HONOURABLE MR v. OTC EXCHANGE OF INDIA

CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA Date : 17/12/2008 ORAL JUDGMENT 1 This petition has been preferred challenging the action of the respondent Exchange declaring the petitioner as a defaulter in accordance with the SCA/409919/1999 JUDGMENT provisions of Chapter XIV of the bye-laws of the respondent Exchange.

2. It is an admitted fact that the petitioner, a Limited Company became a member of the respondent Exchange as on 20.10.1995. As per bye-laws of the respondent Exchange, the petitioner had paid an amount of Rs.20 lacs for acquiring the membership and further the petitioner has been paying the requisite annual fees regularly from time to time and no amount is outstanding towards the annual fees.

3. The learned Advocate for the petitioner has assailed impugned order dated 18.5.1999 (Annexure-A) on the following grounds : [i] Though served the respondent has not filed Affidavit-in-Reply controverting the averments made in the petition. [ii] The petitioner has not transacted any business with the respondent or through the respondent exchange since the date of acquisition of membership of the Exchange. Hence, there is no outstanding due from the SCA/409919/1999 JUDGMENT petitioner to the respondent Exchange. [iii]No notice has been issued to the petitioner before declaring the petitioner to be a defaulter. [iv] There is no Notice or opportunity of hearing or inquiry before the declaration. [v] Impugned order dated 18.5.1999 is a cryptic nonspeaking order. [vi] The respondent cannot call upon the petitioner to discharge liability of another independent entity. [vii]Nor has the petitioner even been called upon to discharge the liability of another entity. [viii]In so far as the payments made by the petitioner to the respondent Exchange in relation to the liability of Mehta Integrated Finance Ltd., the contention of the petitioner is that it was under protest and was to ensure that the petitioner did not suffer the label of defaulter so as to hurt the business of the petitioner in other Exchanges in India.

4. It is necessary to take note of the fact that SCA/409919/1999 JUDGMENT vide communication dated 22.6.1999 the default status of the petitioner has been revoked and the said communication (Annexure-I) as is material reads as under : “Ref.:-1303/99/LP/VK.SKB/123(B) June 22,1999. Dear Sir, Sub : Revocation of Default status on OTCEI. We are in receipt of your letter dated June 2,1999, which you have requested the Exchange to revoke its decision to declare you as defaulter and to reinstate you as a Member/Dealer on the Exchange. We write to convey to you that, upon your meeting all your dues to the Exchange as on date, the Board of Directors of the Exchange have considered your above request and have revoked your default status on the Exchange w.e.f. June 18,1999. All the other Stock Exchanges and SEBI have been informed of this decision”.

5. The petitioner had written to the respondent Exchange on 19.5.1999 objecting to the unilateral action of declaring the petitioner as defaulter. On

20.5.1999 National Stock Exchange of India Ltd., wrote to the petitioner referring to the declaration of default made by the respondent Exchange. In response thereto on the same day viz. 20.5.1999, the petitioner wrote to National Stock Exchange of India SCA/409919/1999 JUDGMENT Ltd., as under : “Dear Sir, We are in receipt of your Fax No. NSEIL/MEM/2477 dt.May 20,1999. We have been wrongly and illegally declared defaulter by the OTCEI for which we are taking appropriate action. The disputed amount of Rs.1,72,292/- is deposited under protest immediately with the OTCEI current A/c No 6055001 today by telegraphic transfer. Incidentally we further inform you that the dues are of MEHTA INTEGRATED FINANCE LIMITED and not of MEHTA SECURITIES LIMITED. We request you to take up the matter with OTCEI and there are no other issues which calls for such action. Kindly resume the trading facility at the earliest”.

6. At page Nos. 31 and 32 there are Xerox copies of two telegraphic transfers of funds. The first one dated 20.5.1999, and the second one dated 25.5.1999, for a sum of Rs.1,72,292/- only, and Rs.1,25,711.09 only, respectively. Both these documents show that the payment is favouring A/c. No. 6055001 of the respondent Exchange. The first amount is paid by Mehta Integrated Finance Ltd. while the second amount is paid by the petitioner. SCA/409919/1999 JUDGMENT

7. In this context the learned Advocate for the petitioner was called upon to explain as to in what circumstances the said concern namely Mehta Integrated Finance Ltd. had incurred the liability vis-a-vis respondent Exchange, considering the fact that it was the say of the petitioner that the said company was only a representative of the respondent Exchange and yet the petitioner had made the payment. No explanation is forthcoming.

8. However, what is more material is the second payment which has been made by the petitioner in favour of respondent Exchange on 25.5.1999. The Court was informed orally that the same is towards interest payment for discharging outstanding liability belatedly. If, as contended, that the petitioner is not liable to pay anything to the respondent Exchange then there is no question of making payment of interest, and the contention that the payment is made for and on behalf of Mehta Integrated Finance Ltd., is not supported by the document in question because the same categorically SCA/409919/1999 JUDGMENT refers to the petitioner and also carries signature of the authorised signatories/Directors of the petitioner. The name of the customer is also shown to be Mehta Securities Limited viz. the petitioner.

9. Thus, it is apparent that the petitioner has approached the Court seeking equity only on a legal ground without placing on record complete facts for which sufficient opportunity had been granted to the petitioner since 5.12.2008.

10. In the circumstances, without entering into and dealing with the contentions raised on behalf of the petitioner, suffice it to state that the petitioner has not been able to explain in what circumstances (i) the petitioner was required to make payment on

25.5.1999, (ii) the petitioner was required to make payment on behalf of Mehta Integrated Finance Ltd. when the petitioner itself is claiming that the two different entities are legally distinct and separate entities. The aforesaid queries raised by the Court have been left unanswered and hence, the petitioner is not entitled to any relief in equity. SCA/409919/1999 JUDGMENT

11. The petition is accordingly rejected. Rule discharged. There shall be no order as to costs. Sd/- (D.A. Mehta, J.) M.M.BHATT