2004 (3) TMI 439 - HC - Companies Law

Court sets aside Arbitral Tribunal's award for breach of NSE bye-laws & contract, remits for fresh determination.

Harinarayan G. Bajaj Versus LKP Securities Ltd.

Harinarayan G. Bajaj Versus LKP Securities Ltd. - [2004] 52 SCL 725 (BOM.) Issues Involved:1. Limitation2. Application under Section 27 of the Arbitration and Conciliation Act, 19963. Jurisdiction of the Arbitral Tribunal4. Merits of the Award - Whether the award is contrary to law or agreementIssue-wise Detailed Analysis:1. Limitation:The petitioner argued that the arbitration reference was barred by limitation as it was made after nine months from the date of squaring off the shares, whereas the NSE bye-laws prescribe a six-month limitation period. The court examined the bye-laws and determined that the limitation period starts from the date of the first denial of liability. Since the petitioner denied liability for the first time on 27th September 2001, the arbitration reference made on 28th December 2001 was within the six-month period and thus not barred by limitation.2. Application under Section 27 of the Arbitration and Conciliation Act, 1996:The petitioner's application to the Arbitral Tribunal to seek court assistance for the production of documents related to SEBI's investigation into short selling was rejected. The court found that the documents were not relevant to the petitioner's liability to honor the transaction of purchase of shares. The rejection of the application by the Arbitral Tribunal was deemed appropriate as the documents did not affect the petitioner's contractual obligations.3. Jurisdiction of the Arbitral Tribunal:The petitioner contended that there was no arbitration agreement between the parties. The court found that the written agreement between the petitioner and the respondent included a clause subjecting the transactions to the rules, regulations, and bye-laws of the NSE, which provide for arbitration. Thus, the Arbitral Tribunal had jurisdiction to arbitrate the dispute.4. Merits of the Award - Whether the award is contrary to law or agreement:The petitioner argued that the award was contrary to the NSE bye-laws and the agreement. The court noted that the respondent chose to close out the transaction by selling the shares in the open market but did not sell all the shares promptly. The court found that the respondent should have sold all shares immediately or as soon as practicable after the close-out. The Arbitral Tribunal failed to consider the effect of the breach of the Capital Market Regulations and NSE bye-laws, making the award contrary to the contract. The court set aside the award and remitted the matter back to the Arbitral Tribunal for fresh determination of the amount payable by the petitioner under the bye-laws.Conclusion:The court concluded that the Arbitral Tribunal's award was not in accordance with the NSE bye-laws and the contract. The matter was sent back to the Arbitral Tribunal to determine the petitioner's liability afresh, considering the proper application of the bye-laws. The court stayed the operation of this order for four weeks at the petitioner's request.