Exchange bye-laws can mandate arbitration for securities disputes with non-members and bar civil court jurisdiction.

The Securities Contracts (Regulation) Act, 1956 enables a recognised stock exchange to frame bye-laws governing securities contracts, including transactions between a member and a non-member. The Exchange bye-laws operate as a deeming framework, bringing such contracts within the Rules, Bye-laws, Regulations and usages of the Exchange and treating acceptance of the contract as an arbitration agreement. Claims and disputes arising from covered contracts are required to be referred to arbitration, and the scheme is described as a complete code for such securities transactions, excluding an alternate civil remedy for disputes within its scope.

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Issues: Whether a dispute arising from a securities transaction with a Bombay Stock Exchange member, even when one party is a non-member, is governed by the Exchange bye-laws so as to require reference to arbitration and exclude the civil court's jurisdiction.

Analysis: The Securities Contracts (Regulation) Act, 1956 empowers a recognized stock exchange to frame bye-laws regulating contracts in securities, including contracts between a member and a non-member, and the Exchange bye-laws create a deeming framework under which such contracts are subject to the Rules, Bye-laws, Regulations and usage of the Exchange. The relevant bye-laws further deem all claims and disputes arising out of such contracts to be referred to arbitration and treat acceptance of the contract as an arbitration agreement. The expression "non-member" is used in an inclusive and wide sense, and the scheme is intended to operate as a complete code for transactions in securities, leaving no room for an alternate civil remedy in respect of disputes covered by the bye-laws.

Conclusion: The dispute was held to be arbitrable under the Exchange bye-laws and the civil court had no jurisdiction to try it.

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