VINAY BUBNA versus STOCK EXCHANGE, MUMBAI AND ORS

Citation: [1999] 3 S.C.R. 1222 · Decided: 28-07-1999 · Supreme Court of India · Bench: B.N. KIRPAL · Disposal: Dismissed
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Judgment (excerpt)

A 
VINAYBUBNA 
v. 
STOCK EXCHANGE, MUMBAI AND ORS .. 
JULY 28, 1999 
B 
[B.N. KIRPAL ANDS. RAJENDRA BABU, JJ.] 
Bombay stock Exchange Rules, Bye-laws and Regulations, 1957: 
Rules 5,53 and 54-Stock Exchange-Membership of-Rights and 
C privileges-Held: Membership is a personal permission from the Exchange to 
exercise the rights and privileges attached thereto-Once a member is 
declared a defaulter, right of membership vests in the Exchange under Rules 
53 and 54-Membership card of a share broker is not his personal property, 
which, on default being committed by him, cannot be sold and proceeds 
D distributed amongst his creditors-High Court rightly concluded that once 
a defaulting member ceases to be a member of the Exchange, no interest in 
his membership card remains and it cannot be regarded as his asset-
Securities Contracts (Regulations) Act, 1957. 
Rule 16-0rder of priority-Allocation-Validity-Held: R.16 is not 
E illegal, arbitrary, void or unjust-On the contrary R.16 mitigates the hardship 
which may be caused by defaulting member-Constitution of India, 1950, 
Arts,14,19(1) and 300-A. 
Rule 16-Nature and scope of-Held, when the defaulting member is 
expelled from the Exchange no interest in his membership card remains in 
F him and none can pass to his assignee-Hence, R. 16 not contrary to 
insolvency law. 
The appellant had dealings in sale and purchase of shal'~S with 
respondent No. 3-a share broker-who was a member of the Stock Exchange 
until he was declared a defaulter by the Stock Exchange. The appellant 
G claimed that respondent No.3 had not paid a sum of more than Rs.21 lakhs 
due to him. 
H 
The appellant filed a writ petition before the High Court challenging 
Rules 16 and 43 of the Bombay Stock Exchange Rules, Bye-laws and 
Regulations, 1957 contending that payment to creditors like the appellant 
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VINA Y BUBNA v. STOCK EXCHANGE 
1223 
should first be made from the sale proceeds of the membership to replace A 
respondent No. 3, the defaulter; and that the proceeds should not be distributed 
in the manner indicated by Rule 16. The High Court dismissed the petition. 
Hence this appeal. 
On behalf of th; appellant it was contended that membership of the 
Stock Exchange was an asset which belonged to respondent No. 3; that a B 
defaulting member has to be treated like an insolvent because he was unable 
to pay his debt; that distribution of the proceeds from the sale of the 
membership according to the order of priority indicated by Rule 16 was 
unfair, unjust, arbitrary and violative of Articles 14, 19(1) and 300-A of the 
Constitution; and that Rules 16 and .43 were inconsistent with the law of C 
insolvency. 
Dismissing the appeal, this Court 
HELD: 1. Rules 5, 53 and 54 of the Bombay Stock Exchange Rules, 
Bye-laws and Regulations, 1957 provide that the membership of the Exchange D 
constitutes a personal permission from the Exchange to exercise the rights 
and privileges attached thereto. Once a member is declared a defaulter his 
right of membership vests in the Exchange under Rules 53 and 54. The 
High Court, therefore, was right in coming .to the conclusion that on a 
default being committed, the share broker ceases to become a member of the 
Exchange and all his rights, privileges etc. as a member come to an end. If E 
he does not clear the dues within six months the Governing Body then has 
a right of nomination in respect of such membership. It will be incorrect to 
state that on the stock broker ceasing to be a member, he still retains any 
rights or interest in the permission which has been granted to him by the 
Exchange to carry on business as a member. The membership card of a share F 
broker is not his personal property which, on default being committed by him 
and his ceasing to be a member, can be sold and the proceeds distributed 
amongst his creditor. Rules 53 and 54 leave no manner of doubt that member's 
right of membership vests in the Exchange after he is declared defaulter • 
(1227-E; 1228-H} 
Official Assignee of Bombay v. KRP Shroff, AIR (1932) PC 186, approved. 
2. There is nothing unfair or unjust in Rule 16 providing that the first 
priority from out of the sale proceeds would be towards the amounts due to 
G 
the Exchange itself. The second priority is given to the debts, liabilities, 
obligations and claims arising out of the contracts made by the erstwhile H 
1224 
SUPREME COURT REPORTS 
[1999] 3 S.C.R. 
A member. Even though at the time w
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