Patna High Court
Akhileshwar Upadhyaya vs Magadh Stock Exchange Association And ... on 4 February, 1991
Equivalent citations: AIR1992PAT61, 1991(39)BLJR1031, AIR 1992 PATNA 61, (1996) 4 COMLJ 493, (1992) 1 BLJ 61, (1991) 2 PAT LJR 404
Author: Nunumani Prasad Singh
Bench: Nunumani Prasad Singh
ORDER
1. We have heard at some length the learned counsel for the petitioner as well as the counsel for the respondents Nos. 1 to 4 represented by Mr. K.N. Jain. The counsel for the Union of India is also present and has made submissions.
2. Admittedly respondent No. 1, Magadh Stock Exchange Association is a registered establishment under the Securities Contract Regulation Act, 1956 and the petitioner is a registered member of the stock exchange. Tt is also admitted that the respondent No. 1, Stock Exchange has fortnightly transactions and members dealing in the sale and purchase of securities have to make payments in accordance with bye-laws. During the fortnight in December, 1990 the petitioner had entered into transactions relating to sale and purchase of shares and securities for which he was required to make the payment of Rs. 17,96,800/- by 19th Dec., 1990. In order to comply with this obligation of making the payment of the aforesaid amount the petitioner issued a cheque dt. 20-12-90 but the cheque bounced and respondent No. I having got information of the same waited for a few days presumably in the expectation that the petitioner will discharge his obligation by properly making the payment but this did not materialise. Consequently respondent No. 1 addressed a letter dt. 29th December, 1990 to the petitioner telling him that the cheque issued by the petitioner had been dishonoured and calling upon him to make the necessary deposit by 31-12-1990. This fact has been admitted by the petitioner in paragraph 8 of his application. The petitioner, however, has not chosen to attach a copy of this letter in this writ application. But Mr. Jain appearing on behalf of respondents Nos. 1 to 4 has placed before us copies of this letter dt. 29th December, 1990 as well as the subsequent letter dt. 3rd of January, 1991 of which also there is mention in paragraph 8 of the writ application. Likewise he has also placed for our perusal a letter dt. 31st December, 1990 which the petitioner had addressed to respondent No. 1. Mr. K.D. Chatterji appearing on behalf of the petitioner has not challenged either the genuineness or the contents of these letters copies of which have been placed by Mr. Jain for perusal of the Court. Indeed it was expected that the petitioner himself should have attached these letters with his writ application as annexures so as to place the entire facts before this Court. The reasons why he did not do so are best known to him. But on a perusal of these letters we find that certain important facts which are found therein have been omitted to be stated by the petitioner in his writ application and such omission could have the effect of misleading the Court for want of the necessary facts.
3. As already indicated above, respondent No. 1 by its letter dt. 29th December, 1990 informed the petitioner that the cheque issued by him had bounced and called upon him to make deposit of the required amount by 31st of December, 1990 and the letter further mentions that if the petitioner fails to do so respondent No. 1 will presume that the petitioner is not in a position to meet his obligations and that he will be declared by respondent No. 1 as defaulter. Thus, by this very letter the petitioner had been given notice that if he failed to discharge his obligations as required by the prevailing practice as well as the bye-laws he would be declared a defaulter. It appears that the petitioner did not comply with what had been required under the aforesaid letter and instead he sent a letter dt. 31 st December, 1990 to respondent No. 1 through its president in which he has stated that he had not received some huge amounts from his clients and, therefore, prayed for a time of one month for the payments of Rs. 17,96,800/-. Respondent No. 1 in reply to this letter and in continuation of its letter dt. 29th December, 1990 informed the petitioner through letter dated 3rd Jan., 1991 that if the amount in question is not made available to the Exchange (respondent No. 1) on 4th January, 1991 the Exchange shall take action as has already been intimated in the letter dt. 29th December, 1990. This clearly implied that the non-compliance would result in the petitioner being declared a defaulter. In spite of this, the petitioner did not make the necessary deposit and this has resulted in the petitioner being declared a defaulter as communicated to him by respondent No. 1 under its letter dt. 5th of January, 1991 (annexurc 1 to the writ application). The petitioner has invoked the writ jurisdiction of this Court with a prayer that annexure 1 be quashed and he may be allowed to discharge his functions as a Member of the Stock Exchange Association, respondent No. 1.
