MADHUBHAI AMATHALAL GANDHI Vs. UNION OF INDIA

JUDGEMENT

(1.) This is a petition under Art. 32 of the Constitution for the issue of a writ of mandamus or a writ in the nature of mandamus or any other appropriate direction, order or writ to direct the respondent, the Union of India, to withdraw or cancel the notification dated August 31, 1957, recognising "the Stock Exchange, Bombay" under S. 4 of the Securities Contracts (Regulation) Act, 1956 (XLII of 1956), (hereinafter referred to as "the Act").

(2.) At the outset it is necessary to notice briefly how a Stock Exchange is worked and how it is controlled or regulated by the State. "Stock Exchange" means, "any body of individuals, whether incorporated or not, constituted for the 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 dealing in shares and stocks, namely, (1) spot delivery contract, i.e. a contract which provides for the actual delivery of securities on the payment of a price thereof either on the day of the contract or the next day, excluding perhaps the period taken for the despatch of the securities or the remittance of money from one place to another; (2) ready delivery contract, which means a contract for the purchase or sale of securities for the performance of which no time is specified and which is to be performed immediately or within a reasonable time; (3) forward contracts, i.e., contracts whereunder the parties agree for their performance at a future date. If the stock exchange is in the hands of unscrupulous members, the second and third categories of contracts to buy or sell shares may degenerate into highly speculative transactions or, what is worse, purely gambling ones. Where the parties do not intend while entering into a contract of sale or purchase of securities that only difference in prices should be paid, the transaction, even though speculative, is valid and not void, for "there is no law against speculation as there is against gambling". But, if the parties do not intend that there should be any delivery of the shares but only the difference in prices should be accounted for, the contract, being a wager, is void. More often than not it is difficult for a court to distinguish one from the other, as a wagering transaction may be so cleverly camouflaged as to pass off as a speculative transaction. These mischevious potentialities inherent in the transactions, if left uncontrolled, would tend to subvert the main object of the institution of stock exchange and convert it into a den of gambling which would ultimately upset the industrial economy of the country.

(3.) For that reason, in Bombay as early as 1925 the Bombay Securities Contracts Control Act was passed to regulate and control contracts for the purchase and sale of securities in the City of Bombay and elsewhere in the Bombay Presidency. Under S. 6 of that Act,