NDLI: Rusoday Securities Ltd. Vs. National Stock Exchange of India Ltd. & Ors.

Content Provider	Supreme Court of India
e-ISSN	30484839
Language	English
Access Restriction	NDLI
Subject Keyword	Lien Equity Sections 3(2) and 9 1956 Principle ‘Nemo dat quod non habet’ Securities Contracts (Regulations) Act
Content Type	Text
Resource Type	Law Judgement
Jurisdiction	India
Act(s) Referred	Securities Contracts (regulation) Act, 1956 (42 of 1956)
Case Type	Appeal
Court	Supreme Court of India
Disposal Nature	Appeal Disposed Off
Headnote	Securities Contracts (Regulations) Act, 1956:Sections 3(2) and 9 – Appellant admitted as trading memberof NSE (Stock Exchange) – Was authorized by the Stock Exchangeto become a clearing member of National Securities ClearingCorporation Ltd. (NSCCL/ Clearing Corporation) – Appellant hadexecuted undertaking in favour of the Stock Exchange as well asthe Corporation to abide by and comply with the Rules, Byelaws,and Regulations of the Exchange and of the Corporation and alsoto abide by Circulars, Orders, Directions, Notices or Instructionsissued/modified/amended from time to time – By Circular dated19.05.1997 appellant was permitted to trade to the extent of 7 timesits base capital – Trading facility of appellant was withdrawn bythe Exchange on appellant’s exceeding the permissible limit as perthe Circular dated 19.05.1997 – Further the Clearing Corporationclosed out all the open positions in the securities trade of theappellant – The Exchange by letter dated 01.11.2004 informed theappellant about periodical appropriation of certain amounts madeby the Exchange from the security deposits of the appellant in lieuof various membership charges – The Exchange also called uponthe appellant to deposit additional sums to meet the shortfall createdin the security deposit, to retain the membership of the Exchange –Appellant denied such obligation to pay, as its trading facilitieshad stood suspended throughout that period – Thereafter expulsionof membership of the appellant by the Exchange – The SecuritiesAppellate Tribunal upheld the closing out of all the outstandingpositions of the appellant under clauses 17 and 18 of the Byelaws– Tribunal held the Circular dated 19.5.1997 as valid having bindingvalue – Appeal to Supreme Court – Appellant’s plea that the appellantwas not bound by the Circular dated 19.5.1997 as the same wasinvalid for lack of prior approval of Central Government/SEBI andthe same being in conflict with Byelaws – Held: Subject matter ofthe Circular falls within ambit of operational parameters –Determination and announcement of operational parameters iswithin the competence of the Stock Exchange – The Exchange isempowered to announce such parameters by way of Circular –Clearing Corporation is also empowered to issue operationalparameters relating to trading limits and consequent actions in caseof non-compliance – No requirement of prior approval is providedfor notifying such operational parameters – The power and modeof prescription of such circular falls within the resudary powersreserved for the Exchange – Since the Byelaws and Rules of theStock Exchange are approved by the Central Government/SEBI,the action taken under the Byelaws/Rules/Regulations, by prescribingsuch operational parameters in the form of Circular would assumeenforceable character – The Circular cannot be said to be ultravires Clauses 17 and 18 of the Byelaws – The appellant is bound bythe Circular – The appellant having submitted an undertaking tocomply with such instructions, notice etc. cannot be allowed to takecontrary plea – The Stock Exchange not only had the Authority tospecify various deposit-related requirements, but also had the powerto expel a member in case of default – The obligation of the appellantto keep up with the adequacy of deposits continued despite thewithdrawal of its trading facility – In the present case, the appellantin having failed to maintain the requisite membership margins withthe Exchange, acted in contravention of the Byelaws and Rules ofthe Exchange necessitating unto termination – National StockExchange Byelaws, 1994 – Clauses (10), (17) and (18); Chapter IXClauses (5), (6) and (24) – Securities and Exchange Board of IndiaAct, 1992 – National Securities Clearing Corporation Ltd. Byelaws– Chapter VI Clauses (11) and (16) – National Securities ClearingCorporation Ltd. Regulations – Chapters 9 and 10 – National StockExchange Rules – Chapter IV Rule 20(f).National Stock Exchange Byelaws:Chapter XII Clause (11); Chapter IX clause (24) – Realisationof security deposits – Stock Exchange is vested with the power torealize the assets of a defaulter member in due course – Securitydeposits can be realized by the Exchange per se without anyadditional condition as the Exchange enjoys a statutory lien oversuch deposits by way of clause (24) of Chapter IX – However, suchsecurity deposits do not include forfeited/withheld assets/securities– Expulsion or declaration of defaulter is a pre-condition forrealization of withheld securities – Vesting of withheld securities infavour of Exchange takes place only after expulsion or declarationof defaulter – Withheld securities can be categorized as ‘receivingsecurities’ and ‘introductory securities’ – In the present case‘introductory securities’ since were in the names of third persons,could not have been realized by the Exchange – Actual recoveryqua appellant/defaulting member could only be made from the‘receiving securities’ as those securities were due/deliverable to theappellant and were withheld as a collateral – National SecuritiesClearing Corporation Ltd. Regulations – Chapter 9.National Stock Exchange Rules:Chapter IV Rule 20(f) – Applicability of – Held: The relevantpoint of time for applicability of this Rule is “the date of expulsion”from the trading membership of National Stock Exchange.Chapter XII Clause (ii) – Declaration of trading members asdefaulter – Requirement – Nature of – Held: Though requirement ofdeclaration as defaulter may be discretionary one under NSCCLRegulations, the same is mandatory requirement for vesting in clause(ii).Lien:Scope, extent and operation of lien – Held: Mere existenceof lien may not entitle the lienee to sell off the property forsatisfaction of debt without a court order – However, this principleis not absolute – When lien itself is a creation of byelaws, Rules orRegulations etc., the scope, extent and operation of such lien wouldbe governed by the same scheme – No external conditions can beread into such scheme.Equity:Equity is about balancing the competing interests – It neveroperates in an absolute manner – Principles’ of constructive trustand fiduciary relationships are equitable principles.Principles: Principle ‘Nemo dat quod non habet’ – Applicability.Principles of ‘constructive trust’ and ‘fiduriary relationship’– Nature and applicability of.Words and Phrases:“Regulation” – Meaning of.“Control” – Meaning of.
Judge	Hon'ble Mr. Justice A.M. Khanwilkar
Neutral Citation	2020 INSC 650
Petitioner	Rusoday Securities Ltd.
Respondent	National Stock Exchange Of India Ltd. & Ors.
SCR	[2020] 13 S.C.R. 218
Judgement Date	2020-11-20
Case Number	2690

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