Statutory stock exchange arbitration cannot bind a non-party or justify account set-off without express authority.

Statutory Stock Exchange arbitration under the applicable bye-laws was confined to disputes arising between persons and transactions covered by that framework, so a non-party could not be drawn in merely because claims were joined or participation occurred. An alleged private oral assurance to answer another constituent's trading dues remained outside the arbitration clause and could not support joint and several liability in the statutory forum. The exchange and SEBI framework also required express authority for credit adjustments between client accounts, so transferring one constituent's credit to another's debit without written authorization was impermissible. The award and related order were therefore unsustainable to the extent they fastened liability on the non-party.

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Issues: (i) whether the arbitral tribunal had jurisdiction to entertain and decide the broker's claim against the appellant, who was not a party to the invoked arbitration agreement, (ii) whether a third party could be impleaded and made liable in statutory Stock Exchange arbitration on the basis of an alleged oral understanding or guarantee, and (iii) whether transfer of credit from one constituent's account to another's account was valid without express authority.

Issue (i): whether the arbitral tribunal had jurisdiction to entertain and decide the broker's claim against the appellant, who was not a party to the invoked arbitration agreement

Analysis: The dispute against the appellant arose from an alleged private oral understanding said to bind him for the wife's trading liabilities, whereas the arbitration invoked against the wife concerned transactions falling under the Stock Exchange bye-laws. The arbitral forum under Bye-law 248(a) was confined to disputes arising out of dealings, transactions and contracts made subject to the Exchange bye-laws between the categories of persons specified therein. A non-party to the invoked arbitration agreement could not be brought into the reference merely because the broker also maintained a separate client relationship with that person or because the claims were clubbed in one statement of claim. Participation in the proceedings did not cure inherent lack of jurisdiction.

Conclusion: The tribunal had no jurisdiction to adjudicate the claim against the appellant, and the challenge succeeded on that ground.

Issue (ii): whether a third party could be impleaded and made liable in statutory Stock Exchange arbitration on the basis of an alleged oral understanding or guarantee

Analysis: The record showed two separate causes of action: one arising from the wife's exchange transactions and another resting on an alleged oral assurance by the appellant to clear her dues. The latter was a private arrangement outside Bye-law 248(a) and could not be converted into an arbitrable dispute under the statutory stock exchange mechanism. The appellant's impleadment as a third party and the award of joint and several liability were therefore inconsistent with the limited scope of the statutory reference. Consent or participation could not enlarge the tribunal's mandate.

Conclusion: The appellant could not be impleaded or held liable in the statutory arbitration on the basis of the alleged oral understanding or guarantee.

Issue (iii): whether transfer of credit from one constituent's account to another's account was valid without express authority

Analysis: The Exchange and SEBI framework required proper client-wise accounting and express authority for adjustments between accounts. The credit lying to the appellant's account was adjusted against the wife's debit without any demonstrated express authorization from the appellant. The tribunal itself recognised the need for written instructions, but upheld the transfer on practical and relational grounds, which could not override the mandatory regulatory framework. The adjustment was thus contrary to the governing bye-laws and guidelines.

Conclusion: The transfer and set-off were invalid for want of express authority and could not support the award against the appellant.

Final Conclusion: The award and the order under challenge were unsustainable insofar as they fastened liability on the appellant in respect of a dispute beyond the statutory arbitration clause and contrary to the mandatory account-adjustment requirements.

Ratio Decidendi: A statutory arbitration cannot be expanded to bind a non-party on the basis of an alleged private oral understanding, and a tribunal cannot assume jurisdiction or sanction inter-client adjustment except within the confines of the governing arbitration clause and mandatory regulatory authority.

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