RUSODAY SECURITIES LTD. versus NATIONAL STOCK EXCHANGE OF INDIA LTD. & ORS.

Citation: [2020] 13 S.C.R. 218 · Decided: 20-11-2020 · Supreme Court of India · Bench: A.M. KHANWILKAR · Disposal: Disposed off

Judgment (excerpt)

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SUPREME COURT REPORTS
[2020] 13 S.C.R.
RUSODAY SECURITIES LTD.
v.
NATIONAL STOCK EXCHANGE OF INDIA LTD. & ORS.
(Civil Appeal No. 2690 of 2009 etc.)
NOVEMBER 20, 2020
[A. M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]
Securities Contracts (Regulations) Act, 1956:
Sections 3(2) and 9 – Appellant admitted as trading member
of NSE (Stock Exchange) – Was authorized by the Stock Exchange
to become a clearing member of National Securities Clearing
Corporation Ltd. (NSCCL/ Clearing Corporation) – Appellant had
executed undertaking in favour of the Stock Exchange as well as
the Corporation to abide by and comply with the Rules, Byelaws,
and Regulations of the Exchange and of the Corporation and also
to abide by Circulars, Orders, Directions, Notices or Instructions
issued/modified/amended from time to time – By Circular dated
19.05.1997 appellant was permitted to trade to the extent of 7 times
its base capital – Trading facility of appellant was withdrawn by
the Exchange on appellant’s exceeding the permissible limit as per
the Circular dated 19.05.1997 – Further the Clearing Corporation
closed out all the open positions in the securities trade of the
appellant – The Exchange by letter dated 01.11.2004 informed the
appellant about periodical appropriation of certain amounts made
by the Exchange from the security deposits of the appellant in lieu
of various membership charges – The Exchange also called upon
the appellant to deposit additional sums to meet the shortfall created
in the security deposit, to retain the membership of the Exchange –
Appellant denied such obligation to pay, as its trading facilities
had stood suspended throughout that period – Thereafter expulsion
of membership of the appellant by the Exchange – The Securities
Appellate Tribunal upheld the closing out of all the outstanding
positions of the appellant under clauses 17 and 18 of the Byelaws
– Tribunal held the Circular dated 19.5.1997 as valid having binding
value – Appeal to Supreme Court – Appellant’s plea that the appellant
was not bound by the Circular dated 19.5.1997 as the same was
invalid for lack of prior approval of Central Government/SEBI and
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   [2020] 13 S.C.R. 218
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the same being in conflict with Byelaws – Held: Subject matter of
the Circular falls within ambit of operational parameters –
Determination and announcement of operational parameters is
within the competence of the Stock Exchange – The Exchange is
empowered to announce such parameters by way of Circular –
Clearing Corporation is also empowered to issue operational
parameters relating to trading limits and consequent actions in case
of non-compliance – No requirement of prior approval is provided
for notifying such operational parameters – The power and mode
of prescription of such circular falls within the resudary powers
reserved for the Exchange – Since the Byelaws and Rules of the
Stock Exchange are approved by the Central Government/SEBI,
the action taken under the Byelaws/Rules/Regulations, by prescribing
such operational parameters in the form of Circular would assume
enforceable character – The Circular cannot be said to be ultra
vires Clauses 17 and 18 of the Byelaws – The appellant is bound by
the Circular – The appellant having submitted an undertaking to
comply with such instructions, notice etc. cannot be allowed to take
contrary plea – The Stock Exchange not only had the Authority to
specify various deposit-related requirements, but also had the power
to expel a member in case of default – The obligation of the appellant
to keep up with the adequacy of deposits continued despite the
withdrawal of its trading facility – In the present case, the appellant
in having failed to maintain the requisite membership margins with
the Exchange, acted in contravention of the Byelaws and Rules of
the Exchange necessitating unto termination – National Stock
Exchange Byelaws, 1994 – Clauses (10), (17) and (18); Chapter IX
Clauses (5), (6) and (24) – Securities and Exchange Board of India
Act, 1992 – National Securities Clearing Corporation Ltd. Byelaws
– Chapter VI Clauses (11) and (16) – National Securities Clearing
Corporation Ltd. Regulations – Chapters 9 and 10 – National Stock
Exchange Rules – Chapter IV Rule 20(f).
National Stock Exchange Byelaws:
Chapter XII Clause (11); Chapter IX clause (24) – Realisation
of security deposits – Stock Exchange is vested with the power to
realize the assets of a defaulter member in due course – Security
d

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