Holding

The differential deposit requirement does not violate Article 14, and the constitution and functioning of the Expert Committee were not arbitrary; therefore the appeals are dismissed.

Summary

The Delhi Stock Exchange sought to increase its membership by 250, half through a public issue of shares and half by diluting existing shareholdings, subject to a higher non‑refundable deposit for public‑issue applicants. The Central Government approved the scheme, and an Expert Committee was constituted to select the new members based on objective criteria. Several applicants challenged the differential deposit requirement and the composition of the Expert Committee as arbitrary and violative of Article 14 of the Constitution. The Delhi High Court dismissed the writ petitions, and the Supreme Court upheld that the classification of applicants into two distinct groups justified the differing deposit amounts and that the Expert Committee’s constitution and selection process were not arbitrary or discriminatory. Consequently, the Court dismissed the appeals and the writ petition, emphasizing judicial restraint in policy matters concerning stock‑exchange membership.

Issues considered

Whether the higher deposit requirement for applicants seeking membership through public issue of shares violates Article 14 of the Constitution.
Whether the constitution of the Expert Committee, including directors of the Delhi Stock Exchange, is arbitrary and violative of Article 14.
Whether the selection process of the Expert Committee was biased, capricious or whimsical.
Whether the court can interfere with the policy decision to increase the stock‑exchange membership.

Legislation cited

Constitution of Indias. Article 14
Securities Contracts (Regulation) Act, 1956s. 4

Subjects

Securities lawStock exchange membershipArticle 14DiscriminationExpert CommitteeAdministrative lawPolicy decisionSelection criteria

Judgment

A OM PRAKASH POPLAI, RAJESH KUMAR MAHESHWARI
AND ORS. ETC.
v.
DELHI STOCK EXCHANGE ASSOCIATION LTD.
AND ORS./UNION OF INDIA AND ORS. ETC.
B JANUARY 14, 1994

[AM. AHMADI AND M.M. PUNCHHI, JJ.]

Securities Contracts, (Regulation) Act, 1956: Section 4-Delhi Stock
C Exchange-Proposal for increase in membership through public issue of shares
and through dilution of shareholdinij-Approval of Central Government--
Demand of deposit~igher amount in case of members through public
. issue-Whether arbitrary and discriminatory-Constitution of Expert Commit-
tee appointed to Select members-Validity of-Allegation of bias-Whether
D proved-Selection made-Whether arbitrary and. discriminatory.
Constitution of India, 1950 : Article 14-Delhi Stock Exchange--In-
crease in membership through public issue and dilution of share-hold-
ing-Higher deposit demanded from one category-Constitution of Expert
Committee and selection made by it-Whether arbitrary, discriminatory and
E violative of.

Administrative Law : Policy matters-Decision taken by Govem-
ment--Court always reluctant to inteifere.

In pursuance of Section 4 of the Securities Contracts (Regulation)
F Act, 1956 providing for the necessity to secure recognition for trasacting
business in securities, the Delhi Stock Exchange secured recognition from
the Central Government. With the passage of time the volume of work
Sincreased and in view of the limited membership the Delhi Stock Exchange
experienced difficulties in the matter of servicing the investors. Hence it
G proposed to increase the Membership. Central Government approved the
proposal of increasing the membership by 250 members, that is 125
member~ through public issue of shares and 125 members through dilu·
tion for shareholding of each member from two shares to one share. All
new members were to pay an admission fee of Rs. 1 lakh. The members
admitted~through public issue of shares and through dilution of existing
H shareholding we~ reqqired to pay an additional non-refundable deposit
120
r
POPALl/MAHESHWARI v. DELHISTOCKEXCHANGE/U.0.1. 121

of Rs. 3 lakhs and Rs. 1 lakh, respectively, which amount was to be utilised A
x by the Stock Exchange for making provision to improve the services and
providing a better infrastructure.

