Kerala High Court
Mohammed Sadikh Ali vs The Securities And Exchange Board Of ... on 13 July, 2020
Author: V.G.Arun
Bench: V.G.Arun
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE V.G.ARUN
MONDAY, THE 13TH DAY OF JULY 2020 / 22ND ASHADHA, 1942
WP(C).No.12101 OF 2018(K)
PETITIONER/S:
MOHAMMED SADIKH ALI
S/O.BABAN KHAN SAHIB, AGED 58 YEARS, RESIDING AT
3/433 (OLD 28/19), NAGARKOIL HOUSE, SOUHRIDA LANE,
P.O.PATTURAIKKAL, THRISSUR DISTRICT-680022, KERALA
STATE.
BY ADVS.
SRI.P.K.RAMKUMAR
SMT.ANITHA MENON
RESPONDENT/S:
1 THE SECURITIES AND EXCHANGE BOARD OF INDIA
REPRESENTED BY ITS SECRETARY, PLOT NO.4-A, G BLOCK,
NEAR BANK OF INDIA, BANDRA KURLA COMPLEX, BANDRA
EAST, MUMBAI, MAHARASHTRA-400051.
2 THE CHAIRMAN SECURITIES AND EXCHANGE BOARD OF INDIA
PLOT NO.4-A, G BLOCK, NEAR BANK OF INDIA, BANDRA
KURLA COMPLEX, BANDRA EAST,MUMBAI, MAHARASHTRA-
400051.
3 OUR INVESTMENTS ENTERPRISE LIMITED
(FORMERLY COCHIN STOCK EXCHANGE LIMITED),REPRESENTED
BY EXECUTIVE DIRECTOR, P.JANAKI DEVI, MES
DR.P.K.ABDUL GAFOOR MEMORIAL CULTURAL COMPLEX,
36/1565, 4TH FLOOR, JUDGES AVENUE, KALOOR, KOCHI-
682017, ERNAKULAM, KERALA.
R1 & R2 BY ADV. SRI.K.M.JAMALUDHEEN
R3 BY ADV. SRI.GEORGE ZACHARIAH ERUTHICKEL
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 08-06-
2020, THE COURT ON 13-06-2020 DELIVERED THE FOLLOWING:
WP(C).12101/18 2
V.G.ARUN, J.
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W.P(C).No. 12101 of 2018
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Dated this the 13th day of July, 2020
JUDGMENT
The petitioner was a stock broker at the Cochin Stock Exchange and claims to have pledged a number of shares with the stock Exchange, which, according to the petitioner, were either sold or otherwise mismanaged by the Cochin Stock Exchange and thereafter by its successor entity, the 3rd respondent. Alleging that his shares were misappropriated, the petitioner submitted Exhibit P1 representation before the Chairman of the Securities Exchange Board of India (SEBI). In the meanwhile, the 3rd respondent issued Exhibit P3 communication stating that the petitioner is having dues of Rs.5,31,232.62 with the Cochin Stock Exchange Limited and that few of his shares are lying in its files due to various reasons like bad delivery, shares kept as margin etc. By the notice, the petitioner was called upon to take back the said shares on or before 29.1.2016 after paying the dues. The prayer in the writ petition is for the issue of a writ of mandamus to the SEBI and its Chairman to take urgent steps for protection of the petitioner's shares lying with the 3rd respondent and for a direction to the 3rd respondent to transfer the shares to the petitioner.
WP(C).12101/18 3
2. As per the counter affidavit filed by respondents 1 and 2, the representation received from the petitioner was forwarded to the 3rd respondent for appropriate action. The 3rd respondent had replied stating that the matter pertains to the outstanding liability of the petitioner and the transactions were done during the period 1988-1998, when the petitioner had trading membership with the erstwhile Cochin Stock Exchange. Some shares had been deposited by the petitioner as 'margin' and some shares were returned to the petitioner's account as 'bad delivery'. The petitioner was declared to be defaulter twice and re-admitted as a trading member of the Stock Exchange once. According to respondents 1 and 2, the petitioner having failed to challenge the liability due to the 3rd respondent, his claim cannot be entertained, that too, at a highly belated stage.
