Priority of Lien = Stock Exchange Lien over the Defaulter account - Rights of Income Tax department for charging the account of Defaulter for his income tax arrears - Apex court held that since the lien possessed by the Stock Exchange makes it a secured creditor and as such the lien whether the lien under Rule 43 is a statutory lien or is a lien arising out of agreement does not make much of a difference as the Stock Exchange, being a secured creditor, would have priority over Government dues. as it is settled law that no Government holds better right than the secured creditor over the pledged property of defaulter = CIVIL APPEAL NO.4354 of 2003 The Stock Exchange, Bombay …….Appellant Versus V.S. Kandalgaonkar & Ors. ..….Respondents = 2014 - Sept.Month - http://judis.nic.in/supremecourt/imgst.aspx?filename=41963

Priority of Lien = Stock Exchange Lien over the Defaulter account - Rights of Income Tax department for charging the account of Defaulter for his income tax arrears - Apex court held that since  the  lien possessed by the Stock Exchange makes it a secured creditor and as such the lien whether the lien under Rule 43 is  a  statutory  lien or is a lien arising out of agreement does not make much of a difference  as the Stock Exchange, being a  secured  creditor,  would  have  priority  over Government dues. as it is settled law that no Government holds better right than the secured creditor over the pledged property of defaulter =

a  member  of  a  Stock
Exchange being declared a defaulter. The Income Tax Department  claims  that it has priority over all debts owed by the  defaulter  member,  whereas  the Stock Exchange, Bombay claims otherwise.=
      By a notice dated 29th June 1994, the Stock Exchange, Bombay  declared
Shri Suresh Damji Shah as a  defaulter  with  immediate  effect  as  he  had
failed to meet his obligations and discharge his liabilities.  By  a  notice
dated 5th October 1995 issued under Section 226 (3) of the Income  Tax  Act,
the Income Tax Department wrote to the Stock Exchange  and  told  them  that
Shri Shah’s membership  card  being  liable  to  be  auctioned,  the  amount
realized at  such  auction  should  be  paid  towards  Income  Tax  dues  of
Assessment Year 1989-90 and 1990-91 amounting to Rs.25.43 Lakhs.  The  Stock
Exchange, Bombay by its letter dated 11th October 1995 replied to  the  said
notice and stated that under Rules  5  and  6  of  the  Stock  Exchange  the
membership right is a  personal  privilege  and  is  inalienable.   Further,
under Rule 9 on death or default of a member his right of  nomination  shall
cease and vest in the Exchange and accordingly the membership right of  Shri
Shah has vested with the Exchange on his being declared a  defaulter.   This
being the case, since the Exchange is now and has always been the  owner  of
the membership card, no amount of tax arrears of Shri Shah  are  payable  by
it.  By a prohibitory order dated 10th May 1996, the Income  Tax  Department
prohibited and  restrained  the  Stock  Exchange  from  making  any  payment
relating to Shri Shah to any person whomsoever otherwise than to the  Income
Tax Department.  The amount claimed in the prohibitory order was  stated  to
be Rs. 37.48 Lakh plus interest.  On 18th July 1996, the Solicitors  of  the
Stock Exchange, Bombay wrote to the Income Tax Department calling upon  them
to withdraw the prohibitory order dated 10th May 1996 in view  of  the  fact
that the membership right of the Exchange is a  personal  privilege  and  is
inalienable.  By a letter dated  27th  December  1996,  the  Tax  Department
wrote back to the Bombay Stock Exchange refusing to recall  its  prohibitory
order.  Meanwhile,  Shri  Shah  applied  to  be  re-admitted  to  the  Stock
Exchange which application was  rejected  by  the  Stock  Exchange  on  13th
February, 1997.=

 It is no doubt true that the Supreme Court  held  that  the  statutory
lien of a Harbour  authority  over  a  vessel  is  a  paramount  lien  which
overrides the claim of all  other  creditors  including  secured  creditors.
The question, however, in  the  present  case  is  somewhat  different.  The
question is whether the lien exercised under Rule 43 by the  Stock  Exchange
can be said to be a superior right to  income  tax  dues  which  may  become
payable by virtue of the Stock Exchange being a secured creditor.

23.   It  was  argued  that  Black’s  Law  Dictionary  5th  Edition  defines
“statutory lien” as follows:

      “Statutory lien: A lien  arising  solely  by  force  of  statute  upon
specified circumstances  or  conditions,  but  does  not  include  any  lien
provided by or dependent upon an agreement to give security, whether or  not
such lien is also provided by or is also dependent upon statute and  whether
or not the agreement or lien is made fully effective by Statute.”

      Based on this it was further argued that such lien would  not  include
any lien provided by or dependent on an agreement to give security,  whether
or not such lien is also provided by or dependent upon statute, and  whether
or not such lien is made fully effective by statute.

      24.   The first thing to be noticed is that the Income  Tax  Act  does
not provide for any paramountcy of dues by way of income tax.  This  is  why
the Court in Dena Bank’s case (supra) held that Government  dues  only  have
priority over unsecured debts and in so holding  the  Court  referred  to  a
judgment in Giles vs. Grover (1832) (131) English Reports 563  in  which  it
has been held that the Crown has no precedence over a pledgee of goods.   In
the present  case,  the  common  law  of  England  qua  Crown  debts  became
applicable by virtue of Article 372 of the Constitution  which  states  that
all laws  in  force  in  the  territory  of  India  immediately  before  the
commencement of the Constitution shall continue in force  until  altered  or
repealed by a competent legislature or other competent authority.  In  fact,
in Collector of Aurangabad and Anr. vs. Central Bank of India and Anr.  1967
(3) SCR 855  after referring to various authorities held that the  claim  of
the Government to priority for  arrears of income tax dues  stems  from  the
English common law doctrine of priority of  Crown debts and has  been  given
judicial recognition in British India prior to 1950 and was  therefore  “law
in force” in  the  territory  of  India  before  the  Constitution  and  was
continued by Article 372 of the Constitution (at page 861, 862).

      25.   In  the  present  case,  as  has  been  noted  above,  the  lien
possessed by the Stock Exchange makes it a secured creditor. That being  the
case, it is clear that whether the lien under Rule 43 is  a  statutory  lien
or is a lien arising out of agreement does not make much of a difference  as
the Stock Exchange, being a  secured  creditor,  would  have  priority  over
Government dues.

26.   The three issues are answered as above.  The Stock  Exchange’s  appeal
is allowed and the impugned judgment passed by the  Division  Bench  of  the
Bombay High Court is set aside.

2014 - Sept.Month - http://judis.nic.in/supremecourt/imgst.aspx?filename=41963
                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO.4354 of 2003



The Stock Exchange, Bombay                                  …….Appellant

                                   Versus

V.S. Kandalgaonkar & Ors.
..….Respondents



                        J U D G M E N T

R.F.Nariman, J.

1.    The present matter arises as  the  result  of  a  member  of  a  Stock
Exchange being declared a defaulter. The Income Tax Department  claims  that
it has priority over all debts owed by the  defaulter  member,  whereas  the
Stock Exchange, Bombay claims otherwise.

2.    The facts necessary to appreciate the controversy are as follows:

      By a notice dated 29th June 1994, the Stock Exchange, Bombay  declared
Shri Suresh Damji Shah as a  defaulter  with  immediate  effect  as  he  had
failed to meet his obligations and discharge his liabilities.  By  a  notice
dated 5th October 1995 issued under Section 226 (3) of the Income  Tax  Act,
the Income Tax Department wrote to the Stock Exchange  and  told  them  that
Shri Shah’s membership  card  being  liable  to  be  auctioned,  the  amount
realized at  such  auction  should  be  paid  towards  Income  Tax  dues  of
Assessment Year 1989-90 and 1990-91 amounting to Rs.25.43 Lakhs.  The  Stock
Exchange, Bombay by its letter dated 11th October 1995 replied to  the  said
notice and stated that under Rules  5  and  6  of  the  Stock  Exchange  the
membership right is a  personal  privilege  and  is  inalienable.   Further,
under Rule 9 on death or default of a member his right of  nomination  shall
cease and vest in the Exchange and accordingly the membership right of  Shri
Shah has vested with the Exchange on his being declared a  defaulter.   This
being the case, since the Exchange is now and has always been the  owner  of
the membership card, no amount of tax arrears of Shri Shah  are  payable  by
it.  By a prohibitory order dated 10th May 1996, the Income  Tax  Department
prohibited and  restrained  the  Stock  Exchange  from  making  any  payment
relating to Shri Shah to any person whomsoever otherwise than to the  Income
Tax Department.  The amount claimed in the prohibitory order was  stated  to
be Rs. 37.48 Lakh plus interest.  On 18th July 1996, the Solicitors  of  the
Stock Exchange, Bombay wrote to the Income Tax Department calling upon  them
to withdraw the prohibitory order dated 10th May 1996 in view  of  the  fact
that the membership right of the Exchange is a  personal  privilege  and  is
inalienable.  By a letter dated  27th  December  1996,  the  Tax  Department
wrote back to the Bombay Stock Exchange refusing to recall  its  prohibitory
order.  Meanwhile,  Shri  Shah  applied  to  be  re-admitted  to  the  Stock
Exchange which application was  rejected  by  the  Stock  Exchange  on  13th
February, 1997.

