2002 (6) TMI 453 - HC - Companies Law

Arbitration award challenge dismissed, P.R. Shah Ltd. found liable under Bye-law 248(a).

The petition challenging the arbitration award was dismissed, affirming the arbitrators' decision that P.R. Shah Ltd. was liable. The court upheld that ... Arbitration - Dispute between a member and a non-member Issues Involved1. Validity of the arbitration award.2. Existence of a contract between the parties.3. Jurisdiction of the arbitrators.4. Interpretation of relevant Bye-laws of the Stock Exchange, Mumbai.Detailed AnalysisValidity of the Arbitration AwardThe petitioners challenged the award dated 12-10-1999 passed by the arbitrators of the Mumbai Stock Exchange. The arbitrators Hemant V. Shah and Sharad Dalal ruled in favor of the respondents, BHH Securities (P.) Ltd., entitling them to recover Rs. 36,98,384.73 from Continental Securities (P.) Ltd. and P.R. Shah Share & Stock Broker (P.) Ltd. The third arbitrator, Justice D.B. Deshpande, allowed the claim against Continental Securities but rejected it against P.R. Shah Ltd. on jurisdictional grounds, although he did not accept the petitioner's defense on merits.Existence of a Contract Between the PartiesBHH claimed that P.R. Shah Ltd. had approached them to transfer a carry forward sauda involving shares of BPL and Sterlite Industries Ltd. to BHH on behalf of Continental Ltd. Despite no written contract between BHH and P.R. Shah Ltd., BHH issued a contract note and invoice in the name of Continental Ltd., with the address of P.R. Shah Ltd. BHH asserted that P.R. Shah Ltd. paid Rs. 13 lakhs and an additional Rs. 4 lakhs in cash for the shares. P.R. Shah Ltd. contended that the payment was a loan, not a transaction.The arbitrators concluded that P.R. Shah Ltd. had indeed entered into the transaction, noting that payments were made by P.R. Shah Ltd., and the transaction was entered into under the name of Continental Ltd. The arbitrators observed that brokers often enter transactions in the name of different entities they own.Jurisdiction of the ArbitratorsThe primary issue was whether the arbitrators had jurisdiction to hear the claim against P.R. Shah Ltd., a member of the Stock Exchange. The two arbitrators held that the transaction was between two members (P.R. Shah Ltd. and BHH), thus within their jurisdiction under Bye-law 248. However, Justice D.B. Deshpande opined that the panel had no jurisdiction over P.R. Shah Ltd., suggesting that BHH should approach the proper forum.Interpretation of Relevant Bye-laws of the Stock Exchange, MumbaiThe court analyzed Bye-law 248(a) and Bye-law 282 to determine the appropriate forum for arbitration. Bye-law 248(a) pertains to claims between a member and a non-member, while Bye-law 282 deals with claims between members. The court concluded that Bye-law 248(a) allows arbitration of disputes involving both a member and a non-member, where the dispute between members is incidental to the dispute with the non-member. This interpretation avoids the need for splitting claims and prevents contradictory findings from different fora.The court held that the claim against P.R. Shah Ltd. was incidental to the claim against Continental Ltd., thus falling within the scope of Bye-law 248(a). Therefore, the arbitration panel had jurisdiction to decide the claim against P.R. Shah Ltd.ConclusionThe petition challenging the arbitration award was dismissed, affirming the arbitrators' decision that P.R. Shah Ltd. was liable. The court upheld that the arbitration panel had jurisdiction under Bye-law 248(a) to hear the claim involving both a member and a non-member. The court emphasized the importance of avoiding multiple proceedings and potential conflicting decisions. The order was stayed for six weeks upon the petitioner's request.