Court rules in favor of petitioners from Magadh Stock Exchange Association, citing natural justice violation.

The court found in favor of the petitioners, members of the Magadh Stock Exchange Association, on the ground of gross violation of natural justice principles. The impugned decisions declaring them as defaulters were quashed. The court directed the council of management of the stock exchange to reconsider the matter within two months, emphasizing the need for adherence to natural justice principles and fair play. The petitioners were prohibited from participating in transactions during this period, with consequential benefits to follow from the fresh decision. No costs were awarded in the case.

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Issues Involved:
1. Violation of natural justice in declaring members as defaulters.
2. Lack of enquiry or opportunity of hearing before declaring defaulters.
3. Need for recording reasons in quasi-judicial decisions.
4. Allegations of malice and bias in the decision-making process.
5. Appropriate authority for declaring defaulters.

Detailed Analysis:

1. Violation of Natural Justice in Declaring Members as Defaulters:
The petitioners, members of the Magadh Stock Exchange Association, challenged the decision declaring them as defaulters. The court found the writ petitions fit to succeed on the ground of violation of the rules of natural justice alone. The articles of association and bye-laws of the stock exchange, which are deemed to be rules under section 2(g) of the Securities Contracts (Regulations) Act, 1956, provide for penalties such as defaulter, expulsion, suspension, fine, etc. However, the bye-laws do not provide for any enquiry or an opportunity of hearing before declaring a member defaulter, which the court found problematic.

2. Lack of Enquiry or Opportunity of Hearing Before Declaring Defaulters:
The court noted that while there are specific provisions regarding opportunity of hearing and a full-fledged enquiry in the matter of proposed expulsion or suspension, no such protection is available in the matter of declaration as defaulter. The consequences of being declared a defaulter are severe, as it disables the person from trading in shares and securities in any stock exchange of the country. The court emphasized that the absence of provisions for giving an opportunity of hearing or enquiry cannot affect the rights of the persons, as the rules of natural justice and fairness of action come into play when the statute is silent.

3. Need for Recording Reasons in Quasi-Judicial Decisions:
The court emphasized the need for recording reasons in exercising quasi-judicial functions. Citing the case of Mukherjee (S.N.) v. Union of India, the court highlighted that recording reasons guarantees consideration by the authority, introduces clarity in decisions, and minimizes chances of arbitrariness in decision-making. The requirement to record reasons is regarded as one of the principles of natural justice governing the exercise of power by administrative authorities.

4. Allegations of Malice and Bias in the Decision-Making Process:
One of the aspects in controversy was that the decision had been taken by the then executive director out of malice and caprice. The court did not delve into the question of bias but noted that under bye-law 308, the decision regarding defaulter is to be taken by the council of management or the President or, in the absence of the President, two members of the council of management. The court expressed doubt about whether the power of declaration of default should be conferred on a single individual, citing the need for collective decision-making to prevent arbitrariness.

5. Appropriate Authority for Declaring Defaulters:
The court pointed out that the decision in regard to expulsion or suspension is to be taken by a majority of not less than two-thirds of the members of the council, subject to a minimum of four votes. The court suggested that the stock exchange should consider amending its bye-laws to make them more in conformity with the rules of natural justice and fair play. The court remitted the matter back to the council of management of the stock exchange for fresh consideration, directing them to take an appropriate decision in accordance with law within two months.

Conclusion:
The writ petitions were allowed on the ground of gross violation of the principles of natural justice. The impugned decisions were quashed, and the council of management of the Magadh Stock Exchange was directed to reconsider the matter in light of the court's observations and take an appropriate decision within two months. The petitioners were not allowed to enter the ring and participate in transactions of sale and purchase of shares and securities in the meantime. The consequential benefits of the quashing of the impugned decisions would abide by the fresh decision. There was no order as to cost.

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