2007 (6) TMI 280 - HC - Companies Law

Appellate court directs trial court to proceed with suit despite unregistered status of plaintiff sub-broker.

The appellate court overturned the trial court's rejection of the plaint, directing the trial court to proceed with the suit on its merits. The appellate ... Bar of jurisdiction Issues Involved:1. Jurisdiction of the Civil Court.2. Territorial Jurisdiction.3. Maintainability of the suit under SEBI Act.4. Registration requirement under SEBI Act.5. Arbitration clause applicability.6. Bar of jurisdiction under SEBI Act and SCRA.7. Rejection of the plaint under Order VII, Rule 11 of CPC.Detailed Analysis:1. Jurisdiction of the Civil Court:The primary issue was whether the civil court had jurisdiction to entertain the suit. The court analyzed Section 20A of the SEBI Act, which bars civil courts from matters that the SEBI Board or Adjudicating Officer is empowered to decide. However, it was concluded that the SEBI Act does not empower these authorities to resolve disputes regarding non-payment by a client to a sub-broker. The court noted that the jurisdiction of civil courts is not barred for such disputes, as indicated by Section 21 of the SEBI Act, which states that nothing in the Act exempts any person from any suit or proceedings that might be brought against them apart from the Act.2. Territorial Jurisdiction:The defendants challenged the territorial jurisdiction of the Civil Court at Jalgaon. The plaintiff contended that part of the cause of action arose at Jalgaon due to business dealings and communications made from Jalgaon. The court found that the defendants failed to counter the plaintiff's claim effectively. Therefore, the challenge to the territorial jurisdiction was dismissed.3. Maintainability of the Suit under SEBI Act:The trial court initially dismissed the suit on the grounds that the plaintiff, as an unregistered sub-broker, could not maintain the suit under the SEBI Act. However, the appellate court clarified that this issue pertains to the merits of the case and not to the jurisdiction of the court to entertain the suit. The court emphasized that the civil court's jurisdiction is not excluded by the SEBI Act for disputes between non-members.4. Registration Requirement under SEBI Act:The plaintiff admitted to acting as a sub-broker without registration, which is mandatory under the SEBI Act. The court noted that while this could affect the merits of the case, it does not affect the court's jurisdiction to entertain the suit.5. Arbitration Clause Applicability:The defendants argued that the dispute should be referred to arbitration as per the SEBI (Stock Brokers and Sub-brokers) Rules, 1992, and the model agreements which include arbitration clauses. The court found that these regulations require an agreement between the sub-broker and the client but do not mandate that the agreement must include all terms of the model agreement, including the arbitration clause. Therefore, the court did not accept the argument that the arbitration clause is a statutory term and condition binding the parties.6. Bar of Jurisdiction under SEBI Act and SCRA:The court examined the SEBI Act and the Securities Contracts (Regulation) Act, 1956 (SCRA), to determine if they provided an alternate forum for resolving the dispute. It was found that neither the SEBI Act nor the SCRA explicitly barred the jurisdiction of civil courts for disputes regarding non-payment by clients to sub-brokers. The court referred to the Full Bench decision in St. Ulai High School v. Devendraprasad Jagannath Singh, which emphasized that exclusion of civil court jurisdiction is not readily inferred unless the statute provides an adequate alternative remedy.7. Rejection of the Plaint under Order VII, Rule 11 of CPC:The trial court had rejected the plaint under Order VII, Rule 11(d) of the CPC, on the grounds that the suit was barred by law. The appellate court found this to be erroneous. It clarified that if the court finds it lacks jurisdiction, it should return the plaint under Order VII, Rule 10 of the CPC, rather than reject it. Since the appellate court concluded that the civil court has jurisdiction, the order of rejection was quashed.Conclusion:The appellate court quashed the trial court's order rejecting the plaint and directed the trial court to proceed with the suit on its merits. The court clarified that it did not address the issues of the suit's maintainability on merits due to the plaintiff's unregistered status or whether the transactions were void against public policy.