P.R. Shah, Shares
& Stock Broker (P) Ltd. Vs. M/s. B.H.H. Securities (P) Ltd. & Ors.
J U D G M E N T
R.V. RAVEENDRAN, J.
1.
The
appellant and the first respondent are members of the Mumbai Stock Exchange, the
third respondent herein (`Exchange' for short). The constitution, management and
dealings of the Exchange are governed by the Rules, Bye-laws and Regulations of
the Exchange. The Rules relate to the constitution and management of the Exchange.
The Bye-laws regulate and control the dealings, transactions, bargains and contracts
of its members with other members and non-members. The Regulations contain the
detailed procedure regarding the various aspects covered by the Bye-laws. Though
the Rules, Bye-laws and Regulations of the Exchange were not made under any statutory
provision, they have a statutory flavour. Bye-laws 248 to 281D provide for and
govern the arbitration between members and non-members and Bye-laws 282 to 315L
provide for and govern the arbitration between members of the Exchange.
2.
The
first respondent raised and referred a dispute against the second respondent
and the appellant under the Rules, Bye-Laws and Regulations of the Mumbai Stock
Exchange on 29.8.1998 (Arbitration Reference No.242/1998) seeking an award for a
sum of ` 36,98,384.73 with interest at 24% per annum on ` 35,42,197.50.
In the said Arbitration
Reference, the first respondent alleged that appellant and second respondent
are sister concerns with Ms. Kanan C. Sheth as a common Director; that Ms. Kanan
C. Sheth approached the first respondent to get the carry forward sauda in respect
of 50,000 shares of BPL and 15,000 shares of Sterlite Industries Ltd. transferred
with the first respondent on behalf of the second respondent which was outstanding
with the appellant; that in pursuance of it, on 4.6.1998, the first respondent got
the sauda of 15,000 shares of BPL and 15,000 shares of Sterlite transferred to its
account through a negotiated deal which is commonly known as `all or none'; that
in respect of the said transactions, the first respondent prepared, issued and delivered
the contract and bill in favour of second respondent [Contract No. F.11/4/002
dated 4.6.1998 and
Bill No.A/11/0236 dated
11.6.1998 for ` 1,07,30,400/- and Bill No.A.11/0236 dated 11.6.1998 for `15,50,670/-];
that as the said amount remained due, the first respondent approached the appellant
and second respondent for clearing the said dues; that after several demands, the
appellant issued a credit kapli (Credit Slip No.49147 dated 11.6.1998) for payment
of `13 lakhs to first respondent along with a copy of the balance-sheet (Form No.31)
for settlement (A11/98-99 for ` 13 lakhs);
that the said kapli was
rejected by the Exchange; that the first respondent, therefore, immediately approached
the appellant and second respondent and demanded a cheque for the said amount of
` 15,50,670/-; that in that behalf, the appellant issued cheque (No.992090
dated 11.6.1998) for ` 13 lakhs leaving a balance of `250,670/-; that thereafter
prices of the said scripts were falling down and the first respondent requested
the appellant and second respondent to get the said souda re-transferred to
their account; that they failed to do so, but kept on assuring that there was nothing
to worry; that ultimately, at the request of the appellant and second respondent,
the souda of 15000 shares of Sterlite was squared by selling the said shares and
in respect of the squaring up of the said souda, a bill dated 19.6.1998 for ` 23,89,610.50
was raised by the first respondent for the amount due by appellant and second respondent;
that when the first respondent
demanded from appellant and second respondent the amounts due; they paid to the
first respondent a sum of ` 4.5 lakhs in cash on 18/19.6.1998; that as the souda
for the 15,000 shares of BPL still remained outstanding despite requests of the
first respondent to square up the same, the first respondent carried forward the
said 15,000 shares of BPL to Settlement No.13 and raised a bill dated 26.6.1998
showing ` 8,09,850/- as due to the first respondent; and that the said carry forward
purchase of 15,000 shares of BPL was again brought forward to Settlement No.14 on
22.6.1998 and at the request of appellant and second respondent, the said outstanding
purchase was sold on 24.6.1998 and 25.6.1998 and in that behalf, a sum of ` 5,42,065/-
became due vide bill dated 1.7.1998. According to first respondent, all the bills
were drawn on second respondent, as required by the appellant, as the contract dated
4.6.1998 was in the name of second respondent; that Ms. Kanan C. Sheth Director
of appellant and first respondent accepted the said bills assuring payment and both
were jointly and severally liable to pay the amounts due.