4. At the time of hearing of this application the first question which arose for consideration was regarding its maintainability. Undoubtedly respondent No. 1 is a Private organisation and it has to be seen whether such an organisation would be amenable to the writ jurisdiction under Articles 226 and 227 of the Constitution of India. In this context, Mr. Chatterji drew our attention to the various sections of the Securities Contract Regulation Act, 1956 (hereinafter referred to as the Act) to indicate that under those provisions the government exercises an all pervading influence in the Constitution as well as the functioning of the stock exchange. Mr, Chatterji also places reliance on the case reported in AIR 1991 Bom p. 30 Mrs. Sejal Rikeen Dalai v. Stock Exchange, Bombay, which relates to the Bombay Stock Exchange. In that case their Lordships were of the opinion that the functions of the stock exchange were in public interest and for the benefit of the investors. In that context they observed that for safeguarding the public interest the Court could reasonably exercise its jurisdiction under Article 226. We do not propose to go into this technical aspect of the matter any further and for the present we accept that if any public interest is involved and the facts and circumstances so demand a writ could be issued on respondent No. 1.
5. The main plank of the argument of Mr. Chatterji has been that although the relationship between the petitioner and respondent No. 1 is based on contract still the principle of natural justice cannot be totally excluded from contractual obligations. His contention is that in the present case natural justice demands that before being declared a defaulter the petitioner should have been allowed to show cause and given a chance to explain why he had not been able to deposit or as to why the cheque issued by him bounced and was dishonoured. In support of his argument that the principle of natural justice cannot be altogether excluded from contractual obligations, Mr. Chatterji has placed reliance on the case reported in AIR 1990 SC 1031 Mahabir Auto Stores v. Indian Oil Corporation. The petitioners in that case were a firm carrying on the business of sale and distribution of all types of lubricants over a period of more than eighteen years and they used to get their supplies from the Indian Oil Corporation. It appears that the supplies of the lubricants to the petitioner firm was stopped suddenly without any intimation and without any notice and in fact no query had been made nor any clarification sought. In the context of these facts the appex Court observed that the activities of the firm, though in the nature of private business, relate to public welfare and sudden stoppage of the supplies was likely to cause hardship and harm to the public in general and in that context their Lordships considered it necessary and thought it fit that the respondent be called upon to indicate the reasons for suddenly stopping the supply. In our opinion, that decision has no application to the facts of the present case. We have already mentioned above that there was a series of correspondence between the petitioner and respondent No. 1 which clearly indicated that the petitioner had failed to discharge his obligation as a member of the stock exchange and had acted in contravention of the established practice by not making the payment as required under the rules and the bye-laws and indeed he was clearly told by respondent No. 1 that if he failed to discharge his obligation the consequences of default will be inevitable. Therefore, it cannot be said that the petitioner was taken by surprise or was not aware that by not making the payment he will have to face the necessary consequences.