The selection of 250 members was to be made on objective criteria
taking into consideration the applicants' experience, professional
qualifications and other relevant factors through an Expert Committee. B
The issue of shares through dilution of existing members was restricted to
. ,#·
assistants of members of the Delhi Stock Exchange, daughters/sons or
direct dependents of the members. By a subsequent letter, the Central
....... ~ Government modified the term regarding deposit money by making it
transferable. c
Two Writ Petitions came to be filed before the High Court, one
challenging the terms of approval granted by the Central Government and
the inclusion of Directors/Members of the Delhi Stock Exchange as Mem-
hers of the Expert Committee, and the other challenging the non-selection
of the Writ Petitioner. Both the Writ Petitions were dismissed and hence D
the present appeals. The Writ Petition filed in this Court also challenged
the rejection of the Petitioner's application for being admitted· to the
membership of the Stock Exchange.

Dismissing the matters, this Court
E
HELD : 1. The High Court rightly rejected the plea of the appellants
that the approval granted by the Central Government by letter of 5th
February, 1987, was violative of Article 14 of the Constitution as those
seeking membership through public issue of shares constitute a class by
~
themselves only and distinct from the class comprising those seeking F
membership through dilution of shareholding of existing members. There-
fore, the condition in regard to higher deposit from those belonging t.o the
first category as compared to those belonging to the second category
cannot be said to be unconstitutional. (127-F-GJ

Rajesh Kumar Maheshwari v. Union of India & Ors., reported in A.I.R. G
1992 Delhi 68, approved.

2. As per the Memorandum of Articles of Association of the Delhi
Stock Exchange the selection of members for the Expert Committee was
made by the Board of Directors. The validity of that provision was not put H
122 SUPREME COURT REPORTS (1994] 1 S.C.R.

A in question. Therefore, it cannot be said that the constitution of the Expert
Committee was arbitrary and violative of Article 14 of the Constitution of
India. [128·D·E]

3.1. The selection of members by the Expert Committee had to be
done on the basis of objective criteria taking into consideration experience,
B professional qualifications and similar related factors. Certain percentage
of marks were allocated for each of these factors, namely, educational
:1>'"-··
qualifications, experience, financial background and knowledge of the
relevant laws and procedures pertaining to public issues etc. or the total
marks allocated only 20 per cent were reserved for interviews. Therefore,
c the process of selection by the Expert Committee was not left entirely to
the sweet-will of the members of the Committee. The area of play was
limited to 20 per cent and having regard to the fact that the members of
the Expert Committee comprised of two members nominated by the
Central Government it is difficult to accept that they acted in an un·
D reasonable or arbitrary fashion. The constitution of the Expert Committee
itself shows that one member was not in a position to influence the other
members of the Committee so as to tilt the balance in favour of the
members of his fraternity, that is, the Chartered Accountants. Merely
because a large number of Chartered Accountants were selected and some
of them had recently qualified is no ground to set aside the selection. Since
E Chartered Accountants have special knowledge of the working of financial
institutions and the mechanics of public issue of shares as well as dealings
with the Controller of Capital Issues, etc., they could fare better at the
interview, being abreast with law, guidelines and policies of the Central
Government in this behalf. [128-F·H, 129-A-B]
F -~
3.2. Merely because the petitioner/appellant had past experience of
Stock Exchange working and was a highly educated person is no ground
to doubt the integrity of the members of the Expert Committee and their
selection. It must be realised that the majority makrs were given on the
basis of the objective criteria and the interviews were arranged to ascertain
G the knowledge of the candidates in regard to current developments in the
field of capital issues, boons issues, shareholder service and the like. The
Court's role in such matters is limited and it does not function as an
appellate authority over the selection done by an expert body unless it is
shown by cogent and convincing evidence that the selection was biased,
H capricious, whimsical or arbitrary. General allegations of the type made
j--
POPALI/MAHESHWARI v. DELHISfOCKEXCHANGE/U.0.I. [AHMADI,J.] 123

cannot, nullify the selection process unless concrete facts are established A
to show that the members of the Expert Committee had at the behest of
one member favoured the Chartered Accountants. Similarly, there is noth-
ing on record to show that the members of the Expert Committee were
biased against the petitioner/appellant. [129-E-G]

4. The Petitioner's request for enhancing the number of members is B
not a matter in regard to which this Court would like to issue a mandate.
It is a matter of policy which was worked out carefully after extended
·correspondence between the Delhi Stock Exchange and the Central
'y Government and in such matters of policy this Court is always reluctant
to interfere. [130-B] C
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 4711-12
of 1990.

