In the High Court of Judicature at Madras Dated: 25/02/2003 Coram The Honourable Mr.Justice R. Jayasimha Babu and The Honourable Mr. Justice N.V. Balasubramanian O.S.A.No.64 of 1995 and O.S.A.No. 65 of 1995 and Rev.Appln.No.35 of 1995 in O.S.A.No.158 of 1988, L.P.A.Nos.123 and 129 of 2000, and Contempt Appeal No.11 of 2000 and C.M.Ps. Rev.Appln.No.35 of 1995 in O.S.A.No.150 of 1988 The Madras Stock Exchange Limited Rep. by its Secretary No.11, Second Line Beach Madras - 600 001 .....Review Petitioner -Vs- S.S.R. Rajakumar ..... Respondent Review Application filed under Section 114 of the Code of Civil Procedure read with Order XLVII Rule 1 of the Code of Civil Procedure praying to review the order made in O.S.A. No.158 of 1988 dated 22.02.19 94. !For petitioner .. Mr. A.K. Sriram for M/s. A.S. Kailasam & Associates ^For respondent .. Mr. P. Subba reddy L.P.A.No.123/2000 1. Saji Cherian The Executive Director Madras Stock Exchange Ltd., "Exchange Building" 11, Second Line Beach Madras - 600 001 2. S. Ramanathan ... Appellants Vs. 1. S.S.R. Rajkumar 2. S. Ramasubramanian President, Madras Stock Exchange Ltd., "Exchange Building" 11, Second Line Beach Madras - 600 001 ...Respondents Letters Patent Appeal filed under Clause 15 of the Letters Patent against the order in Sub Application No.268 of 1999 in Contempt Application No.745 of 1999 dated 14.06.2000. For appellant .. Mr. R. Krishnamoorthy For 1st respondent .. Mr. P. Subba reddy 2nd respondent .. Given up L.P.A.No.129 of 2000 Mr. S. Raamasubramanian President, Madras Stock Exchange Ltd., "Exchange Building" 11, Second Line Beach Madras - 600 001 Appellant Vs. 1. S.S.R. Rajkumar 2. Saji Cherian The Executive Director Madras Stock Exchange Ltd., "Exchange Building" 11, Second Line Beach Madras - 600 001 3. S. Ramanathan Respondents Letters Patent Appeal filed under Clause 15 of the Letters Patent against the order in Sub Application No.269 of 1999 in Contempt Application No.745 of 1999 dated 14.06.2000. For appellant .. Mr. R. Krishnamurthy, Senior Counsel for M/s. C. Ramesh and K. Harishankar For 1st respondent .. Mr. P. Subba reddy For 2nd respondent .. Mr. A.K. Sriram for M/s; A.S. Kailasam Associates Contempt Appeal No. 11 of 2000 1. Saji Cherian The Executive Director Madras Stock Exchange Ltd., "Exchange Building" 11, Second Line Beach Madras - 600 001 2. S. Ramanathan Appellants Vs. 1. S.S.R. Rajkumar 2. S. Ramasubramanian President,Madras Stock Exchange Ltd., "Exchange Building" 11, Second Line Beach Madras - 600 001 Respondents Contempt Appeal filed under Section 19 of Contempt of Courts Act read with Clause 15 of Letters Patent against the order made in Contempt Application No.745 of 1999 dated 14.06.2000. For appellants .. Mr. R. Krishnamurthy, for M/s. A.S. Kailasam Associates For respondents .. Mr. P. Subba reddy 2nd respondent .. Given up O.S.A.Nos.64 & 65 of 1995 Madras Stock Exchange Limited represented by its Executive Director, Madras - 600 001 Appellant Vs. S.S.R. Rajkumar Respondent Original Side Appeals filed under Clause 15 of the Letters Patent against the orders made in Company Applications No.1793 and 1794 of 199 3 dated 01.02.1995. For appellant .. Mr. A.K. Sriram for M/s. A.S.Kailasam Associates For respondent .. Mr. P. Subba reddy :J U D G M E N T (Judgment of the Court was delivered by R. Jayasimha Babu, J.) We have before us an application to review the judgment rendered in O.S.A.No.158 of 1988, two O.S.As. filed against the orders made on two applications filed before the learned Company Judge during the pendency of the review application, two letters patent appeals filed against the orders made on sub applications in a contempt application filed by Sri. Raj Kumar alleging willful disobedience of the orders of this Court made by the learned single Judge in those two subsequent applications, and a contempt appeal. 2. After hearing arguments, we indicated to counsel for the respondent that we propose to allow the review application and directed him to address arguments on the restored Original Side Appeal No.158 of 19 88. Counsel has been heard on the merits of that appeal. 