Bombay High Court
Jatin Pratap Desai vs A. C. Chokshi Share Brover Pvt. ... on 29 April, 2021
Bench: R.D. Dhanuka, Virendrasingh Gyansingh Bisht
Appeal No.126 of 2006.odt
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO. 126 OF 2006
IN
ARBITRATION PETITION NO. 309 OF 2004
Jatin Pratap Desai
of Mumbai Indian Inhabitant
residing at 36/834 Ardesh Nagar,
Worli, Mumbai 400 025. ... Appellant
Versus
1. A.C. Chokshi Share Broker
Private Limited,
a Company registered under
the companies Act, I of 1956,
having its office at 2nd floor,
ITTS House, Kalaghoda, 28 K,
Dubash Marg, Mumbai 400 023.
2. Mrs. Heena Jatin Desai
of Mumbai Indian Inhabitant
residing at 36/834 Ardesh Nagar,
Worli, Mumbai 400 025. ... Respondents
...
Mr. Simil Purohit along with Mr. Vishal Pattabiraman i/b M/s.
Purohit and Co., for the Appellant.
Mr. Sharan Jagtiani, Senior Advocate along with Mr. Raghav Gupta
along with Ms. Jyoti Pardeshi i/b M/s. Wadia Ghandy and Co., for
the Respondent No.1.
...
Rekha Patil/ Priya Soparkar/ bdp /ppn 1/74
::: Uploaded on - 29/04/2021 ::: Downloaded on - 09/09/2021 07:24:13 :::
Appeal No.126 of 2006.odt
CORAM : R. D. DHANUKA &
V. G. BISHT, JJ.
Reserved on : 8th April, 2021.
Pronounced on : 29th April, 2021
JUDGMENT (PER : R.D. DHANUKA, J.)
By this Appeal filed under Section 37 of the Arbitration and
Conciliation Act, 1996 ( for short, " Arbitration Act"), the appellant
(original Petitioner) has impugned the order dated 23 rd August,
2005 passed by the learned single Judge dismissing the Arbitration
Petition No. 309 of 2004 filed by the appellant.
2 Some of the relevant facts for the purpose of deciding this
Appeal are as under:-
The appellant as well as the respondent no.2 were the
constituents of the respondent no.1. Respondent no.1 is carrying
on business of share and stock broker and is a registered Member
of the Bombay Stock Exchange under the Bye-laws, Rules and
Regulations of the Bombay Stock Exchange. Respondent no.2 is
wife of the appellant and was a separate constituent of respondent
no.1.
Rekha Patil/ Priya Soparkar/ bdp /ppn 2/74
Appeal No.126 of 2006.odt
3 Sometime in the year 1999, the appellant had executed an
individual Client Registration Application form as per the format
given by the respondent no.1 to carry on transactions on the
Bombay Stock Exchange for the purchase and sale of various
shares. Respondent no.1 did not execute a client broker agreement
with the appellant but had executed an individual client
registration application form dated 1st August, 1999.
4 It was the case of the appellant that at the end of the
settlement period A-42 on 31 st January, 2001 there was an
admitted credit balance of Rs.7,40,020/- due and payable by the
respondent no.1 to the appellant. On 16 th February, 2001, the
appellant paid a further sum of Rs.2 lakhs to the respondent no.1
thus taking the credit balance is the sum of Rs.9,40,020/-. It is the
case of the appellant that no further transactions were carried out
by the appellant in respect of the said account with respondent
no.1. At the end of the period February, 2001 when the appellant
decided not to carry out any further transactions with respondent
no.1, there was a credit balance of Rs.9,40,020/- in the account of
the appellant with respondent no.1.
Rekha Patil/ Priya Soparkar/ bdp /ppn 3/74
Appeal No.126 of 2006.odt
5 It is the case of the appellant that the respondent no.2 also
had executed a separate individual Client Registration Application
form as per the format given by respondent no.1. The respondent
no.1 had opened a separate account of respondent no.2.
Respondent no.2 was carrying out separate transactions with
respondent no.1 under the said account opened by the respondent
no.2. It was the case of the respondent no.1 that there was a huge
debit balance in the account of respondent no.2 which debit
balance was disputed by the respondent no.2. Sometime in the
month of September, 2001 the respondent no.1 filed "Arbitration
Application Form" under Regulation 15.2 of the Rules, Bye-laws
and Regulations of the Stock Exchange, Mumbai. In the said
"Arbitration Application Form" submitted with the Application
Committee, Stock Exchange, Mumbai, the appellant and the
respondent no.2 were impleaded as a respondents.
6 Reference to arbitration was made under the Bye-Laws 248
(a) of the Stock Exchange. The respondent no.1 had annexed a
copy of the ledger balance of the respondent no.2 showing an
amount of Rs.1,28,36,070/- payable by the respondent no.2. It is
Rekha Patil/ Priya Soparkar/ bdp /ppn 4/74
Appeal No.126 of 2006.odt
the case of the appellant that since there was a credit balance in the
account of the appellant in the books of the respondent no.1, there
was no dispute in respect of the said account between the
appellant and the respondent no.1. Some time in the month of
September, 2001, the respondent no.1 filed a Statement of Claim
before the Arbitral Tribunal of the Stock Exchange, Mumbai against
the appellant and respondent no.2 inter-alia praying for an Award
jointly and /or severally for an amount of Rs.12736670/- together
with interest on Rs.11848070/- at the rate of 18% per annum from
the date of filing of the arbitration reference till the date of Award
and also claimed further interest at the rate of 18% per annum
from the date of Award till payment and/or realization.
7 The respondent no.2 filed a Written Statement in the said
arbitral proceedings on 25th October, 2002 denying the said claim.
The appellant also filed a separate Written Statement and Counter
Claim on 25th October, 2002 in the said arbitration reference. The
respondent no.1 filed a rejoinder to the Written Statement of
respondent no.2. Appellant and respondent no.2 also filed a
separate sur-rejoinder. On 6th November, 2002 the respondent no.1
Rekha Patil/ Priya Soparkar/ bdp /ppn 5/74
Appeal No.126 of 2006.odt
filed an Affidavit in lieu of examination-in-chief of Deepika
Chokshi, one of the Director of the respondent no.1 and of another
witness. The respondent no.1 also filed written submission before
the Arbitral Tribunal. The said witness examined by the
respondent no.1 was cross-examined by the appellant's counsel.
The Arbitral Tribunal made an Award on 26 th February, 2004
directing the appellant and the respondent no.2 to pay jointly and
severally to the respondent no.1 a sum of Rs. 11848069/- with
interest at the rate of 9% per annum from 1 st May, 2001 till the
date of payment. The Arbitral Tribunal rejected the counter-claim
filed by the appellant.
8 Being aggrieved by the said Arbitral Award, the appellant as
well as respondent no.2 filed two separate Arbitration Petitions
bearing No. 309 of 2004 and 308 of 2004 under Section 34 of the
Arbitration Act before this Court. By an order dated 23 rd August,
2005, a learned single Judge of this Court dismissed both the
Arbitration Petitions with costs as incurred by the respondent no.1.
Being aggrieved by the said order dated 23rd August, 2005 the
appellant has preferred this Appeal. Respondent no.2 did not file
Rekha Patil/ Priya Soparkar/ bdp /ppn 6/74
Appeal No.126 of 2006.odt
any Appeal impugning the said order dated 23rd August, 2005
passed by the learned single Judge.
9 Mr. Simil Purohit, learned counsel for the appellant, invited
our attention to the pleadings and documents forming part of the
record before the Arbitral Tribunal, various By-Laws, Rules and
Regulations of the Stock Exchange, Mumbai, written submissions
filed by the parties and the findings rendered by the Arbitral
Tribunal and the learned single Judge. He invited our attention to
the Regulations 247A of the Stock Exchange, Mumbai and would
submit that under the said Regulations, the respondent no.1-
Broker was under an obligation to keep account of each of its
clients showing the accounting, the moneys received from or on
account of and moneys paid to or on account of each of his clients
and the moneys received and the moneys paid on Member's own
account. Such account has to be kept in the name of member in
the title of which the word "clients" shall appear.
10 Learned counsel strongly placed reliance on Regulations 247
(A) and (C) and would submit that no money should be paid into
clients account other than (i) money held or received on account
Rekha Patil/ Priya Soparkar/ bdp /ppn 7/74
Appeal No.126 of 2006.odt
of clients, (ii) such money belonging to the member as may be
necessary for the purpose of opening or maintaining the account,
(iii)money for replacement of any sum which may by mistake or
accident have been drawn from the account in contravention of
para (D) of the said Regulations, (iv) a cheque or draft received by
the Member representing in part money belonging to the client and
in part money due to the Member. Clause (D) provided that no
money should be drawn from clients account other than (i) money
properly required for payment to or on behalf of clients or for or
towards payment of the debt due to the member from clients or
money drawn from client's authority, or money in respect of which
there is liability of clients to the member, provided that money so
drawn shall not in any case exceed the total of the money so held
for the time being for such each client.
11 Clause (E ) of the said Regulations provides that nothing in
the para 1 thereof shall deprive a Member broker of any recourse
of right whether by way of lien, set-off, counter-claim charge or
otherwise against moneys standing to the credit of clients account.
It is further provided that it shall also be compulsory for all
Rekha Patil/ Priya Soparkar/ bdp /ppn 8/74
Appeal No.126 of 2006.odt
Members brokers/sub-brokers to receive or to make all payment
from or to the client strictly by way of account payee crossed
cheques or demand drafts or direct credit into the bank account
through NEFT or any other modes as so permitted by the Reserve
Bank of India. Member brokers shall accept cheques drawn only by
clients and issue cheques only in favour of the clients. However, in
exceptional circumstances Member broker may receive payment in
cash, to the extent that there is no violation of the Income Tax
requirement for the time being in force.