From the Judgment and Order dated 7.5.1990 of the Delhi High
Court in W.P.No.1357 of 1990. D
WITH

Writ Petition (C) No. 878 of 1989.

(Under Article 32 of the Constitution of India)
E
WITH

I.A. Nos. 13-16.

Ashwani Kumar, H.N. Salve, V.C. Mahajan, R.P. Bhatt, R.K. Jain,
Sandeep Bhuraria, P.N. Gupta, Ms. Smitha Inna, S.S. Shroff, Sudarsh F
Menon, Manoj Swarup, D.N. Mishra, N.P.S. Panwar, S.N. Bhat, Rajiv Sahai
Endlaw, Navin Prakash, K.B. Rohtagi, S. Ganesh, Ms. Lata Krishnamurti,
Ashok Mathur, Prem Pd. Juneja, Sanjeev Puri, N. Ganpathy, Hemant
Batra, R. Sasiprabhu, Gopal Subramaniam, S. Murlidhar, R.F. Nariman,
R.N. Keshwani, Arvind Kumar, Ms. Laxmi Arvind, Sanjeev Anand, Ms. G
Roxna Swamy, K. Ram Kumar, Rajiv Dutta and Vipin Nair for the appear-
ing Parties.

The Judgment of the Court was delivered by

1. AHMADI, J. The Delhi Stock Exchange Association Ltd. came H
124 SUPREME COURT REPORTS (1994) 1 S C.R.

A to be incorporated under the Companies Act, 1913 on 25th June, 1947. The
Securities Contracts (Regulation) Act, 1956 was brought into force with
effect from 20th February, 1957(~th a view to preventing undesirable
transactions in securities by regulating the business of dealing therein.
Certain other incidental provi~ions prescribing prohibitions etc. were also
made therein. Section 4 provided for the necessity to secure recognition
B for transacting business in securities. In pursuance thereof, the Delhi Stock
Exchange secured recognition from the Central Government. With the
passage of time the volume of work increased and the total number of
members who could transact business in securities in the Delhi Stock
Exchange being limited certain difficulties were experienced in the matter
C of servicing the investors. On the one hand there was the problem of
servicing the investors; with the number of members being small there was
also considerable difficulty experienced on account of the paucity of ac-
commodation. Correspondence ensued between the Delhi Stock Exchange
and the Central Government in this connection to find the ways and means
D to improve the working of the Delhi Stock Exchange with a view to
providing improved services to. the investors. Ultimately on 5th February,
1987, the Government of India while replying to the letter of the Delhi
Stock Exchange dated 15th January, 1987, conveyed its approval to the
proposal for increasing membership subject to certain conditions as under:

E "(i) The membership of the Stock Exchange be increased
. by 250 members, that is :

(a) 125 members through public issue of shares; and

(b)· 125 members through dilution of shareholding of each
F member from two shares to one share."

It was provided that all new members shall have to pay an admission fee
of Rs. 1 lakh. New members admitted through public issue of shares and
through dilution of existing shareholding were required to pay to the Delhi
Stock Exchange an "dditional non-refundable deposit of Rs. 3 lakhs and
G Rs. 1 lakh respectively which amount was to be utilised by the Delhi Stock
Exchange for making provision to improve the services and providing a
better infrastructure. The selection of 250 members was to be made on an
objective criteria taking into consideration the experience, professional
qualifications and other relevant factors through an Expert Committee to
H be constituted for that purpose. The issue of shares through dilution of
POPALI/MAHESHWARI v. DELHI STOCK EXCHANGE/U.O.l. [AHMADI, J.) 125