3. We will first take up the review application. The orders sought to be reviewed was made on 22nd February, 1994 and is a short order which reads thus: "Mr. Subba Reddy has appeared for the appellant. No one has appeared for the respondent. This application is limited to the question whether any interim order should issue to continue the appellant as a Member of the defendant Stock Exchange Company. The trial Court has declined to grant the application. In the appeal, however, the appellant has preferred a miscellaneous petition, in which there has been order for a stay of the letter, under which he has been expelled thus the expulsion of the petitioner from the Membership of the respondent company has been stayed. Petitioner has, on the basis of the above continued to be a Member of the respondent company. There has been no complaint of any kind in the functioning of the appellant as a Member of the respondent Company. The Management has not found any conduct of the appellant which in its opinion, is objectionable. We are inclined in the instant case, therefore, to dispose of the appeal in terms of the interim order dated 27.09.1988 in C.M.P.No.13215 of 1988 which has been continued under various orders and has been made final subsequently. The parties shall accordingly abide by the order above and treat the resolution of the respondent company dated 3.8.1988 as suspended. The appeal is disposed of." 4. The first thing to notice about this order is that it proceeds on the assumption that the order under appeal before it was an interim order, even though, in fact, it was not so. What had been filed before the learned Company Judge was an application purporting to be under Rule 9 of the Companies (Court) Rules, 1959 seeking a declaration that the applicant continued to be Member of the Madras Stock Exchange notwithstanding the order of expulsion which the Committee had made and which had been duly communicated, that order having been made on 03.08.1988. The learned single Judge had dismissed that application on 21.9.1988 after overruling the appli cant's contention that the Articles of Association of the Madras Stock Exchange in Article 38(c) and Article 152 in so far as it permitted the expulsion of a Member were void in as much as, according to the applicant, they were inconsistent with the provisions of the Companies Act, more particularly. Appendix `C' read with Section 25 of the Act. 5. That argument had been rejected by the learned Company Judge on the ground that it was permissible for the Stock Exchange to have such a provision and that Appendix `C' was not exhaustive. The other argument that had been advanced before the learned Company Judge was that Regulation 8(1)(f) and 9(3)(f) of the Securities Contracts ( Regulation) Act, 1956 had been wrongly applied to the case of the petitioner, and that, despite the fact that the petitioner had, two years after becoming the Member of the Stock Exchange, assumed Office of the Managing Director of a public limited Company which was listed on the Stock Exchange would still be entitled to continue as a Member. That argument was found to be unacceptable. 6. The order sought to be reviewed did not deal with either of these points on which the applicant had come to Court in the first place and which by a considered order had been rejected by the learned single Judge. 7. In that order, it has been stated that the appellant before it was continuing to be a Member and was functioning as such, and that there was no complaint about his functioning as a Member. That statement was made without any material. It has been now submitted before us by his learned counsel that after the date of the expulsion, he has not functioned as a Member and has not done any trade on the Exchange. 8. The order under review, therefore, suffers from more defects than one and proceeds on certain assumptions which are patently erroneous. The errors clearly are errors which are apparent on the face of the record. 9. The review petition is, therefore, required to be and is allowed. The appeal viz., O.S.A. No.158 of 1988 is restored to file. O.S.A. No.158 of 1988 10. In this appeal the appellant challenges the order made by the learned Company Judge on an application filed by S.S.R. Rajkumar who was aggrieved by his expulsion from the appellant Stock Exchange by a Resolution dated 03.08.1988. That resolution reads as under: "RESOLVED to withdraw the privileges of Membership granted to Shri S.S.R. Rajkumar, Member of the Exchange, Partner of M/s. Chitra & Co., and expel him from the membership of the Exchange under Articles 38(c) and 152 of the Articles of Association of the Exchange and such other Articles of Association of the Exchange in view of his functioning as Managing Director of Central Scientific Supplies Co. Ltd., in addition to being a Member of the Exchange in contravention to provisions of Rule 8(3)(f) of the Securities Contracts ( Regulation) Rules, 1957 with immediate effect." 