3.    The Stock Exchange then filed a  Writ  Petition  being  Writ  Petition
No.220 of 1997 dated 24th December 1996 in which the following reliefs  were
claimed:

that this Hon’ble Court may be pleased to issue a writ of  certiorari  or  a
writ in the nature of certiorari or any other  appropriate  writ,  order  or
direction under Article 226 of the Constitution of  India  calling  for  the
records  in  relation  to  the  recovery  proceedings   initiated   by   the
Respondents against Mr. Suresh D. Shah and after going through the same  and
examining the legality and validity thereof  to  quash  and  set  aside  the
impugned notice dated 5th October, 1995 and the impugned  order  dated  10th
May 1996, Impugned Notice/ letter dated 27th December  1996  being  Exhibits
“D”, “F” and “H” hereto;

that this Hon’ble Court may be pleased to issue a writ of  mandamus  or  any
other appropriate  writ,  order  or  direction  under  Article  226  of  the
Constitution of India ordering and directing  the  Respondents  to  withdraw
forthwith the recovery proceedings initiated against in respect of the  dues
of Mr Suresh D. Shah and ordering and directing the Respondents to  withdraw
forthwith the impugned notice dated  5th  October,  1995  and  the  impugned
notice dated 5th October, 1995 and  the  impugned  prohibitory  Order  dated
10th May, 1996,  Impugned  Notice/letter  dated  27th  December  1996  being
Exhibits “D”, “F” and “H” hereto;

that this Hon’ble Court be pleased to permit the Petitioner to exercise  the
right of nomination in respect of the membership right of Suresh D. Shah  in
favour of such person  as  the  petitioner  may  decide  and  to  apply  the
consideration received therefore and also appropriate all  other  securities
placed with the Petitioner by Suresh d. Shah and which have  vested  in  the
Petitioner in accordance with the Rules, Bye-laws  and  regulations  of  the
Petitioner;



4.    The Writ Petition was finally heard  and  by  a  judgment  dated  27th
March 2003, most of the contentions of the Stock Exchange were rejected  and
the Writ Petition was dismissed.

5.    A Special Leave Petition was filed against  the  said  judgment  being
SLP(Civil) No. 8245 of 2003 in which, by an order dated 7th  May  2003,  the
operation of the judgment was not stayed to the extent that it  specifically
directed the petitioner to make certain payments and handover securities  to
the Income Tax Department. However, in so far as the judgment declared  law,
the operation of such declaration of law was stayed.

6.    As this Civil Appeal raises important questions of law both  from  the
point of view of the Bombay Stock Exchange and the  Income  Tax  Department,
we are going into the matter in some detail.

7.    Section 226 of the Income Tax Act provides for a garnishee  notice  in
the following terms:

“Section 226 3(i) The assessing officer or tax recovery officer may, at  any
time or from time to time, by notice in  writing  require  any  person  from
whom money is due or may become due to the assessee or any person who  holds
or may subsequently hold money for or on account of the  asssessee,  to  pay
the assessing officer or tax recovery  officer  either  forthwith  upon  the
money becoming due or being held or at or within the time specified  in  the
notice (not being before the money becomes due or is held) so  much  of  the
money as is sufficient to pay the amount due by the assessee in  respect  of
arrears or the whole of the money when it is equal  to  or  less  than  that
amount.”

Under Sub-section (x), if the person to whom a notice is sent fails to  make
payment in pursuance thereof he shall be deemed to an assessee  in  default.
Rule 26 of Schedule II of the Income Tax Act then provides:

“26. Debts and Shares, etc. – (1) In case of—

a debt not secured by a negotiable instrument,
a share in a corporation, or
other movable property  not  in  the  possession  of  the  defaulter  except
property deposited in, or in the custody of, any court,the attachment  shall
be made by a written order prohibiting, --
in the case of the debt – the creditor from  recovering  the  debt  and  the
debtor from making payment thereof  until  the  further  order  of  the  tax
recovery officer;
in the case of the share  –  the  person  in  whose  name  the  share  maybe
standing from transferring the same or receiving any dividend thereon;
in the case of the other  movable  property  (except  as  aforesaid)  –  the
person in possession of the same from giving it over to the defaulter.
(2) A copy of such order shall be affixed on some conspicuous  part  of  the
office of the tax recovery officer, and another copy shall be sent,  in  the
case of the debt, to the debtor,  in  the  case  of  the  share,  to  proper
officer of the corporation, and in the case of the  other  movable  property
(except as aforesaid), to the person in possession of the same.

(3) A debtor prohibited under clause (i) of sub-rule (1) may pay the  amount
of his debt to the tax recovery officer, and such  payment  shall  discharge
him as effectually as payment to the party entitled to receive the same.”

       Sections 8 and 9 of the Securities Regulation  Act,  1956  deal  with
Rules, Regulations and Bye-Laws to be made in respect  of  Stock  Exchanges.
Sections 8 and 9 of the said Act read as follows:

“8. Power of Central Government to direct rules to be made or to make rules-


(1) Where, after consultation with the governing bodies of  stock  exchanges
generally or with the governing body of any stock  exchange  in  particular,
the Central Government is of opinion that it is necessary  or  expedient  so
to do, it may, by order  in  writing,  together  with  a  statement  of  the
reasons therefore,  direct  recognised  stock  exchanges  generally  or  any
recognised stock exchange in particular, as the case may  be,  to  make  any
rules or to amend any rules already made in respect of all  or  any  of  the
matters specified in sub-section (2) of section 3 within  a  period  of  two
months from the date of the order.

(2) If any recognised stock exchange fails or neglects to  comply  with  any
order made under sub-section (1) within the period  specified  therein,  the
Central Government may make the rules for, or amend the rules made  by,  the
recognised stock exchange, either in the form proposed in the order or  with
such modifications thereof as may be agreed to between  the  stock  exchange
and the Central Government.

(3) Where in pursuance of this section any rules have been made or  amended,
the rules so made or amended shall be published in the Gazette of India  and
also in the Official Gazette or Gazettes of the State  or  States  in  which
the principal  office  or  offices  of  the  recognised  stock  exchange  or
exchanges is or are situate, and, on the publication thereof in the  Gazette
of India, the rules so made or amended shall,  notwithstanding  anything  to
the contrary contained in the Companies Act, 1956 (I of  1956),  or  in  any
other law for the time being in force, have effect,  as  if  they  had  been
made or amended by the recognised stock exchange or stock exchanges, as  the
case may be.

9.  Power of recognised stock exchanges to make bye-laws.-

(1) Any recognised stock exchange may, subject to the previous  approval  of
the  Securities  and  Exchange  Board  of  India,  make  bye-laws  for   the
regulation and control of contracts.

(2) In particular, and without prejudice to the generality of the  foregoing
power, such bye-laws may provide for—

(a) the opening and closing of markets and the regulation of  the  hours  of
trade;

(b) a  clearing  house  for  the  periodical  settlement  of  contracts  and
differences thereunder, the delivery of  and  payment  for  securities,  the
passing on of delivery orders and the regulation  and  maintenance  of  such
clearing house;

(c) the submission to the Securities and Exchange  Board  of  India  by  the
clearing house as soon as may be after each periodical settlement of all  or
any of the following particulars as the Securities  and  Exchange  Board  of
India may, from time to time, require, namely;—

(i) the total number of each category of  security  carried  over  from  one
settlement period to another;

(ii) the total number of each category of security, contracts in respect  of
which have been squared up during the course of each settlement period;

(iii) the total number of each category of security  actually  delivered  at
each clearing;

(d) the publication by the clearing house of all or any of  the  particulars
submitted to the Securities and Exchange Board of  India  under  clause  (c)
subject to the directions, if any, issued by  the  Securities  and  Exchange
Board of India in this behalf;

(e) the regulation or prohibition of blank transfers;

(f) the number and classes of contracts  in  respect  of  which  settlements
shall be made or differences paid through the clearing house;

(g) the regulation, or prohibition of bundles or carry-over facilities;

(h) the fixing, altering or postponing of days for settlements;

(i) the  determination  and  declaration  of  market  rates,  including  the
opening, closing, highest and lowest rates for securities;

(j)  the  terms,  conditions  and  incidents  of  contracts,  including  the
prescription  of  margin  requirements,  if  any,  and  conditions  relating
thereto, and the forms of contracts in writing;

(k) the regulation of the entering  into,  making,  performance,  rescission
and termination,  of  contracts,  including  contracts  between  members  or
between a member and his constituent or between a member and  a  person  who
is not a member, and the consequences of default or insolvency on  the  part
of a seller or buyer or  intermediary,  the  consequences  of  a  breach  or
omission by a seller or buyer, and the responsibility  of  members  who  are
not parties to such contracts;

(l)  the  regulation  of  taravani  business  including   the   placing   of
limitations thereon;

(m) the listing of securities on the stock exchange, the  inclusion  of  any
security for the purpose of dealings and the  suspension  or  withdrawal  of
any such securities, and the suspension or prohibition  of  trading  in  any
specified securities;

(n) the method and procedure for  the  settlement  of  claims  or  disputes,
including settlement by arbitration;

(o) the levy and recovery of fees, fines and penalties;

(p) the regulation of the course of business between  parties  to  contracts
in any capacity;

(q) the fixing of a scale of brokerage and other chargers;

(r) the making, comparing, settling and closing of bargains;

(s) the emergencies in trade which may arise, whether as a  result  of  pool
or syndicated operations or cornering or  otherwise,  and  the  exercise  of
powers in such emergencies, including the power to fix maximum  and  minimum
prices for securities;

(t) the regulation of dealings by members for their own account;

(u) the separation of the functions of the jobbers and brokers;

(v) the limitations on the volume of trade done by any individual member  in
exceptional circumstances;

(w) the obligation of members to supply such information or explanation  and
to produce such documents relating to the business  as  the  governing  body
may require.

