Petition dismissed for attempting to revive arbitration after withdrawal to delay proceedings and frustrate recovery

Bombay HC dismissed a petition challenging SEBI Circular Clause 7 that prohibits arbitration proceedings once a trading member is disabled or show cause notice is issued. The petitioner, already declared a defaulter, had initially sought arbitration but unconditionally withdrew the request, later attempting to revive it after missing prescribed timelines. The court found the petitioner was abusing discretionary jurisdiction to delay proceedings and frustrate claimants' recovery attempts, noting multiple complaints against the petitioner for large amounts. The petition was dismissed with costs of Rs 25,000.

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Issues:
Challenge to SEBI Circular Clause 7 on grounds of arbitrariness and unconstitutionality.

Analysis:
The Petitioner challenges Clause 7 of SEBI Circular No. SEBI/HO/MIRSD/DPIEA/CIRP/2020/2015, dated 1 July 2020, arguing it is arbitrary and unconstitutional. The Petitioner contends that the clause restricts arbitration remedy once a member is disabled or a show cause is issued for declaring the member as a defaulter. The Petitioner claims deprivation of arbitration remedy violates Article 14 of the Constitution of India. The Petitioner's argument is based on the fact that the show cause notice may be discharged after response, rendering the restriction unreasonable and arbitrary.

In response to the IGRC order directing the Petitioner to pay a significant amount to Blue Sea International, the Petitioner initially indicated intent for arbitration but later withdrew this intention. Subsequently, a show-cause notice was issued, leading to the Petitioner expressing a desire for arbitration after the prescribed timeline. The stock exchange declared the Petitioner a defaulter following the show cause notice.

The Court noted the Petitioner's inability to secure the IGRC's directions financially and accused the Petitioner of abusing the legal process to delay payment. The Court highlighted the Petitioner's failure to comply with SEBI circulars and the lack of impleading the claimant in the proceedings, indicating a lack of bona fide intentions.

Referring to a similar case, the Court emphasized the importance of adhering to SEBI circulars to ensure an effective investor grievance mechanism. The Court declined to entertain the Petition, citing the Petitioner's contradictory actions, failure to comply with regulations, and lack of genuine intentions. The Petitioner was ordered to pay costs within a specified period, with the costs directed to Tata Memorial Hospital.

In conclusion, the Court dismissed the Petition, emphasizing the need for adherence to regulatory frameworks and genuine intentions in legal proceedings. The Court's decision was based on the Petitioner's failure to comply with SEBI circulars, contradictory actions, and lack of financial means to fulfill obligations. The Court imposed costs on the Petitioner, directing payment to Tata Memorial Hospital.

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