11. The relief sought by Rajkumar in his Company Application No.250 of 1988 was for a declaration that Article 38(c) and 152 of the Articles of the Madras Stock Exchange are against the provisions of the Companies Act and also Table `C' of the Companies Act, 1956, are void under Section 9(b) of the Companies Act, and consequently, expulsion made by the respondent by resolution dated 3.8.1988 against the petitioner is null and void. 12. Article 38, as also Article 39 of the Articles of Association are found under the heading "Termination of Membership". Article 38 provides that, "Any member may cease to be a member a) by resignation; b) by death; c) by expulsion in accordance with the provisions herein contained; and d)by being declared a defaulter in accordance with the Rules, Byelaws and Regulations of the Exchange." Article 152 of the Articles reads thus: "The Council may expel or suspend and/or fine and/or censure and/or warn and/or withdraw any of the membership rights of a member if he be guilty of contravention, non-compliance, disobedience, disregard or evasion of any of the Rules, Bye-laws and Regulations of the Exchange or of any resolutions, orders, notices, directions or decisions or rulings of the Exchange or the Council or the president or the Executive Director or any Committee or Officer of the Exchange authorised in that behalf or of any conduct, proceeding or method of business which the Council in accordance with the Bye-laws and Regulations in force from time to time deems dishonourable, disgraceful or unbecoming a member of the Exchange or inconsistent with just and equitable principles of trade or detrimental to the interests, good name of the Exchange or prejudicial or subversive to its objects and purposes. Provided that the Council, when it has found a member guilty of such conduct or acts as would entitle the Council to expel him may, at its discretion, instead of expelling, suspend him from all or any of the rights and privileges of a member for such period as the Council may deem fit or until the member has carried out or performed any lawful condition imposed by the Council in that behalf." 13. The Madras Stock Exchange Limited was incorporated as a Company Limited by guarantee on the 25th of April, 1957. The objects for which the Company was established are inter alia, "To facilitate, assist, regulate and control the trade or business in securities; To support and protect the character and status of brokers, jobbers and dealers and to further the interest of brokers, jobbers and dealers and of the public interest in securities; To maintain high standards of commercial honour and integrity; to promote and inculcate honourable practices and just and equitable principles of trade and business; to discourage and suppress malpractices; To apply for and obtain from the Government of India, recognition of the Exchange as a recognised Stock Exchange for the purpose of regulating and controlling the business of purchase, sale, dealings and transactions in securities within the meaning of the Securities Contracts (Regulation) Act, 1956; xxxx xxxx xxxx xxxx To regulate and fix the scale of commission and brokerage to be charged by the members of the Exchange." 14. The other objects include rendering and decisions regarding all questions of usage, custom or courtesy in the conduct of trade and business, and to encourage the settlement of disputes by arbitration. 15. Clause 9 of the Objects Clause provides that, "Subject to the provisions of the Securities Contracts (Regulation) Act, 1956 and the Rules framed thereunder and any Law and Rules for the time being in force relating thereto, to make Rules, Bye-laws and Regulations regulating the mode and conditions in and subject to which the business on the Stock Exchange shall be transacted and the conduct of the persons transacting the same and generally for the good order and government of members of the Exchange, and from time to time, to amend or alter such Rules, Bye-laws and Regulations or any of them and to make any new amended or additional Rules, Bye-laws or Regulations for the purposes aforesaid." 16. Part V of the Objects Clause also requires to be noticed. That provides that, "Every member of the Exchange undertakes to contribute to the assets of the Exchange in the event of its being wound up while he is a member, or within one year after he ceases to be a member, for payment of the debts and liabilities of the Exchange contracted before he ceases to be a member, and the costs, charges and expenses of winding up and for the adjustment of the right of the contributories among themselves, such amount as may be required, not exceeding one thousand rupees." 