12 It is submitted by the learned counsel that the respondent
no.1 had accordingly opened two separate accounts of the
appellant and the respondent no.2 respectively. All the transactions
were carried out by the appellant-respondent no.2 separately and
were entered in those two separate accounts of the appellant and
the respondent no.2 respectively. It is submitted that the
respondent no.1-broker could not have held the appellant liable for
the transactions, if any, carried out by the respondent no.2 with the
respondent no.1 individually. A separate arbitration agreement
was recorded between the appellant and the respondent no.1 and
Rekha Patil/ Priya Soparkar/ bdp /ppn 9/74
Appeal No.126 of 2006.odt
between the respondent no.1 and the respondent no.2 in respect of
their separate transactions. There was no Tripartite agreement
entered into between the appellant, respondent no.1 and
respondent no.2 in respect of the dealings in the stock exchange.
13 Learned counsel invited our attention to the relevant para in
the impugned Award on page 67 of the paper book and would
submit that the Arbitral Tribunal has recorded a perverse finding
that there was an oral agreement of understanding between the
parties. It is held by the Arbitral Tribunal that the appellant was
mostly coming to the office of the respondent no.1 and had also
given instructions some times while the respondent no.1 herein
was out of town or may be under instructions of respondent no.2
wife. The Arbitral Tribunal also relied upon the affidavit in lieu of
examination-in-chief filed by the Director of the respondent no.1.
14 It is submitted that the Arbitral Tribunal has though recorded
that there was a credit balance in the account of the appellant with
respondent no.1 at least in the sum of Rs. 9 lakhs, the appellant
had never demanded any such money at any point of time except
by filing a counter-claim on 25th October, 2001 after the respondent
Rekha Patil/ Priya Soparkar/ bdp /ppn 10/74
Appeal No.126 of 2006.odt
no.1 having filed statement of claim before the Arbitral Tribunal. It
is submitted that even if on few occasions, the appellant had made
payment on behalf of his wife to the respondent no.1, the appellant
could not be held liable for all the transactions, if any, carried out
by the respondent no.2-wife with the respondent no.1. He submits
that in any event the respondent no.1 had invoked the arbitration
agreement between the respondent no.1 and 2 and not between
the appellant and respondent no.1 before the Arbitral Forum. The
respondent no.1 could not have filed any claim against the
appellant on the basis of alleged oral agreement/understanding
between the appellant and the respondent no.1.
15 Learned counsel invited our attention to the findings
rendered by the Arbitral Tribunal on page 69 of the paper book
holding that it was true that as per SEBI requirement, written
instructions of the constituents are necessary for transfer of one
constituent' account to other, however, the practical side of it
suggest that considering past experience and considering joint and
several liability and considering their heavenly bestowed
relationship, the Arbitral Tribunal upheld that such a transfer as
Rekha Patil/ Priya Soparkar/ bdp /ppn 11/74
Appeal No.126 of 2006.odt
made by the respondent no.1 Member was in order. He submits
that the said findings of Arbitral Tribunal is ex-facie, perverse and
contrary to the Bye-laws, Rules and Regulations of the Stock
Exchange, Mumbai and also the SEBI requirements. The Arbitral
Tribunal could not have passed an Award against the petitioner on
the basis of bestowed relationship between husband and wife. No
finding of joint and several liability could be rendered by the
Arbitral Tribunal passed on the alleged oral agreement between the
appellant and the respondent no.1.
16 Learned counsel for the appellant invited our attention to the
part of the Award at page 54 of the paper book referring to the
written submissions made by the appellant contending that the
claim filed by the respondent no.1 was bad for misjoinder of parties
and causes of action as the respondent no.1 had entered into
separate client broker agreement with respect of the respective
separate transactions and therefore, the claim as filed by the
respondent no.1 against the appellant was not maintainable and
was liable to be said aside.
Rekha Patil/ Priya Soparkar/ bdp /ppn 12/74
Appeal No.126 of 2006.odt
17 The Arbitral Tribunal had also referred to written submissions
filed by the appellant inviting the attention of the Arbitral Tribunal
to the Bye-laws and the SEBI guidelines which were violated and
disregarded by the respondent no.1. The appellant had denied the
alleged oral agreement or understanding as pleaded by the
respondent no.1. Reliance was placed on clause (ix) of the
mandatory precautions to be exercised by the members brokers of
the SEBI Guidelines, Rules and Regulations which provided that
"No adjustments between one client account to another should be
made unless express authority has been obtained from the client.
Such authority should be preserved by the broker".
18 It is submitted by the learned counsel that respondent no.1
did not produce any such express authority of the respondent no.2
under the said mandatory requirement as per clause (ix) of the
SEBI Guidelines authorizing the respondent no.1 to make any
adjustment in the account of the appellant nor the appellant had
issued any such authority in favour of the respondent no.1
authorizing the respondent no.1 to adjust the liabilities of the
respondent no. 2, if any, towards respondent no.1 from the
Rekha Patil/ Priya Soparkar/ bdp /ppn 13/74
Appeal No.126 of 2006.odt
separate account of the appellant opened with respondent no.1.
The entire award was passed disregarding the SEBI Guidelines and
thus deserved to be set aside in the said Petition filed by the
appellant. The learned single Judge, however, has erroneously
dismissed the said Arbitration Petition.
19 Learned counsel for the appellant invited our attention to the
part of the Award at page 35 of the Appeal Paper Book and would
submit that the specific case of the respondent no.1 before the
Arbitral Tribunal was that the appellant had held out that liability
of the appellant and the respondent no.2 would be joint and
several. The appellant was impleaded as a constituent, based on
this understanding. It is, however, an admitted position that such
understanding was never in writing. Even in the oral evidence led
by the respondent no.1, no such alleged understanding between
the appellant, respondent no.1 and respondent no.2 was proved by
the respondent no.1.
20 Learned counsel for the appellant placed reliance on Section
7 of the Arbitration Act in support of the submission that the
Arbitration Agreement is required to be executed in writing. The
Rekha Patil/ Priya Soparkar/ bdp /ppn 14/74
Appeal No.126 of 2006.odt
respondent no.1 and the respondent no. 2 had invoked the
Arbitration Agreement between the respondent no.1 and
respondent no.2 and not between the respondent no.1 and the
appellant. The Arbitral Tribunal had thus no jurisdiction to
entertain any claim in so far as appellant is concerned. He submits
that even if the appellant was an agent of the disclosed principal,
the appellant cannot be held liable. Learned counsel for the
appellant invited our attention to few observations made by the
learned single judge in the impugned order dated 23 rd August,
2005. He submits that the learned single Judge has erroneously
held that it was an implied term in the written contract executed
between the respondent no.2 and the respondent no.1 and it was
agreed to between the parties orally that if there was any debit
balance in the account of the wife, both, the husband and wife
would be jointly and severally liable.
21 The arbitration clause in the agreement with the wife was
admittedly invoked. The learned single Judge erroneously held
that there was arbitration clause between the husband and the
broker also and thus there was no jurisdictional error in the Award.
Rekha Patil/ Priya Soparkar/ bdp /ppn 15/74
Appeal No.126 of 2006.odt
It is submitted by the learned counsel for the appellant that the
learned single Judge having rendered a finding that respondent
no.1 has not invoked the arbitration agreement entered into
between the respondent no.1 and the appellant, the learned single
Judge ought to have interfered with the arbitral Award rendered by
the Arbitral Tribunal against the appellant. The impugned order
passed by the learned single Judge is ex-facie, contrary to the
Section 7 of the Arbitration Act and is ex-facie erroneous.
22 It is submitted by the learned counsel for the appellant that
the learned single judge did not interfere with the finding of the
Arbitral Tribunal that there was oral understanding between the
parties on the ground that such finding of the fact was recorded by
the Arbitral Tribunal after appreciating the evidence on record
which finding cannot be interfered with under limited jurisdiction
of this Court under Section 34 of the Arbitration Act.
23 Learned counsel for the appellant placed reliance on the
judgment of the Hon'ble Supreme Court in the case of Deutsche
Post Bank Home Finance Ltd. Vs. Taduri Shridhar and Ors. 1 and in
1 AIR 2011 SC 1899
Rekha Patil/ Priya Soparkar/ bdp /ppn 16/74
Appeal No.126 of 2006.odt
particular para 12 in support of the submission that there can be
reference to arbitration only if there is an arbitration agreement
between the parties. The dispute arising out of two separate
agreements between different parties cannot be clubbed together in
the same arbitral proceedings.
24 Learned counsel for the appellant submits that the counter
claim filed by the appellant has been rejected by the Arbitral
Tribunal only on the ground that the said counter claim was filed as
a counterblast and was not sustainable after being adjusted with
the account of the respondent no.2. He submits that the rejection
of the said counter claim filed before the Arbitral Tribunal is also
contrary to and is in violation of SEBI Guidelines. There was no
dispute between the respondent no.1 and the appellant under the
said account opened in the name of the appellant by the
respondent no.1. On the basis of the alleged oral guarantee, the
claim could not have been filed against the appellant by the
respondent no.1.
25 Learned counsel for the appellant invited our attention to the
judgment delivered by a division bench of this Court in case of
Rekha Patil/ Priya Soparkar/ bdp /ppn 17/74
Appeal No.126 of 2006.odt
Syntrex Corporation Vs. Rajmukar Keshardev and Ors. 2 2007 (6)
MLJ 34 and in particular paragraphs 2 to 5 and would submit that
the dispute between the parties i.e. a member and the constituent
arising out of the transactions having taken place on the floor of
the stock exchange only and the transactions permitted under the
Bye-laws of the exchange only could be referred to arbitration and
not otherwise. There were no such transactions on the floor of
exchange between the appellant and respondent no.1 which were
the subject matter of the said arbitration proceeding filed by the
respondent no.1 against the appellant.
26 Mr. Sharan Jagtiani, learned senior counsel for the
respondent no.1, on the other hand, submits that the arbitration
proceedings filed by the respondent no.1 were under Bye-laws 248
(a) of the Mumbai Stock Exchange and was a statutory arbitration.
No notice under Section 21 of the Arbitration Act was required to
be issued prior to the date of the filing statement of claim by
respondent no.1 under the Bye-laws of the Stock Exchange
Mumbai. The respondent no.1 had filed a requisite Form i.e. Form
'AA' with the Stock Exchange with a request to refer the dispute to
2 2007(6) MhLj 34
Rekha Patil/ Priya Soparkar/ bdp /ppn 18/74
Appeal No.126 of 2006.odt
Arbitration. It is submitted by the learned senior counsel that the
oral understanding between the appellant, respondent no.1 and the
respondent no.2 to the effect that if there was any debit balance in
the account of the respondent no.2 recoverable by the respondent
no.1, the appellant would be jointly and severally liable in respect
of such liability of the respondent no. 2 was proved by his client
before the Arbitral Tribunal.