3. The 3rd respondent has stated that its predecessor, the Cochin Stock Exchange Limited was a Company incorporated under the Companies Act, 1956 and was being operated as a recognized Stock Exchange, regulated by the Ministry of the Government of India from 1978-1993 under the Securities Contracts (Regulation) Act, 1956 (for short, 'the SCRA') and thereafter, till December, 2014, by the SEBI, as per its prescribed bye-laws and regulations. The Cochin Stock Exchange had provided trading platform in the equity segment to its trading members like the petitioner and had also carried out the task of clearing and settlement through its clearing and settlement operations as stipulated under the SCRA and the SEBI Regulations, 1992. It is stated that the WP(C).12101/18 4 petitioner was admitted as a trading member on 23.7.1998 and the dealings of the petitioner were regulated by the Rules, Bye-laws and Regulations of the Cochin Stock Exchange. Bye-laws 62 and 63 of the Cochin Stock Exchange required a member to deposit margin in the form of cash, fixed deposit, equity shares or any other acceptable securities prior to executing the trade. As per Bye-law 67, the monies, bank deposit receipts, other securities and assets deposited by a member by way of margin shall be subject to a first and paramount lien for any sum due to the Exchange or to the clearing and settlement operations done by the member. This lien of the Cochin Stock Exchange Limited has devolved on the 3rd respondent by virtue of Exit Order dated 23.12.2014, based on which the 3rd respondent was formed as the successor Company as per certificate of incorporation dated 6.11.2015, by retaining the assets and the rights and liabilities of the erstwhile Cochin Stock Exchange. It is alleged that some of the shares sold and delivered by the petitioner through the Stock Exchange were subsequently rejected as bad delivery and the Stock Exchange was forced to buy shares from the market using its own funds to meet the trading obligations of the petitioner. The money so spent had to be debited from the account of the petitioner, that being the approved method of accounting practice adopted in the case of defaulters. Exhibits R3(a) to R3(h) are the communications ranging from 4.7.1992 to 4.2.1997 issued by the Settlement Department of the Stock Exchange demanding the petitioner to clear off his pay-in-dues and informing the petitioner that all the securities held by the Settlement Department in his account as well WP(C).12101/18 5 as the margin securities deposited by him with the Exchange would be sold in auction and such other steps taken for recovery of the pending dues, including auction of his membership. The communications having failed to evoke any positive response, the petitioner was declared to be a defaulter and thereafter his membership auctioned in the year 2003. The sale proceeds of Rs.2 lakhs was credited to the account of the petitioner on 30.6.2004, thereby reducing his pay- in liability. Ultimately, the petitioner's certificate of registration was cancelled by order dated 28.12.2004 and the said fact was communicated to him in January, 2005. Some of the shares lying in the Settlement Department, either as bad delivery or as margin in the account of the petitioner, were sold for recovery of the outstanding pay-in liability and the sale consideration credited to the petitioner's account. The list of the shares still available in the bad delivery/margin account of the petitioner is produced as Exhibit R3(n). It is stated that the shares mentioned in Exhibit R3(n) could not be sold due to the non cooperation of the petitioner and his clients, in executing fresh transfer deeds in favour of the 3rd respondent. The 3rd respondent has disputed many of the shares which the petitioner claim to have been handed over to the Cochin Stock Exchange. It is submitted that even now the 3rd respondent is willing to release all the shares mentioned in Exhibit R3(n) to the petitioner, subject to clearance of the pay-in liability along with applicable interest and other charges.
4. Heard Sri.P.K.Ramkumar, learned counsel for the petitioner, Sri.Jamaludheen K.M., learned counsel for respondents 1 and 2 and Sri.George WP(C).12101/18 6 Zachariah, learned counsel for the 3rd respondent.
