MADHUBHAI AMATHALAL GANDHI Vs. UNION OF INDIA
LAWS(SC)-1960-8-21
SUPREME COURT OF INDIA
Decided on August 17,1960

MADHUBHAI AMATHALAL GANDHI Appellant
VERSUS
UNION OF INDIA Respondents


Cited Judgements :-

RAJESH KUMAR MAHESHWARI VS. UNION OF INDIA [LAWS(DLH)-1990-4-8] [REFERRED 2.]
JAYANTILAL AMRATLAL SHODHAN VS. F N RANA COMMISSIONER BARODA DIVISION [LAWS(GJH)-1962-9-5] [REFERRED]
JAYANTILAL AMRATLAL SHODHAN VS. F N RANA [LAWS(GJH)-1963-12-1] [REFERRED TO]
HARI OM YADAV VS. STATE OF U P [LAWS(ALL)-2006-1-105] [REFERRED TO]
G V JAYACHANDRA CHOWDARY VS. GOVT OF A P [LAWS(APH)-2004-4-54] [REFERRED TO]
G V JAYACHANDRA CHOWDARY VS. GOVT OF A P [LAWS(APH)-2004-4-45] [REFERRED TO]
RAJENDRA RATHOR VS. MADHYA PRADESH STOCK EXCHANGE [LAWS(MPH)-1999-9-44] [REFERRED TO]
VITHALRAO UDHAORAO UTTARWAR VS. STATE OF MAHARASHTRA [LAWS(BOM)-1976-8-1] [REFERRED TO]
A VAIDYANATHAN VS. UNION OF INDIA [LAWS(MAD)-1998-8-4] [REFERRED TO]
NEW HARIYANA DAL MILL VS. UNION OF INDIA [LAWS(BOM)-2009-11-81] [REFERRED TO]
B JOSEPH VS. STATE [LAWS(RAJ)-1966-2-26] [REFERRED TO]
HELTH DEPARTMENT ASSOCIATION OF LABORATORY TECHNICIANS VS. STATE OF BIHAR [LAWS(PAT)-1988-4-51] [REFERRED TO]
KAMLESH KUMAR VS. JAIPUR STOCK EXCHANGE LTD [LAWS(RAJ)-1989-6-1] [REFERRED TO]
MONNET ISPAT & ENERGY LIMITED VS. UNION OF INDIA [LAWS(CHH)-2013-1-6] [REFERRED TO]
HARI OM YADAV VS. STATE OF U P [LAWS(ALL)-2006-1-129] [REFERRED TO]
EXCEL GLASSES LTD VS. STATE OF KERALA [LAWS(KER)-1991-10-18] [REFERRED TO]
D L WALTON VS. COCHIN STOCK EXCHANGE LTD [LAWS(KER)-1994-5-1] [REFERRED TO]
CHANDER BHUSHAN ANAND VS. UNION OF INDIA [LAWS(P&H)-2004-11-70] [REFERRED TO]
C.P. RADHAKRISHNAN VS. COCHIN STOCK EXCHANGE LTD. [LAWS(KER)-1993-5-11] [REFERRED TO]
JUSTICE P N NAG VS. STATE OF H P [LAWS(HPH)-2002-9-18] [REFERRED TO]
Madhu Sudan Agarwal VS. M.P. Stock Exchange [LAWS(MPH)-1997-11-51] [REFERRED TO]
NIKHIL T PARIKH - SOLE PROPREITOR OF PARIKH & PARIKH VS. UNION OF INDIA [LAWS(GJH)-2014-5-49] [REFERRED TO]
SRI LA SRI SUBRAMANIA DESIKA GNANASAMBANDA PANDARA SANNATHI, HEREDITARY TRUSTEE OF THE RAJAN KATTALAI SRI THYAGARAJASWAMI KOIL VS. THE STATE OF MADRAS, REPRESENTED BY SECRETARY, REVENUE DEPARTMENT AND ANR. [LAWS(MAD)-1961-8-35] [REFERRED TO]
MANAGING DIRECTOR, KERALA STATE BEVERAGES CORPORATION (MANUFACTURING & MARKETING) AND ORS. VS. P.B. GOPI AND ORS. [LAWS(KER)-2015-6-141] [REFERRED TO]
COIMBATORE TEXCITY SHARE BROKERS ASSOCIATION VS. UNION OF INDIA [LAWS(MAD)-1992-1-78] [REFERRED TO]
BIHAR TRUCK OWNER ASSOCIATION VS. STATE OF BIHAR [LAWS(PAT)-2022-4-1] [REFERRED TO]