27 It is submitted that such findings or facts rendered by the
Arbitral Tribunal were rightly not interfered with by the learned
single Judge. The appellant also had client account with the
respondent no.1-broker admittedly. Under the Bye-laws framed by
the Stock Exchange Mumbai, the respondent no.1 could have filed
one single arbitration proceeding also in respect of two separate
accounts. In support of this submission, the learned senior counsel
placed reliance on the judgments of the Hon'ble Supreme Court. It
is submitted by the learned senior counsel that the appellant did
not raise any issue of jurisdiction of the Arbitral Tribunal to
adjudicate upon the claims made by the respondent no.1 against
the appellant on the ground that no arbitration agreement between
Rekha Patil/ Priya Soparkar/ bdp /ppn 19/74
Appeal No.126 of 2006.odt
them having been invoked by respondent no.1 under Section 16 of
the Arbitration Act. The appellant had only pleaded that there was
a mis-joinder of the parties.
28 It is submitted that the appellant himself had filed a counter
claim against the respondent no.1 before the Arbitral Tribunal. The
appellant not having raised any issue of jurisdiction under Section
16 of the Arbitration Act within the time prescribed under the said
provision or otherwise, the appellant is precluded from raising such
plea in the Petition filed under section 34 of the Arbitration Act.
The learned senior counsel placed reliance on Bye-laws 248(a) of
the Bye-laws framed by the Stock Exchange, Mumbai. He submits
that the said clause providing for dispute to be referred to the
arbitration between members and non-members is very wide. The
term "dealings" is wider than transaction. The appellant becomes a
non-member in respect of dealings of wife with the broker and thus
was jointly and severally liable arising out of the transactions
between the broker and respondent no.2-wife. The appellant
admittedly had a separate client account with respondent no.1.
Rekha Patil/ Priya Soparkar/ bdp /ppn 20/74
Appeal No.126 of 2006.odt
29 The learned senior counsel placed reliance on the following
judgments in support of his aforesaid submissions.
1) Union of India Vs. Pam Development Pvt. Ltd.3
2) Gas Authority of India Pvt. Ltd. And Anr. Vs. Keti
Construction (I) Ltd. And Ors.4
3) Aditasai Cotspin Pvt. Ltd. Vs. M/s Louis Drayfus
Commodities Pvt. Ltd.5
4) Oil and Natural Gas Corporation Ltd. Vs. Comes
Services SA.6
5) P.R. Shah Shares and Stock Brokers Pvt. Ltd. Vs.
B.H.H. Securities Pvt. Ltd. And Ors.7
6) Banwari Lal Kotiya Vs. P. C. Aggarwal8
7) Bombay Stock Exchange Vs. Jaya L. Shah &
Anr.9
30 It is submitted by the learned senior counsel for the
respondent no.1 that the Bye-laws of the Stock Exchange Mumbai
have statutory force and have been rightly applied by the Arbitral
Tribunal also against the appellant. He submits that even in the
said application form filed by the respondent no.1 before the Stock
Exchange Mumbai, a reference to Bye-laws under 248 (a) was
3 (2014) 11 SCC 366
4 (2007) 5 SCC 38
5 2015 SCC Online Bom 3410
6 2003 SCC Online Bom 287
7 (2012) 1 SCC 594
8 (1985) 3 SCC 255
9 (2004) 1 SCC 160
Rekha Patil/ Priya Soparkar/ bdp /ppn 21/74
Appeal No.126 of 2006.odt
made. The said Form AA was filed by the respondent no.1 against
the respondent no.2 as well as appellant. He relied upon
paragraph 11 of the Statement of Claim filed by his client and
would submit that it was the specific case of his client that the
appellant and the respondent no.2 were constituents of the
respondent no.1. The Arbitral Forum had thus jurisdiction to
entertain the said claim filed by the respondent no.1 not only
against the respondent no.2 but also against the appellant.
31 It is submitted by the learned senior counsel that in the
written statement and the counter-claim filed by the appellant in
the said Arbitral proceedings, the appellant had defended the
claims made by the respondent no.1 on merits and not on the
ground of jurisdiction. The existence of jurisdiction pleaded by the
respondent no.1 in the Statement of the Case was not denied by
the appellant in the written statement. The appellant having
participated in the arbitral proceedings by filing a counter claim
cannot be allowed to urge that the Arbitral Tribunal had no
jurisdiction to entertain the claims made by respondent no.1
against the appellant.
Rekha Patil/ Priya Soparkar/ bdp /ppn 22/74
Appeal No.126 of 2006.odt
32 It is submitted by the learned senior counsel that the Arbitral
Tribunal has rendered a finding of fact that the respondent no.1
had examined the witness by filing affidavit in lieu of examination-
in-chief of the one of the Director of respondent no.1. The
appellant as well as respondent no.2, however, did not lead any
oral evidence. The finding of facts rendered by the Arbitral
Tribunal that the appellant and respondent no.2 are jointly and
severally liable and thereby allowing the claim made by the
respondent no.1 and dismissing the counter-claim filed by the
appellant was rightly not interfered with by the learned single
Judge. The transactions between the parties were peculiar to the
stock exchange trade.
33 It is submitted by the learned senior counsel that though the
observations made and findings recorded by the learned single
Judge are at variance with the submissions made by him across the
bar, the Court while hearing an Appeal under Section 37 of the
Arbitration Act has to ascertain whether the arbitral Award
rendered by the Arbitral Tribunal is right or not. Since there is no
perversity found in the arbitral Award, the powers of Court under
Rekha Patil/ Priya Soparkar/ bdp /ppn 23/74
Appeal No.126 of 2006.odt
Section 37 of the Arbitration Act being very limited, no interference
is warranted with the order passed by the learned single Judge and
also the arbitral Award rendered by the Arbitral Tribunal.
34 Mr. Simil Purohit, learned counsel for the appellant, in his
rejoinder argument submits that there was no contract of surety
pleaded by the respondent no.1 before the Arbitral Tribunal. There
was no contractual agreement binding between the appellant and
respondent no.1 in respect of the claims made by the respondent
no.1 against the appellant. The respondent no.1 did not point out
any provisions of law holding husband as surety of his wife
automatically and becomes axiomatically, jointly and severally
liable for the debts, if any, of the wife to any third party.
35 Learned counsel for the appellant strongly placed reliance on
Bye-law 248(a) of the Bye-laws framed by the Stock Exchange
Mumbai and would submit that the dispute under the said Bye-laws
can be referred to arbitration only if all the dealings, transactions
and contracts which are made subject to the Rules, Bye-laws and
Regulations having taken place on the floor of exchange and not
otherwise. It is submitted that no claim arising out of the alleged
Rekha Patil/ Priya Soparkar/ bdp /ppn 24/74
Appeal No.126 of 2006.odt
guarantee or surety of the appellant on behalf of his wife to the
respondent no.1 can be made subject to Bye-laws and Rules and
Regulations of Stock Exchange Mumbai. He strongly placed
reliance on Bye-law No. 44 which provides that for the purposes of
these Bye-laws and Regulations the term "bargains", "transaction",
"dealings" and "contract" shall have one and the same meaning
unless context indicates otherwise. He submits that the words
"bargains" "dealings", "transactions" and "contract" has to be on
the floor of the stock exchange for referring the dispute, if any,
arising out of such "bargains", "contract", "dealings" or
"transactions" and not otherwise.
36 It is submitted by the learned counsel that if the arguments of
the respondent no .1 are accepted, any private transaction between
the member of the stock exchange and his client also will have to
be referred to arbitration though such transaction would not be a
transaction on the floor of the exchange. The private transactions
between the broker and the constituent not having taken place on
the floor of the exchange can not be referred to arbitration under
Bye-laws 248(a). The appellant was not sued on the basis of
Rekha Patil/ Priya Soparkar/ bdp /ppn 25/74
Appeal No.126 of 2006.odt
transactions on the floor of exchange between the appellant and
the respondent no.1 but on the basis of an oral guarantee. It was
not the case of respondent no.1 that there was a document
evidencing guarantee issued by the appellant.
37 It is submitted that even if there was any oral guarantee
alleged to have been given by the appellant to the respondent no.1-
broker, that would at the most be a private arrangement between
the guarantor and broker which cannot be subject matter of Bye-
laws, Rules and Regulations of the Stock Exchange Mumbai. The
entire case of the respondent no.1 against the appellant that there
was an oral understanding between the appellant and the
respondent no.1 and that he would be jointly and severally liable
to the respondent no.1 on the basis of such alleged oral assurance
or guarantee which was outside the purview of the Bye-laws 248(a)
and was without jurisdiction. The respondent no.1 had approached
Arbitral Forum with a specific case that there was oral
understanding between the appellant and respondent no.1.
38 The learned counsel for the appellant distinguished the
judgments cited by the learned senior counsel for the respondent
Rekha Patil/ Priya Soparkar/ bdp /ppn 26/74
Appeal No.126 of 2006.odt
no.1 on the ground that the appellant had specifically raised a plea
in the written statement that there was a mis-joinder of the
appellant in the said statement of claim filed by the respondent
no.1 and a claim could not have been maintained against the
appellant. He submitted that it was a statutory arbitration wherein
only specified disputes permissible under Regulation 248(a)
between the specified parties mentioned therein only and that also
arising out of the "bargains", "dealings", "contract" and
"transactions" having taken place on the floor of the exchange
could be referred to arbitration and nothing beyond that. Even by
consent of the parties, the dispute with a third party in respect of
the private transaction could not be referred as disputes to
arbitration nor such disputes could be adjudicated upon by the
Arbitral Tribunal against such third party even on a consent or such
third party not having raised any issue of jurisdiction.