(3) The bye-laws made under this section may—

(a) specify the bye-laws the contravention of which shall  make  a  contract
entered into otherwise than in accordance with the bye-laws void under  sub-
section (1) of section 14;

(b) provide that the contravention of any of the bye-laws shall  render  the
member concerned liable  to  one  or  more  of  the  following  punishments,
namely:—

(i) fine;

(ii) expulsion from membership;

(iii) suspension from membership for a specified period;

(iv) any other penalty of a like nature not involving the payment of money.

(4)  Any  bye-laws  made  under  this  section  shall  be  subject  to  such
conditions in regard to previous publication as may be prescribed, and  when
approved by the Securities and Exchange Board of India, shall  be  published
in the Gazette of India and also in the Official Gazette  of  the  State  in
which the principal office of the recognised stock exchange is situate,  and
shall have effect as from the date of its  publication  in  the  Gazette  of
India;

Provided that if the Securities and Exchange Board of India is satisfied  in
any case that in the interest of the  trade or in the  public  interest  any
bye-law should be made immediately, it may, by order in  writing  specifying
the  reasons  therefore,   dispense   with   the   condition   of   previous
publication.”



8.    As a number of rules of the Stock Exchange have been  referred  to  in
the course of argument, we will set down those which are  relevant  for  the
purposes of the question to be decided.

“Membership a Personal Privilege

5. The membership shall constitute a personal permission from  the  Exchange
to exercise the rights  and  privileges  attached  thereto  subject  to  the
Rules, Bye-laws and Regulations of the Exchange.

Right of Nomination

7. Subject to the provisions of these Rules a member shall have the right
of nomination which shall be personal and non-transferable.

Right of Nomination of Deceased or Defaulter Member

9. On the death or default of a member his right of nomination shall cease
and vest in the Exchange.

Forfeited or Lapsed Right of Membership

10. When a right of membership is forfeited to  or  vests  in  the  Exchange
under any Rule, Bye-law or Regulation of the Exchange for the time being  in
force it shall belong absolutely to the Exchange free of all rights,  claims
or interest of such member or any person claiming through  such  member  and
the Governing Board shall be entitled to deal with or dispose of such  right
of membership as it may think fit.

Allocation in Order of Priority

16.    When as provided in these Rules the  Governing  Board  has  exercised
the right of nomination in respect of a membership vesting in  the  Exchange
the consideration received therefore  shall  be  applied  to  the  following
purposes and in the following order of priority namely -

          Dues of Exchange and Clearing House

first-the payment of such subscriptions, debts,  fines,  fees,  charges  and
other monies as shall have been determined by the Governing Board to be  due
to the Exchange, to the Clearing House by the former member whose  right  of
membership vests in the Exchange.


Liabilities relating to Contracts

second-the payment  of  such  debts,  liabilities,  obligations  and  claims
arising out of any contracts made by  such  former  member  subject  to  the
Rules, Bye-laws and Regulations of the Exchange as shall have been  admitted
by the Governing Board:
Provided that if the amount available be insufficient  to  pay  and  satisfy
all such debts, liabilities, obligations and claims in full  they  shall  be
paid and satisfied pro rata; and

Surplus

third-the payment of the surplus if  any  to  the  funds  of  the  Exchange:
provided  that  the  Exchange  in  general  meeting  may  at  its   absolute
discretion direct that such surplus be disposed of or applied in such  other
manner as it may deem fit.

37.  Form of Security

The security to be furnished by a member  shall  be  provided  either  by  a
deposit of cash or it may be provided in the form of a Deposit Receipt of  a
Bank approved by the Governing  Board  or  in  Securities  approved  by  the
Governing Board subject to such terms and conditions as the Governing  Board
may from time to time impose. Deposits of cash shall not carry interest  and
the securities deposited by a member valued at the market price of  the  day
shall exceed the sum for the time being secured thereby by  such  percentage
as the Governing Board may from time to time prescribe.

38. Security How Held

Deposits of cash shall be lodged in a Bank approved by the  Governing  Board
and Bank Deposit Receipts and securities shall be transferred  to  and  held
either in the names of the Trustees of the Exchange or  in  the  name  of  a
Bank approved by the Governing Board and lodged with a Bank approved by  the
Governing Board. Such deposit shall be entirely at the risk  of  the  member
providing the security but it shall be held by the Bank solely  for  and  on
account of the Exchange at the absolute discretion of the  Exchange  without
any right whatever on the part of such member or those in his right to  call
in question, the exercise of such discretion.

Change of Security

41. A member may withdraw any security provided by him if he first  provides
in lieu thereof other security of sufficient value to  the  satisfaction  of
the Governing Board.

Lien on Security

43. The security provided by a member  shall  be  subject  to  a  first  and
paramount lien for any sum due to the Exchange or to the Clearing  House  by
him or by the partnership of which he may  be  a  member  and  for  the  due
fulfillment of his  engagements,  obligations  and  liabilities  or  of  the
partnership of which he may be a member arising out of or incidental to  any
bargains, dealings, transactions and contracts made subject  to  the  Rules,
Bye-laws and Regulations of the  Exchange  or  anything  done  in  pursuance
thereof.

Return of Security

44. On the termination of his membership or  on  his  ceasing  to  carry  on
business on the Exchange or on his working as a representative member or  on
his  death  all  security  not  applied  under  the  Rules,   Bye-laws   and
Regulations of the Exchange shall at the cost of the member  be  repaid  and
transferred either to him or as he shall direct or in the  absence  of  such
direction to his legal representatives.

Letter of Declaration

46. A member providing security under the provisions of  these  Rules  shall
sign a Letter of Declaration in the form prescribed in Appendix F  to  these
Rules or in such other form as the Governing Board may  from  time  to  time
prescribe.

                                 APPENDIX F

                  Member’s Security Declaration Form No. 1

                                  (Rule 46)

The Governing Board,
     The Stock Exchange,
                Bombay.

Gentlemen,

Having been admitted as a member of the Stock Exchange and having handed  to
you   in   terms   of   the   Rules   thereof    to    be    deposited    in
______________________(Name of Bank) in the name of the Exchange the sum  of
Rs. 20,000 and/or having transferred to the names of  the  Trustees  of  the
Exchange and/or (Name of Bank) the  securities  mentioned  below,  I  hereby
declare and agree that the said Security and  any  cash,  stock,  shares  or
other securities that may be added to or substituted for the  said  Security
by arrangement with you are subject to a first and paramount  lien  for  any
sum due to the Exchange or  to  the  Clearing  House  by  me/us  or  by  the
partnership of which I may be a partner and for any sum due  to  any  member
of the Exchange for the due fulfillment of my engagements,  obligations  and
liabilities or of the partnership of which I may be a member arising out  of
or incidental to any bargains, dealings,  transactions  and  contracts  made
subject to the Rules, Bye-laws and Regulations of the Exchange  or  anything
done in pursuance thereof. I hereby further declare and agree that the  said
Security and any cash, stock, shares or other securities that may  be  added
to or substituted for the said Security by arrangement with you  are  to  be
held for you and on your account by the  said  Trustees  and/or  Bank(s)  at
your absolute discretion without any right whatever on the  part  of  myself
or those in my right to call in question the exercise of such discretion  on
any ground  whatever  so  that  you  may  at  your  absolute  discretion  as
aforesaid apply and pay the same or the proceeds thereof (in case you  shall
as you shall be fully entitled to do sell the same) or cause the same to  be
applied and paid to or for behalf of the Exchange or the Clearing  House  to
whom I or any partnership of which I may be a partner may be indebted or  to
or for behalf of any member of the Exchange to whom I or any partnership  of
which I may be a partner may be indebted under a  claim  or  claims  arising
from any bargains, dealings, transactions and contracts made subject to  the
Rules, Bye-laws and Regulations of the Exchange during  the  continuance  of
my membership of the  Exchange.  If  on  the  completion  of  all  bargains,
dealings, transactions and contracts entered into before the termination  of
my membership or on my ceasing to do  business  on  the  Exchange  the  said
Security or proceeds thereof shall not have been required for payment of  my
or my said partnership  liabilities  as  above  provided  the  same  or  any
balance thereof then remaining will be returned to me and a  receipt  signed
by me that whatever cash, stock,  shares  or  other  securities  or  balance
thereof is/are so returned to me is/are all to which I am entitled in  terms
hereof shall be final and conclusive and bar inquiry  of  any  kind  at  the
instance of myself or any one in my right in respect thereof.

                                                           Yours faithfully,

                               (Signature of member depositing the Security)

Securities above referred to:

Some bye-laws of the Stock Exchange are also relevant.  These are:

Defaulter’s Assets

326. The Defaulters’ Committee shall call in and realise  the  security  and
margin money and securities deposited  by  the  defaulter  and  recover  all
monies, securities and other assets  due,  payable  or  deliverable  to  the
defaulter by any other member in respect of any transaction or dealing  made
subject to the Rules, Bye-laws and Regulations  of  the  Exchange  and  such
assets shall vest in the  Defaulters’  Committee  for  the  benefit  and  on
account of the creditor members.

Payment to Defaulters’ Committee

327. All monies, securities and other assets due, payable or deliverable  to
the defaulter must be paid or delivered to the Defaulters’ Committee  within
such time of the declaration of  default  as  the  Governing  Board  or  the
President may direct. A member violating this provision shall be declared  a
defaulter.

Distribution

330. The Defaulters’ Committee shall at the risk and cost  of  the  creditor
members pay all assets received in the course of realisation into such  bank
and/or keep them with the Clearing House in  such  names  as  the  Governing
Board may from time to time direct and shall distribute the same as soon  as
possible pro rata upto sixteen annas  in  the  Rupee  but  without  interest
among the creditor members whose claims  are  admitted  in  accordance  with
these Bye-laws and Regulations.