3.
The
first respondent also alleged in the arbitration reference claim that in view of
the non-payment of the amounts due, it wrote a letter dated 2.7.1998 to the
Executive Director of the Exchange to prevail upon and direct the appellant and
second respondent to pay the amount due, but in spite of the Exchange forwarding
a copy of the said letter to 6appellant and second respondent, the amount remained
due; that therefore, the Executive Director of the Exchange through its Investors
Service Cell permitted the first respondent to file an arbitration claim against
appellant and second respondent. As a sum of ` 35,42,197.50 remained due in
spite of demands by adding interest, the total sum due as on 29.8.1998 was ` 36,98,384.73.
4.
Both
the second respondent and the appellant filed their objections dated 3.3.1999 urging
several common grounds with identical wording which, according to the first
respondent, showed that the appellant and the second respondent were colluding with
each other, apart from the fact that they had two common Directors. In its
statement of objections, the appellant contended that the Arbitral Tribunal of the
Exchange had no jurisdiction to enter upon the reference for want of a contract
and want of arbitration agreement between the first respondent and the
appellant.
The appellant also denied
that the transaction between the first respondent and second respondent was
carried out by the first respondent, for and on behalf of the appellant and under
instructions from the Director of the appellant. The appellant contended that the
first respondent had made a claim based on fabricated documents. It was also contended
that the arbitration reference was bad in law on account of misjoinder of parties
and misjoinder of causes of action.
It was submitted that
the appellant was a member of the Exchange and the second respondent was not a
member of the Exchange and the Exchange had a different set of Arbitration Rules
governing arbitration in regard to disputes between members and arbitration in regard
to disputes between member and a non-member. The appellant also contended that
the sum of ` 13 lakhs paid by it to the first respondent by cheque dated
11.6.1998, was not an amount paid in connection with the aforesaid transaction,
but was a loan advanced by the appellant to the first respondent.
5.
The
disputes were heard by a three-member Arbitral Tribunal consisting of Justice D.B.
Deshpande, Mr. Hemant V.Shah and Mr. Sharad Dalal as members. The arbitral
tribunal called upon the appellant to produce its souda sheets of the dates on
which the transactions took place as alleged by the first respondent but the appellant
stated that they could not produce those sheets as their computers were not in a
working condition. When the Arbitral Tribunal enquired whether there were any documents
to show that ` 13 lakhs was advanced as a loan to first respondent (as
contended by the appellant), the appellant informed the Arbitral Tribunal that
there were no documents to show that it was a loan.
6.
The
Arbitral Tribunal made an award dated 12.10.1999. The majority (Mr. Hemant V.Shah
and Mr. Sharad Dalal) held that the transaction had taken place as alleged by the
first respondent and therefore the appellant and second respondent were liable for
the amounts claimed. The third arbitrator, in his minority view, while agreeing
with the other two arbitrators that the claim against second respondent as claimed
deserved to be allowed, held that the claim against the appellant ought to be
rejected as the Arbitral Tribunal appointed by the Exchange had no jurisdiction
to hear and decide the first respondent's claim against the appellant and the
first respondent should approach the proper forum seeking relief against the appellant.
7.
Therefore,
the Arbitral Tribunal made an award as per the decision of the majority holding
that the first respondent was entitled to recover ` 36,98,384.73 from second
respondent along with interest at 18% per annum, as demanded, from 4.6.1998 till
realization with a further direction that if the second respondent failed to pay
the said amount along with interest, then the entire amount or the shortfall
amount, if any, shall be made good by the appellant. In effect, there was an unanimous
award for the sum of ` 36,98,354.73 with interest at 18% from 4.6.1998 to the date
of payment against the second respondent; and in regard to the appellant, the majority
held the appellant was liable to pay if second respondent did not pay the amount,
whereas the third arbitrator held that the Arbitral Tribunal could not
arbitrate the dispute with reference to appellant.
8.
