AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1960 (8) TMI 95
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....he purpose of assisting or controlling the business of buying, selling or dealing in securities". The history of stock exchanges in foreign countries as well as India shows that the development of joint stock enterprise would never have reached its present stage but for the facilities which the stock exchanges provided for dealing in securities. They have a very important function to fulfil in the country's economy. Their main function, in the words of an eminent writer, is " to liquify capital by enabling a person who has invested money in, say, a factory or a railway, to convert it into cash by disposing of his share in the enterprise' to someone else". Without the stock exchange, capital would become immobilized. The proper working of a stock exchange depends upon not only the moral stature of the members but also on their calibre. It is a trite saying that a jobber or dealer is born and not made. In the words of the same author, a jobber must be a man of good nerve, cool judgment, and ready to deal under any ordinary conditions, and he must be a man of financial standing, considerable experience, with an understanding of market psychology. There are three modes of deali....
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.... the same is made between members or through a member of a recognised stock exchange ; and no claim shall be allowed in any civil court for recovery of any commission, brokerage, fee or reward in respect of any such contract." But this Act defined " ready delivery contract " to mean " a contract for the purchase or sale of securities for performance of which no time is specified and which is to be performed immediately or within a reasonable time". It was also stated therein by way of explanation that what was reasonable time was in each particular case a question of fact. This Act did not achieve its purpose, for under section 6 thereof contracts entered into in contravention of the provisions of that section were not made illegal but only void, with the result that even members of a stock exchange not recognised under that Act were able to do business in that line. What is more, the explanation to the definition of " ready delivery contract" which is excluded from the operation of the Act was so elastic that in the name of ready delivery contracts unrecognised stock exchanges and individuals were able to carry on business in forward contracts. Gambling in shares went unchecked in....
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....for the qualification for membership of a stock exchange seeking recognition, the procedure for recognition, the manner of keeping accounts, the submission of annual reports, the constitution of governing bodies and for taking disciplinary action against any member of such bodies and other similar matters. In Greater Bombay there were two stock exchanges, one called the Native Share and Stock Brokers' Association, and the other the Indian Stock Exchange Limited. The former was in existence for more than 80 years and it was registered under the Bombay Securities Contracts Control Act, 1925. Its rules and bye-laws were approved by the Government of Bombay and it was doing business in both forward as well as ready transactions. It has a clearing house and was doing extensive business in different kinds of securities. The other, namely, the Indian Stock Exchange Limited was a company incorporated under the Indian Companies Act, 1913 as a company limited by guarantee without any share capital. The said company had been functioning since 1937, but was not registered under the Bombay Securities Contracts Control Act, 1925. It was mainly doing business in Tata ordinary and Bombay dye....
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.... any business on the floor of the said stock exchange either on his own account or on account of his clients. He avers in the affidavit filed in support of the petition that he has been doing considerable business on his own account or on account of his clients through other members of the stock exchange and that he intends to commence business directly in ready delivery contracts. As the impugned notifications affect his right to do business, he seeks for the issue of a writ of mandamus for the aforesaid reliefs. Shri Purshottam Trikumdas, learned counsel for the petitioner, raised before us the following contentions : (i) under article 19(i)(g) of the Constitution the petitioner has a fundamental right to carry on the business in shares and the notification dated August 31, 1957 and the subsequent notification dated November 30, 1957, imposed unreasonable restrictions on his said right; (2) the notification dated August 31, 1957 is void inasmuch as it is not sanctioned by the provisions of section 4 of the Act; and (3) the condition 2(i)(a) of the said notification classifying members of the Indian Stock Exchange Limited as active members and members who were not active infringe....
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.... expressed in general terms." The general terms can comprehend both reasonable and unreasonable* restrictions. If the notification imposes unreasonable restrictions -if the contention of the learned counsel for the petitioner be accepted, the restrictions imposed would certainly be unreasonable-it is liable to be set aside. We cannot, therefore, accept this contention. Re. (i) : Article 19(i)(g) of the Constitution states that every citizen shall have the right to carry on any business; but the State is empowered under clause (6) of the said article to make any law imposing in the interest of the general public reasonable restrictions on the exercise of the said right. Briefly stated, the argument is that the combined effect of the two notifications is that the petitioner is driven out of his business of stock exchange inasmuch as, it is said, they confer a monopoly on the Stock Exchange, Bombay, and the rules of the said stock exchange exclude any outsider from becoming its member without obtaining a nomination and that too only in /the place of an existing member. To put it differently, the argument proceeds that under the rules of the Stock Exchange, Bombay, membership is not t....
