P.R. SHAH SHARES & STOCK BROKERS (P)LTD. Vs M/S. B.H.H. SECURITIES (P) LTD. .
Bench: R.V. RAVEENDRAN,A.K. PATNAIK
Case number: C.A. No.-009238-009238 / 2003
Diary number: 913 / 2003
Advocates: VIKAS MEHTA Vs
M. J. PAUL
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.9238 OF 2003
P.R. Shah, Shares & Stock Broker (P) Ltd. … Appellant
Vs.
M/s. B.H.H. Securities (P) Ltd. & Ors. … Respondents
J U D G M E N T
R.V. RAVEENDRAN, J.
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
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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
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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
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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
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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
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appellant 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
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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
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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
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proper forum seeking relief against the appellant.
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
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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
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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)
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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
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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
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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
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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
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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
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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
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an 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
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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
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appeal is accordingly dismissed.
....................J. (R.V. Raveendran)
New Delhi; ....................J. October 14, 2011. (A.K. Patnaik)