same would become an asset of the defaulting member. In other words, other assets continue to remain assets of the defaulting members subject to the vesting thereof for the purposes mentioned in Bye-law 326 and as soon as the purpose is satisfied, the ownership which was under animated suspension, or eclipsed would again revive to the defaulting member. The awardees, however, so long as the assets remain under the control of the Defaulters' C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally stated that they had enough surplus at its hands wherefrom the claim of the respondents could be satisfied. It, however, as noticed hereinabove, filed an additional affidavit as also a further affidavit taking a different stand. As indicated hereinbefore, before us as also, a statement has been filed for the purpose of showing that there exists a shortfall of ₹ 70 lakhs. 63. The manner in which the Exchange has dealt with the matter to say the least is unfortunate. 64. The learned Single Judge noted the admission made by the Exchange to the effect that the Defaulters' Committee called in and realised the security and margin money and securities deposited by the defaulted member and recovered monies, securities and other assets due, payable or deliverable to the defaulted member. It noticed that a sum of ₹ 50 lakhs which the Defaulters' Committee would distribute rateably on pro rata basis amongst the creditor constituents of the defaulter member. It also noted that till 12th Jan., 1995, the Exchange had received around 100 claims from the creditor constituents of the defaulted member aggregating to ₹ 24 lakhs and in that view of the matter the Excha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefrom has not been disclosed. In short, the Stock Exchange has not disclosed : "(i) The number of claims received of non-member within the period prescribed; (ii) The number of enforceable decrees that have been passed with respect to the claims of non-members; (iii) Amount of interest available on the amount of ₹ 55 lacs deposited in a fixed deposit pursuant to the order dt. 17th Jan., 1996, of the Bombay High Court." 67. For the reasons aforementioned, we are of the opinion that the matter be considered afresh by the learned Single Judge of the High Court. The High Court is requested to consider the claims of the respondents in the light of the observations made herein before as also upon directing the Exchange to file a fresh statement of accounts, if it is found neat and proper. In the event, any doubt or dispute arises, the High Court would be entitled to appoint a competent person as CIT to go into the said accounts and submit a report to it at the cost of the Exchange, However, if it is found that the Governing Board has not specified any date in terms of cl. 7 of Bye-law 343, it shall issue such direction/directions as it may deem fit and appropr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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