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....t may think fit." Rule 54 is to the following effect : " A member's right of membership shall lapse to and vest in the exchange immediately he is declared a defaulter." Rule ii is as follows : "(a)A member of not less than seven years' standing who desires to resign may nominate a person eligible under these rules for admission to membership of the exchange as a candidate for admission in his place. (b)The legal representatives of a deceased member or his heirs or the persons mentioned in appendix C to these rules may with the sanction of the governing board nominate any person eligible under these rules for admission to membership of the exchange as a candidate for admission in the place of the deceased member. In considering such nomination the governing board shall be guided so far as practicable by the instructions set out in appendix C to these rules." Appendix B gives the nomination forms Nos. i and 2 to be filled by a member or a legal representative, as the case may be, under rule 11(a) and (b). Now it would be convenient to read rules 20 and 21. They are as follows : Rule 20: " A candidate for admission except a candidate applying for a membership, vesting i....
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....o give or refuse recognition to any stock exchange and it has chosen to give recognition to the Stock Exchange, Bombay, subject to the conditions prescribed. The restrictions in our view, are not unreasonable, having regard to the importance of the business of a stock exchange in the country's national economy and having regard to the magnitude of the mischief sought to be remedied in the interest of the general public!/ At another place we have already dealt with the necessity for stringent rules governing this type of business. For the reasons mentioned we reject the first contention. Re. (2) : The second contention also has no merits The criticism is that condition 2(1)(a) annexed to the notification cannot be supported on the basis of any of the provisions of section 4 of the Act. Condition 2( 1) reads as follows : " The members of the Indian Stock Exchange Limited, Bombay, will be entitled to apply for membership of the Stock Exchange, Bombay, provided they fulfil or comply with the following terms and conditions: (a) they have been active members of the Indian Stock Ex change Limited, for twelve months immediately preceding the 6th August, 1957." Explanation : ' A....
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....ion (2) of section 4, as the other conditions in that sub-section are obviously inapplicable. It is further pointed out that sub-section (2) refers back to sub-section (i)( a) and under that clause the condition imposed must only be that prescribed by the rules made under the Act and that the condition imposed by the notification is not a condition so prescribed. There is force in this argument; but the acceptance of this contention does not advance the case of the petitioner, for if the condition is not covered by clause (a) of section 4(1), it falls under clause (b) thereof. Under that clause the Central Government may grant recognition to a stock exchange if the said stock exchange is willing to comply with "any other conditions". It is said that the other conditions in section 4(i)( b) must only be conditions relating to the area served by the stock exchange, its standing and the nature of the securities dealt with by it. This is not what clause (b) of section 4(1) says. The conditions under clause (b) of section 4(1) no doubt shall be such as may be imposed by the Government, having regard to the aforesaid three considerations, but they need not necessarily be confined only to....
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.... that there were 24 members of the said stock exchange who started transacting business regularly on the floor of the said stock exchange some time after August 6, 1956, and continued to transact business right up to and after August 6, 1957. It was asked what was the reasonable basis for confining the definition of active members to those who were carrying on business during the period of 12 months from August 6,1956, to August 6,1957, while excluding the aforesaid three categories who were equally active members and indeed more active than those included in the definition. It was further asked what was the justification for excluding a member who was an active member for years before the crucial year and irregularly conducted business' on the floor of the stock exchange during the crucial year while including a member who might have been a newcomer or who might have been earlier a nominal member but began to do business regularly only during the said-year. Emphasis was also laid upon the alleged elastic and indefinite content of the word " regular " and it was suggested that the said word could not possibly afford a precise standard. These are all weighty considerations and w....
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.... of that exchange was divided into full members and associate members. It points out that the Indian Stock Exchange Limited became moribund in a few ears and to revive its activities it allowed the members of the East India Chamber of Commerce, by relaxing its entrance fee and security deposit requirements in 1950-51 and created a new class of associate members, which facilitated the enrolment of hundreds of associated members on payment of a nominal entrance fee of Rs. 100. The Government on a consideration of the necessary data and presumably having regard to the record of the activities of the various members fixed the activities in the crucial year 1956-57 as the standard of activity for membership. There is a presumption in favour of the State that there is a reasonable basis for the classification. Except the mere allegations in the affidavit which are not admitted, the petitioner has not placed before us any materials to ascertain that any other members, who were regularly doing business on the floor of the Indian Stock Exchange Limited before August 6, 1956, temporarily suspended their business for one reason or other over which they had no control. No statement from the a....