R JAGADEESH KUMAR Vs. P SRINIVASAN

JUDGEMENT

(1.) The petitioner is a member of the Bangalore Stock Exchange Limited (hereinafter, for short, referred to as the 'Stock Exchange'). One T. S. Gopalakrishnan (6th respondent) lodged a complaint to the effect that the petitioner fraudulently prepared a contract in collusion with one Ramachandra, the then Assistant General Manager, collected an amount of Rs. 2,25,000/- directly from C. R. Thimmaiah and the balance of Rs. 2,75,000/-from the Defaults Committee. The petitioner denied all these allegations. The Council of Management of the Stock Exchange requested Sri P. Srinivasan-1st respondent herein and Sri S. S. Naganand to go into the allegations and make a report thereto, in its meeting held on 22-12-1993. The 1st respondent and Sri Naganand are stated to have made a report that there is substance in the allegations contained in the complaint and asked the Council of Management to proceed further in the matter. However, later on this proceeding was sought to be recorded in a different manner. Originally, it had been recorded at Subject No. 2.2.4 that based on the records verified by them, they felt that there is a prima facie case to be investigated and the charges have to be framed and placed before the Disciplinary Committee. Since they are also members of the Disciplinary Committee, they cannot investigate and do the job of presenting a report. Sri Naganand felt that they as Council Members will not be able to act and some independent person with necessary machinery should investigate the matter. The report of the meeting was re-cast later on to read as follows:

(2.) The meeting of the Council of the Stock Exchange was scheduled to be held on 25-5-1994. The petitioner wrote a letter to them on 23-5-1994 stating that certain persons are biased against him and those persons should not be present at the time of consideration of the report submitted. The Council of Management of the Stock Exchange referred the matter to the Disciplinary Committee. The Stock Exchange proposed to institute an enquiry against the petitioner and C. R. Thimmaiah under Bye-laws 356A, r/w 356B and 356C of the Stock Exchange. The petitioner raised certain preliminary objections regarding constitution of the Disciplinary Committee; regarding the Bye-laws under which the present enquiry was to be initiated itself has not been validly brought into force; that the Disciplinary Committee has no jurisdiction to go into the matter as no valid bye-law has been formulated; that Sri P. Srinivasan, Chairman of the Disciplinary Committee, was present when the Council of Management considered certain incidental matters on the subject and therefore he is biased by reason of his participation in the Council; apart from the points raised in regard to the merits of the matter.

(3.) The Disciplinary Committee made an order on 12-11-1995. It upheld the objection that the require rent of S. 9(4) of the Securities Contracts (Regulation) Act (hereinafter referred to as the Act) had not been fulfilled as to prior publication in the Gazette of India and after approval of the bye-law by the Securities and Exchange Board of India (SEBI), publication for the second time in the Gazette of India. It held that SEBI had not passed any order in writing as envisaged in the proviso to S. 9(4) of the Act dispensing with the condition of previous publication and even if SEBI had passed such an order, it is not empowered by the proviso to dispense with the publication of the bye-law after approval by it and without such publication, the bye-laws can have no effect. However, they took the view that the initiation of action in this case is valid even though the bye-laws under which such initiation is purported to be done are not valid. In doing so, they took note of the fact that citing of a wrong provision would not invalidate the exercise of power so long as the power to do so is conferred on the authority exercising the power by another provision. Having traced their power to Article 64 of the Articles of Association, they took the view that even in the absence of any bye-laws they can enquire into the matter. On the question whether the Council was properly constituted or not, it took the view that the Disciplinary Committee cannot examine such a question. The President who was the ex-officio President of the Committee, having excused himself from participation in the enquiry on the ground that he had participated in the proceedings of the Council which resulted in the initiation of present enquiry. Similarly, the Executive Director also excused himself from participation. Article 62(c) empowers the Members of the Committee to select one from time to time from among themselves to preside over the meeting. Since President had excused himself from the Committee, the 1st respondent was elected by the Members to preside over the Committee. Therefore that objection was also overruled. On the contention that the President and the Executive Director excused themselves, only 5 members of the Committee were left of whom 2 were member brokers and 3 non-members and therefore the requirement of 40:60 ratio between member brokers and non-members to be maintained in terms of Article 62(a) was maintained and rejected the objection in regard to the Constitution of the Committee. Having overruled all the objections raised by the petitioner, the Committee proceeded to consider the matter. At that stage, the petitioner has preferred this petition.