39 It is submitted by the learned counsel that even if the
appellant had not even specifically raised the issue of jurisdiction
under Section 16 of the Arbitration Act as sought to be canvassed
by the learned senior counsel for the respondent no.1, this being a
Rekha Patil/ Priya Soparkar/ bdp /ppn 27/74
Appeal No.126 of 2006.odt
case of inherent lack of jurisdiction, the appellant is not precluded
from raising such issue of jurisdiction for the first time in the
petition filed under Section 34 of the Arbitration Act or across the
bar. In support of this submission, learned counsel for the
appellant placed reliance on the judgment of Hon'ble Supreme
Court in the case of M.D.,Army Welfare Housing Organization V/s
Sumangal Services Pvt. Ltd.10, Union of India Vs. Popular Builders,
Calcuta11, judgment of this Court in the case of Atul R. Shah Vs. V.
Vrijlal Lalloobhai and Co. and Ors.12, and the judgment of Delhi
High Court in the case of Alupro Building Systems Pvt. Ltd. Vs.
Ozone Overseas Pvt. Ltd.13.
40. Mr. Jagtiani, learned senior counsel for the respondents
submitted brief note dated 16 th April, 2021 distinguishing the
judgments cited by the learned counsel for the appellant on the
issue of jurisdiction. In so far as judgment of this Court in case of
Syntrex Corporation (supra) relied upon by the learned counsel
for the appellant is concerned, the said judgment is distinguished
10 AIR 2004 SC 1344
11 AIR 2000 SC 3185
12 AIR 1999 Bom 67
13 2017 SCC OnLine Del 7228
Rekha Patil/ Priya Soparkar/ bdp /ppn 28/74
Appeal No.126 of 2006.odt
on the ground that the facts before this Court in the said
judgment are different from the facts in this case. The respondent
no.1 had not made its claim arising out of any private
transactions/dealings with the appellant. These transactions were
made only on the floor of the Exchange and were settled finally by
the Exchange. The appellant and respondent no.2 both were the
constituents of respondent no.1. All the transactions carried out by
the appellant and respondent no.2 were subjects to Rules, Bye-laws
and Regulations of the Exchange.
41. It is submitted that the instant matter pertains to dealings
carried out/made by the appellant in the trading account of his
wife i.e. respondent no.2. The arbitral tribunal had rightly held
that there existed an oral agreement between the parties that
appellant was jointly and severally liable for the
transactions/dealings performed in the trading account of the
respondent no. 2. In this case the contract notes were issued by
the respondent no.1. The Arbitral Tribunal has observed that
since 1999 the appellant was actively dealing in the trading
account of respondent no.2. These trades had been accepted by
Rekha Patil/ Priya Soparkar/ bdp /ppn 29/74
Appeal No.126 of 2006.odt
the appellant as well as respondent no.2. The appellant thus could
not raise any objection on the ground that there was no written
contract notes between the appellant and the respondents.
42. The learned senior counsel for the respondents
distinguished the judgment of the Hon'ble Supreme Court in case
of Union of India Vs. Popular Builders (supra) on the ground that
the case before the Hon'ble Supreme Court in the said judgment
was not a case of statutory / institutional arbitration. The
arbitration clause in this case has been set out on the bye-laws of
the Stock Exchange. There were no arbitrable dispute to be
referred to be arbitration in respect of the final bill in the case
before the Hon'ble Supreme Court. The appellant was carrying on
the dealings/transactions from the trading account of the
respondent no.2.
43. The learned senior counsel distinguished the judgment of
this Court in case of Atul R. Shah (supra) on the ground that in
that matter the Arbitral Tribunal was not constituted in
conformity with Section 10 of the Arbitration Act. The Arbitral
Tribunal did not afford reasonable opportunities to the
Rekha Patil/ Priya Soparkar/ bdp /ppn 30/74
Appeal No.126 of 2006.odt
appellant to defend the claims made by the respondents. However,
in this case the Arbitral Tribunal was constituted in conformity
with not only Bye-laws of the Exchange, but also in accordance
with Section 10 of the Arbitration Act. The appellant has not raised
this ground before the Arbitral Tribunal. The Arbitral Tribunal had
given ample opportunities to the appellant as well as
respondent no.2 to present their respective defences in the
matter. The appellant as well as respondent no.2 however chose
not to lead any oral evidence before the Arbitral Tribunal and thus
cannot be allowed to contend that the impugned award was in
violation of the principles of natural justice.
44. Learned senior counsel for the respondents distinguished
the judgment of the Supreme court in case of Deutsche Post Bank
Home Finance Limited (Supra) on the ground that the arbitral
proceedings considered by the Hon'ble Supreme Court in the said
judgment were not a statutory arbitration. The proceedings
before the Hon'ble Supreme Court were arising out of an order
passed by the designate of the Hon'ble Chief Justice of the State in
an application under Section 11 of the Arbitration Act. The
Rekha Patil/ Priya Soparkar/ bdp /ppn 31/74
Appeal No.126 of 2006.odt
Designate of the Hon'ble Chief Justice in the said judgment had
held that the arbitration application was not maintainable against
the appellant since he was not a party to the arbitration
agreement between the respondents. In the instant matter, the
appellant has not only actively participated in the arbitral
proceedings before the Arbitral Tribunal, but had also filed the
counter claim against the respondent no.1 and thus cannot be
allowed to contend that there was no arbitration clause between
the appellant and respondent no.1.
45. Learned senior counsel for the respondents distinguished
judgment of the Delhi High Court in case of Alupro Building
Systems Private Limited (supra) on the ground that the grounds of
challenge in that petition before Delhi High Court under Section
34 of the Arbitration Act were totally different and were not
relevant whatsoever in the facts and circumstances of this case. In
this case the respondent no.1 had invoked the provisions of a
statutory arbitration after following the due process of law in
respect of its claim against the respondent and appellant no.2.
The Arbitral Tribunal was duly constituted in accordance with
Rekha Patil/ Priya Soparkar/ bdp /ppn 32/74
Appeal No.126 of 2006.odt
the Bye-laws of the Exchange and the Arbitration Act. There was
no role which the parties were required to play for appointment
of arbitrators. The appellant and the respondent no.2 were put to
sufficient notice as regards the commencement of arbitral
proceedings against them.
REASONS AND CONCLUSION :-
46. The questions fell for consideration in this appeal are :-
"(a) Whether arbitral tribunal had jurisdiction to
entertain claims made by the respondent No.1 against the
appellant?
(b) Whether the appellant could be impleaded as a party
respondent in the arbitral proceedings in respect of the
dispute between the respondent no.1 and respondent no.2
filed under the statutory Bye-laws on the ground that the
liability of the appellant and the respondent no.2 were
joint and several though Arbitration Agreement between
the respondent nos.1 and 2 only was invoked by the
respondent no.1?
Rekha Patil/ Priya Soparkar/ bdp /ppn 33/74
Appeal No.126 of 2006.odt
(c) Whether Arbitral Tribunal can be conferred with
jurisdiction by consent of parties in respect of the private
transaction between them and not having taken place on
the floor of the Bombay Stock Exchange under bye-law
248(a) of the Stock Exchange, Mumbai?
(d) Whether under Bye-law 248(a) of the Stock Exchange,
Mumbai providing for adjudication of the disputes arising
only between the parties prescribed therein in relation to
such dealings, transactions, contracts only could be
invoked against a third party allegedly based on alleged
guarantee or otherwise?
(e) Whether the award against a third party in respect of
a private transaction not falling under bye-law 248 (a) would
amount to lack of inherent jurisdiction?
(f) What is the effect of the respondent not raising an
issue of jurisdiction specifically under Section 16 of the
Arbitration Act before the Arbitral Tribunal in case of the
Arbitral Tribunal having inherent lack of jurisdiction?
Rekha Patil/ Priya Soparkar/ bdp /ppn 34/74
Appeal No.126 of 2006.odt
47. A perusal of the Arbitration Application Form under
Regulation 15.2 of the Regulation of Stock Exchange, Mumbai
indicates that the respondent no.1 had made a claim against the
respondent no.2 and the appellant by invoking Bye-law 248(a),
framed by the Stock Exchange, Mumbai. In the statement of claim
filed by the respondent no.1 before the Arbitral Tribunal it was
the case of the respondent no.1 that the appellant and the
respondent no.2 herein were wedded to each other. For all
practical purposes the appellant was carrying on a business in
the name of his wife and his own name. However, it was
understood that it would be ultimately joint and several liability
of the appellant and the respondent no.2 arising out the
transactions which may be conducted by the appellant in his own
name or in the name of his wife.
48. It was the case of the respondent no.1 that the debits and
the credits of the account of the appellant and the respondent
no.2 was by and large netted off and the net amount was
received or paid after adjustment. The respondent no.2-wife
regularly received legal account of HD10 and confirmed the
Rekha Patil/ Priya Soparkar/ bdp /ppn 35/74
Appeal No.126 of 2006.odt
balance shown therein from time to time. The appellant and
respondent no.2 were issued contract notes and bills from time
to time. There was a running account maintained by the
respondent no.1 for the appellant and the respondent no.2. After
Settlement no.A42, as per the instructions of the appellant, the
credit standing to the account of the appellant was transferred to
the account of the respondent no.2 and the ledger account of the
appellant was made 'Nil'.
49. According to the respondent no.1, even after transferring
the credit balance from the account of the appellant to the
account of respondent no.2 as per the instructions of the
appellant and the respondent no.2, the debit balance came down
to Rs.84,85,76,418/-. It was alleged that the appellant and the
respondent no. 2 misrepresented to the respondent no.1 that they
were one and the same and both were jointly and severally liable
to pay the debit balance plus any other liabilities. In paragraph
no.11 of the statement of claim it was alleged that the appellant
and the respondent no.2 were the constituents of the respondent
no.1. The differences and the dispute had arisen between them
Rekha Patil/ Priya Soparkar/ bdp /ppn 36/74
Appeal No.126 of 2006.odt
which were resolved through the arbitration of the Bombay Stock
Exchange. The appellant and the respondent no.2 resisted the
said statement of case filed by respondent no.1 on various
grounds.