17. Articles of Association in Article 1(b) defines a "Member" as meaning a Member of the Exchange. Article 2 provides that the membership of the Exchange shall be limited to a maximum of 400 including corporate members. Admission of members is to be made after advertisement calling for applications from the eligible public. Article 4 provides that the membership shall constitute a personal permission from the Exchange to exercise the rights and privileges attached thereto subject to the Rules, Bye-laws and Regulations of the Exchange. Article 5 prohibits a member from assigning, mortgaging, pledging, hypothecating or charging his right of membership or any rights or privileges attached thereto and provides that anyone contravening that Article shall be expelled by the Council. Article 6 sets out the list of persons eligible to become members of the Exchange viz., individuals, companies subject to the conditions specified therein, certain public financial institutions and their subsidiaries, as also subsidiaries of nationalised Banks set up to provide merchant banking services, buying and selling securities and other similar activities. 18. Article 7(b) requires an individual seeking membership to apply in the prescribed form. Article 8(a) provides that an applicant will not be eligible to be admitted to the Membership of the Exchange " unless he/institutions referred to herein above satisfies the requirements prescribed in that behalf under the Securities Contracts ( Regulation) Act, 1956, and the Rules framed thereunder." 19. Article 23 prohibits the formation of partnerships, unless all the partners are Members of the Exchange. A non-member may not be a partner in the business carried on by the member in the Exchange. No member can be a partner in more than one such partnership firm. Article 33 provides that so long as the firm continues, all the business shall be transacted only on account of the firm and, in the event the firm ceases to exist, the erstwhile partner would be entitled to carry on business in his own name, but subject to payment of additional deposit. 20. Article 38, as already noticed, provides for termination of membership on the occurrence of any of the events referred to therein. Article 47 provides that a member's right of membership shall lapse and vest with the Exchange immediately he is declared as a defaulter. The interest and the membership of such defaulting member may be auctioned by that Article 48 to the highest bidder from among those who are eligible to become the members of the Exchange. The admission fee payable by such a successful bidder is fixed at Rs.5,00,000/- in Article 48 Sub Clause (d). A member who has been declared defaulter will be eligible to apply for membership of Exchange only after a lapse of one year from the date he was declared defaulter and only after he has paid in full all the admitted and accepted claims. The Articles also provide for the Members being represented by their authorised representatives, Clerks, constituted attorneys and remisier in the conduct of the member's business. 21. Article 105 deals with `Council'. It provides that the overall management of the affairs of the Exchange shall be vested in the Council which shall consist of fifteen persons to be elected and nominated as provided therein including the Executive Director to be appointed by the Stock Exchange. Seven of the Fifteen members are to be elected from among the members of the Exchange. Not exceeding three are to be nominated by the Securities & Exchange Board, and not less than four persons from among the public, referred to as Public Representatives shall be nominated by the Council. The Office bearers are to be elected from among the Members of the Council as provided in Article 15. The eligibility criteria are enumerated in Article 17. It provides inter alia that he should have been a Member for three to five years. 22. Article 136 provides for setting up a Settlement Guarantee Fund to facilitate and guarantee the timely and expeditious settlement and clearing of bargains and transactions entered into by the members of the Exchange and shall create and constitute a trust known as the Madras Stock Exchange Settlement Guarantee Fund Trust to administer and manage that Fund. The Exchange is to make initial contribution of Rs.100 lakhs from the Exchange to that Guarantee Fund. Every person admitted to the membership of the Exchange is required to contribute a sum of Rs.10,000/- or higher sum as may be prescribed by the Council to that Fund. To the Fund is also to be credited the turnover/ transaction charges collected at the rate of 0.01 per cent of the aggregate turn over of sales and purchases of each member or at such other percentage of the aggregate turnover as may be prescribed by the Council from time to time. The Fund is to be utilised, inter alia to meet the shortfall and deficiencies arising out of the failure of any member to meet his commitments to the clearing house for the settlement and clearing of bargains and transactions made by the him with other members. Failure to pay contribution to the Fund can result in the expulsion of the member as provided in Sub Clause (VII) of Article 136 . 