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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)