The
second respondent did not contest the award nor pay the amount. The appellant
filed an application under section 34 of the Arbitration and Conciliation Act,
1996 (`Act' for short) challenging the award dated 17.10.1999. A learned Single
Judge of the Bombay High Court after exhaustive consideration, dismissed the said
application. Dealing with the contention that in an arbitration under Bye Law No.248
in regard to a dispute between a member (first respondent) and a non-member (second
respondent), there cannot be an award against a member (appellant), on the ground
that Bye Law 248 did not apply to a dispute between two members, the learned
Single Judge held as under :
"If, in a
dispute between a member and non-member an incidental or connected claim against
another claim cannot be referred for arbitration under Bye-law 248 and the Claimant
is compelled to resort to two proceedings before different fora, then the possibility
of multiplicity of findings at variance with each other by different fora
cannot be ruled out. In my view it would be most undesirable to adopt a construction
which would bring about the possibility of two fora reaching different conclusions
where the cause of action is based on same set of facts.
As noted above, the
two fora are differently constituted and such a possibility cannot be ruled out.
In the circumstances, I am of the view that a claim against the member can be
entertained under Bye-law 248 where the said claim is incidental to or connected
to a claim against a non-member. I am of the view that the claim made by the BHH
in the present case is such a claim." The intra-court appeal filed by the appellant
was dismissed by a Division Bench of the Bombay High Court by the impugned judgment
dated 16.9.2002. The said decision is under challenge in this appeal by special
leave.
9.
The
following three contentions were urged by the appellant :(i) Under Bye Law 248,
there can be arbitration only in regard to a dispute between a member and a non-member.
A dispute between two members will have to be decided under Bye Law 282. The constitution
of the Arbitral Tribunal, the procedure followed and remedies available were completely
different in regard to a claim of a member against a non-member and claim of a member
against another member. Therefore, there could not be a single arbitration in
regard to a claim of a member against a non-member and another member.(ii) The Arbitral
Tribunal ought to have held that there was no contract between first respondent
and that the appellant and the claim of the first respondent against the appellant
was based on fabricated documents.(iii) The Arbitral Tribunal had passed the award
by making use of their personal knowledge in regard to the transactions and not
on the material on record before them and therefore the award was vitiated.
Re : Contention (i)
10.
At
the outset, it should be noticed that the arbitration in this case is not an ad
hoc arbitration under an arbitration agreement executed between the parties,
but was an institutional arbitration under the Bye Laws of the Exchange. All claims,
differences, complaints and disputes between two members in relation to any bargain,
dealing, transaction or contract is arbitrable by virtue of the parties being members
of the Exchange and there is no need for a separate arbitration agreement. In fact,
the question whether there was any such bargain, dealing, transaction or contract
between members is itself a question that was arbitrable, if there was a dispute.
We may in this behalf refer to the relevant
Bye-Laws. Bye-law 248
provides for reference to arbitration of any dispute between a member and non-member.
Clause (a) thereof relevant for our purpose is extracted below : "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,
authorized 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 or remisiers, authorized
clerks, sub-brokers, constituents, 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." Arbitration between members of the Exchange
is provided for in Bye Law 282 which is extracted below : "All claims, complaints,
differences and disputes between members arising out of or in relation to any bargains,
dealings, transactions or contracts made subject to the Rules, Bye-laws and
Regulations of the Exchange or with reference to anything incidental thereto
(including claims, complaints, differences and disputes relating to errors or alleged
errors in inputting any data or command in the Exchange's computerized trading system
or in execution of any trades on or by such trading system) or anything to be done
in pursuance thereof and any question or dispute whether such bargains, dealings,
transactions or contracts have been entered into or not shall be subject to
arbitration and referred to the Arbitration Committee as provided in these Bye-laws
and Regulations."
11.
The
appellant contends that as the provisions for arbitration are different in regard
to a dispute between a member and a non-member and in regard to a dispute
between two members, there cannot be a common arbitration in regard to a claim
or dispute by a member against another member and a non-member. It is pointed out
that in regard to the arbitration in the case of a non-member, the reference is
to three arbitrators, each party appointing one arbitrator and the Executive Director
of the Exchange appointing the third arbitrator, one of the three arbitrators
being a non-member (vide Bye Law 249).
On the other hand, in
the case of a dispute between a member with another member, the matter is
referred to the Arbitration Committee of the Exchange and the said Committee will
appoint a three member Tribunal, known as the lower Bench (vide Bye Law 285);
and in regard to such arbitration between a member and another member, an appeal
is available from the lower bench of Arbitration Committee to the Arbitration Committee
constituted by the governing Board.
In the case of a
dispute between a member and a non-member, no such institutional appeal is
available. The appellant contends that the valuable right of appeal was denied by
holding a joint arbitration against appellant and second respondent.
12.