existing members was, however, restricted to authorised assistants of mem- A
hers of Delhi Stock Exchange, daughters/sons or direct dependents of the
members. The Delhi Stock Exchange was directed to take immediate steps
to increase the membership on the aforesaid terms and conditions. By a
subsequent letter dated 12th February, 1987, the Central Government
modified the term in regard to the deposit money by making it transferable.
B
While this correspondence was in progress a Writ Petition was filed by one
Mr. Saigal, being Civil Writ Petition No.12223 of 1985, in which certain
interim orders were made. It is, however, not necessary to refer to the same
because after the Central Government's approval conveyed by the letter of
5th February, 1987, that Writ Petition became infructuous and was so
disposed of by the order dated 18th February, 1987. However, on 10th C
June, 1987, one Rajesh Kumar Maheshwari filed a Writ Petition in the
High Court of Delhi questioning the terms of the approval granted by the
Central Government on the ground that they were arbitrary, illegal and
void being discriminatory and contrary to public policy and prejudicial to
public interest. Obviously, the challenge was based on Article 14 of the D
Constitution. The Constitution of the Expert Committee was also ques-
tioned as violative of Article 14 on account of the inclusion of Direc-
tors/Members of the Delhi Stock Exchange in the Expert Committee. The
High Court rejected the contentions urged in support of the Writ Petition
and dismissed the same by its judgment dated 18th April, 1990. It is this
decision of the High Court which has given rise to Civil Appeal No.4712 E
of 1990.

2. Civil Appeal No.4711 of 1990 arises out of an order of the Division
Bench of the Delhi High Court which rejected the Writ Petition No.1357
of 1990 filed by Om Prakash Poplai on 7th May, 1990. By that Writ Petition F
the petitioner had questioned his non-selection by the Expert Committee.
The High Court noticed that the communication informing the petitioner
of his noa-selection (but it appears that he was placed on the waiting-list)
was conveyed to him in July, 1988 whereas he had preferred the Writ
Petition on 30th April, 1990. The High Court also did not find any merit G
in the Writ Petition and dismissed the same in limine. Thereupon, the
petitioner approached this Court by special leave. His contention before
the High Court and before us was that he was a double-graduate, B.A.,
LL.B., with a postgraduate qualification, LL.M. in Commercial Laws from
Utkal University. He had worked as Member of the Punjab Stock Ex-
change, Lahore, from 1944 to 1947 before his migration to Delhi where he H
126 SUPREME COURT REPORTS (1994) 1 S.C.R.

worked as a Mamber of the Delhi Stock Exchange from 1951 to 1965.
x_
A
Thereafter he practised law in the High Court of Delhi and Courts subor-
dinate thereto between 1965 and 1976. He was also enrolled as an Advo-
cate-on-Record in the Supreme Court of India. While he was practising he
was also teaching in the Faculty of Law of the Delhi University between
B 1971 and 1976. In 1976 he gave up practice and joined the Delhi University
as a full time lecturer in law, On 4th June, 1987, he applied for membership ...... -
of the Delhi Stock Exchange at the age of 60 years. But the Expert
Committee did not select him. It may here be mentioned that the Expert 'y
Committee constituted of nine members but according to the petitioner/ap-
pellant he was interviewed on 16th January, 1988, by (i) Mr. Prem Chand
c Jain (ii) Mr. Paul Joseph (iii) Mr. R.N. Bansal and (iv) Mr. R.K. Pandey.
Mr. Prem Chand Jain was the President of the Expert Committee, Mr.
Pandey was the Executive Director of Delhi Stock Exchange whereas the
other two members were the nominees of the Central Government on the
Board of Directors of the Delhi Stock Exchange. The case put up by the
D petitioner/appellant in the High Court was that he had answered all the
_.J..
questions correctly and has denied the averment that he was not able to
answer questions put to ascertain his knowledge in current laws affecting
capital issues norms for debentures, protection of shareholders, guidelines
for bonus issues, etc. etc., which knowledge was essential for the effective
E functioning of the Stock Exchange and control of capital issues. A bald
contention was raised in the petition that he. was put only one question,
namely, 'What are specified shares' to which he had given an appropriate
and correct answer but no other question had been put to him as alleged
in the counter filed on behalf of the Delhi Stock Exchange. His grievance
-~
that Chartered Accountants were favoured because Mr. R.N. Bansal ·had
F tried to favour members of his fraternity was countered by pointing ou~
that the Chartered Accountants had special knowledge and were abreast
with financial matters and mechanics of public issue of shares and were,
therefore, able to perform better at the interview. Merely because the
petitioner/appellant had worked in the Stock Exchange in the past did .not
G entitle him to priority. He was out of touch with the Stock Exchange since
1965-66 and, therefore, he was not abreast with the current developments
in the field of finance and capital issues. It is, further, pointed out that the
percentage of marks reserved for the interview was only 20 and, therefore, >---
is not right to contend that the decision of the Expert Committee was
H vitiated as being arbitrary and against the principles relevant to Article 14
POPALI/MAHESHWARI v. DELHISTOCKEXCHANGE/U.O.I. (AHMADI,J.) 127

