The Calcutta High Court has partly allowed a writ petition filed by Dalmia Securities Pvt. Ltd., setting aside the order dated March 15, 2022 passed by the Calcutta Stock Exchange (CSE) imposing penalties and withholding refund of excess security deposit, holding that the decision was taken by a governing board that was unlawfully constituted and lacked the mandatory quorum under the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018.
The dispute arose from an investigation initiated by the CSE into alleged irregular and non-bona fide trades said to have been carried out by the petitioner during the period 2000–2001. Although a detailed show cause notice had been issued as far back as March 4, 2004, the matter remained pending for several years. In earlier proceedings, a Single Judge had directed the CSE to take a final call on the investigation within 45 days. Pursuant to appellate directions, the CSE passed the impugned order on March 15, 2022, imposing penalties and withholding the petitioner’s security deposit, which was challenged in the present writ petition.
While examining the challenge, Justice Sabyasachi Bhattacharyya first rejected the objections raised by the CSE on maintainability, holding that writ jurisdiction is maintainable against stock exchanges, which perform public functions and fall within the ambit of Article 12. The Court also held that the existence of an arbitration clause in the CSE Bye-Laws does not bar the exercise of writ jurisdiction, particularly where allegations of violation of natural justice and statutory regulations are raised.
On merits, the Court found that adequate opportunity had been afforded to the petitioner over a prolonged period and rejected the plea that no valid show cause notice had been issued or that principles of natural justice were violated. The Court also declined to interfere with the investigation on the ground of delay, noting that much of the delay was attributable to the petitioner’s own conduct and ongoing litigation.
However, the Court accepted the petitioner’s challenge to the composition of the CSE’s governing board. It was noted that the board which passed the impugned order comprised only three Public Interest Directors, without the presence of any Shareholder Director, in clear violation of Regulation 23(1) of the 2018 Regulations, which mandates inclusion of Shareholder Directors, Public Interest Directors and a Managing Director. The Court held that even though SEBI had exempted the CSE from appointing a Managing Director, such exemption did not dispense with the mandatory requirement of having Shareholder Directors. Consequently, the decision taken by an improperly constituted board was held to be vitiated for lack of quorum.
Accordingly, the High Court set aside the order dated March 15, 2022 solely on the ground of illegal constitution of the board, while upholding the validity of the investigation up to that stage. The Court directed the CSE to constitute a valid governing board in accordance with Regulation 23 and to take a fresh decision on the allegations against the petitioner within three months. It was further directed that the petitioner’s security deposit shall continue to be withheld till such fresh decision is taken, to be adjusted against any penalty that may be imposed.
The writ petition was disposed of with no order as to costs.
Appearances:
For the Petitioners – Senior Advocate S.N. Mookherjee, with Ratnanko Banerjee.
For the Respondent – Senior Advocate Anirban Ray, and Advocate Mr. P.K. Dutta.