Reliance
is placed on the decision of this Court in Sukanya Holdings (P) Ltd. vs. Jayesh
H. Pandya & Anr. [2003 (5) SCC 531] wherein this Court held that where a
suit is commenced in respect of a matter which falls partly within the arbitration
agreement and partly outside and which involves the parties, some of whom are
parties to the agreement while some are not, Section 8 of the Act was not
attracted and the subject-matter of the suit could not be referred to arbitration,
either wholly or by splitting up the causes of action and the parties.
The decision in Sukanya
Holdings will not apply as we are not concerned with a suit or a situation
where there is no provision for arbitration in regard to some of the parties.
13.
In
this case, the first respondent had a claim for ` 36,98,354.73 jointly against second
respondent and the appellant. According to the first respondent, it entered
into the transaction with second respondent on the instructions of the appellant
and on the understanding that the appellant will also be liable and in fact,
the appellant accepting its liability, had also paid ` 13 lakhs as part-payment.
It is not disputed that appellant and second respondent were closely held family
companies managed by the same person (Ms. Kanan C. Sheth). According to
appellant the share holdings in appellant was Kanan C. Seth : 105,000 shares, Chetan
M. Sheth : 45000 shares and Jasumati P.Shah: 150,000 shares and the
shareholdings in second respondent company was Kanan C.Sheth: 100 shares and Chetan
M. Sheth: 100 shares.
14.
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 & C. Obviously, having an arbitration between A and B and another
arbitration between A and C in regard to the same claim would lead to
conflicting decisions. In such a case, to deny the benefit of a single
arbitration against B and C on the ground that the arbitration agreements
against B and C are different, would lead to multiplicity of proceedings,
conflicting decisions and cause injustice.
It would be proper
and just to say that when A has a claim jointly against B and C, and when there
are provisions for arbitration in respect of both B and C, there can be a
single arbitration. In this case though the arbitration in respect of a non-member
is under Bye-law 248 and arbitration in respect of the member is under Bye Law 282,
as the Exchange has permitted a single arbitration against both, there could be
no impediment for a single arbitration
It is this principle
that has been applied by the learned Single Judge, and affirmed by the division
bench. As first respondent had a single claim against second respondent and appellant
and as there was provision for arbitration in regard to both of them, and as the
Exchange had permitted a common arbitration, it is not possible to accept the
contention of the appellant that there could not be a common arbitration against
appellant and second respondent.
Re : Contention (ii)
15.
A
court does not sit in appeal over the award of 18an arbitral tribunal by
re-assessing or re-appreciating the evidence. An award can be challenged only
under the grounds mentioned in section 34(2) of the Act. The arbitral tribunal
has examined the facts and held that both second respondent and the appellant are
liable. The case as put forward by the first respondent has been accepted.
Even the minority view
was that the second respondent was liable as claimed by the first respondent, but
the appellant was not liable only on the ground that the arbitrators appointed
by the Stock Exchange under Bye Law 248, in a claim against a non-member, had
no jurisdiction to decide a claim against another member. The finding of the
majority is that the appellant did the transaction in the name of second respondent
and is therefore, liable along with the second respondent. Therefore, in the absence
of any ground under section 34(2) of the Act, it is not possible to re-examine
the facts to find out whether a different decision can be arrived at.
Re : Contention (iii)
16.
The
appellant contends that the arbitration had used personal knowledge to decide
the matter. Attention was drawn to the following observation in the award by the
majority : "Also, it is known fact which is known to the arbitrators that
as per the market practice such kind of transactions of one Broker takes place
with another Broker either in their own name or in their firm's name or in the
name of different entity which is also owned by the member." Same way
these transactions are done by respondent no.2 (appellant herein) in the name of
respondent no.1 (second respondent herein)."
An arbitral tribunal
cannot of course make use of their personal knowledge of the facts of the
dispute, which is not a part of the record, to decide the dispute. But an
arbitral tribunal can certainly use their expert or technical knowledge or the
general knowledge about the particular trade, in deciding a matter. In fact,
that is why in many arbitrations, persons with technical knowledge, are appointed
as they will be well-versed with the practices and customs in the respective fields.
All that the arbitrators have referred is the market practice. That cannot be considered
as using some personal knowledge of facts of a transaction, to decide a
dispute.Conclusion
17.
In
view of the above, we find no reason to interfere with the judgment of the High
Court and the appeal is accordingly dismissed.
....................J.
(R.V. Raveendran)
....................J.
(A.K. Patnaik)
New
Delhi;
October
14, 2011
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