of the Constitution. Reference was made to the case of one Smt. Nirmala A
Kumari Jain who was selected as the Member of the Stock Exchange. It
was contended that this selection was in total violation of norms, standard
of selection and betrayed nepotism and favouritism. The position, insofar
as she is concerned, was clarified by her in paragraph 13 of her counter
affidavit by pointing out that her husband late Gian Chand Jain was
B
admit_ted to the Membership of the Stock Exchange on 24th April, 1990,
as intimated by the telegram of 30th April, 1990 and a share certificate was
issued in the joint names of her husband and herself dated 24th April, 1990.
She being the joint shareholder along with her husband was entitled to be
registered as a shareholder by virtue of Instruction No. 3 on the application
form and was accordingly registered as a shareholder on 10th May, 1990 C
on the death of her husband. She, therefore, contended that the allegations
made, insofar as her husband as a member is concerned, appear to be
misplaced and the result of a lack of information. The Petition was dis-
missed by the High Court and hence the present appeal.

3. One Kamlesh Kumar Jain has preferred a Writ Petition No. 878
D
of 1989 under Article 32 of the Constitution claiming to be a double
granduate, B.Com., LL.B. and a post-graduate M.Com. with 8 years'
experience in Delhi Stock Exchange. He contends that the Expert Com-
mittee had wrongly rejected his application for being admitted to the
membership of the Stock Exchange and has also prayed that the total E
membership should be increased to Rs. 500 and a fresh advertisement
inviting applications from members of the public should be issued there-
after. The learned councel appearing for the respective parties were heard
at length. We find from the judgment of the Delhi High Court in Rajesh
Kumar Maheshwari v. Union of India & Ors., reported in A.I.R. 1992 Delhi
68 that the Division Bench rejected the contention on the ground that the F
approval granted by the Central Government by the letter of 5th February,
1987, was violative of Article 14 of the Constitution and those seeking
membership throgh public issue of shares constitute a class by themselves
only and distinct from the class comprising those seeking membership
through dilution of shareholding of existing members. Therefore, the con- G
dition in regard to higher deposit from those belonging to the first category
as compared to those belonging to the second category cannot be said to
be unconstitutional. This is how the High Court answers the contention in
paragraph 29 of its judgment :

"It appears to us that the argument regarding discrimina- H
128 SUPREME COURT REPORTS (1994] 1 S.C.R.

A tion is not tenable. It is well settled that to sustain a plea x..._
of discrimination, it is essential to establish that all persons
dis-similarly treated constitute a homogeneous class. In
the present case, members of the public and authorised
assistants of members of the Delhi Stock Exchange do not
constitute a homogeneous cla5s. The classification is based
B on the fact that persons who have been working over the ,... .
years in the Stock Exchange have acquired a certain
expertise as compared to the general public and, there-
'y
fore, they constitute two different groups."

c We think that the High Court negatived the challenge on correct principles.

4. Insofar as the challenge relating to the personnel of the Expert
Selection Co!D.lllittee was concerned the High Court points out that under
the Memorandum of Articles of Association, the selection of members is
purely by members of the Board of Directors. The validity of that provision
D .-J..
was not put in question. Consequently, the High Court found it difficult to
appreciate how the constitution of the Expert Selection Committee could
be said to be arbitrary when its members are from amongst the Directors
of the Board of the Stock Exchange. We also fail to appreciate how the
constitution of the Expert Committee can be said to be arbitrary and
E violative of Article 14 of the Constitution; in fact there is no basis on which
a foundation to be laid for the challenge. We are, therefore, in agreement
with the view taken ·by the High Court in this behalf.

