The Supreme Court has ruled that stock exchanges dues should get priority over the income tax dues in case of a default by a member (broker).
The remark was made in a two-decade old case between the BSE and IT Dept over who has the first right over the dues of defaulting member
Suresh Damji Shah.
The IT Department in 1995 had written to the BSE claiming that the funds received by auctioning of the license of defaulting member should be handed over to it to settle the dues amounting to over Rs 24 lakh.
This was contested by BSE stating that exchange is always been the owner of the membership card and the right to settle the dues lies with it.
The IT Department had imposed a prohibitory order on BSE for the sale and using the proceeds to settle dues.
BSE then filed a writ petition in High Court which was heard and dismissed in 2003. Court then directed the exchange to make certain payments and handover securities to the IT Department.
The plea finally reached the apex court where it ruled in the favor of the exchange and also stated that exchanges have the first right to the dues of any member.
“As this civil appeal raises important questions of law both from the point of view of the BSE and the IT Department, we are going into the matter in some detail,” said the apex court in the order.
The court clarified that any membership will be used to settle dues in the order of priority first to exchanges, clearing houses; second to settle contracts and finally the surplus could be used as per the discretion of the exchange.