THE STOCK EXCHANGE, BOMBAY versus V. S. KANDALGAONKAR & ORS.

Citation: [2014] 14 S.C.R. 409 · Decided: 25-09-2014 · Supreme Court of India · Bench: RAJENDRA MAL LODHA · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

[i014] 14 S.C.R. 409 
THE STOCK EXCHANGE, BOMBAY 
v. 
V. S. KANDALGAONKAR & ORS. 
(Civil Appeal No. 4354 of 2003) 
SEPTEMBER 25, 2014 
(R. M. LODHA, CJI, KURIAN JOSEPH AND 
R. F. NARIMAN, JJ.) 
Income Tax Act, 1961: 
A 
B 
s.226(3) - Assessee in default of income tax - Such C 
assessee, also declared a defaulter member of Stock 
Exchange - Priority over debts owed by defaulter member 
to Stock Exchange and Income Tax Department - Held: 
Membership card is only a personal permission from Stock 
Exchange to exercise the rights and privileges that may be D 
given subject to Rules, Bye-Laws and Regulations of Stock 
Exchange -
Therefore, the proceeds of a membership card 
cannot be paid over to Income Tax Department for the dues 
of the members -As regards securities deposited with Stock 
Exchange, the lien possessed by Stock Exchange makes it E 
a secured creditor and, as such, it would have priority over 
Government dues - Provincial Insolvency Act, 1920- s. 2( e) 
- Securities and Reconstruction of Financial Assets and 
Enforcement of Security Interest Act 2002 ~ s.2(zf) -
Constitution of India, 1950-Art. 372 - Securities Contracts F 
(Regulation) Act, 1956- ss. 8 and 9- Rules framed under-
rr. 5, 9, 16(iii) and 43 - Subordinate legislation. 
Allowing the appeal, the Court 
HELD : 1.1 In view of Rules 5 and 9 of the Rules 
framed under the Securities Contracts (Regulation) Act, G 
1956, a membership card is only a personal permission 
from the Stock Exchange to exercise the rights and 
privileges that may be given subject to Rules, Bye-Laws 
and Regulations of the Exchange. Further, the moment 
H 
409 
l 
I· 
ii;; 
I 
410 
SUPREME COURT REPORTS l 
[2014] 14 S.C.R. 
! ' 
' 
A a member is declared a defaulter, his right of nomination 
shall cease and vest in the Exchange because even the 
personal privilege given is, at that point, taken away from 
the defaul~ing member. Theref~re, th~ proceeds of a I ·. 
membershrp card cannot be pard over to Income Tax / 
B . Department for the dues of the members by virtue of r.16 ' 
(iii), as such a member at.no point of time owns any 
property capable of attachment. [Para 14 and 17] 
[434-F-H; 438-C-E] 
.. ' 
/sha Valimohamad and Anr. v: · Haji Gut{im 
C ""· 
Mohamad & Haji Dada Trust 1975 (1) SCR 720; 
Stock Exchange,· Ahmedabad v. Asstt. 
· Commisioner'of Income Tax, Ahmedabad 2001 
' '. (2) SCR 255 =' 2001 · (3) sec 559 - relied on. 
. -·-· -, . 
. 
. 
. 
. 
. 
''-< 
. "'
, 
. . .· 2. The expression "transfer" can depending upon 
. D its context mean transfer of ownership or transfer of 
, possession. As regards the securities deposited by th'e 
' member with the Stoi:k Exchange, it is clear that what ls 
'transferred is only possession as the niember only 
. E 
"de~C>s\ts" th~~e.s~c~i'ities. [Par~ 17][439:~·GJ:;' < '1.'' 
, .· · Vasudev ·. Ramchandra ·.She/at. · v. Pran/al · 
.· 
. 
. 
·. 
. 
. . . . . 
. . 
" . 
. . . . 
. · .. ' . 
. . , 
.. ,, . Jayanand Thakur & Ors., 1915 (2) SCR .534; ·• 
; . . 
· " 
.. , 
. 
. 
, 
.. , 
·. 
. . 
. 
., 
. " ... ' 
. . 
. ,
' 
Bombay Stock Exchange v. Jaya Shah 2003 (4).~•.-.:. . 
· 
· 
F 
· · :Suppl; SCR 892 = 2004 (1) SCC 160- relied ... 
on.·, 
·--'\'_._ 
~,-,\ ... 1 __ 
· 3.1 It is settled law that Government debts have · 
precedence only over unsecured credit6rs. The moment 
. the Stock Exchange has a .lien ove.r the member's 
securities, it would have precedence over income tax 
G dues. [Para 19][444-F~G; 445:F-G] ':' '·' 
·_· ... · 
. 
. . 
. 
. 
, 
' 
, 
. 
. 
. . . , ... , ;, ; . , l 
Dena Bank v. Bhikabhai Prabhudas Parekh· : · 
· Co. 2000 (3) SCR 509 =2000'.(5) SCC.G94 - •. , 
, . 
·· relied on 
· ·· · ·· 
.. 
H 
i 
\ 
I 
I / 
... -- · ; THE STOCK EXCHANGE, BOMBAY v. V. S. 
~' KANDALGAONKAR & ORS. 
411 ··· 
. Triveni Shankar Saxena v. State. of U.P. & 
Ors.1991 (3) Suppl. SCR 534 =1992 Suppl. 1 . 
. SCC 524; K.S. Saradambal v. Jagannatham K 
A 
:--.:- .__,_ ---
Brothers, (1972) 42. Companies Case 359 ..:. 
referred to. 
· 
. . 
-,· 
·_ 
·-. 
' 
--
' 
3.2 In the instanfcase, the first and paramount lien B 
· given to the Stock Exchange is by Rule 43 of the Rules 
made u/s 8 of the Securities Contract (Regulations) Act. 
Rules made by Stock Exchanges in exercise of powers 
conferred by the Securities Contracts (Regulation) Act 
are equally. "Rules"· and, therefore; 'subordinate C · 
' legislation. Therefore, the lien spoken of by Ruie 43 is a 
lien; co'nferred by Rules irnder a statute.' [Para 21] 
[451~0-F] 
. " 
. 
· • 1 FOrward

Excerpt shown. Read the full judgment & AI analysis in Lexace.