Naresh Sanyal v. Calcutta Stock Exchange, AIR 1971 SC 422

Estimated Reading Time: 6 minutes

Topics Covered in this article


The Articles of Association (hereinafter referred to as ‘AOA’)is a vital document for the incorporation of any company, wherein the manner is dictated in which the company is to be conducted. The nature of the AOA is binding in nature, and the provisions regarding the duties of the members of the company are also contained in the AOA. The AOA is also the embodiment of the rights and duties endowed on the members of the company. The judgment in Naresh Sanyal v. Calcutta Stock Exchange reasserted the importance of the AOA of the company, wherein the Hon’ble Supreme Court of India reiterated this principle by calling these articles a contract between the company and the members, and a contract among the members themselves.


Naresh Chandra Sanyal, the appellant held fully paid-up shares in the Calcutta Stock Exchange Association Ltd. (hereinafter referred as ‘the exchange’). Since he was a member of the exchange, he had received explicit permission to carry on his own business in the exchange as a broker for shares, stocks and other securities in the Hall of Exchange In December 1941, Sanyal purchased one hundred shares of the Indian Iron & Steel Company Ltd. from Johurmull Daga& Company, but did not take delivery of the shares on due date. Johurmull Daga and Company sold the shares pursuant to the authority given to them by the Sub-Committee of the Exchange. This caused the company a significant loss as a result of this transaction. The Sub-Committee later directed Mr. Naresh Chandra Sanyal to pay the due amount remaining on his part, but the appellant i.e. Mr. Naresh Chandra Sanyal failed to follow this direction of the Sub-Committee.

On January 7, 1942, the complaint of Johurmull Daga & Company was referred to the Full Committee of the Exchange. Mr. Sanyal failed to pay the amount directed to be paid by him and he was by resolution dated February 19, 1942, declared a defaulter. On September 1, 1942, at a meeting at which Sanyal was present, the Full Committee ordered that the share standing in his name be forfeited by the Exchange with effect from September 1, 1942, and that Mr. Sanyal be expelled from the membership of the Exchange. Aggrieved by this decision, Mr. Sanyal instituted a suit against the Exchange contending that  the AOA of the Exchange were invalid, ultra vires and inherently illegal, and also as an alternative, claimed damages of Rs. 55,000. The trial court dismissed the suit, but the decree was confirmed later under the Letters Patent. However, Mr. Sanyal later approached the Supreme Court with special leave.


The main issues which the court faced for consideration were as follows –

  1. Were the alleged AOA of the Calcutta Stock Exchange Association Ltd. invalid and ultra vires?
  2. Whether the appellant was liable to pay the damages caused to Johurmull Daga & Co.?


In Naresh Sanyal v. Calcutta Stock Exchange, the Supreme Court deliberated on the case and concluded that they did not concur with the opinion and the stance taken by the High Court in this matter. That the exchange was entitled to retain the balance after all the debts had been satisfied, and all the liabilities and the engagements related to the appellant which were due had been made even, was an opinion that the Supreme Court seemed to have differing thoughts about. In light of that, the Supreme Court set aside the judgement delivered by the High Court and further, it remanded the case back to the High Court, with additional instructions to assess the extent of the liability which was due on the part of the appellant towards the exchange. This extent was to be assessed concerning not only the transactions related to Johurmull Daga & Co. but as regards to the other members of the exchange as well. The Supreme Court held that the appellant shall be entitled to the due amount from the exchange only after all the deductions related to the outstanding liabilities have been made.

Also Read  Pioneer Urban Land and Infrastructure Limited V. Union of India


The decision of the court stated that subject to the provisions of the Companies Act, a company and its members are bound by the provisions of the company’s AOA. The AOA regulates the internal management of the company and specifically defines the power of its officers. In the eyes of the Court, it was the duty of the AOA to manage the internalised administration harmony within the organization, something which should also be reflected in the decisions of the company. The Supreme Court further stated that AOA is a contract between the company and its members and among the members inter se which governs the ordinary rights and obligations incidental to membership of the company.


The Supreme Court in Naresh Sanyal v. Calcutta Stock Exchange rejected the opinion of the High Court and held that instead of only the outstanding amount due in the case of JohurmullDaga& Co., the appellant was also to be charged for the other outstanding liabilities owed by the plaintiff towards the other members of the exchange. The appellant was also liable for committing the default against them, which the Court took into consideration, rather than only allowing the exchange to balance out the loss caused to it due to the actions of the appellant.