This petition is filed by the petitioners viz. M/s. P.R. Shah Shares and Stock Brokers Pvt. Ltd. against the award dated 12th October, 1999 passed by the Arbitrators of the Mumbai Stock Exchange under the Rules, Bye-laws and Regulations of the Stock Exchange, Mumbai. At the outset it may be noted that the Bench comprises the following Arbitrators: (1) Hemant V. Shah, (2) Sharad Dalal and (3) Justice D. B. Deshpande. Two Arbitrators i.e. Hemant V. Shah and Sharad Dalal have held the Respondents viz. BHH Securities Pvt. Ltd. as entitled to recover a sum of Rs. 36,98,384.73 from M/s Continental Securities Pvt. Ltd. the Respondent No. 2 herein and M/s P.R. Shah Share and Stock Broker Pvt. Ltd. i.e. the petitioners. By a separate order the third Arbitrator Justice D.B. Deshpande allowed the claim of BHH Securities Pvt. Ltd. against M/s Continental Securities Pvt. Ltd. i.e. the Respondent No. 2 herein. The learned Arbitrator has rejected the claim against M/s P.R. Shah Share and Stock Broker Pvt. Ltd. i.e. the petitioners herein. The third Arbitrator has rejected the claim against the petitioners only on the ground that the Arbitrators has no jurisdiction to hear and decide the claim against the petitioner since the petitioner is a member of the Stock Exchange. It may be noted that the third Arbitrator has not accepted the petitioners defence on merits.
2.The Respondent No.1 BHH Securities Pvt. Ltd., hereinafter referred to as "BHH", made a claim against the petitioner M/s P.R. Shah Share and Stock Broker Pvt. Ltd., hereinafter referred to as "P.R. Shah Limited" and the Respondent No.2 M/s Continental Securities Pvt. Ltd., hereinafter referred to as "Continental Limited." According to BHH, they were approached by Miss K.C. Sheth, a Director of the P.R. Shah Limited and also a Director of Continental Limited. She requested BHH to get a carry forward sauda in respect of 15,000 shares of BPL and 15,000 shares of Sterlite Industries Ltd. transferred to BHH on behalf of Continental Ltd
Please Login To View The Full Judgment!
through a Negotiated deal. There is no dispute about the fact that the two Directors of P.R. Shah Ltd. i.e. Miss. K.C. Sheth and her husband Mr. Chetan Sheth were the Directors of Continental Limited. As I understand the transaction, after hearing the learned Counsel on both sides, P.R. Shah Limited had contracted to purchase on behalf of Continental Limited the aforesaid shares. That purchase could not be completed because P.R. Shah Limited could not or did not obtain delivery of the shares and therefore the transaction was carried forward. According to BHH, P.R. Shah Limited through its Director who is common to Continental approached BHH for a transfer of the transaction i.e. the transfer of its right to receive the shares to BHH with an intention that BHH should take delivery of the shares and transfer the same in the name of Continental Limited.3.It is clear that there is no written contract between BHH and P.R. Shah Limited. BHH issued a contract note in the name of Continental Limited and the contract note stated that they had bought for the latter 15,000 shares of Sterlite Industries Limited. The invoice is also raised in the name of Continental Limited. On both, the Contract Note as well as the Invoice the address of Continental Limited is given as C/o. P.R. Shah Shares and Stock Brokers Pvt. Ltd. BHH claimed that it had a contract with P.R. Shah Limited and that P.R. Shah Limited had paid an amount of Rs.13 lakhs to it for purchase of the shares by BHH for constituents of P.R. Shah Limited i.e. Continental Limited. BHH also claimed that it had received from P.R. Shah Limited a sum of Rs. 4 lakhs in cash. 4.The claim was resisted by P.R. Shah Limited on the ground that there was no contract whatsoever between it and the Claimant BHH. That though it has paid an amount of Rs. 13 lakhs to BHH upon raising the invoice it has done so by way of a loan which BHH had requested for. 5.By the Award the two Arbitrators i.e. Hemant Shah and Sharad Dalal came to the conclusion that though the contract was entered into in the name of Continental Limited, however, part payment of Rs. 13 lakhs was made by P.R. Shah Limited to BHH. The payment was initially made by P.R. Shah Limited by way of credit slip of Stock Exchange. However, as the said credit slip was rejected, the amount was paid by a cheque dated 11th June, 1998 by P.R. Shah Limited. The Arbitrators took note of the defence of P.R. Shah Limited that the transaction was not entered into and they have not received any bill or contract and that the amount of Rs. 13 lakhs was paid by P.R. Shah limited as a loan to BHH. In order to resolve the controversy the Arbitrators asked the petitioner P.R. Shah Limited to produce its sauda sheet for the said date which they did not on the ground that their computers were not in a working condition. 