JUDGEMENT

Subba Rao, J. - (1.)This is a petition under Art. 32 of the Constitution for the issue of a writ of mandamus or a writ in the nature of mandamus or any other appropriate direction, order or writ to direct the respondent, the Union of India, to withdraw or cancel the notification dated August 31, 1957, recognising "the Stock Exchange, Bombay" under S. 4 of the Securities Contracts (Regulation) Act, 1956 (XLII of 1956), (hereinafter referred to as "the Act").
(2.)At the outset it is necessary to notice briefly how a Stock Exchange is worked and how it is controlled or regulated by the State. "Stock Exchange" means, "any body of individuals, whether incorporated or not, constituted for the purpose of assisting or controlling the business of buying, selling or dealing in securities". The history of stock exchanges in foreign countries as well as India shows that the development of joint stock enterprise would never have reached its present stage but for the facilities which the stock exchanges provided for dealing in securities. They have a very important function to fulfil in the country's economy. Their main function, in the words of an eminent writer, is "to liquify capital by enabling a person who has invested money in, say, a factory or a railway, to convert it into cash by disposing of his share in the enterprise to someone else". Without the stock exchange, capital would become immobilized. The proper working of a stock exchange depends upon not only the moral stature of the members but also on their calibre. It is a trite saying that a jobber or dealer is born and not made. In the words of the same author, a jobber must be a man of good nerve, cool judgment, and ready to deal under any ordinary conditions, and he must be a man of financial standing, considerable experience, with an understanding of market psychology. There are three modes of dealing in shares and stocks, namely, (1) spot delivery contract, i.e. a contract which provides for the actual delivery of securities on the payment of a price thereof either on the day of the contract or the next day, excluding perhaps the period taken for the despatch of the securities or the remittance of money from one place to another; (2) ready delivery contract, which means a contract for the purchase or sale of securities for the performance of which no time is specified and which is to be performed immediately or within a reasonable time; (3) forward contracts, i.e., contracts whereunder the parties agree for their performance at a future date. If the stock exchange is in the hands of unscrupulous members, the second and third categories of contracts to buy or sell shares may degenerate into highly speculative transactions or, what is worse, purely gambling ones. Where the parties do not intend while entering into a contract of sale or purchase of securities that only difference in prices should be paid, the transaction, even though speculative, is valid and not void, for "there is no law against speculation as there is against gambling". But, if the parties do not intend that there should be any delivery of the shares but only the difference in prices should be accounted for, the contract, being a wager, is void. More often than not it is difficult for a court to distinguish one from the other, as a wagering transaction may be so cleverly camouflaged as to pass off as a speculative transaction. These mischevious potentialities inherent in the transactions, if left uncontrolled, would tend to subvert the main object of the institution of stock exchange and convert it into a den of gambling which would ultimately upset the industrial economy of the country.
(3.)For that reason, in Bombay as early as 1925 the Bombay Securities Contracts Control Act was passed to regulate and control contracts for the purchase and sale of securities in the City of Bombay and elsewhere in the Bombay Presidency. Under S. 6 of that Act,
"Every contract for the purchase or sale of securities, other than a ready delivery contract, entered into after a date to be notified in this behalf by the Provincial Government shall be void, unless the same is made subject to and in accordance with the rules duly sanctioned under S. 5 and every such contract shall be void unless the same is made between members or through a member of a recognised stock exchange; and no claim shall be allowed in any Civil Court for the recovery of any commission, brokerage, fee or reward in respect of any such contract."
But this Act defined "ready delivery contract" to mean "a contract for the purchase or sale of securities for performance of which no time is specified and which is to be performed immediately or within a reasonable time." It was also stated therein by way of explanation that what was reasonable time was in each particular case a question of fact. This Act did not achieve its purpose, for under S. 6 thereof contracts entered into in contravention of the provisions of that section were not made illegal but only void, with the result that even members of a stock exchange not recognised under that Act were able to do business in that line. What is more, the explanation to the definition of "ready delivery contract" which is excluded from the operation of the Act was so elastic that in the name of ready delivery contracts unrecognised stock exchanges and individuals were able to carry on business in forward contracts. Gambling in shares went on unchecked in Bombay as elsewhere. After the Second World War, the post-war boom gave an unhealthy impetus to the stock exchange transactions. Various expert committees appointed by the Government from time to time considered the question of regulation of stock exchanges and the latest of those committees was the Gorwalla Committee. The report of that Committee was circulated to the principal stock exchanges, Chambers of Commerce, and other interested associations and individuals. After considering the reports of the committees and the comments made thereon by the various bodies, the Government introduced a bill in the Parliament which became law on September 4, 1956. The Act was passed to prevent undesirable transactions in securities by regulating the business therein by prohibiting auction and by providing for certain other matters connected therewith. The Act mainly provides for the recognition of stock exchanges and for controlling the rule-making of the said exchanges. Section 4 of the Act empowers the Central Government to recognise stock exchanges subject to two conditions. Section 13 enables it to issue a notification that in a particular State or area every contract which is entered into after the date of the notification otherwise than between members of a recognised stock exchange in such State or area or through or with such member shall be illegal. Without resorting to such drastic procedure the Government is also given power to prohibit contracts in certain securities in certain areas from doing business without obtaining a licence. Spot delivery contracts are excluded from the operation of Ss. 13, 14, 15 and 17 of the Act, unless the Central Government by notification thinks fit to extend the operation of S. 17 of the Act to such contracts. Section 19 prohibits formation of stock exchanges other than recognised ones except with the permission of the Central Government. It declares all auctions in securities entered into after the commencement of the Act illegal. It also provides penalties for the infringements of the provisions of the Act. In short, the Act confers an effective controlling power on the General Government over the stock exchanges.
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