23. Article 142 provides that subject to the provisions of the Securities Contracts (Regulation) Act, 1956 and the Rules framed thereunder, the Council shall be empowered to make Rules, Bye-laws and Regulations from time to time, for any or all matters relating to the conduct of the business of the Exchange, the business and transactions of its members between members inter se as well as between its members and persons who are not members, and to control, define and regulate all such Stock Exchange transactions and without prejudice to the generality of the foregoing to make Rules, Bye-laws and Regulations for the several matters enumerated therein, which includes the prescription of things to be done in the event of suspension, expulsion or declaration as defaulter of a member. 24. Article 148 specifically provides that, (a)No member of the Exchange shall continue as a member of the Exchange if he fails to satisfy the requirements prescribed in that behalf or infringes any requirement prescribed in that behalf by the Securities Contracts (Regulation) Act, 1956 or any Rules made thereunder. (b)Where a member ceases to be a member under the provisions of the clause (a) hereof it shall be as if such member has been expelled by the Council and in that event the provisions relating to expulsion contained in these Articles, Rules, Bye-laws and Regulations shall apply to such member in all respects." 25. Article 152 specifically empowers the Council to expel or suspend and/or fine a member. That Article has already been set out. 26. Article 153 requires that a resolution expelling a member is not to be passed, or voted upon, unless the member has been given an opportunity to explain the charges against him. The resolution to expel or suspend must be passed by a majority of not less than two-thirds of the members of the Council present subject to a minimum of six votes, fractions to be rounded off as one. 27. The consequences of expulsion of a member are set out in Article 161. He shall forfeit to the Exchange his rights of membership and all his rights and privileges as a member of the Exchange including any right to the use of or any claim upon or any interest in any property or funds of the Exchange. A member of the Exchange shall not transact business for or with or share brokerage with the expelled member except with the previous permission of the Council. 28. Article 168 requires that the income and property of the Exchange shall be applied solely for the promotion of its objects set forth in the Memorandum, and that no portion of the income or property shall be paid or transferred, directly or indirectly, by way of dividend, bonus or otherwise by way of profit, to persons who, at any time, are, or have been, members of the Exchange. 29. Article 174 which deals with `Winding Up' provides that in the case of winding up or dissolution or merger or amalgamation of the Exchange with any other Stock Exchange, trade or commercial body, the net surplus assets of the Exchange after meeting all liabilities and the expenses of winding up or dissolution or merger or amalgamation, shall not be paid to or distributed among the Members of the Exchange but shall be transferred or handed over to any other body or organisation or a company having objects of the Exchange or to any body constituted mainly for the benefit of the public in the advancement of knowledge, commerce, or with objects beneficial to the advancement of any other of general public utility and the promotion of industry, commerce and art. 30. Prior to the formation of registration of this Company in the year 1957, the Stock Exchange that functioned at Madras was Madras Stock Exchange Association (Private) Limited which had been registered on August 12, 1937 under the Indian Companies Act of 1913. After the coming into force of the Securities Contracts (Regulation) Act, 1956, which enactment was passed to prevent undesirable transactions in securities by regulating the business of dealing therein, by prohibiting auctions and for providing for certain other matters, the Company - Madras Stock Exchange Limited was incorporated on the 29th day of April, 1957. 31. This Company is not limited by shares and does not have any authorised share capital, and is a Company limited by Guarantee. Section 29 of the Companies Act, 1956 requires that the Articles of Association of any company, not being a company limited by shares, shall be in such one of the Forms in Tables C, D and E in Schedule I of the Act as may be applicable, or in a Form "as near thereto as circumstances admit". The proviso to that Section specifically provides that nothing in the Section shall be deemed to prevent a company from including any additional matters in its articles in so far as they are not inconsistent with the