6.On facts, the Arbitrators found that though the BHH did not have any account of P.R. Shah Limited in their books and neither was their parties name represented by a client's code number on the sauda sheet, however, there is a practice of entering the short name of the client which has been done. The Arbitrators relying on a well-known practice observed that brokers entered into transaction with the other brokers in their own name or in their firms' name or in the name of the different entity which is also owned by the member broker. As a fact the Arbitrators, therefore, found that P.R. Shah Limited had entered into transaction with BHH in the name of its constituent Respondent No.1 i.e. Continental Limited. In fact the Arbitrators have observed as follows:"However, for just name sake they have given the name of Respondent No. 2 (P.R. Shah Limited)." Also it has been observed that - "against the liability of Respondent No. 1 (Continental Limited) payments are made by Respondent No.2 (P.R. Shah Limited) by making this payment they have also entered into the transaction. If transaction has not taken place then it would have been the liability of Respondent No.2 (P.R. Shah Limited) with the Stock Exchange. So by transferring the transaction, the Respondent No.2 (P.R. Shah Limited) have transferred their liability with the Applicant (BHH). Therefore, the Respondent No.2 (P.R. Shah Limited) is also liable in this case." 7.As regards the question of jurisdiction the two Arbitrators came to the conclusion that the transaction is in fact between two members i.e. P.R. Shah Limited and BHH and therefore they are liable to be tried by them in exercise of their jurisdiction which was being principally exercised under Bye-law No. 248. The two Arbitrators, therefore, directed that the BHH would be entitled to recover a sum of Rs. 36,98,384.73 along with interest at 18% p.a. from Continental Limited. If the said party fails to pay the said amount, then the entire amount of the shortfall would be made good by P.R. Shah Limited. 8.The third Arbitrator i.e. Justice D.B. Deshpande took the view that there is no merit in the defence of P.R. Shah Limited that it did not enter into any transaction with BHH. The learned Arbitrator in fact observed that two of the Directors of both the Companies are common and that the transaction of P.R. Shah Limited in the name of Continental Limited was transferred to the BHH through BOLT. The learned Arbitrator observed that even otherwise it is clear that the fact that initially P.R. Shah Limited paid an amount of Rs. 13 lakhs and after the credit kapli under which it was paid was rejected it gave a cheque of Rs. 13 lakhs clearly supported the contention of BHH. The learned Arbitrator, however, came to the conclusion that since P.R. Shah Limited was a member broker the panel of Arbitrators have no jurisdiction to hear and decide the case against the said party. The learned Arbitrator, therefore, directed the BHH may approach the proper forum for recovery of the amount due to it. 9.Thus it is clear that as a matter of fact all the three Arbitrators have found that P.R. Shah Limited was a party to the transaction though the contract was not entered into in its name. The difference in opinion and the order is only on account of the fact that P.R. Shah limited is a member broker and therefore the forum for arbitration is different. 10.At this juncture, it would be necessary to set out the two fora contemplated by the Rules, Bye-laws and Regulations of the Stock Exchange, Mumbai. The first category of arbitration is "Arbitration other than between members". Bye-law 248(a) which is relevant, reads as follows:-"All claims (whether admitted or not) difference and disputes between a member and a non-members (the terms 'non-member' and 'non-members' shall include a remisler, authorised clerk, a sub-broker who is registered with SEBT as affiliated with that member of 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, fulfilment or validity or in relation to the rights, obligations and liabilities of remislers, authorised clerks, sub-brokers, constituents, employees or any other person 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." Bye-law 249 provides that such an arbitration shall be referred to the arbitration of a sole arbitrator or of three arbitrators to be appointed by the Executive Director or by the parties from the Panel of Arbitrators