BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 173 of 2007
Date of Decision : 18.1.2008
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Rita Rajgopal
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…… Appellant
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Versus
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1. The Cochin Stock Exchange Ltd., Kochi
2. The Securities and Exchange Board of India, Mumbai
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…… Respondents
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Mr. Premjit Nagendran Advocate for the Appellant.
None for Respondent No.1.
Dr. Poornima Advani Advocate with Mr. Haihangrang E.H. Newme Advocate for Respondent No.2
Coram : Justice N.K. Sodhi, Presiding Officer
Arun Bhargava, Member
Utpal Bhattacharya, Member
Per : Justice N.K. Sodhi, Presiding Officer (Oral)
Challenge in this appeal is to the communication dated March 31, 1995 addressed by the Cochin Stock Exchange Limited (for short the exchange) to the appellant informing her that her request for the transfer of her membership card could not be considered till she settled the liability of one Mr. A.K. Jose (Jose) who was then a defaulting member of the exchange. The appellant was requested to settle the claim of Jose regarding the transaction of 5000 shares of Karnataka Ball Bearing Limited (for short the company) to enable the exchange to process the application for the transfer of the membership card. Facts giving rise to this appeal are these :
The appellant is a member of the exchange. Some time in May 1992 she sold 5000 shares of the company to Jose who was also a member of the exchange. It appears that he had defaulted in his payment obligations to the exchange. In pursuance to the directions issued by the Kerala High Court, the Securities and Exchange Board of India (for short the Board) conducted an inquiry into the affairs of the exchange particularly in the context of the defaulting members of the exchange. It is common ground between the parties that the name of the appellant did not figure in the list of the defaulting members of the exchange and none of her transactions were scrutinized during the course of the inquiry conducted by the Board. Since Jose was a defaulting member, his trades were examined during the course of the inquiry. In this appeal we are only concerned with the trade that he executed with the appellant in regard to the aforesaid 5000 shares of the company. On the basis of the material collected by the inquiring authority, Jose was given a benefit of doubt in regard to his trades because the material was not enough to hold him guilty of any alleged irregularity. Jose had, during the course of the inquiry, denied the execution of the trades with the appellant. It is not in dispute that when the appellant sold 5000 shares of the company to Jose, the former received the consideration of Rs.8.5 lacs in regard to the said transaction. In March 1995 the appellant applied to the exchange for the transfer, of her membership card in favour of another party. In response to this request for transfer, the exchange sent the impugned communication wherein it was observed as under :
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“ In view of the communication issued by SEBI, we are not in a position to transfer your card before settling the liability of Mr. A.K. Jose. Hence, you are requested to settle the claim of Mr. A.K. Jose regarding the transaction of 5000 shares of Karnataka Ball Bearing to enable us to process your application for transfer of your Membership Card ”
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Feeling aggrieved by the aforesaid communication, the appellant filed a writ petition in the High Court of Kerala being O.P. no.6739 of 1995. The writ petition was admitted and the same came up for hearing before a learned single judge on 9.2.2005. At the time of the final hearing it was pointed out to the Hon’ble High Court that the writ petitioner (appellant herein) had an alternative remedy available to her under the Securities and Exchange Board of India Act, 1992. The learned single judge directed the appellant to file an appeal and gave a direction that if the same was filed within one month from the date of the order the plea of limitation shall be ignored. The appellant could not file the appeal within the time allowed by the High Court and she sought extension of time which was granted by the learned single judge. It was then that the present appeal was filed under section 23L of the Securities Contracts (Regulation) Act, 1956.
We have heard the learned counsel for the parties. When the case came up for hearing before us on 23.11.2007 we directed the exchange to file its reply which is now on the record. In the affidavit filed on behalf of the exchange it is now admitted that Jose had executed the transaction in question and that the shares were sold on 20.5.1992 and not on 30th May 1992 as was stated in the inquiry report. The exchange has produced the computer statement and ledger extract showing that shares were sold by the appellant to Jose. No fault has been found with this trade. The trade is obviously genuine. The appellant sold the shares and received the consideration of Rs.8.5 lac for the said sale. In this view of the matter, we see no justification on the part of the exchange to direct the appellant to settle the liability of Jose. If Jose was a defaulting member, it is for the exchange to take steps to recover the dues from him. The appellant cannot be made liable for those dues merely because she executed a trade whereby she sold shares to Jose. The action of the exchange cannot but be described as arbitrary.
In the circumstances, we allow the appeal, set aside the impugned communication and direct the exchange to consider the application of the appellant for the transfer of her membership card in accordance with law. Since the request has remained pending for the last more than a decade, we direct the exchange to pass a final order within one month from the date of receipt of a copy of this order. We make it clear that if the exchange has any claim against Jose, it will be at liberty to proceed against him in accordance with law. The appellant will have her costs which are assessed at Rs.50,000. The costs shall be paid by the exchange.
Sd/-
Justice N.K. Sodhi
Presiding Officer
Sd/
Arun Bhargava
Member
Sd/-
Utpal Bhattacharya
Member
18.1.2008
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