50. In the written statement and the counter claim of the
appellant it was contended that the claim filed by the respondent
no.1 against the appellant was bad for misjoinder of parties and
causes of action. Each individual is a separate legal entity in the
eyes of law. The respondent no.1 had entered into separate Client
Broker Agreement with respect of their separate transactions and
therefore, the claim as filed by the respondent no.1 was not
maintainable and liable to be dismissed. It was also contended
by the appellant that the respondent no.1 had acted in utter
disregard and in violation of the Rules, Regulations and Bye-laws
of the Stock Exchange, Mumbai and also those of SEBI which
specifically inter-alia deal with the rights and liabilities of the
members and the constituents. The respondent no.1 acted without
the knowledge and instructions of the appellant for their own
benefit and have sought to fasten the alleged liability of the
respondent no.2 on the appellant.
Rekha Patil/ Priya Soparkar/ bdp /ppn 37/74
Appeal No.126 of 2006.odt
51. The appellant also denied any oral understanding between
the appellant and the respondents as alleged by the respondent
no.1 in the statement of case. The appellant relied upon the
SEBI guidelines, Rules and Regulations in support of the
contention that there can be adjustments between one client
account and another only after obtaining the express authority
of the clients. In the instant case there was no such express
authority written or otherwise given by the appellant to the
respondent no.1 to adjust the credit balance in his account as has
been done by the respondent no.1. The appellant denied that on
5th March, 2000 after Settlement No.A42, as per instructions of
the appellant, credit standing in the account of the appellant was
transferred to the account of the respondent no.2 and the ledger
account of the appellant was accordingly made 'Nil'. The
appellant denied that he had represented to the respondent no.1
that he would make the payment towards the alleged debit in the
account of the respondent no.2. The respondent no.1 thereafter
filed rejoinder. The appellant filed the sur-rejoinder to the said
affidavit in rejoinder.
Rekha Patil/ Priya Soparkar/ bdp /ppn 38/74
Appeal No.126 of 2006.odt
52. The respondent no.1 examined Mrs.Deepika Ashwin
Choksi, one of the Director of the respondent no.1 and Mr.Parag
Vinod Zaveri as witnesses. Both the witnesses of the respondent
no.1 were cross-examined by the appellant and the respondent
no. 2. The appellant and the respondent no.1 did not lead any
oral evidence.
53. In so far respondent no.2 is concerned, the Arbitral Tribunal
held that all the transactions had been done in the client code of
respondent no. 2 and the transactions in the month of March
alleged from Settlement No.A48 was carried out as per instructions
of appellant and respondent no.2. The appellant and respondent
no.2 had not brought on record any evidence either documentary
or oral evidence to disprove affidavit in lieu of examination-in-
chief filed by a few witnesses examined by respondent no.1.
Arbitral Tribunal held that the appellant and respondent no.2 are
jointly and severally liable to pay the amount as per the said
award. The Arbitral Tribunal held that normally and historically
the share transactions are done in a family by one person on
behalf of the family members and more particularly, husband
Rekha Patil/ Priya Soparkar/ bdp /ppn 39/74
Appeal No.126 of 2006.odt
and wife is a formal unit. Interaction with the brokers' office
was done by only one person. This was the position despite the
fact that there would be separate client code, separate contract
notes, bills and separate bank accounts. It was necessary to have
these things separately, considering the documentation necessary
for the purpose of tax laws. Broker member may not have seen
other family members except their photographs, now on
compulsory Broker Client Claim Form.
54. The Arbitral Tribunal accordingly held that the Tribunal
upholds the existence of such oral agreement or understanding.
It is held that the appellant was mostly coming to the office of the
respondent no.1-broker and had also given instructions
sometimes when the respondent no.2 was out of town and merely
under the instructions of respondent no.2. The Arbitral Tribunal
held that the counter claim filed by the appellant was a counter
blast and is not sustainable after being adjusted to the account
that of respondent no.2 and accordingly, dismissed the said
counter claim. In the last paragraph the Arbitral Tribunal held that
it is true that as per SEBI requirement the written instructions are
Rekha Patil/ Priya Soparkar/ bdp /ppn 40/74
Appeal No.126 of 2006.odt
necessary for transfer of one constituent's account to the other.
However, from the practical side of it suggests that considering
past experience and considering joint and several liabilities and
considering their heavenly bestowed relationship, the Tribunal
uphold that such a transfer as made by the respondent no.1 was
in order.
55. The Arbitral Tribunal did not decide the issue of misjoinder
of the appellant raised in the said arbitral proceedings filed by
the respondent no.1 and many other issues raised in the written
statement filed by the appellant. Though the Arbitral Tribunal
held that as per SEBI requirements written instructions of the
constituents are necessary for transfer of one constituent's
account to the other, the Arbitral Tribunal considered the so
called practical side, the alleged past experience, the relationship
of appellant and respondent no.2 as husband and wife and
their bestowed relationship while upholding such transfer as made
by the respondent no.1.
Rekha Patil/ Priya Soparkar/ bdp /ppn 41/74
Appeal No.126 of 2006.odt
56. Under Bye-law 247A(1) it was mandatory for every
member broker to keep such books of accounts as will be
necessary to show and distinguish in connection with his
business as a member :-
(i) Money received from or on account of and money paid
to on or account of each of the clients.
(ii) The money received and the money paid on members own
account.
57. Under the said Bye-law 247A it is also provided that no
money shall be paid into clients account other than the money
held or received on account of the clients. It further provides that
the member broker however is not deprived of any recourse of
right, whether by way of lien, set off, counter claim, charge or
otherwise against money standing to the credit of the clients
account. It shall be compulsory for all the member/sub-broker to
receive or make payment or to the client strictly by way of
account payee cross-cheques or direct credit into the bank account
through NEFT or any other modes as permitted by the Reserve
Bank of India. The member broker shall accept cheques drawn
Rekha Patil/ Priya Soparkar/ bdp /ppn 42/74
Appeal No.126 of 2006.odt
by clients and issue cheques only in favour of the clients.
However, in exceptional circumstances, the member broker may
receive payment in cash to the extent that there is no violation of
the Income Tax requirements for the time being in force.
58. There was no express or oral understanding given by the
appellant that any amount lying to the credit of his account shall
be adjusted against the account of the respondent no.2. The
question of adjustment of the credit balance lying in the account
of the appellant by the respondent no.1 with the debit balance of
respondent no.2 did not arise. Though the Arbitral Tribunal took
cognizance of this Byelaws requiring express authority of a
client for adjustment of the credit and debit balance as the case
may be, the Arbitral Tribunal approved the illegal transfer of the
credit balance of the appellant in the account of the respondent
no.2 without any express authority or otherwise in violation of
Bye-law 247A and also the SEBI guidelines. The adjustment of
the credit balance with the debit balance could be permitted only
by and under the express authority in respect of the same client
and not two separate clients. The Arbitral Award ought to have
Rekha Patil/ Priya Soparkar/ bdp /ppn 43/74
Appeal No.126 of 2006.odt
been set aside by the learned Single Judge on the ground of such
perversity or patent illegality.
59. Under the said Byelaws the respondent no.1-broker had
maintained separate account of the appellant as well as
respondent no.2 and had accepted two separate forms as
required under Bye-laws, Rules and Regulations. In the eyes of
law appellant and the respondent no.2 are two separate legal
entities and had two separate and distinct accounts opened with
the respondent no.1. The Arbitral Tribunal however has relied
upon the alleged past experience and considering heavenly
bestowed relationship between husband and wife and totally
ignored the mandatory Bye-laws, Rules and Regulations framed by
the Stock Exchange, Mumbai and those SEBI guidelines while
allowing the claim made by the respondent no.1.
60. The Arbitral Tribunal thus committed perversity and
patent illegality by holding the appellant and respondent no.2
as a family unit for the purpose of joint and several liabilities.
Despite the fact that there were separate client code, separate
contract notes and bills and separate bank accounts, the Arbitral
Rekha Patil/ Priya Soparkar/ bdp /ppn 44/74
Appeal No.126 of 2006.odt
Tribunal has also rendered a perverse finding that the broker
member may not have seen other family members except their
photographs on compulsory Broker Client Agreement Form. The
finding of the Arbitral Tribunal that there is an extended oral
agreement and understanding between the appellant and the
respondent no.1 that the liability of the respondent no.2, if any,
towards respondent no.1 would be joint and several and that the
appellant would be liable for the same is totally perverse and
contrary to the Bye-laws, Rules and Regulations of Stock
Exchange, Mumbai and the SEBI guidelines.
61. Bye-law 248(a) of the Stock Exchange, Mumbai reads
thus :-
"248(a)- All claims (Whether admitted or not)
difference and disputes between a member and a
non-member or non-members (the terms 'non-member'
and 'non-members' shall include a remisier, authorised
clerk, a sub-broker who is registered with SEBI as
affiliated with that member or employee or any other
person with whom the member shares brokerage)
arising out of or in relation to dealings, transactions
and contracts made subject to the Rules, Bye-laws and
Regulations of the Exchange or with reference to
anything incidental thereto or in pursuance thereof or
relating to their construction, fulfillment or validity or
in relation to the rights, obligations and liabilities of
remisiers, authorised clerks, sub-brokers, constituents,
Rekha Patil/ Priya Soparkar/ bdp /ppn 45/74
Appeal No.126 of 2006.odt
employees or any other persons with whom the
member shares brokerage in relation to such dealings,
transactions and contracts shall be referred to and
decided by arbitration as provided in the Rules, Bye-
laws and Regulations of the Exchange."
62. A perusal of said Bye-law 248(a) clearly indicates that the
claims, difference and dispute only between the parties referred in
the said Bye-laws arising out of a relation to a dealings,
transactions and contracts which are made subject to Rules, Bye-
laws, Regulations of the Exchange or with anything reference to
anything incidental thereto or in pursuance thereof relating to their
construction, fulfillment or validity or in relation thereto shall be
referred to or decided by arbitration as provided in the Rules, Bye-
laws and the Regulation of the Exchange. Though there was a
similar arbitration clause applicable in respect of such dispute
between the appellant and the respondent no.1 in respect of all
claims, differences, disputes between them as member and non-
member was not invoked by respondent no.1 when the
statement of claim was filed by the respondent no.1 jointly
against the appellant and the respondent no.2.