Application of Defaulters’ Assets and Other Amounts

400. Subject to the provisions of Bye-law  398,  the  Defaulters’  Committee
shall realise and apply all the money, rights and assets  of  the  defaulter
which have vested  in  or  which  have  been  received  by  the  Defaulters’
Committee (other than  the  amount  paid  by  the  Governing  Board  to  the
Defaulters’ Committee pursuant to Rule 16A in respect of  the  consideration
received by the Governing Board for exercising the right  of  nomination  in
respect of the defaulter’s erstwhile right  of  membership)  and  all  other
assets and money of the defaulter in the Exchange or  the  market  including
the money and securities receivable by him from any other member, money  and
securities of the defaulter lying with the Clearing House or  the  Exchange,
credit balances lying in the Clearing House,  security  deposits,  any  bank
guarantees furnished on behalf of  the  defaulter,  fixed  deposit  receipts
discharged or assigned to or in favour of the Exchange,  Base  /  Additional
Capital deposited with the Exchange by the defaulter, any  security  created
or agreed to be created by the defaulter or any other person  in  favour  of
the Exchange or  the  Defaulters’  Committee  for  the  obligations  of  the
defaulter to the following purposes and in the following order  of  priority
, viz.:-

First - to make any payments required to be made under Bye-law 391 and 394;
Second - the payment of such subscriptions, debts, fines, fees, charges  and
other money as shall have been determined by the  Defaulters’  Committee  to
be due to the Securities and Exchange Board of India, to the Exchange or  to
the Clearing House by the defaulter;
Third - the rectification or replacement of  or  compensation  for  any  bad
deliveries made by or on behalf of the defaulter to any other member in  the
settlement in which the defaulter has been declared a defaulter  or  in  any
prior or subsequent settlement (unless the  Governing  Board  has  otherwise
determined in respect of such settlement or settlements under  Bye-law  394)
provided the conditions of Bye-law 153 and all other applicable Rules,  Bye-
Laws and Regulations and instructions of the Governing  Board  are  complied
with;
Fourth - the balance, if any, shall be paid into the Fund to the  extent  of
the money paid out of the Fund (other than payments  made  out  of  Members’
refundable contributions) and not recovered by the  Fund  and  the  interest
payable by the defaulter to the Fund in respect thereof;
Fifth - the balance, if any, shall be paid into the Fund to  the  extent  of
the money paid out of the  Fund  out  of  the  refundable  contributions  of
members (other than the refundable contribution of the  defaulter)  and  not
recovered by the Fund and the interest payable by the defaulter to the  Fund
in respect thereof;
Sixth - subject to the Rules,  Bye-Laws  and  Regulation  of  the  Exchange,
including in particular Bye-Law 343, the balance, if any, shall  be  applied
by the Defaulters’ Committee for the payment  of  such  unpaid  outstanding,
debts, liabilities, obligations and claims to or of members of the  Exchange
arising out of any  contracts  made  by  the  defaulter  with  such  members
subject to the Rules, Bye-laws and Regulations  of  the  Exchange  as  shall
have been admitted by  the  Defaulters’  Committee;  provided  that  if  the
amount available  be  insufficient  to  pay  and  satisfy  all  such  debts,
liabilities,  obligations  and  claims  in  full  they  shall  be  paid  and
satisfied pro rata;
Seventh - subject to the Rules, Bye-Laws and  Regulation  of  the  Exchange,
including in particular Bye-Law 343, the balance, if any, shall  be  applied
by  the  Defaulters’  Committee  for  the  payment  of  such  unpaid  debts,
liabilities, obligations and claims to or of  the  defaulter’s  constituents
arising out of any contracts made by such defaulter subject  to  the  Rules,
Bye-laws and Regulations of the Exchange as shall have been admitted by  the
Governing Board; provided that if the amount available  be  insufficient  to
pay and satisfy all such debts, liabilities, obligations and claims in  full
they shall be paid and satisfied pro rata;
Eighth - the balance, if any, shall be paid into the  Exchange’s  Customers’
Protection Fund to the extent of  any  and  all  amounts  paid  out  of  the
Customers’ Protection Fund towards the obligations  or  liabilities  of  the
defaulter and interest thereon at the rate of 2.5% per month (or such  other
rate as the Governing Board may specify) from the date  of  payment  out  of
the Customers’ Protection Fund to the date of repayment to the Fund; and
Ninth - the surplus, if any, shall be paid to the defaulter.
          Clarification: It is clarified that  this  Bye-law  400  does  not
apply to  the  amount  paid  by  the  Governing  Board  to  the  Defaulters’
Committee pursuant to Rule 16A in respect of the consideration  received  by
the Governing Board for exercising the right of  nomination  in  respect  of
the defaulter’s erstwhile right of membership as the same  does  not  belong
to the defaulter and the defaulter has no claim, right,  title  or  interest
therein.”



9.    The judgment under appeal set out two main issues which  according  to
it arose for determination. They are:

[A] Whether, on the facts and circumstances of this case, the TRO was  right
in attaching the sale proceeds of the nomination rights  of  the  Defaulter-
Member. If not, whether the TRO was entitled to attach under Rule  26(1)  of
Schedule –II to the Income Tax Act, the Balance Surplus  amount  lying  with
BSE out of the sale proceeds of the  nomination  rights  of  the  Defaulter-
Member under rule 16(1)(iii)  framed  by  BSE  r/w  the  Resolution  of  the
General Body of BSE dated 13.10.1999?

[B] Whether deposits made by the Defaulting Member under various Heads  such
as Security Deposit, Margin  Money,  Securities  deposited  by  Members  and
Others are attachable under Section 226(3)(i)(x) read with Rule  26(1)(a)(c)
of Schedule-II to the Income Tax Act?



10.   Issue A was answered by saying that though a defaulting member had  no
interest in a membership card and that the Income  Tax  Department  was  not
right in attaching the sale proceeds of such  card,  still  money  which  is
likely to come in the hands of the  garnishee,  that  is  the  Bombay  Stock
Exchange, for and on behalf  of  the  assessee  is  attachable  because  the
requisite condition is the subsistence of an ascertained debt in  the  hands
of the garnishee which is due  to  the  assessee,  or  the  existence  of  a
contractual  relationship  between  the  assessee  and  the  Stock  Exchange
consequent upon which money is likely to come in the hands of the  garnishee
for and on behalf of the assessee.  Issue No.2 was answered by  saying  that
even on vesting of all  the  assets  of  the  assessee  in  the  defaulter’s
committee, all such assets continued to belong  to  the  assessee.   Section
73(3) Civil Procedure Code mandates that Government debts  have  a  priority
and that being so they  will  have  precedence  over  other  dues.   It  was
further held that the lien that the Stock Exchange may  possess  under  Rule
43 does not make it a secured creditor so that debts due to the  Income  Tax
Department would have precedence.  The judgment then goes on to say:

“11. To sum up, we hereby declare:

That, the  Other  Assets  (as  described  hereinabove)  are  attachable  and
recoverable  under  provisions  of  section  226(3)(i)(x)  read  with   Rule
26(1)(a)(c) of Schedule-II to the Income Tax Act.
That, the Government and Other Creditors such as  BSE,  the  Clearing  House
and Other Creditor-Members under Rules and Bye-laws of  the  Stock  Exchange
are creditors of equal degree  and  under  Section  73(3),  Civil  Procedure
Code, the Government dues shall have priority over other such creditors.
That, in the matter of application of Defaulters’ Asset under  bye-law  400,
the Defaulters’ Committee shall  give  priority  to  the  debt  due  to  the
Government and the balance, if any, shall be distributed  in  terms  of  the
Bye-laws 324 alongwith Bye-law 400 of the BSE.
That, a sum of Rs. 34,06,680 representing Balance  Surplus  lying  with  the
Exchange out of sale proceeds of the nomination  rights  of  the  Defaulter-
Member is attachable under the above provisions of the Income Tax  Act  read
with Rule 16 of the BSE Rules and consequently, the said amount is  directed
to be paid over to the TRO under the impugned Prohibitory Order.
We hereby direct the BSE also  to  hand  the  securities  lying  in  Members
Security Deposit Accounts to the TRO, who would  be  entitled  to  sell  and
appropriate  the  sale  proceeds  towards  the  claim  of  the  Income   Tax
Department against the Defaulting  Broker-Member.  If  the  TRO  so  direct,
those securities could also be sold by BSE and the realized  value,  on  the
date of the sale, could be handed over to the TRO. It  is  for  the  TRO  to
decide this point. We further direct credit balance its the  Clearing  House
of Rs. 1,53, 538/- to be paid over to the TRO and  that  the  TRO  would  be
entitled to appropriate the said amount towards the dues of the  Department.
In short, we are directing BSE to pay a sum of Rs. 35, 60, 218/- to the  TRO
and in addition thereto, the TRO would be entitled to the realized value  of
the Securities as on the date of sale. In this case, the  Prohibitory  Order
is before the date of insolvency of the Broker concerned.
In future, the principles laid down by this judgment should be  followed  by
BSE and the TRO would to  attach  such  Other  Assets  and  appropriate  the
amounts towards its claim under the Income Tax Act.”