5, It is significant to note that the selection of members by the Expert
F Committee had to be done on the basis of an objective criteria taking into
consideration experience, professional qualifications and similar related
factors. In the present cases, we find that certain percentage of marks were
allocated for each of these factors, namely, educational qualifications,
experience, financial background and knowledge of the relevant laws and
procedures pertaining to public issues etc. Of the total marks allocated only
G 20 per cent were reserved for interviews. Therefore, the process of selec-
tion by the Expert Committee was not left entirely to the sweet-will of the
members of the Committee. The area of play was limited to 20 per cent >--
and having regard to the fact that the members of the Expert Committee
comprised ~f two members nominated by the Central Government it is
H difficult to accept the contention that they acted in an unreasonable or
)--
•• .POPALI/MAHESHWARl v.. DELHI SIQCKEXCHANQEIU.0.1. [AHMADI, J.) U9•

arbitrary fashion. The constitution of.the Expert.Committee itself shOws- A
that Shri Bansal was.ncit ill; :a position, to in(.Luence. the other :members of~
the Committee so as to tilt the balance in favour ;of the ·members .ofi his
fraternity, that is, the Chartered Accountants. The.allegation that as many.
as 69 selected persons who were Chartered Accountants found their way.
in the select. l~t merely because Shri R.N. Bansal was a Char~ered Ac-, U
countant and favoured persons belonging to his fraternity must be rejected.
for ·want of reliable material on,:record~· It. is true that ·amongst the
Chartered Accountants selected by the Expert Committee there are those
who had passed in 1985, 1987 and 1988, as for example, Mahesh Chand
Gupta, Satish Kumar Chhabra, Anup: Jaili, Ashbk Gupta, Aron Kumk and
Shyam Lal Sha'tma. 'M~r~ly because large ri.umlier' of Chartered Account~
a c
ants were selected and merely because some of them had recently qualified
is no ground to set aside the selection. The respondents have rightly
emphasised that since Chartered Accountnts had special knowledge of the
working of financial institutions and the mechanics of public issue of shares
as well as dealings with the Controller of capital issues, etc., they could fare D
better at the interview, being abreast with law, guidelines and policies of
the Central Government in this behalf. So also, merely because the
petitioner/appellant had past experience of Stock Exchange working and
was a highly educated person is no ground to doubt the integrity of the
members of the Expert Committee and their selection. It must be realised E
that the majority marks were given on the basis of the objective criteria
and the interviews were arranged to ascertain the knowledge of the can-
didates in regard to current developments in the field of capital issues,
bouns issues, shareholder service and the like. It must not be forgotten that
the Court's role in such matters is limited and it does not function as an
appellate authority over the selection done by an expert body unless it is
F
shown by cogent and convincing evidence that the selection was biased,
capricious, whimsical or arbitrary. General allegations of the type made
cannot, in our opinion, nullify the selection process unless concrete facts
are established to show that the members of the Expert Committee had at
the behest of Shri Bansal favoured the Chartereed Accountants. Similarly, G
it must be shown that the members of the Expert Committee were biased
against the petitioner/appellant; however, none could be pointed out by
counsel. We, therefore, find it difficult to uphold the contention of the
petitioner/appellant in this behalf. Insofar as Smt. Nirmala's selection is
concerned we think her explanation is quite satisfactory. Similarly, so far H
130 SUPREME COURT REPORTS (1994] 1 S.C.R.

A as the petitioner Kamlesh Kumar_ Jain is concerned he too has not laid any
foundation, besides stating his educational qualifications and past ex-
erience, to enable this Court to doubt the selection process. His request
for enhancing the number of members is not a matter in regard to which
this Court would like to issue a mandate. It is a matter of policy which, as
we have pointed out earlier, was worked out carefully after extended
B correspondence between the Delhi Stock Exchange and the Central
Government and in such matters of policy this Court is always reluctant to
interfere. y
The above are the reasons for the dismissal of both the appeals and
C , the Writ Petition. The I.As. will also stand disposed of in the light of the
above judgment.

G.N. Matters dismissed.

. •.