Rekha Patil/ Priya Soparkar/ bdp /ppn 46/74
Appeal No.126 of 2006.odt
63. The Arbitration clause under the said Bye-law 248(a) could
be invoked only in respect of dealings/transactions and contracts
which were made subject to Rules, Bye-laws and regulations of the
Exchange or with reference to anything incidental thereto. In this
case the respondent no.1 had alleged that the appellant had orally
agreed and there being an oral understanding between
appellant and respondent no.1 that the dues, if any, of
respondent no.2 towards the respondent no.1 would be cleared
by the appellant. In our view, there were those two separate
causes of action i.e.
(i) Between the respondent no.1 and the respondent no.2 in
respect of the transactions having taken place on the floor
of the Stock Exchange, Mumbai i.e. the debit balance in
the account of the respondent no.2 opened with the
respondent no.1.
(ii) The cause of action based on the alleged oral
understanding between the appellant and the respondent
no.1 to pay the alleged dues of the respondent no.2
towards respondent no.1 in case of any default of
respondent no.2.
Rekha Patil/ Priya Soparkar/ bdp /ppn 47/74
Appeal No.126 of 2006.odt
64. In so far as the alleged oral understanding given by the
appellant to clear the alleged dues of respondent No.2 to
respondent No.1 is concerned, the same would not fall under Bye-
law 248(a) being a private and separate transaction not subject to
the Rules, Bye-laws and Regulations of the Exchange. Under Bye-
law 44 of the Stock Exchange, Mumbai, it is clarified that for the
purpose of these "Bye-laws", "Regulation", "Bargain",
"Transactions", "dealings" and "Contract" shall have one and the
same meaning unless the context indicates otherwise. We are
thus not inclined to accept the submission of the learned senior
counsel for the respondents that the dealings between the
appellant and respondent no.1 i.e. an oral understanding by which
the appellant had agreed to pay the dues of the respondent no.2
in cash or in default would also be covered by the Bye-laws and
Regulations of the Stock Exchange, Mumbai and was not a
separate transaction.
65. In our view, the entire adjustment made by the respondent
no.1 by transferring the credit balance lying in the account of the
Rekha Patil/ Priya Soparkar/ bdp /ppn 48/74
Appeal No.126 of 2006.odt
appellant with the debit balance lying in the account of the
respondent no.2 with the respondent no.1 was without any express
authority which was mandatory before carrying out any such
adjustment under Clause IX of the SEBI Guidelines. The Hon'ble
Supreme Court in case of Deutsche Post Bank Home Finance
Limited (Supra) has dealt with the Special Leave Petition converted
into Civil Appeal filed by a third party (not a party to the
Arbitration Agreement) impugning the order passed by the High
Court under Section 11 of the Arbitration Act. Insofar as such third
party who was impleaded in an application under Section 11 of the
Arbitration Act by the respondent No.1 was concerned, there was a
transaction between respondent Nos.1 and 2 under an agreement
entered into between those two parties. There was a separate loan
agreement between the appellant and the respondent No.1.
66. The Andhra Pradesh High Court accepted the contention raised
by the respondent Nos.1 that the appellant was rightly impleaded
as a party respondent in the said application filed by the respondent
No.1 under Section 11 of the Arbitration Act. The Hon'ble
Supreme Court in the said judgment adverted to earlier judgment in
Rekha Patil/ Priya Soparkar/ bdp /ppn 49/74
Appeal No.126 of 2006.odt
case of S. N. Prasad v/s. Monnet Finance Limited and Ors. 14, . The
Hon'ble Supreme Court in the said judgment in case of S. N. Prasad
(supra) had held that there could be reference to arbitration only if
there is an arbitration agreement between the parties. If there is a
dispute between a party to an arbitration agreement, with other
parties to the arbitration agreement as also non-parties to the
arbitration agreement, reference to arbitration or appointment of
arbitrator can only be with respect to the parties to the arbitration
agreement and not the non-parties. As there was no arbitration
agreement between the parties, the impleadment of appellant as a
respondent in the proceedings and the award against the appellant
in such arbitration cannot be sustained.
67. The Hon'ble Supreme Court gave an illustration that if 'X'
enters into two contracts, one with 'M' and another with 'D', each
containing an arbitration clause providing for settlement of
disputes arising under the respective contract, in a claim for
arbitration by 'X' against 'M' in regard to the contract with 'M', 'X'
cannot implead 'D' as a party on the ground that there is an
arbitration clause in the agreement between 'X' and 'D'. It is held
14 (2011) 1 SCC 320
Rekha Patil/ Priya Soparkar/ bdp /ppn 50/74
Appeal No.126 of 2006.odt
by the Hon'ble Supreme Court that if a party to an arbitration
agreement files a petition under Section 11 of the Act impleading
though the party to the arbitration agreement but also a non-party
to the arbitration agreement as respondent, and the Court merely
appoints an arbitrator without deleting or excluding the non-party,
the effect would be that all the parties to the petition under section
11 of the Act (including the non-party to arbitration agreement)
will be parties to the arbitration. That will be contrary to the
contract and the law. If a person who is not a party to the
arbitration agreement is impleaded as a party to the petition under
section 11 of the Act, the Court should either delete such party
from the array of parties, or when appointing an Arbitrator make it
clear that the arbitrator is appointed only to decide the disputes
between the parties to the arbitration agreement.
68. The Hon'ble Supreme Court in the said judgment held that
the appellant was not a party to the construction agreement
containing an arbitration agreement. There was no doubt that loan
agreement dated 21st December, 2006 between the first respondent
as borrower and the appellant as a creditor also contained an
Rekha Patil/ Priya Soparkar/ bdp /ppn 51/74
Appeal No.126 of 2006.odt
arbitration clause providing for resolution of disputes in regard to
the said loan agreement by arbitration. But the developer was not
a party to the loan agreement. There was no arbitration agreement
between the developer and the appellant. The first respondent had
invoked the arbitration agreement contained in the construction
agreement between the first respondent and the developer and not
the arbitration agreement contained in the loan agreement
between the appellant and the first respondent.
69. It is held that the existence of an arbitration agreement in a
contract between the appellant and the respondent will not enable
the first respondent to implead the appellant as a party to an
arbitration in regard to his disputes with the developer. It is held
that if there had been an arbitration clause in the tripartite
agreement amongst the first respondent, developer and the
appellant and if the first respondent had made claims or raised
dispute against petitioner, developer and the appellant with
reference to such tripartite agreement, the position would have
been different. But that is not so. The petition under Section 11 of
the Act against the appellant was therefore misconceived as the
Rekha Patil/ Priya Soparkar/ bdp /ppn 52/74
Appeal No.126 of 2006.odt
appellant was not a party to the construction agreement entered
into between the respondent no.1 and the developer. The Hon'ble
Supreme Court accordingly allowed the said appeal and set aside
the order passed by the Andhra Pradesh High Court insofar as
appellant is concerned. The principles laid down by the Supreme
Court in the said judgment apply to the facts of this case.
70. In view of Bye-law 248(a), neither there could be any
tripartite agreement between the parties nor the respondent No.1
produced any such Tripartite Agreement. Admittedly, the
respondent no.1 had not invoked the arbitration agreement
between the appellant and the respondent no.1 and had illegally
clubbed the two separate causes of action in the same arbitration
by invoking arbitration agreement only between the respondent
no.1 and the respondent no.2.
71. This Court in a judgment in case of The Indian Performing
Right Society Ltd. v/s. Entertainment Network (India) Ltd.15, had
considered a petition filed under Section 34 of the Arbitration Act
impugning an arbitral award dealing with the copyright dispute
15 2016 SCC OnLine Bom 5893
Rekha Patil/ Priya Soparkar/ bdp /ppn 53/74
Appeal No.126 of 2006.odt
and granting various declaratory reliefs in respect of such copy
right in favour of the claimant. The respondent before the arbitral
tribunal did not raise any objection in respect of the jurisdiction of
the arbitral tribunal to adjudicate upon the issue as to whether the
broadcast of the sound recording without the permission of the
owner of the copyright in the literary work and/or musical work
infringes the copyright literary work and/or musical work, since a
declaration of that nature would necessarily entail a determination
of the rights of his client in rem. The said objection in respect of
the jurisdiction of the arbitral tribunal to deal with such an action
in rem was raised for the first time in the proceedings filed under
Section 34 of the Arbitration Act.
72. This Court in the said judgment after adverting to the
judgment of Hon'ble Supreme Court in case of Booz Allen and
Hamilton Inc. v/s. SBI Home Finance Ltd.16, held that merely
because the petitioner did not raise any specific plea of jurisdiction
before the learned arbitrator with respect of various prayers in the
statement of claim in respect of the copyright of one of the parties
which was an action in rem and was not arbitrable, since the learned
16 (2011) 5 SCC 532
Rekha Patil/ Priya Soparkar/ bdp /ppn 54/74
Appeal No.126 of 2006.odt
arbitrator inherently lacked the jurisdiction to adjudicate upon such
action in rem it would not amount to a waiver under Section 4 of
the Arbitration Act. A party even by consent cannot confer
jurisdiction on the learned arbitrator in case of action in rem which
jurisdiction the learned arbitrator did not have. This Court also
adverted to the judgment of Supreme Court in case of Chiranjilal
Shrilal Goenka v/s. Jasjit Singh17, and followed the principles laid
down therein. This Court accordingly permitted the petitioner to
raise such issue of jurisdiction for the first time in the petition filed
under Section 34 on such ground. We are in agreement with the
principles laid down by a learned Single Judge of this Court
delivered by one of us (R. D. Dhanuka, J.). In this case also, the
arbitral tribunal lacked inherent jurisdiction to deal with the
claim against the appellant arising out of private transaction not
governed by bye-law 248(a).
73. This Court in case of Smt. Prema Amarlal Gera v/s. The
Memon Co-operative Bank Ltd. and Anr.18, had considered the
arbitration petition filed by a third party (not a party to the
arbitration agreement) but was allowed to intervene on his
17 (1993) 2 SCC 507
18 (2017) 2 Bom CR 800
Rekha Patil/ Priya Soparkar/ bdp /ppn 55/74
Appeal No.126 of 2006.odt
application in the arbitral proceedings by the learned arbitrator.
The learned arbitrator made an award also against the said third
party. This Court in the said judgment delivered by one of us (R. D.