11.   Mr. Arvind Datar, learned senior counsel appearing on  behalf  of  the
Stock Exchange raised essentially three submissions.  The  first  submission
is that by virtue of the judgment in Stock  Exchange,  Ahmedabad  v.  Asstt.
Commisioner of Income Tax, Ahmedabad,  2001 (3) SCC 559, the  sale  proceeds
of a membership card and the membership card itself being  only  a  personal
privilege granted  to  a  member  cannot  be  attached  by  the  Income  Tax
Department at any stage.  The moment a member is declared  a  defaulter  all
rights qua the membership card of the member cease and  even  his  right  of
nomination vests in the Stock Exchange.  The High Court  was  therefore  not
correct in  saying  that  though  a  membership  card  is  only  a  personal
privilege and ordinarily the Income Tax Department cannot  attach  the  sale
proceeds, yet since these amounts came into the hands of the Stock  Exchange
for and on  behalf  of  the  assessee  they  were  attachable.   The  second
argument was made on conjoint reading  of  Rule  38  and  44.   The  learned
senior counsel argued that all securities in the form  of  shares  that  are
given by a member shall be transferred and held either  in the name  of  the
trustees of the Stock Exchange or in the name of a Bank  which  is  approved
by the Governing Board.  By operation of Rule  44,  on  termination  of  the
membership of a broker, whatever remains by way of security  after  clearing
all debts has to be “transferred” either to him or as he shall direct or  in
the absence of such direction to his legal  representatives.   The  argument
therefore is  that what is contemplated is a transfer  of  these  shares  by
virtue of which the member ceases to  be  owner  of  these  shares  for  the
period that they are  “transferred”  and  this  being  so,  the  Income  Tax
Department cannot lay their hands on  these  shares  or  the  sale  proceeds
thereof as the member ceases to  have  ownership  rights  of  these  shares.
Shri Datar also argued that by virtue of Rule 43, the Stock Exchange  has  a
first and paramount lien for any sum due to it, and  that  this  made  it  a
secured creditor so that in any case income tax dues would not to  be  given
preference over dues to secured creditors.

12.   Shri R.P.Bhat, learned senior counsel arguing  on  behalf  of  Revenue
refuted these contentions and stated that  on  a  conjoint  reading  of  the
Rules and the Bye-Laws a membership card may not be directly attachable  but
that the High Court’s  reading  of  Rule  16  is  correct.   Further,  on  a
conjoint reading of the various Rules relating to member’s security,  it  is
clear that the expression “transferred”  would  not  refer  to  transfer  of
ownership but would refer only to  the  delivery  made  of  shares  for  the
purpose of realization in case a member defaults.  He  further  argued  that
the mere fact that a lien was provided in the Rules did not make  such  lien
a statutory lien   and that therefore Government dues  would  have  a  first
preference over all the dues of the Stock Exchange.

13.   Mr. Datar also handed over  during  the  course  of  argument  certain
annual reports and letters to buttress his argument that in  point  of  fact
shares were actually transferred by the member under the  direction  of  the
Stock Exchange to the Bank of India who actually became owner of the  shares
and was treated as such.  The fact that dividends were to  be  paid  to  the
member concerned was only because of an  internal  arrangement  between  the
Exchange and the member, and that in fact the right to the dividend as  well
as the right to vote all belonged to the Bank of India who was to act  as  a
trustee for the Stock Exchange.

14.   We will deal with each one of the contentions seriatim.

      Re.: (1)

      A reading of Rules 5 and 9 lead to the conclusion  that  a  membership
card is only a personal permission from the Stock Exchange to  exercise  the
rights and privileges that may be  given  subject  to  Rules,  Bye-Laws  and
Regulations of the Exchange.  Further, the moment a  member  is  declared  a
defaulter, his right of nomination shall cease  and  vest  in  the  Exchange
because even the personal privilege given is at that point taken  away  from
the defaulting member.  The matter is no longer res integra.

15.   In  Isha Valimohamad  and Anr. vs. Haji  Gulam  Mohamad  &  Haji  Dada
Trust 1975 (1)  SCR  720  the  Supreme  Court  made  a  distinction  between
“privilege” and “accrued right”.


                             “Mr. Patel for respondent contended  that  even
if the landlord had no accrued right, he  at  least  had  a  'privilege'  as
visualised in Section 51, proviso (1)(ii) of the Bombay  Act  and  that  the
privilege should survive the repeal.


                              A privilegium, in  short,  is  a  special  act
affecting special persons with an anomalous advantage, or with an  anomalous
burthen. It is  derived  from  privatum,  which,  as  opposed  to  publican,
signified anything which regards persons considered  individually;  publicum
being anything which regards persons considered collectively, and forming  a
society


                     (See Austin's Jurisprudence, Vol. II,  5th  ed.  (1911)
P. 519)


                            The meaning of that word  in  jurisprudence  has
undergone considerable change after Austin wrote. According to Hohfeld:

                                ... a privilege is the opposite of  a  duty,
and the correlative of a 'no-right'. For instance, where "X has a  right  or
claim that  Y  should  stay  off  the  land  (of  X),  he  himself  has  the
'privilege' of entering on the land; or, in equivalent  words,  X  does  not
have a duty to stay off.


                              Fundamental Legal Conceptions (1923)  pp.  38-
39)


Arthur L. Corbin writes:


                            We say that B had a  right  that  A  should  not
intrude and that A had a duty to stay out. But if B had invited A to  enter,
we know that those results would not occur. In such case we say that  B  had
no right that A should stay out and that A had the privilege of entering.


                               (See "Legal  Analysis  and  Terminology",  29
Yale Law Journal 163)


According to Kocourek:


                              Privilege  and  inability  are   correlatives.
Where  there  is  a  privilege  there  must  be  inability.  The  terms  are
correlatives. The dominus of a Privilege  may  prevent  the  servus  of  the
Inability from exacting an act from the dominus


                                       (See "Jural Relations", 2nd  ed.,  p.
24)


Patton says:

                             The Restatement of the law of Property  defines
a privilege as a legal freedom on the part of one person as against  another
to do a given act or a legal freedom not to do a certain act.


                                (See Jurisprudence, 3rd ed. (1964), p. 256)


                            We think that the  respondent-landlord  had  the
legal freedom as against the appellants to terminate  the  tenancy  or  not.
The appellants had  no  right  or  claim  that  the  respondent  should  not
terminate the tenancy and the respondent had, therefore,  the  privilege  of
terminating it on the ground that appellants had sub-let the premises.  This
privilege would survive the repeal.  But  the  problem  would  still  remain
whether the  respondent  had  an  accrued  right  or  privilege  to  recover
possession of the premises under Section 13(1) of the Saurashtra Act on  the
ground of the sub-letting before the repeal of that Act. The fact  that  the
privilege to terminate the tenancy on the  ground  of  sub-letting  survived
the repeal does  not  mean  that  the  landlord  had  an  accrued  right  or
privilege to recover possession under  Section 13(1) of  that  Act  as  that
right or privilege  could  arise  only  if  the  tenancy  had  been  validly
terminated before the repeal of the Saurashtra Act.”

                                                         (at Pages 725, 726)

It is clear therefore that no accrued right to property was ever  vested  in
the defaulting member.

16.       Further, the rules and the bye-laws also make  this  clear.  Under
Rule  16(iii),  whenever  the  Governing  Board  exercises  the   right   of
nomination in respect of a membership  which  vests  in  the  Exchange,  the
ultimate surplus that may remain after the membership card is  sold  by  the
Exchange comes only to the Exchange  - it does not go to the  member.   This
is in contrast  with bye-law 400 (ix) which, as has been noted  above  deals
with  the  application  of  the  defaulting  member’s   other   assets   and
securities, and in this case ultimately the surplus  is  paid  only  to  the
defaulting member, making it clear that these  amounts  really  belonged  to
the defaulting member.

17.   In the Ahmedabad Stock Exchange case, 2001 (3)  SCC  559,  this  Court
has held that:

“9. The Stock Exchange Rules, Bye-laws and Regulations  have  been  approved
by the Government of India under the Securities Contracts (Regulation)  Act,
1956. There is no challenge to these Rules. The question  whether  right  of
membership confers upon the member any right of property is,  therefore,  to
be examined within the framework of the Rules, Bye-laws and  Regulations  of
the Exchange. On a plain and combined reading of  the  Rules,  it  is  clear
that right of membership  is  merely  a  personal  privilege  granted  to  a
member, it is non-transferable and incapable of alienation by the member  or
his legal  representatives  and  heirs  except  to  the  limited  extent  as
provided in the Rules on fulfilment  of  conditions  provided  therein.  The
nomination wherever provided for is also not  automatic.  It  is  hedged  by
Rules. On right of nomination  vesting  in  the  Stock  Exchange  under  the
Rules,  that  right  belongs  to  the   Stock   Exchange   absolutely.   The
consideration received by the Stock Exchange on exercise  of  the  right  of
nomination vesting in it, is to be applied in the manner  provided  in  Rule
16.

13. In the present case Rule 16 was properly applied by the Stock  Exchange.
The membership right in question was not the property of the  assessee  and,
therefore, it could not be attached under Section 281-B of  the  Income  Tax
Act. No amount on account of Rajesh Shah was due from or held by  the  Stock
Exchange and, therefore, Section 226(3) could not be invoked. We are  unable
to sustain the judgment under appeal holding that in substance the right  of
membership or membership card  was  a  right  of  property  which  could  be
attached under Section 281-B of the Income Tax Act.”



It is clear therefore that  the  conclusion  of  the  High  Court  that  the
proceeds of a card which has been auctioned can be paid over to  the  Income
Tax Department for the dues of the member by virtue  of  Rule  16  (iii)  is
incorrect  as  such  member  at  no  point  owns  any  property  capable  of
attachment, as has been held in the Ahmedabad Stock Exchange case.  On  this
point therefore Shri Datar is on firm ground and must succeed.

