ORDER
B.N. Kirpal, J.
1. Special leave granted.
2. The appellant in this appeal had dealings in sale and purchase of shares with one Yogesh Mehta - respondent No. 3 [hereinafter referred to as 'the share broker'] who was a member of Bombay Stock Exchange until he was declared a defaulter by the said Exchange.
3. According to the appellant as on 10th May, 1995 a sum of Rs. 21,81,635.50 P. was due and payable by the share broker but the payment was not made. Thereupon the appellant filed an arbitration petition against the said share broker before the Bombay High Court. In the said proceedings an application was filed for appointing a court receiver. The court did not grant to the appellant any relief in respect of the membership card of the share broker whereupon an appeal was filed and it was contended that a court receiver should be appointed in respect of the said membership card. This appeal was disposed of after a statement on behalf of the Stock Exchange was recorded to the effect that it 'shall not apply any amount received by it as consideration on nomination of the membership to any person falling in the same category for the purpose of priority as the appellant under Rule 16 of the Stock Exchange Rules till the award of the arbitration was received'. It may here be stated that in view of the default having been committed by the share broker he was, on 10th December 1996, declared defaulter by the Stock Exchange and thereafter he ceased to be it's member.
4. The appellant wanted Rules 16 and 43 of the Stock Exchange to be amended. Letters were written by him to SEBI and other authorities including the Stock Exchange. When efforts in this behalf failed, a writ petition was filed in the Bombay High Court by the appellant with a prayer that Rules 16 and 43 of the Stock Exchange Rules, Bye-laws and Regulations 1957 should be declared as illegal, bad in law and ultra vires the Constitution of India. It was also prayed that the Stock Exchange be directed to amend/alter Rules 16 and 43 of the Stock Exchange. The main reason for impugning these rules was that, according to the appellant' the membership of the Stock Exchange was an asset of the share broker and on its sale from the proceeds thereof payment should first be made to creditors like the appellant of the share broker and the proceeds should not be distributed in the manner indicated by the said rules.
5. The Bombay High Court dismissed the writ petition, inter alia, holding that it regarded the said rules as being fair, just and reasonable. It was further held that on default being committed the share broker ceased to be a member of the stock exchange and there was no conflict between the provisions of the said rules and the Insolvency Act.
6. On behalf of the appellant it was contended that the membership of the Stock Exchange was an asset which belonged to respondent No. 3 and on the sale of the same to distribute the proceeds in the manner indicated by Rule 16 was unfair, unjust and arbitrary and was violative of Articles 14, 19(1) and 300A of the Constitution of India. It was submitted that a member who is declared as defaulter has to be treated in the similar position to that of an insolvent because he is unable to pay his debts and the Rules 16 and 43 framed by the Bombay Stock Exchange are inconsistent with the laws of insolvency as applicable in India which provide for manner of distribution of the asset of the insolvent which is at variance with the said rules.
7. On behalf of the Stock Exchange it was submitted that after the respondent No. 3 had been declared a defaulter, he ceased to be a member of the Stock Exchange whereupon his rights of membership vest in the Exchange free of all rights, claims and interest and the Exchange was at liberty to invite applications from other persons and to admit any one who offers to pay the highest amount. The proceeds so received do not belong to the ex-member and the order of priority contained in Rule 16 was just and fair and is not illegal, wrong or arbitrary.
8. The respondent - Stock Exchange is an incorporated association of persons and is recognised under the Securities Contracts (Regulation) Act, 1957. According to its constitution, rules and bye-laws the Exchange, from time to time, admits members, popularly referred to as stock or share brokers. It is they who constitute the Exchange as per Rule 2 of the said rules. The Exchange is established, as per Rule 4, with the object, inter alia, to support and protect, in the public interest, the character and status of brokers and dealers and to further their interests and to maintain high standards of commercial honour and integrity. Rule 5 provides that the membership of the Exchange shall constitute a personal permission from the Exchange to exercise the rights and privileges attached thereto but this is subject to the Rules, Bye-laws and Regulations of the Exchange. Rule 6 provides, inter alia, that the right of membership is inalienable. As per Rule 7, subject to the provisions of the Rules, a member shall have a right of nomination which shall be personal and non-transferable. Rule 9 stipulates that 'on the death or default of a member his right of nomination shall cease and vest in the Exchange.' Rule 11 deals with nomination by members. With regard to nomination in case of defaulter Sub-rule (c) provides as under:
Nomination in case of Defaulter
The forfeited right of membership of a defaulter shall be restored to him if he be re-admitted as a member within six months from the date of default but if an application by a defaulter for re-admission be rejected by the Governing Board or if no such application be made within six months of the declaration of default the Governing Board may at any time exercise the right of nomination in respect of such membership.
9. Rules 53 and 54 deal with the effect of default and read as under:
DEFAULT
53. A member who is declared a defaulter shall at once cease to be a member of the Exchange and as such cease to enjoy any of the rights and privileges of membership but the rights of his creditor members against him shall remain unimpaired.
LAPSE OF MEMBERSHIP RIGHT
54. A member's right of membership shall lapse to and vest in the Exchange immediately he is declared a defaulter.
10. A bare perusal of the aforesaid and other rules clearly shows that the said rules provide that the membership of the Exchange constitutes a personal permission from the Exchange to exercise the rights and privileges attached thereto subject to the Rule, Bye-laws and Regulations of the Exchange. According to Mr. Ashok H. Desai, learned senior counsel for the respondents, every contract notice issued to a constituent contains a specific provision that 'the contract is made subject to the Rule, Bye-laws and Regulations and usages of the Stock Exchange, Bombay'. The members of the Stock Exchange, namely, the stock brokers are permitted to buy and sell the shares for their clients like the appellant. To secure due performance of his obligations the Exchange takes security from each members upon which it has a lien as provided by Rule 43. A member is declared a defaulter if he fails to meet his obligation and the Rules further show that thereafter his right of membership and nomination ceases and vests in the Exchange and belongs to the Exchange. The vacancy thus created by the termination of the membership is filled by the admission of another person, who generally is a person who offers to pay the highest amount. The consideration which is received by the Exchange on making a fresh nomination after the termination of the membership is then allocated according to Rule 16 which reads as follows:
16. ALLOCATION IN