1995 (3) TMI 381 - HC - Companies Law

Court dismisses petition against Stock Exchange, allows Disciplinary Committee to proceed with enquiry

Jagadeesh Kumar Versus P. Srinivasan

The Court dismissed the petition, ruling that a writ petition against the Stock Exchange was not maintainable as the Stock Exchange did not owe a public ... Stock exchanges Issues Involved:1. Allegations of fraudulent preparation of a contract and collection of money.2. Constitution and jurisdiction of the Disciplinary Committee.3. Validity of Bye-laws under which the enquiry was initiated.4. Bias of the Disciplinary Committee Chairman.5. Maintainability of a writ petition against the Stock Exchange.Detailed Analysis:1. Allegations of Fraudulent Preparation of a Contract and Collection of Money:The petitioner, a member of the Bangalore Stock Exchange Limited, was accused by T.S. Gopalakrishnan of fraudulently preparing a contract in collusion with an Assistant General Manager and collecting money directly from C.R. Thimmaiah and the Defaults Committee. The petitioner denied these allegations. The Council of Management of the Stock Exchange requested an investigation, which found substance in the allegations and recommended further action.2. Constitution and Jurisdiction of the Disciplinary Committee:The petitioner raised objections regarding the constitution of the Disciplinary Committee, arguing that it was not validly formed as per the Bye-laws and articles of association. The Disciplinary Committee upheld the objection that the requirement of section 9(4) of the Securities Contracts (Regulation) Act ('the Act') had not been fulfilled regarding prior publication in the Gazette of India. However, they maintained that the initiation of action was valid even if the Bye-laws were not. The Committee traced their power to article 64 of the articles of association, allowing them to proceed in the absence of Bye-laws. The objection regarding the constitution of the Committee was overruled, as the President and Executive Director excused themselves, and the remaining members maintained the required ratio of member brokers to non-members.3. Validity of Bye-laws Under Which the Enquiry Was Initiated:The Disciplinary Committee noted that the SEBI had not passed an order in writing to dispense with the condition of previous publication, and without such publication, the Bye-laws had no effect. Despite this, they argued that citing a wrong provision would not invalidate the exercise of power if the authority had the power under another provision. The Committee relied on article 64 of the articles of association to justify their jurisdiction.4. Bias of the Disciplinary Committee Chairman:The petitioner contended that the Chairman of the Disciplinary Committee, who had participated in the preliminary investigation and Council meetings, was biased. The respondents argued that the Chairman's role was limited and that a preliminary enquiry would not debar him from sitting on the Disciplinary Committee.5. Maintainability of a Writ Petition Against the Stock Exchange:The respondents contended that a writ petition was not maintainable against the Stock Exchange as it did not owe a public duty in the matter of expelling a member. The Court agreed, stating that the Stock Exchange's actions in regulating membership did not constitute a public duty amenable to writ jurisdiction. The Court cited precedents to support the view that mandamus would not lie to secure performance of obligations owed by a company towards its members unless it involved a statutory duty.Conclusion:The Court dismissed the petition, concluding that the Stock Exchange did not discharge any public duty in the matter of regulating membership, and thus, a writ petition was not maintainable. The objections regarding the constitution and jurisdiction of the Disciplinary Committee and the validity of the Bye-laws were overruled, allowing the Committee to proceed with the enquiry. The issue of bias was also dismissed, as the Chairman's participation in preliminary stages did not disqualify him from the Disciplinary Committee.