Dhanuka, J.) held that under Section 84(1) of the Multi State Co-
operative Societies Act, 2002 (for short 'the said Act 2002'), the
dispute between the persons who are described in the said
provision only could be referred to arbitration and though the
intervener did not fall under any of those provisions described in
Section 84(1) of the said Act 2002, the learned arbitrator without
application of mind and contrary to Section 84(1) allowed the
intervention application to intervene in the arbitral proceedings.
The intervener could not have been allowed to intervene in the
arbitral proceedings who was a third party by the learned
arbitrator. The learned arbitrator not only allowed intervention of
the third party but also granted various reliefs against him.
74. This Court accordingly held that the learned arbitrator had
no jurisdiction to allow the intervention application of an outsider
who did not fall under any of the categories of persons described in
Section 84(1) of the said Act 2002. The learned arbitrator could
Rekha Patil/ Priya Soparkar/ bdp /ppn 56/74
Appeal No.126 of 2006.odt
not have determined the rights and liabilities of the third party,
including the issue of his alleged title in respect of the flat which
was mortgaged by the principal borrower in favour of the bank.
The learned arbitrator could not have granted any reliefs in favour
of or against such third party under Section 84(1) of the said Act
2002 or under any provisions of the Arbitration and Conciliation
Act, 1996.
75. This Court held that the said arbitration under Section 84(1)
of the said Act was a statutory arbitration and thus neither any
intervention application of a third party not falling under the
categories of persons described in Section 84(1) of the said Act
2002 was at all permissible nor any award could be made
against such third party even by consent of such third party. This
Court accordingly has set aside the arbitral award insofar as the
petitioner therein was concerned. We are in agreement with the
views expressed by the learned Single Judge of this Court. The
said principles laid down by this Court applies to the facts of this
case with greater force.
Rekha Patil/ Priya Soparkar/ bdp /ppn 57/74
Appeal No.126 of 2006.odt
76. In this case, the appellant who was impleaded as a party
respondent had raised an objection that there was misjoinder of
parties and no reliefs could be granted against the appellant by the
arbitral tribunal in those proceedings. In our view, in view of there
being a statutory arbitration even in this case as prescribed under
Bye-laws 248(a) of the Bye-laws framed by the Stock Exchange,
Mumbai and in view of the fact that the appellant did not fall under
any of the persons described under the said clause in the capacity
of a guarantor or as third party, the entire arbitration in so far as
Appellant is concerned was totally without jurisdiction. Even if
the appellant had not raised any objection in so many clear terms
prescribed under Section 16 of the Arbitration Act in such statutory
arbitration prescribing the parties whose disputes can be referred to
arbitration in relation to dealings, transactions and contract made
subject to Bye-laws and Regulations of the Exchange, the arbitral
tribunal having lack of inherent jurisdiction, the appellants are
not precluded from raising such objection even after declaration
of award. In our view, even if the appellant had entered into any
such oral understanding with the respondent no.1 to clear the dues
of the respondent no.2, respondent no.1, such alleged
Rekha Patil/ Priya Soparkar/ bdp /ppn 58/74
Appeal No.126 of 2006.odt
understanding given by the appellant would not fall within the
purview of Bye-law 248(a). No third party even by consent of the
party could be impleaded as a party respondent to the arbitral
proceedings under the said Bye-law 248(a) which was admittedly a
statutory arbitration.
77. In our view, if the arguments of the learned senior counsel
for the respondent no.1 are accepted, any dispute between the
broker and a constituent even arising out of any private
transactions not falling under Bye-law 248(a) for example:- money
lending transaction, property dispute, partnership dispute, claim
for damages etc. occurred which obviously would not take place
on the floor of the Stock Exchange also can be referred to the
arbitration under Bye-laws 248(a). The said Bye-law 248(a) does
not permit adjudication of any other dispute not falling under
bye-law 248(a) and between the parties not described in the said
bye-law. Both these conditions are mandatory.
Rekha Patil/ Priya Soparkar/ bdp /ppn 59/74
Appeal No.126 of 2006.odt
78. The Hon'ble Supreme Court in case of MD, Army Welfare
Housing Society (supra) has held that if the learned arbitrator has
no jurisdiction to pass an interim order under the provisions of
Arbitration Act, 1940 in absence of any specific agreement in
relation thereto, by consent of parties no jurisdiction could be
conferred on the arbitral tribunal for passing interim order. It is
held that the arbitral tribunal is not a Court of law. The arbitrator
is bound by the terms of reference. The jurisdiction of the
arbitrator being confined to four corners of the agreement, he
could not pass such order which was not the subject matter of
reference. In our view, the dispute arising out of the private
transaction i.e. an alleged oral understanding between the
appellant and the respondent no.1 thus could not have been
referred to arbitration under the said Bye-law 248(a). The arbitral
tribunal derives authority from the agreement between the
parties i.e. in this case under bye-law 248(a). The principles laid
down by the Supreme Court in the said judgment in case of MD,
Army Welfare Housing Society (supra) applies to the facts of this
case. We are respectfully bound by the said principles laid down in
the said judgment.
Rekha Patil/ Priya Soparkar/ bdp /ppn 60/74
Appeal No.126 of 2006.odt
79. A learned Single Judge of this Court in case of Atul R. Shah
(supra) has held that if the tribunal is not properly constituted,
even if the objection was not raised before the arbitral tribunal,
that cannot result in the arbitral tribunal exercising jurisdiction if
constitution of the arbitral tribunal was in contravention of Section
10 of the Arbitration Act. Courts cannot confer jurisdiction on
themselves, by consent of the parties and clothe themselves with
jurisdiction though in a given case, no such jurisdiction vest in such
Court. The principles laid down by this Court in the said judgment
applies to the facts of this case.
80. In our view, Mr. Jagtiani, learned senior counsel for the
respondent no.1 however is right in his submission that under the
Bye-laws, Rules and Regulations framed by the Stock Exchange,
Mumbai, the party who wants to make a claim against any party
falling under Bye-law 248(a) was not required to give any notice
invoking arbitration agreement under Section 21 of the Arbitration
Act and is required to file requisite form alongwith statement of
claim before the Stock Exchange, Mumbai.
Rekha Patil/ Priya Soparkar/ bdp /ppn 61/74
Appeal No.126 of 2006.odt
81. In case of Union of India v/s. Popular Builders (supra) relied
upon by Mr. Jagtiani, learned senior counsel for the respondent
no.1, the Hon'ble Supreme Court considered the fact that the
appellant had not only filed a statement of defence but also raised
a counter claim against the respondent. The appellant had also not
raised the objection with regard to the competent jurisdiction of the
arbitral tribunal before the learned arbitrator which amounted the
waiver under Section 4 read with Section 16 of the Arbitration Act.
In our view, the said judgment of the Hon'ble Supreme court would
not assist the case of the respondent no.1. The Hon'ble Supreme
Court in the said judgment was not dealing with any statutory
arbitration prescribed under Bye-law 248(a) that also describing
the parties between whom only differences and dispute, if any,
could be referred to the mechanism of arbitration prescribed under
the said Bye-laws. Similarly, the judgment of Hon'ble Supreme
Court in case of Gas Authority of India Ltd. and Anr. v/s. Keti
Construction (I) Ltd. and Ors.19, relied upon by the learned senior
counsel for the respondent no.1 also would not assist the case of
the respondent no.1 on the same ground.
19 (2007) 5 SCC 38
Rekha Patil/ Priya Soparkar/ bdp /ppn 62/74
Appeal No.126 of 2006.odt
82. A learned Single Judge of this Court in case of M/s. Adityasai
Cot Spin Pvt. Ltd. (supra) held that even if there did not exist any
arbitration agreement according to the petitioner, it was for the
petitioner to raise such issue before the learned arbitrator under
Section 16 of the Arbitration Act and the petitioner not having
raised such such issue before the learned arbitrator though notices
were served upon the petitioner from time to time, this issue
cannot be allowed to be raised for the first time in the petition
under Section 34 of the Arbitration Act. There is no dispute about
this proposition of law. However, since this case is a clear case of
inherent lack of jurisdiction, even if an objection is not raised by a
third party who is impleaded as a party respondent at the
threshold, the same would not confer the jurisdiction upon arbitral
tribunal and would not amount to waiver under Section 4. Even
in the said judgment in case of M/s. Adityasai Cot Spin Pvt. Ltd.
(supra), this Court has not considered the case of any statutory
arbitration and that also having similar clause. The said judgment
would not assist the case of the respondent no.1.
83. The Supreme Court in case of P. R. Shah, Shares and Stock
Rekha Patil/ Priya Soparkar/ bdp /ppn 63/74
Appeal No.126 of 2006.odt
Brokers Pvt. Ltd. (supra) has considered the facts where the
appellant and the first respondent therein were members of the
Bombay Stock Exchange. The first respondent had raised and
referred a dispute against second respondent and the appellant
under the Rules, Bye-laws and Regulations framed by the Bombay
Stock Exchange. It was alleged by the respondent no.1 that the
appellant and the second respondent were sister concern with a
common director who had approached the first respondent to get
the carry forward sauda in respect of certain shares. Those shares
were transferred with the first respondent on behalf of the second
respondent which were outstanding with the appellant. In that
case, all the bills were drawn on the second respondent according
to the first respondent as required by the appellant.
84. The arbitral tribunal had held that the transactions had taken
place as alleged by the first respondent and therefore the appellant
and the second respondent were liable for the amounts claimed.
The arbitral tribunal made an award allowing the claim against the
appellant and the second respondent. The second respondent did
not contest the award. The appellant filed a petition under Section
Rekha Patil/ Priya Soparkar/ bdp /ppn 64/74
Appeal No.126 of 2006.odt
34 of the Arbitration Act which came to be dismissed by a learned
Single Judge of this Court. The dispute between the parties was
that Bye-law 248(a) did not apply to a dispute between two
members. The Hon'ble Supreme Court held that the arbitration in
that case was not an ad-hoc arbitration under the arbitration
agreement executed between the parties but was an institutional
arbitration under the Bye-laws of the Exchange.