5. From the facts mentioned above, it is evident that the dispute raised in the writ petition is essentially a monetary dispute which ought to be resolved by approaching the civil court. As far as the status of the 3rd respondent is concerned, even though its predecessor, the Cochin Stock Exchange was a recognized Stock Exchange regulated by the Ministry of Finance under the SCRA and SEBI with Central/State and SEBI nominees on its Board,the 3rd respondent is incorporated as a non-Government Company and as such, would not fall within the definition of 'State' under Article 12 of the Constitution of India. Further, the regulatory control of respondents 1 and 2 over the activities of the 3rd respondent is very limited and it was in such circumstance that the 1st respondent forwarded the representation received from the petitioner to the 3rd respondent for appropriate action. From the counter affidavit of the 3rd respondent it has come out that earnest efforts were taken by the Stock Exchange to realise the amounts due from the petitioner. Having failed to respond to the demand notices or to initiate legal action disputing the correctness of the claims in the notices at the appropriate time, the petitioner cannot approach this Court seeking invocation of the jurisdiction under Article 226 to resolve the dispute, that too, at a highly belated stage. The dispute as to whether the shares entrusted by the petitioner with the 3rd respondent was towards security/margin and whether the 3rd respondent or its predecessor had a lien over those shares and could have sold the shares for realisation of the WP(C).12101/18 7 petitioner's dues and whether the sale proceeds were accounted correctly, are issues which cannot be resolved in a writ petition. Those are factual disputes, the resolution of which require evidence to be adduced.
In the result, the writ petition is dismissed. It is made clear that dismissal of the writ petition will not fetter the rights, if any available, to the petitioner to approach the civil court for appropriate reliefs.
Sd/-
V.G.ARUN, JUDGE vgs WP(C).12101/18 8 APPENDIX PETITIONER'S/S EXHIBITS:
EXHIBIT P1 TRUE COPY OF THE REPRESENTATION SUBMITTED BY THE PETITIONER BEFORE THE 2ND RESPONDENT DT.17-1-2018.
EXHIBIT P2 TRUE COPY OF THE REPRESENTATION SUBMITTED BY THE PETITIONERS BEFORE THE 3RD RESPONDENT 24-10-2014.
EXHIBIT P3 TRUE COPY OF THE NOTICE DT.19-1-16 ISSUED BY THE 3RD RESPONDENT TO THE PETITIONER.
RESPONDENT'S/S EXHIBITS:
EXHIBIT R1 NIL
EXHIBIT R2 NIL
EXHIBIT R3 NIL
EXHIBIT R3 (A) LETTER DATED 04.07.1992 OF RESPONDENT NO. 3
TO THE PETITIONER.
EXHIBIT R3 (B) LETTER DATED 07.09.1992 OF RESPONDENT NO. 3
TO THE PETITIONER.
EXHIBIT R3 (C) LETTER DATED 13.10.1992 OF RESPONDENT NO. 3
TO THE PETITIONER.
EXHIBIT R3 (D) LETTER DATED 08.03.1993 OF RESPONDENT NO. 3
TO THE PETITIONER.
EXHIBIT R3 (E) LETTER DATED 29.02.1996 OF RESPONDENT NO. 3
TO THE PETITIONER.
EXHIBIT R3 (F) LETTER DATED 14.03.1996 OF RESPONDENT NO. 3
TO THE PETITIONER.
EXHIBIT R3 (G) LETTER DATED 31.05.1996 OF RESPONDENT NO. 3
TO THE PETITIONER.
EXHIBIT R3 (H) LETTER DATED 04.02.1997 OF RESPONDENT NO. 3
TO THE PETITIONER.
EXHIBIT R3 (I) PRINTED VERSION OF THE DECISION RECORDED IN
THE MINUTES OF THE BOARD MEETING HELD ON
29.06.1995, REGARDING THE RE ADMISSION.
WP(C).12101/18 9
EXHIBIT R3 (J) LETTER DATED 27.07.1995 OF RESPONDENT NO. 3
TO THE PETITIONER.
EXHIBIT R3 (K) LETTER DATED 04.05.1998 OF RESPONDENT NO. 3
TO THE PETITIONER.
EXHIBIT R3 (L) LETTER DATED 05.06.1998 OF RESPONDENT NO. 3
TO THE PETITIONER.
EXHIBIT R3 (M) MARGIN/BAD DELIVERY SHARES THAT WERE SOLD
AND SALE PROCEEDS DULY CREDITED TO THE
ACCOUNT OF THE PETITIONER THEREBY REDUCING
HIS PAY IN AMOUNT DUE TO RESPONDENT NO. 3.
EXHIBIT R3 (N) THE LIT OF THE SHARES, WHICH ARE LYING IN
THE BAD DELIVER/MARGIN ACCOUNT OF THE
PETITIONER SUBJECT TO THE FIRST AND
PARAMOUNT LIEN IN FAVOUR OF 3RD
RESPONDENT .
WP(C).12101/18 10