6, Mr. Jain appearing on behalf of respondent Nos. 1 to 4 has brought to our notice the Articles of Association and the bye-laws of Magadh Stock Exchange, respondent No. 1. He has drawn our attention to bye-law No. 44 which states that for the purpose of the bye-laws and the relations the term bargain, transaction, dealing and contract shall have one and the same meaning. He has also brought to our notice bye-law No. 48 which specifies the types of bargains and securities, Clause 2 of this bye-law reads as follows :--
"For "hand delivery", i.e., for delivery and payment within the time or on the date stipulated when entering into the bargain which time or date shall not be more than fourteen days following the date of the contract;"
He has also referred to bye-law No. 192 which states that all bargains in securities shall be deemed made subject to the Rules, bye-laws and Regulations of the Stock Exchange which shall be a part of the terms and conditions of such bargains and they shall be subject to the exercise by the Council of Management and the President of the powers with respect thereto vested in it or him by the Rules, Bye-laws and Regulations of the Exchange. He has further drawn our attention to bye-law No. 308 which specifies the situations in which a member shall be declared a defaulter by direction of the Council of the Management or the President or, in the absence of the President, by direction of any two members of the Council of Management. The first situation leading to being declared a defaulter as laid down in Clause (i) is if the member is unable to fulfil his engagements and the second clause is that if he admits or discloses inability to fulfil or discharge his engagements, obligations and liabilities. The other clauses of bye-law No. 308 are not relevant for our purpose. Mr. Jain has rightly contended that the petitioner having become a member of the Magadh Stock Exchange (respondent No. 1) must be deemed to be fully aware of the Articles of Association as well as all the bye-laws and regulations and also be deemed to know that all transactions are to be governed by the bye-laws and the Articles of Association. In this context, he has laid emphasis on the word shall "occurring" in the opening sentence of bye-law No. 308. The contents of bye-law No. 308 have been indicated above and we are inclined to agree with the contention of Mr. Jain that the bye-law No. 308 makes it clear that if a member fails to meet his obligation as defined in Clauses (i) and (ii) and the other Clauses of bye-law No. 308 the natural consequence follows namely that the member shall be declared a defaulter. He, therefore, is right in contending that the moment the petitioner's conduct falls within any of the Clauses of bye-law No. 308, the natural consequence of the member being declared a defaulter automatically follows and that he is fully aware of the same and the question of giving any notice to him to show cause to submit his explanation about failure to act in accordance with the bye-laws does not arise. He has further rightly contended that the member being aware of the manner of functioning of the stock exchange and the contents of the Articles of Association and the bye-laws cannot turn round to say that he will not be discharging his obligations under the Articles of Association of the bye-laws until and unless he has been given a notice to show cause. Mr. Jain is right in contending that the very purpose of the bye-laws is to indicate how a member is required to conduct himself in the purchase and sale of the shares in the stock exchange and he is aware of the consequences of failure on his part to discharge his obligations and, therefore, the question of giving him notice does not arise at all and so if as a result of such failure he is visited by consequences as indicated by the bye-laws, it cannot be said that the principle of natural justice and fair play has been violated. We accept as correct the submissions of Mr. K.N. Jain as indicated above.
7. In support of his contention Mr. Jain has brought to our notice the decision of the apex Court reported in AIR 1980 SC 2018 : 1980 Tax LR 2362 :1980 (3 SCR) p. 746 State of Haryana v. Jageram. In that case the respondents had entered into a contract with the State of Haryana for Sale of liquor and it appears that certain demands had been made from them, under the excise law and the rules, which they were obliged in terms of the contract to pay. They filed the writ application before the Punjab and the Harayana High Court submitting inter alia that such demands resulted in hampering their business and causing commercial difficulties. They succeeded in the High Court whereupon the State of Harayana went up in appeal before the Supreme Court and the apex Court while dealing with the case was pleased to observe that they entered into a contract with the State authorities with the full knowledge of conditions which they had to carry out in the conduct of the business on which they had willingly and voluntarily embarked and the occurrence of a commercial difficulty, inconvenience or hardship like the sale of liquor being less in. summer than in winter, cannot provide any justification for not complying with the terms of the contract which they had accepted with open eyes. Proceeding further their Lordships in paragraph 15 of the judgment observed as follows :--
"It cannot ever be thought that a licencee can work with a licence if he finds it profitable to do so and he can challenge the conditions under which he agrees to take the licence if he finds it commercially inexpedient to conduct his business."
Having made these observations their Lordships held that no writ could be issued in situations where a person having entered into contractual liabilities with open eyes comes forward to seek relief on the ground of some inconvenience or hardship and they further held that where parties have to carry out their obligations in accordance with terms no question of natural justice for giving a notice for non-compliance of the terras would arise.