constituted by the Governing Board. The second category of arbitration is arbitration between members. Bye-law 282 provides as follows:"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 common in the Exchange's computerised trading system or in execution of any trades on or by such trading system) or anything or 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."Bye-law 285 provides that when such a reference is made to the Arbitration Committee, it shall be heard by a sole arbitrator or by three of its members to be specified either generally. Rule 285 further provides that such arbitration shall be heard by the members of the Stock Exchange. Bye-law 290B provides for an appeal to the Arbitration Committee and Rule 295 provides for second appeal therefrom to the Governing Body. 11.Mr. Samdani, learned Counsel for the petitioners contended that the Claim against the petitioners-P.R. Shah Limited could never have been decided under the Panel of Arbitrators which was constituted under Bye-law No. 248. According to the learned counsel that Bye-law provides only for an arbitration between a member and non-member and the petitioner being a member was clearly outside the purview of the panel of arbitrators. Mr. Samdani, relied on the contract notes at Exhibit A-1 which is clearly issued in the name of Continental Limited and makes no reference to P.R. Shah Limited except that the address of Continental Limited is given as being C/o P.R. Shah Shares and Stock Brokers Pvt. Ltd. The learned Counsel also referred to the invoice which is raised by BHH in favour of Continental Limited and not in favour of P.R. Shah Limited.12.At the outset, Mr. Madon, learned counsel for the Respondent No.1 raised a preliminary objection to the above contention raised on behalf of the petitioners on the ground that this contention though raised before the Arbitrator, is no where pleaded in the petition and therefore the petitioner is not entitled to raise it. Grounds (a) and (b) of the petition which are relevant, read as follows:(a) There is no privity of contract between the petitioners and the Respondent No. 1 and in the absence of any contract, the Ld. Arbitrator ought not to have proceeded against the petitioners. (b) The subject contract note dated 4-6-1998 based on which the present reference has been filed is in the name of Respondent No. 2 and therefore the reference ex-facie is not maintainable against the petitioners. The above grounds do not specifically refer to the Bye-law No. 248 and there are no specific words to the effect that the arbitration panel constituted under Bye-law No. 248 has therefore, no jurisdiction to entertain the reference against the petitioners. It is, however, clear on reading the petition as a whole that the preliminary objection does not have much substance. In the petition, there are clear averments in paragraph 6 to the effect that "the Arbitral Tribunal has no jurisdiction to enter upon the reference and deal with the purported claim of the Respondent No. 1 i.e. BHH against this petitioners for want of written contract and more specifically for want of arbitration agreement between the petitioner and Respondent No. 1." The petitioners have totally denied "any transaction purportedly having been carried out/done/undergone by the Respondent No. 1 for and on behalf of the petitioners or under instructions of the petitioners, written or otherwise, under the purported contracts and bills annexed to the Statement of Claim, as falsely contended and alleged. It is thus submitted that the Arbitral Tribunal had no jurisdiction to proceed with the reference against these petitioners. The petitioners crave leave to refer to and rely upon the written statement and written arguments filed by the petitioner in the Arbitration proceedings." 13.Having regard to the aforesaid averments and averments in paragraph 4 of the petition, I am of the view that taking the petition as a whole the petitioner must be taken to have raised the point which is being urged on their behalf. Mr. Madon learned counsel for the Respondent No. 1 referred to a decision of the Division Bench of this Court to Vastu Invest and Holdings Pvt. Ltd. vs. Gujarat Lease Financing Ltd., 2001 (2) Mh.LJ 565, for the proposition that a ground not being specifically pleaded cannot be allowed to be urged. In the view I have taken of the pleadings, it is not necessary to consider the application of that decision to the facts of the present case. 14.The question, therefore, is whether the dispute between a member and a member can be decided by an arbitration panel under Bye-law 248(a) reproduced hereinabove. On a