      Re:  (2)

      Rules 36 to 46 belong to a Chapter in the Rules  entitled  “Membership
Security”.  Rule 36 specifies that a new member shall on  admission  provide
security and shall maintain such security with  the  Stock  Exchange  for  a
determined sum at all the times that he carries on business.  Rule 37  deals
with the form of such security and states that it may be in the  form  of  a
deposit  of  cash or deposit receipt of a Bank or in the  form  of  security
approved by the Governing Board.  Rule 38 deals with  how  these  securities
are held. Rule 41 enables the member to withdraw any  security  provided  by
him if he provides another security in lieu thereof of sufficient  value  to
the satisfaction of the Governing Board.  Rule 43 states that  the  security
provided shall be a first and paramount lien for any sum due  to  the  Stock
Exchange and Rule 44 deals with the return of such  security  under  certain
circumstances.  On a conjoint reading of these  Rules  what  emerges  is  as
follows:

The entire Chapter deals only with security to be provided by  a  member  as
the Chapter heading states;

The security to be furnished can be in various forms.  What is important  is
that cash is in the form of a deposit  and securities are  also  “deposited”
with the Stock Exchange under Rule 37;

Rule 38 which is crucial provides how securities are to be “held”  which  is
clear from the marginal note appended to it. What falls for construction  is
the expression “securities  shall  be  transferred  to  and  held”.   Blacks
Dictionary defines “transfer” as follows:

“Transfer means every mode, direct or  indirect,  absolute  or  conditional,
voluntary or involuntary, of disposing of or parting with property  or  with
an interest  in  property,  including  retention  of  title  as  a  security
interest and foreclosure of the debtor's equity of redemption.”

            It  is  clear  therefore  that  the  expression  “transfer”  can
depending upon its  context  mean  transfer  of  ownership  or  transfer  of
possession.  It is clear that what is transferred is only possession as  the
member only “deposits” these securities.   Further,  as  has  been  held  in
Vasudev Ramchandra Shelat  v. Pranlal Jayanand Thakur & Ors., 1975  (2)  SCR
534 at 541, a share transfer can be accomplished by physically  transferring
or delivering a share  certificate  together  with  a  blank  transfer  form
signed by the transferor. The transfer of shares  in  favour  of  the  Stock
Exchange is only for  the  purposes  of  easy  liquidity  in  the  event  of
default.

The expression “transferred” must take colour from the  expression  “lodged”
in Rule 38 when it comes to deposits of  cash.  Understood  in  this  sense,
transfer only means delivery for the purposes  of  holding  such  shares  as
securities;

This is also clear from the language of Rule 38 when it says  “such  deposit
shall be entirely at the risk of the member providing  the  security  ………..”
Obviously, first and foremost the cash lodged  and  the  shares  transferred
are only deposits.  Secondly, they are entirely at the risk  of  the  member
who provides the security making it clear that such member continues  to  be
the owner  of the said shares by way of security for otherwise  they  cannot
possibly be at the member’s risk;

Under Rule 41 a member may withdraw any  security  provided  by  him  if  he
satisfies the conditions of the Rules. This again shows that what is  sought
to be withdrawn is a security which the member owns;

By Rule 43 a lien on securities is provided to  the  Stock  Exchange.   Such
lien is only compatible with the member being owner  of  the  security,  for
otherwise no question arises of an owner (the Stock Exchange, if Shri  Datar
is right) having a lien on its own moveable property;

Therefore, when Rule 44 speaks of  repayment  and  transfer  it  has  to  be
understood in the above sense as the security is being  given  back  to  the
member under the circumstances mentioned in the Rule;

Bye-law 326 and 330 also refer to securities that  are  “deposited”  by  the
defaulter and recovery of securities and  “other  assets”  due.   Obviously,
therefore, securities which are handed over to the exchange continue  to  be
assets of the member which can be liquidated on default.

Shri Datar’s argument would also create a dichotomy  between  “cash  lodged”
and  Bank  Deposit  Receipts  and  securities  “transferred”.   The  form  a
particular security takes cannot possibly lead to  a  conclusion  that  cash
lodged, being only a deposit, continues to belong  to  the  member,  whereas
Bank Deposit Receipts and securities, being “transferred”  would  belong  to
the Stock Exchange.

     In Bombay Stock Exchange v. Jaya Shah, 2004 (1)  SCC  160,  this  Court
was confronted with a claim made by a non-member against a member which  had
fructified into an arbitration award under the 1940  Arbitration  Act  which
was then made a Rule of the Court and a decree followed.   The  Bombay  High
Court made the garnishee notice of the non-member creditor absolute and  the
Supreme Court was faced with the correct construction of  bye-laws  relating
to defaulter members.  The Supreme Court held:

“39. How the card money is to be dealt with  has  been  provided  under  the
Rules. A dichotomy, however, has been created under the Rules  and  Bye-laws
as regards the amount  received  by  sale  of  membership  card  and  amount
recovered from the defaulter's other assets.  On  a  plain  reading  of  the
Rules and Bye-laws it appears that the  authority  to  deal  with  the  card
money and the liability of the  members  by  the  Defaulters'  Committee  is
different,  but  having  regard  to  the  scheme  of  distribution  of   the
liabilities of the Exchange, clearing house, members  and  non-members,  all
the assets shall be placed at the hands of the  Defaulters'  Committee.  But
as would appear  from  the  discussions  made  hereinafter  the  application
thereof would be separate and distinct.

40. In terms of the Bye-laws, a Defaulters' Committee is to  be  constituted
which is a Standing Committee consisting of six  members  of  the  Exchange.
Such a Committee is constituted in terms of Rule  170(a)(ii)  of  the  Stock
Exchange Rules, Bye-laws  and  Regulations,  1957.  It  is  not  a  juristic
person. It is merely an association of persons.
46. Vesting of such assets of the defaulter in the Defaulters' Committee  is
not absolute. The Defaulters' Committee is merely a trustee.  It  holds  the
said amount vested in it for the benefit and  on  account  of  the  creditor
members. Once the liabilities of the creditors from the defaulters are  paid
to  the  members,  in  terms  of  Rule  44,  the  assets  devolve  upon  the
Defaulters' Committee in terms of Bye-law 326 for a limited purpose  and  as
contradistinguished from the Rules in terms whereof the  card  may  vest  in
the Exchange, do not vest in it absolutely.
47. The Defaulters' Committee takes in its custody the amount realised  from
other assets not as an owner thereof and the vestment thereof  would,  thus,
be coterminous with the satisfaction of the claims of  the  member.  It,  as
soon as the purpose of Bye-law 326 is satisfied, comes to an end.
48. The assets of a defaulting  member  can  broadly  be  divided  into  two
categories, namely, card membership and other assets.
57. There cannot, however, be any doubt that so long as the  claims  of  the
awardees, both of members  as  also  non-members,  are  dealt  with  by  the
Defaulters' Committee, the Exchange or the Defaulters' Committee  would  not
be a debtor in relation to an awardee. But once  the  Defaulters'  Committee
determines such claims and a surplus  is  available  in  the  hands  of  the
Defaulters' Committee, as the surplus amount would  become  payable  to  the
defaulting members, the  same  would  become  an  asset  of  the  defaulting
member. In other words, other  assets  continue  to  remain  assets  of  the
defaulting  members  subject  to  the  vesting  thereof  for  the   purposes
mentioned in Bye-law 326 and as  soon  as  the  purpose  is  satisfied,  the
ownership which was  under  animated  suspension  or  eclipsed  would  again
revive to the defaulting member. The  awardees,  however,  so  long  as  the
assets remain under the  control  of  the  Defaulters'  Committee  would  be
entitled to get their claim on a pro rata basis and not in its entirety.
58. If it is held that despite the fact that claims, having  regard  to  the
priority  clause  contained  in  Rule  16,  remain  in  the  hands  of   the
Defaulters' Committee and an order of attachment would be  enforceable,  the
same would  result  in  an  incongruity.  Unfortunately,  no  clear  picture
emerges from the Rules and Bye-laws as there  does  not  appear  to  be  any
provision how  the  card  money  as  also  other  assets  belonging  to  the
defaulting member can be handled  by  the  Defaulters'  Committee.  But  the
Rules and Bye-laws have to be  read  harmoniously.  They  have  to  be  read
together  so  as  to  make  them  effective  and  workable.  So  read,   the
Defaulters' Committee constituted in terms of Bye-laws would  apply  to  the
other assets, dues  and  payments  of  the  members  on  a  pro  rata  basis
whereafter the dues  of  non-members  can  be  disbursed.  While  doing  so,
however, such claims can be determined only having  regard  to  the  cut-off
date which must be prescribed by the Governing  Board  in  terms  of  clause
(vii) of Bye-law 343. So far as card money is concerned, the  same  must  be
disbursed having regard to the priority clause  contained  in  Rule  16,  in
which event, upon discharge of the dues of the Exchange and clearing  house,
the same has to be distributed according to the dues  of  members  and  non-
members. It bears  repetition  to  state  that  there  does  not  exist  any
distinction between a member and a non-member in terms of  Rule  16  and  in
the event the amount of the  card  money  available  in  the  hands  of  the
Exchange is not sufficient to satisfy all the claims, the  same  has  to  be
distributed on a pro rata basis. However, any amount remaining surplus  even
thereafter would be subject to  a  decision  of  the  Governing  Board.  The
Governing Board may in a given situation,  having  regard  to  the  hardship
which may be faced by the members and non-members in realising  their  dues,
may direct that such amount would be available for disbursement towards  the
said dues. It, however, we may hasten to add, is free to apply  the  surplus
for a different purpose which, evidently cannot be dehors  the  purpose  and
object for which the Exchange has been constituted.”