85. The Hon'ble Supreme Court gave an illustration that if 'A' had
a claim against 'B' and 'C' and there was an arbitration agreement
between 'A' and 'B' but there was no arbitration agreement between
'A' and 'C', it might not be possible to have a joint arbitration
against 'B' and 'C'. 'A' cannot make a claim against 'C' in an
arbitration against 'B', on the ground that the claim was being
made jointly against 'B' and 'C', as 'C' was not a party to the
arbitration agreement. But if 'A' had a claim against 'B' and 'C' and
if 'A' had an arbitration agreement with 'B' and 'A' also had a
separate arbitration agreement with 'C', there is no reason why 'A'
cannot have a joint arbitration against 'B' and 'C'. In our view, this
judgment of the Hon'ble Supreme Court would not apply to the
facts of this case.
Rekha Patil/ Priya Soparkar/ bdp /ppn 65/74
Appeal No.126 of 2006.odt
86. In this case, admittedly the respondent no.1 did not invoke
the arbitration agreement between respondent no.1 and the
appellant. The cause of action between the respondent nos.1 and 2
was arising out of the transactions allegedly having taken place
between the respondent nos. 1 and 2 on the floor of the stock
exchange, Mumbai, whereas the cause of action between the
appellant and the respondent no.1 was totally different and was a
private transaction. The arbitral tribunal could not have allowed
the respondent no.1 to mix up the two separate causes of action in
the statement of claim filed by the respondent no.1, when one
cause of action out of two was outside the purview of arbitration
clause. The said judgment would not advance the case of the
respondent no.1.
87. Insofar as the judgment of Supreme Court in case of Banwari
Lal Kotiya (supra) relied upon by the learned senior counsel for the
respondent no.1 is concerned, the Hon'ble Supreme Court has dealt
with an arbitral award under the provisions of the Arbitration Act,
1940. The Hon'ble Supreme Court considered Bye-law 248(a) of
the Stock Exchange, Mumbai and held that the assent of the parties
Rekha Patil/ Priya Soparkar/ bdp /ppn 66/74
Appeal No.126 of 2006.odt
to actual reference is already there in the agreement; in addition
there is a statutory reference and thus the reference being
consensual the resultant award would be valid and binding on the
parties to the transactions. There is no dispute about the
proposition of the law laid down by the Supreme Court in the said
judgment that the reference under Bye-law 248(a) was a statutory
reference and thus assent of all the parties to the actual reference
already was in the agreement.
88. In our view, two separate transactions between two
different parties could not have been clubbed together in the same
reference, though all such parties were party to such statutory
arbitration. The respondent no.1 admittedly not having invoked
the arbitration agreement against the appellant under bye-law
248(a), the appellant could not have been impleaded as a party
respondent to the statement of claim filed by the respondent no.1
and that too in respect of a private transaction. The entire award
insofar as the appellant is concerned, was thus without jurisdiction.
89. The Hon'ble Supreme Court in case of Bombay Stock
Exchange v/s. Jaya I. Shah and Anr. (supra) has held that the
Rekha Patil/ Priya Soparkar/ bdp /ppn 67/74
Appeal No.126 of 2006.odt
Rules, Bye-laws and Regulations framed by the Bombay Stock
Exchange had received the approval of the Central Government
and are statutory bye-laws. The Bye-laws framed by the Exchange
also provide the mode and manner in which the arbitration
proceedings can be taken recourse to both by the members and
non-members against the defaulters. The Rules in this behalf
however are distinct and separate. There is no dispute about the
proposition of law laid down by the Hon'ble Supreme Court in the
said judgment.
90. In our view, none of the judgments relied upon by the learned
counsel for the appellant could be distinguished by the learned
senior counsel for the respondents. The judgments relied upon by
Mr.Purohit, learned counsel for the appellant are applicable to the
facts of this case. In our view, though the respondent no.1 had led
oral evidence to prove the case of the respondent no.1 that the
appellant had given an oral understanding to the respondent no.1
that the appellant would pay the dues of the respondent no.2 in
case of default on the part of the respondent no.2, no such case of
the respondent no.1 was proved before the arbitral tribunal. Be
Rekha Patil/ Priya Soparkar/ bdp /ppn 68/74
Appeal No.126 of 2006.odt
that as it may, the respondent no.1 could not have led any oral
evidence contrary to the contents of the documents entered into
between the parties and also contrary to the Bye-laws, Rules and
Regulations framed by the Stock Exchange, Mumbai. By-laws,
Rules and Regulations of the Stock Exchange which are binding not
only on the parties but also on the arbitral tribunal.
91. In so far as the submission of the learned senior counsel for
the respondent no.1 that the appellant himself having filed a
counter-claim before the Arbitral Tribunal thus could not be
allowed to urge that the Arbitral Tribunal did not have jurisdiction
to entertain the claims against the appellant is concerned, in our
view, the appellant could not have filed any such counter-claim in
the proceedings filed by the respondent no.1 against the
respondent no.2 since the impleadment of the appellant itself was
a misjoinder of the party. Since there was a separate arbitration
agreement between the appellant and the respondent no.1, if the
appellant was aggrieved in view of the respondent no.1 not paying
the amount lying to the credit in the account of the appellant or in
view of the adjustment of credit balance, the appellant could have
Rekha Patil/ Priya Soparkar/ bdp /ppn 69/74
Appeal No.126 of 2006.odt
invoked the separate arbitration agreement prescribed under Bye-
laws 248 (a) of Bye-laws framed by the Stock Exchange, Mumbai
and could not have filed a counter-claim. The Arbitral Tribunal has
dismissed the counter-claim filed by the appellant on the ground
that the said counter-claim was filed as counter blast and not
sustainable after being adjusted to the account of the respondent
no.2.
92. There is no merit in the submission of the learned senior
counsel for the respondent no.1 that various findings of the facts
rendered by the Arbitral Tribunal in this case were rightly not
interfered with by the learned Single Judge. In our view, the
learned Single Judge ought to have set aside the award on the
ground of inherent lack of jurisdiction. Be that as it may, the
findings rendered by the Arbitral Tribunal being totally perverse
and contrary to bye-laws, rules and regulations of Stock
Exchange, Mumbai, award was liable to be set aside on that
ground itself.
93. In so far as the reliance placed on the statement of claim, by
the learned senior counsel for the respondent no.1 in support of the
Rekha Patil/ Priya Soparkar/ bdp /ppn 70/74
Appeal No.126 of 2006.odt
submission that the appellant as well as the respondent no.2 were
impleaded as Constituents of the respondent no.1 and thus the
Arbitral Tribunal had jurisdiction to entertain the claims against the
appellant as well as the respondent no.2 is concerned, in our view,
there is no merit in this submission. The respondent no.1 had not
made any claim against the appellant as the constituent arising out
of two separate accounts, but had filed claim against two separate
constituents in the same statement of claim based on two separate
causes of action. One of such causes of action and more particularly
against the respondent no.2 which was arising out of the
transaction traded on the floor of the Stock Exchange, Mumbai by
the respondent no.1 only could be the subject matter of the
arbitration in view of specific arbitration clause recorded under
Bye-law 248(a) of the Bye-laws framed by the Stock Exchange,
Mumbai.
94. The alleged cause of action between the respondent No.1
and the appellant being a private transaction not covered by the
said Bye-law 248(a) could not be adjudicated under the said Bye-
law. Merely because the appellant was also impleaded as a
constituent in the statement of claim along with the respondent
Rekha Patil/ Priya Soparkar/ bdp /ppn 71/74
Appeal No.126 of 2006.odt
no.1, such pleadings would not confer the jurisdiction upon the
arbitral tribunal.
95. There is no merit in the submission of the learned senior
counsel for the respondent no.1 that since the appellant had
participated in the arbitration proceedings, the appellant cannot be
allowed to raise an issue of jurisdiction at this stage contending
that the Arbitral Tribunal had inherent lack of jurisdiction in
entertaining and adjudicating upon the claims made by the
respondent no.1 against the appellant. In our view, there was no
contract of surety pleaded by the respondent no.1 before the
Arbitral Tribunal nor there was any binding contractual agreement
between the appellant and the respondent no.1 in support of the
claims made by the respondent no.1 against the appellant which
could be enforced in a statutory arbitration prescribed under Bye-
law 248(a).
96. Merely because the appellant and the respondent no.2 were
husband and wife, on that ground, the Arbitral Tribunal could not
have allowed the claims against the appellant and to adjust the
credit balance lying in the account of the appellant husband with
Rekha Patil/ Priya Soparkar/ bdp /ppn 72/74
Appeal No.126 of 2006.odt
the debit balance lying in the account of the respondent no.1 wife
without any express authority of the appellant. Be that as it may,
any dispute arising out of such alleged express authority or
otherwise, could not be the subject matter of the said statutory
arbitration prescribed under Bye-law 248(a). The impugned award
clearly shows perversity on this ground also.
97. A perusal of the record clearly indicates that the appellant
was not sued on the basis of transactions on the floor of the
exchange between the appellant and the respondent no.1 but on
the basis of an oral understanding/oral guarantee on behalf of the
appellant given to the respondent no.1 for clearing the dues of the
respondent no.2, if any, payable to the respondent no.1. Appellant
could not be impleaded based on an oral arbitration agreement
in alleged oral understanding between the appellant and the
respondent no.1. Mr. Jagtiani, learned senior counsel for the
respondent no.1 fairly accepted that the arguments advanced by
him in this appeal are contrary to the findings recorded and the
observations made by the learned Single Judge. In our view, since
the entire award was without jurisdiction and shows perversity,
Rekha Patil/ Priya Soparkar/ bdp /ppn 73/74
Appeal No.126 of 2006.odt
learned Single Judge ought to have interfered with the impugned
award rendered by the Arbitral Tribunal.
98. We therefore pass the following order :-
ORDER
(i) The impugned award dated 26th February, 2004
passed by the Arbitral Tribunal is set aside qua
the appellant. Counter claim filed by the
Appellant is without jurisdiction.
(ii) The impugned order dated 23rd August 2005
passed by the learned Single Judge is set aside.
(iii) The Arbitration Petition No.309 of 2004 and the
Appeal No. 126 of 2006 filed by the appellant
are allowed in aforesaid terms.
(iv) There shall be no order as to costs.
(V.G. BISHT, J.) (R.D. DHANUKA, J.)
Rekha Patil/ Priya Soparkar/ bdp /ppn 74/74
