Securities Exchange is entitled to exercise its Right of Lien on Security Deposits, reiterates Bombay HC [Read Judgment]

The Bombay High Court has reiterated that the security exchange is entitled to exercise its right of lien on security deposits.

The Writ Petition was filed by the Stock Exchange Bombay, now called as Bombay Stock Exchange Limited, the following prayers have been made:

“(a) The records in relation to the recovery proceedings initiated by the Respondents against M/s. Sumatilal Jamnalal and/or Mr Sumatilal Jamnalal and/or Paresh Sumatilal Karodia and after going into the legality and validity thereof to quash and set aside the impugned notices.

(b) To issue a writ of mandamus for ordering and directing the Respondents to withdraw forthwith the recovery proceedings initiated against it in respect of the dues of M/s. Sumatilal Jamnalal and/or late Mr Sumatilal Jamnalal and/or Paresh Sumatilal Karodia and ordering and directing the Respondents to withdraw forthwith the impugned notices.

1. c) To declare that the Petitioner is permitted to exercise the right of nomination in respect of the membership right of late Mr Sumatilal Jamnalal and/or Paresh Sumatilal Karodia in favour of such person as the Petitioner may decide and to apply the consideration received therefore and also to appropriate all other securities placed with the Petitioner by M/s. Sumatilal Jamnalal and which have vested in the Petitioner in accordance with the Rules, Bye-laws, and Regulations of the Petitioner.

(d) Until the final disposal of the present petition, the Respondents be restrained from taking any steps against the Petitioner pursuant to the recovery proceedings initiated by the Respondents in the case of M/s. Sumatilal Jamnalal and/or Mr Sumatilal Jamnalal and/ or Paresh Sumatilal Karodia.

(e) Until the final disposal of the present petition, the Petitioner should be permitted to exercise the right of nomination in respect of the membership right of late Mr Sumatilal Jamnalal and Paresh Sumatilal Karodia in favour of such person as the Petitioner may decide and to apply the consideration received therefore and also to appropriate all other securities placed with the Petitioner by M/s. Sumatilal Jamnalal and which have vested in the Petitioner in accordance with the Rules, Bye-laws and Regulations of the Petitioner;”.

The division bench comprising of Justices, Ujjal Bhuyan and Milind N.Jadhav rendered the judgement based on a writ petition filed by Bombay Stock Exchange Limited.

While relying on the decision of the Supreme Court in Bombay Stock Exchange vs. B.S.Kandalgaonkar, the court disposed of the Writ Petitions.

The Court observed that the prohibitory orders were issued by Income Tax Department in respect of the security deposits of the defaulting cardholder is concerned, any amount in excess after meeting its liabilities should be handed over to the Income Tax Department.

The bench further observed that the petitioner- Exchange is entitled to exercise its lien over the security deposits in accordance with the by-law of the petitioner -Exchange’s By-laws.

The division bench further added that no response/objection within a period of three weeks from the communication of the above intimation by the jurisdictional income tax officer to the petitioner-Exchange, then the petitioner would be entitled to make the disbursements in accordance with the intimation/notice given to the jurisdictional Income Tax Officer.