plain construction of the said Bye-law it is clear that the bye-law is intended to provide for arbitration of all claims, differences and disputes between a member and member and a non-member which may arise out of or in relation to dealing. transaction and contract made subject to the rules, bye-laws and regulations of the Stock Exchange. The answer to the question that arises in this case depends on the meaning that may be attributed to the following words "or with reference to anything incidental thereto." If these words are construed as qualifying only the preceding words "in relation to dealing, transaction and contract" then there is no doubt that a reference between a member and a member and a non-member cannot be decided under Bye-law 248(a). If, however, one looks to the setting of the rule, its context and the text, it appears that the words "or with reference to anything incident thereto" are intended to qualify all that which precedes them. That is to say they are intended to enable the resolution of a dispute between a member and a non-member and a member, where the dispute between the member and other member is incidental to the dispute between the member and the non-member. There is no other Byelaw whereunder a dispute between a member and a non-member in which another member is also involved or concerned can be agitated upon or can be referred to arbitration. 15.According to Mr. Samdani, the learned Counsel for the petitioner, the claim against the petitioner who is a member could only have been decided under Bye-law 282. This argument cannot be accepted in view of the fact that the petitioner P.R. Shah limited was not the only party to the claim but merely one of the parties the other being a non-member i.e. Continental Limited. 16.If the scheme of the Bye-laws is to be construed in such a manner that dispute between member and non-member can only be referred for arbitration under Bye-law 248 and dispute between member and member can only be referred for arbitration under Bye-law 282. It would mean that if a member has a dispute with a non-member and a member, the member would necessarily have to split the claim and that part of the claim which would be against a non-member would be referred for arbitration under Bye-law 248 and that part which is against the member would be referred for arbitration under Bye-law 282. Where, however, a member has some claim and seek a satisfaction of the claim jointly or severally against a member and a non-member the same would not be referable to arbitration either under Bye-law 248 or Bye-law 282. 17.Mr. Samdani, learned Counsel next submitted that if it is held that a claim against the member such as a Petitioner can be referred to arbitration under Bye-law 248 and decided in accordance therewith and not under Bye-law 282, it deprives the member of a right of an appeal. That is clearly an inescapable consequence of holding that a member may be proceeded against under Bye-law 248(a). It must, however, be remembered that it is the right of the Claimant to avail of one out of two or several remedies that may be available to him. Where the Claimant elects to avail of a remedy under Bye-law 248 against the member and fails, he would be equally deprived of the two appeals which would be available had the reference been made under bye-law 282. The difficulty that is posed namely the deprivation of an appeal in my mind would not be determinative factor in such a case. What would determine the construction of the Bye-law in question would be whether the construction achieves the purpose for which it was designed. 18.If, in a dispute between a member and non-member an incidental or connected claim against another member cannot be referred for arbitration under Bye-law 248 and the Claimant is compelled to resort to two proceedings before different fora than the possibility of multiplicity of finding of variance in each other by different two 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 conclusion 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. 19.In the result, there is no merit in the petition which is hereby dismissed. There shall be no order as to costs. 20.At this stage Mr. Samdani, learned Counsel for the petitioner seeks stay of this Order. The effect and operation of this order shall be stayed for a period of six weeks from today. Authorities concerned to act on an ordinary copy of this order duly authenticated by the Associate of this Court on payment of usual copying charges. P.A. to give ordinary copy of this order to the parties concerned.
"2002 (4) MAH.L.J 195" == "2002 (6) BCR 776" == "2002 (4) ALL MR 789"