18.   Ultimately, the matter was remanded to find out what was the  cut  off
date for purposes of limitation.

19.   Though this judgment has no direct application to the facts before  us
it does hold that after the assets  of  the  defaulting  member  are  pooled
together and amounts are  realized, the payments that  would  be  made  from
such pool would be from  the  assets  of  the  defaulting  member.  To  that
extent, therefore, the aforesaid judgment reinforces  what  we  have  stated
above. Mr. Datar’s second contention must therefore fail.

      Re:  (3)

      It is settled law that Government  debts  have  precedence  only  over
unsecured creditors.  This was held in  Dena  Bank  v.  Bhikabhai  Prabhudas
Parekh Co., 2000 (5) SCC 694 as follows:

“10. However, the Crown's preferential  right  to  recovery  of  debts  over
other creditors is confined to ordinary or unsecured creditors.  The  common
law of  England  or  the  principles  of  equity  and  good  conscience  (as
applicable to India) do not  accord  the  Crown  a  preferential  right  for
recovery of its debts over a mortgagee or pledgee  of  goods  or  a  secured
creditor. It is only in cases where  the  Crown's  right  and  that  of  the
subject meet at one  and  the  same  time  that  the  Crown  is  in  general
preferred. Where the right of the subject is  complete  and  perfect  before
that of the King commences, the rule does not apply, for there is  no  point
of time at which the two  rights  are  at  conflict,  nor  can  there  be  a
question which of the two ought to prevail in a case where one, that of  the
subject, has prevailed already. In Giles v.Grover [(1832) 131  ER  563  :  9
Bing 128] it has been held that the Crown has no precedence over  a  pledgee
of goods. In Bank of Bihar v. State of Bihar [(1972) 3 SCC 196  :  AIR  1971
SC 1210] the principle has been recognised by this Court  holding  that  the
rights of the pawnee who has parted with money in favour of  the  pawnor  on
the security of the goods cannot be extinguished even by lawful  seizure  of
goods by making money available to other creditors  of  the  pawnor  without
the claim of the  pawnee  being  first  fully  satisfied.  Rashbehary  Ghose
states in Law of Mortgage (TLL, 7th Edn., p. 386) — “It seems  a  government
debt in India is not entitled to precedence over a prior secured debt.”



      What has been argued before us is that the moment the  Stock  Exchange
has a lien over the member’s  securities,  it  would  have  precedence  over
income tax dues.  We find there is force in this submission.

       The  Provincial  Insolvency  Act  defines  “secured  creditor”  under
Section 2 (e) as follows:

(e) “Secured creditor” means a person holding a mortgage, charge or lien  on
the property of the debtor or any part thereof as a security for a debt  due
to him from the debtor;”



      Similarly, the Securitisation and Reconsruction  of  Financial  Assets
and Enforcement of Security Interest Act, 2002 in Section 2  (z)(f)  defines
“security interest” as follows:

      “Section 2(zf) “security interest" means right, title and interest  of
any kind  whatsoever  upon  property,  created  in  favour  of  any  secured
creditor and includes any mortgage, charge, hypothecation, assignment  other
than those specified in Section 31”



      In Triveni Shankar Saxena v. State of U.P. & Ors., 1992 Suppl.  1  SCC
524 at para 17 in an instructive passage the Supreme Court held as follows:


“17. We shall now examine what  the  word  'lien'  means.  The  word  'lien'
originally means "binding" from the Latin ligamen. Its  lexical  meaning  is
"right to retain". The word 'lien'  is  now  variously  described  and  used
under different  context  such  as  'contractual  lien',  'equitable  lien',
'specific lien', 'general lien', 'partners lien', etc.  etc.  in  Halsbury's
Laws of England, Fourth Edition, Volume 28 at  page  221,  para  502  it  is
stated :

In its primary or legal sense "lien" means a right at common law in one  man
to retain that which  is  rightfully  and  continuously  in  his  possession
belonging to another until the present and accrued claims are satisfied.”



      Similarly, in K.S. Saradambal v. Jagannatham  K  Brothers,  (1972)  42
Companies Case 359, the Madras High Court held:

  “It would be sufficient only to refer  to  the  following  observation  in
Halsbury’s Laws of England, third edition, volume 24, at page 143:

  “A  legal  lien  differs  from  a  mortgage  and  a  pledge  in  being  an
unassignable personal right which subsists only so  long  as  possession  of
the goods subsists. A mortgage  is  an  assignable  right  in  the  property
charged and does not depend on possession. A pawn or pledge gives a  special
assignable interest in the property to  the  pawnee.  A  lien  is,  however,
included in the definition of mortgage in the Law  of  Property  Act,  1925.
There an equitable mortgage is  created  by  deposit  of  title  deeds,  the
mortgagee has a legal lien on the deeds deposited.”

   This leads us to the question as  to  what  right  is  available  to  the
applicant-company, as the holder  of  lien.  That  again  takes  us  to  the
question as to what is meant by “lien”.  The word “lien” is defined  in  the
Law Lexicon by Ramanatha Iyer as:

   “A lien may be defined to be a charge on property for the  payment  of  a
debt or duty, and for which it may be sold  in  discharge  of  the  lien………A
lien, in a limited and technical sense,  signifies  the  right  by  which  a
person in possession of personal property holds and retains it  against  the
owner in satisfaction of a demand due to the party retaining it; but in  its
more extensive meaning and common acceptation it is understood and  used  to
denote a legal claim or charge on property,  either  real  or  personal,  as
security for the payment of some debt  or obligation; it is not  strictly  a
right in or right to the  thing  itself  but  more  properly  constitutes  a
charge or  security  thereon.”  The  word  “lien”  is  defined  in  Stroud’s
Judicial Dictionary, third edition, at page 1644, as:

   “A lien- (without effecting a transference of the property in a thing)  –
is the right to retain possession of a thing until  a  claim  be  satisfied;
and it is either particular or general”.

   Having regard to the foregoing definitions the  question  arises  whether
the holder of a lien, as the applicant company in the instant case,  can  be
considered to be a secured creditor under the company law.  Section  529  of
the Act is important and it reads:

“529. Application of  the  insolvency  rules  in  winding  up  of  insolvent
companies.- (1) In the winding up of an insolvent company,  the  same  rules
shall prevail and be observed with regard to –

Debts Probable;

The valuation of annuities and future and contingent liabilities; and

The respective rights of secured and unsecured creditors;

As are in force from the  time  being  under  the  law  of  insolvency  with
respect to the estates of persons adjudged insolvent.

(2) All persons who in any such case would be  entitled  to  prove  for  and
receive dividends out of the assets of the company, may come  in  under  the
winding up, and make such claims against the company  as  they  respectively
are entitled to make by virtue of this section.

Provided that if a secured creditor instead of  relinquishing  his  security
and proving for his debt proceeds to  realize  his  security,  he  shall  be
liable  to  pay  the  expenses  incurred  by   the   liquidator   (including
provisional liquidator, if  any),  for  the  preservation  of  the  security
before its realization by the secured creditor”.

Though the expression “insolvent  company”  is  not  defined,  obviously  it
refers to a company which has been ordered to be  wound  up  on  a  petition
founded upon section 433 (c), that is, the company being unable to  pay  its
debts. According to section 529, in the winding up of such  a  company,  the
same rules shall prevail and be observed with regard to  debts  provable  as
are in force for the time being under the law of insolvency with respect  to
the estates of the persons adjudged insolvent.

The question is whether only the insolvency rules are applicable or all  the
relevant provisions of the insolvency  law  are  applicable  to  a  case  of
winding up of an insolvent company.

The intention underlying section 529 is  that  all  the  provisions  of  the
insolvency law are applicable to the case of  winding  up  of  an  insolvent
company with regard to matters enumerated in section  529.  That   was  also
the view taken by a full bench of the Allahabad High Court in  Hans  Raj  v.
Official liquidators, Dehradun, Mussorie Electric Tramway Co. Ltd. AIR  1929
All 353 (F.B.). A similar view was taken by  the  Oudh  Chief  Court  in  B.
Anand Bihari Lal v. Dinshaw & Co. (1944) 12 Comp.  Cas.  137  (Oudh).  Thus,
according  to  section  529,  the  provisions  of  the  insolvency  law  are
applicable to debts provable in the winding  up  of  an  insolvent  company.
That takes us to  the  question  as  to  what  are  the  provisions  of  the
insolvency law that are  applicable  to  a  debt  covered  by  a  lien.  The
provincial Insolvency Act, 1920, and the Presidency  Towns  Insolvency  Act,
1909, define “secured creditor”. In the former  Act,  section  2(e)  defines
that expression as:

  “2.(e) ‘Secured creditor’ means a person holding  a  mortgage,  charge  or
lien on the property of the debtor or any part thereof as a security  for  a
debt to him from the debtor.”

     In the latter Act, Section 2(g) defines that expression as:

    “Secured creditor’ includes a landlord who under any enactment  for  the
time being in force has a charge on land for the rent of that land.”

     The latter definition is an  inclusive  definition.  According  to  the
former definition even a person holding a lien on the property of  a  debtor
is a secured creditor. In dealing with the question  as  to  who  a  secured
creditor is in company law, it is observed in  Palmer’s  Company  Law,  21st
edition, at page 765.:

   “Secured creditor is one, who has some mortgage, charge or  lien  on  the
company’s property…….A  solicitor  who  holds  a  lien  on  documents  of  a
liquidating  company  for  his  costs  against  the  company  is  a  secured
creditor, and must mention his lien in his proof.”