8. A supplementary affidavit has been filed by the petitioner today in which he has made certain statements including one to the effect that the amount of the cheque Rs. 17,96,800/- also covered the alleged liability in respect of difference between bargain price and delivery price indicating thereby that the petitioner was not obliged to make the payment of the aforesaid entire amount. This is a question of fact which cannot be looked into here. Mr. Chatterji's argument is that had he been given an opportunity to show cause he could have brought this to the notice of the stock exchange, respondent No. 1 when it was put to Mr. Chatterji as to why the petitioner did not bring this matter to the notice of respondent No. 1 before he issued the cheque, Mr. Chatterji was not able to give a satisfactory reply. Further, when it was put to Mr. Chatterji as to why even in his letter dt. 31st December, 1990 the petitioner did not make any mention of this fact, again Mr. Chatterji could not give a satisfactory reply. The other points raised in the supplementary affidavit relating to requirement of a notice of show cause has already been dealt above and need not be repeated. Mr. Chatterji finally raised the point that Article 31 of the Articles of Association requires giving of notice before any action is taken, but he gave up this contention that when it was indicated to him that Article 31 was in the context of Article 30 and relates to suspension and expulsion, The relevant provision in the matter of default is Clause (b) of Article 29 which provides that if a person becomes a defaulter, the Council shall declare him a defaulter and all consequences and penalties arising therefrom as provided in the Bye-laws shall follow. In view of this, there is no scope for the argument that respondent No. 1 should have first served a regular notice to show cause before declaring the petitioner a defaulter.
9, As already indicated above the petitioner was fully aware of the contractual obligations when he became a member of the stock exchange, respondent No. 1. Indeed in paragraph 6 of his writ application he has himself stated that he being a registered member was dealing in sale and purchase of securities and that accordingto the prevailing practice each registered member had to takc delivery of shares through sellers tickets on the clearing day purchased / sold by him. Thus the petitioner himself accepts that he was aware that he had to engage in the transactions in accordance with the prevailing practice and in accordance with bye-laws, and the rules. Thus he knew that the consequences of the default will follow under Article 29(b) and bye-law No. 308 if he did not make the payment during the prescribed time. What is more significant is that respondent No. 1 gave him enough opportunity to discharge his obligation in making the payment during the extended period, the first extension being up to the 31st December, 1990 and even thereafter further extension was given up to 4th of January, 1991. When such an opportunity was given, can there be any scope for saying that the petitioner was denied opportunity of being heard or placing his case before the authority concerned and that there was denial of the principle of natural justice? It may be mentioned that the letter dt. 29th December, 1990 had clearly indicated that if there is failure to deposit the petitioner would be declared a defaulter. The petitioner in his letter dt. 31-12-90 did not indicate that there was any lacuna in the procedure for declaring him a defaulter. In his letter dt. 31-12-90 he just prayed for one month's time. Obviously, therefore the petitioner had in fact been given notice and even allowed time for making the deposit but still he failed to comply. It was only then the impugned order Annexure I was issued. In view of the facts and circumstances discussed above, we find no infirmity in the impugned order. In our view there is absolutely no merit in this application and there is no ground for issue any kind of writ by this Court.
10. Mr. Jain while concluding his argument prayed that the petitioner by nonpayment has not only caused impediments to respondent No. 1 in discharging its public duty but has also made an unreasonable prayer before this Court and that under the circumstances the petitioner should be saddled with costs. In this context he has placed reliance on the case reported in AIR 1968 Bombay p. 347 V. V. Ruia v. S. Dalmia. We fully appreciate that if the members indulge in such defaults respondent No. 1 may find it difficult to carry out its public duties and safeguard the interest of investors. Such defaults may even lead the Stock Exchange to become non-functional. However, we do not consider it expedient to impose costs in the present case. The application is dismissed.