RAKESH GUPTA Vs. HYDERABAD STOCK EXCHANGE LIMITED

JUDGEMENT

(1.) These petitions under article 226 of the Constitution of India have in general questioned the admission as members of several persons in the Hyderabad Stock Exchange Limited. The exchange, it is not in dispute, is a public limited company. It is, however, recognised by the Securities and Exchange Board of India (SEBI) as a stock exchange on its willingness to comply with the conditions under the Securities (Contracts) Regulation Act, 1956, and is thus subject to the control and regulations relating in general to its constitution and in particular, besides other items, to the admission into the stock exchange of various classes of members, the qualifications for membership and the exclusion, suspension, expulsion and re-admission of members therefrom or there into. The exchange in its extra ordinary general body meeting, on 24/08/1992, however, introduced an amendment to its articles of association and increased the maximum number of members from 200 to 300. In another general body meeting dated 8/10/1992, it has fixed entrance fee at Rs. 7,51,000 for new hers or as may be decided by the general body. On 1/12/1992, it sell t a proposal for approval of the screening committee constituted by it to the Securities and Exchange Board of India and also a proposal for a written test for approval. The Securities and Exchange Board of India in its turn on 18/02/1993, approved the amendment, authorised it to charge an admission fee of Rs. 6,00,000 for new members and directed it to follow the guide lines of the Government of India and the Securities and Exchange Board of India and the provisions of the Securities Contracts (Regulation) Act and the rules framed thereunder. However, on a fresh representation by the exchange on 4/03/1993, the Securities and Exchange Board of India agreed to its proposal on 23/03/1993, for the admission fee for the Few members of Rs. 7,51,000. Further correspondence finally resulted in a letter from the Securities and Exchange Board of India, dated 17/06/1993, approving the procedure for selection of the members by a written examination and on such conditions as were introduced for the new members by the exchange as directed by the Securities and Exchange Board of India and in accordance with the guidelines in this behalf. The exchange accordingly published notices on 2/07/1993, July 5, 1993, and 6/07/1993, inviting applications for membership in almost all leading newspapers. It also sent brochures containing information regarding new membership to all the applicants and intimated to them on 19/07/1993, the criteria, i.e., educational qualifications, experience, financial net worth, written test and interview and that the applicants would be selected only in accordance with the marks allotted to them, the maximum being 10 marks for educational qualifications, experience, financial net worth and written test and 20 marks for the interview.

(2.) There is no controversy before us that applications were placed before the screening committee and such applicants, who failed to qualify on the grounds that they did not satisfy the criteria of educational qualifications experience and financial net worth, were informed accordingly and those who qualified were called. for the written test. In some cases, however, even after the written test when it was detected that the applicants were not qualified either in the experience criterion or in the financial net worth, the exchange informed them accordingly. The main controversy, however, has arisen on account of the alleged decision of the governing body of the exchange, allegedly on the recommendations of the screening committee, to enter into moderation of the marks allotted in the written test. After the written test, it is alleged, there was some agitation and the screening committee recommended to the governing body and the governing body accepted the recommendation and resolved that all the examinees, who had taken the written test, would be awarded four points or 20 marks out of 100 irrespective of whether they got less than 10 marks in the written test or more than, 10 marks in the written test.

(3.) According to the exchange, it had the approval of the Securities and Exchange Board of India for allotting marks for each item of the criteria and the decision of moderation also received approval of the Securities and Exchange Board of India. The petitioners, however, have contended that moderation has in fact resulted in awarding of grace marks to all the candidates who went through the written test and has resulted in a total manipulation of the selection of the members in the sense that those who fully qualified and fulfilled all the criteria and performed better than many who failed to qualify in the written test, have been denied membership whereas persons who failed to qualify in the written test have been admitted as members by the exchange. The petitioners have alleged that those who have wielded power in the exchange had filled it with their relatives and nominees as candidates for membership and when they found that such persons were likely to be eliminated on account of their failing to qualify in the written test, they managed to introduce the so-called moderation for benefiting them. The exchange, however, has maintained that there have been good reasons for moderation and the same is a recognised mode of evaluating merit and to make up or compensate for any disadvantage suffered by the examinees in securing the marks on account of the unreasonable and stiff question paper set by the examiner or for having included a question or questions outside the syllabus in any question paper or for such other valid reasons considered good by the concerned university or the academic body. The exchange has produced on the record the fact that all candidates were informed that the written test would be held at the University College of Arts and Social Sciences, Osmania University, Hyderabad, between 2.30 p.m. and 4.30 p.m. on 3/04/1994. The question papers which were prepared by I.I.M., Ahmedabad, were however, of objective type, 100 questions were required to be answered in 90 minutes only. This fact, however, that the questions were of objective type and were required to be answered in one and a half hours only became known to the examinees and all others concerned when the seal of the question papers was opened and the question papers were distributed to the examinees in the examination hall. The invigilator distributed the question papers only at 3.00 p.m. and at 4.30 p.m. the answer papers were taken from the examinees. Immediately after the examination, according to the exchange, the examinees protested against the short duration for answering 100 questions as well as against the high standard of the question paper when compared to the minimum educational qualifications prescribed for the membership. Since there was protest at the examination hall and in the premises of the Hyderabad Stock Exchange on 3/04/1994, and, thereafter, on other days also affecting the trading activities of the exchange, the screening committee held an emergency meeting on 5/04/1994, took a decision for compensating the loss sustained by all the examinees uniformly by way of awarding moderation marks of 20 to everybody. The screening committee was satisfied that the question paper was of high standard compared to the minimum qualification prescribed, the cut in the duration of the test also affected the examinees and all candidates deserved the benefit of moderation. The governing body of the exchange approved the same.