   On a consideration of Section 529 read with the  relevant  provisions  of
the insolvency law, I come to the conclusion that the holder of a  statutory
lien or the holder of a lien created by contract and registered as  required
by Section 125 is a secured creditor in the matter  of  winding  up  of  the
insolvent company with regard to, among other things, debts provable in  the
winding  up  proceedings.  The  applicant-company  being  the  holder  of  a
statutory lien is thus in the position of a secured creditor…..”



20.   In the present case, the first and paramount lien given to  the  Stock
Exchange is by Rule 43 of the Rules made under Section 8 of  the  Securities
Contract  Act.  Sections  7A,  8  and  30  of   the   Securities   Contracts
(Regulation) Act 1956 deal with the  power  of  recognized  Stock  Exchanges
making rules restricting voting rights; rules relating  to  Stock  Exchanges
generally including membership thereof; and rules to carry out the  purposes
of the Securities Contracts (Regulation) Act  respectively.    Whereas,  the
rules made under Section 7A and Section 8  are  made   by  recognized  Stock
Exchanges with the approval of the Central Government and published  in  the
Official Gazette, rules made under  Section  30  are  made  by  the  Central
Government itself for purposes of carrying into effect the  objects  of  the
Securities Contracts (Regulation)  Act.  Sub-section (3) of  Section  30  is
material.


“Section 30 sub-section (3): Every rule made under this Act shall  be  laid,
as soon as maybe after it is made, before each House  of  Parliament,  while
it is in session for a total period of thirty days which  may  be  comprised
in one session or in two or more successive sessions,  and  if,  before  the
expiry of the sessions immediately following the sessions or the  successive
sessions aforesaid, both Houses agree in  making  any  modification  in  the
rule or both Houses agree that the rule should not be made, the  rule  shall
thereafter have effect only in such modified form or be  of  no  effect,  as
the case may be; so, however, that any modification or  annulment  shall  be
without prejudice to the validity of  anything  previously  done  under  the
rule. “



21.   It will be seen that  whether  a  rule  is  made  under  section  7-A,
Section 8 or Section 30, all rules made under the Act are to be laid  before
Parliament, making it clear thereby that rules  made  under  each  of  these
provisions are statutory in nature. The fact that the Stock  Exchange  makes
these rules under Sections 7A and 8 as opposed  to  the  Central  Government
making them under Section 30 does not take the  matter  very  much  further.
Section 3(51) of the General Clauses Act defines “Rules” as meaning “a  rule
made in exercise of power conferred by law and shall  include  a  Regulation
made as a rule under any enactment.”  It is clear from  this  definition  of
‘Rule’ also that Stock Exchanges  who  make  rules  in  exercise  of  powers
conferred by the Securities Contracts (Regulation) Act are  equally  “Rules”
and therefore subordinate legislation.  This makes it amply clear  that  the
lien spoken of  by Rule 43 is a lien, conferred by Rules under a statute.

      22.   Mr. Bhat argued that only a lien that  flows  from  the  statute
itself can be considered  as  a  statutory  lien  and  referred  us  to  two
judgments, one by the Bombay High Court and one by the Supreme Court.

      The Bombay High Court held in the  case  of  Forwarding  P.  Ltd.  and
another v. Trustees, Port of  Vizagapatnam,  and  Anr.,  (1987)  61  Company
Cases 513 that the power of  arrest  and  sale  of  vessel  belonging  to  a
company in winding  up  by  the  port  authorities  emanates  directly  from
section 64 of the Major Port Trusts Act, 1963  and  hence  the  question  of
obtaining leave of the company court under  section  446  of  the  Companies
Act, 1856  will not arise when an authority exercises independent  statutory
rights.

      This judgment was quoted with approval in Board  of  Trustees,  Bombay
vs. Indian Oil Corporation, 1998 (4) SCC 302 where  the  Supreme  Court  set
out Section 64 of the Major Port Trusts Act and held as under:

                       “8. The Port authorities have a  paramount  right  to
arrest a vessel and detain the same until the amounts due to it  in  respect
of extending the port facilities and services to the vessel are paid.  Under
Sub-section (2), in case any part of the said rates, charges,  penalties  or
the cost of the distress or arrest or of the  keeping  of  the  same  remain
unpaid for a space of five days next after any such distress or  arrest  has
been made, the Board may cause the vessel so distrained or  arrested  to  be
sold. The proceeds of such sale shall satisfy such rates  or  penalties  and
costs including the costs of sale remaining unpaid. The surplus, if any,  is
to be rendered to the master of such vessel on demand.

                  9. The statutory right  under  Section  64  embodies  this
overriding right of the harbour authority over the vessel for  the  recovery
of its dues. This right stands above the rights  of  secured  and  unsecured
creditors of a company in winding up - in the  present  case,  the  shipping
company  which  owns  the  vessel.  The  harbour  authorities  allow   ships
-national or foreign to anchor and avail of the services provided  by  them.
For payment they look to the vessel.  The  owner  may  be  foreign  or  even
unknown to the harbour authority. The latter's right to recover its dues  is
not affected by any pending proceedings against the owner  in  any  court  -
whether in winding up or otherwise. The harbour  authority  can  arrest  the
vessel while it is anchored in the harbour and recover its dues  in  respect
of that vessel by sale of the vessel if the dues are not paid. This lien  of
the harbour authority over the vessel  is  paramount.  The  lien  cannot  be
extinguished or the vessel sold by any other authority under the  directions
of the court or otherwise, unless the harbour  authority  consents  to  such
sale. Thus, in the case of Ashok Arya v. M.V.  Kapitan  Mitsos,  the  Bombay
High Court relied upon the decision in The Emilie Millon  (infra)  and  held
that the lien given by statute to a dock  or  harbour  authority  cannot  be
extinguished by court unless it be done  with  the  authority's  express  or
implied consent.

                         13. Therefore, the  lien  of  a  harbour  authority
over the vessel is a paramount lien and  realization  of  its  dues  by  the
harbour authority by the sale of the  vessel  is  above  the  priorities  of
secured  creditors.  In  other  words,  the  statutory  lien  of  a  harbour
authority has paramountcy even over the claims of  secured  creditors  in  a
winding up. In exercise of its right under  Section  64  the  appellant  is,
therefore, entitled to sell the  vessel  without  the  intervention  of  the
court. In exercise of that paramount right which  overrides  the  claims  of
all other creditors including secured creditors, the appellant has  a  right
to arrest the vessel and sell it. Without  the  consent  of  the  appellant,
this right cannot be transferred to the sale proceeds of the vessel.”



      It is no doubt true that the Supreme Court  held  that  the  statutory
lien of a Harbour  authority  over  a  vessel  is  a  paramount  lien  which
overrides the claim of all  other  creditors  including  secured  creditors.
The question, however, in  the  present  case  is  somewhat  different.  The
question is whether the lien exercised under Rule 43 by the  Stock  Exchange
can be said to be a superior right to  income  tax  dues  which  may  become
payable by virtue of the Stock Exchange being a secured creditor.

23.   It  was  argued  that  Black’s  Law  Dictionary  5th  Edition  defines
“statutory lien” as follows:

      “Statutory lien: A lien  arising  solely  by  force  of  statute  upon
specified circumstances  or  conditions,  but  does  not  include  any  lien
provided by or dependent upon an agreement to give security, whether or  not
such lien is also provided by or is also dependent upon statute and  whether
or not the agreement or lien is made fully effective by Statute.”

      Based on this it was further argued that such lien would  not  include
any lien provided by or dependent on an agreement to give security,  whether
or not such lien is also provided by or dependent upon statute, and  whether
or not such lien is made fully effective by statute.

      24.   The first thing to be noticed is that the Income  Tax  Act  does
not provide for any paramountcy of dues by way of income tax.  This  is  why
the Court in Dena Bank’s case (supra) held that Government  dues  only  have
priority over unsecured debts and in so holding  the  Court  referred  to  a
judgment in Giles vs. Grover (1832) (131) English Reports 563  in  which  it
has been held that the Crown has no precedence over a pledgee of goods.   In
the present  case,  the  common  law  of  England  qua  Crown  debts  became
applicable by virtue of Article 372 of the Constitution  which  states  that
all laws  in  force  in  the  territory  of  India  immediately  before  the
commencement of the Constitution shall continue in force  until  altered  or
repealed by a competent legislature or other competent authority.  In  fact,
in Collector of Aurangabad and Anr. vs. Central Bank of India and Anr.  1967
(3) SCR 855  after referring to various authorities held that the  claim  of
the Government to priority for  arrears of income tax dues  stems  from  the
English common law doctrine of priority of  Crown debts and has  been  given
judicial recognition in British India prior to 1950 and was  therefore  “law
in force” in  the  territory  of  India  before  the  Constitution  and  was
continued by Article 372 of the Constitution (at page 861, 862).

      25.   In  the  present  case,  as  has  been  noted  above,  the  lien
possessed by the Stock Exchange makes it a secured creditor. That being  the
case, it is clear that whether the lien under Rule 43 is  a  statutory  lien
or is a lien arising out of agreement does not make much of a difference  as
the Stock Exchange, being a  secured  creditor,  would  have  priority  over
Government dues.

26.   The three issues are answered as above.  The Stock  Exchange’s  appeal
is allowed and the impugned judgment passed by the  Division  Bench  of  the
Bombay High Court is set aside.




..............................................CJI
                                        (R.M. Lodha)


                                        ………………………………..J.
                                        (Kurian Joseph)


                                        ………………………………..J.
                                        (R.F. Nariman)
New Delhi,
September 25, 2014