TaxTMI 
TaxTMI 
2000 (4) TMI 766
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.... of arbitration dispute under bey-law 248(a) of the Stock Exchange, Mumbai, styled as Stock Exchange Rules, Bye-laws and Regulation, 1957 framed under the Securities Contracts (Regulation) Act, 1956 (SCR Act). Background facts 3. The brief facts are as under : The petitioners are a company duly registered under the Companies Act, 1956, and inter alia carrying on business of trading and investing in shares and securities. The respondents are a member of the Stock Exchange and, inter alia, hold membership card which empowers them to carry on business in trading of shares and securities on Stock Exchange. The respondents hold the said membership card in accordance with the provisions of the bye-laws, rules and regulations of the Stock Exchange framed under the SCR Act. 4. The memorandum of understanding ('MOU') was arrived at between the petitioners and the respondents in the month of February, 1998, inter alia, for the purpose of nominating the petitioners in place of the respondents for the membership card which is held by the respondents. The said transfer by way of nomination of the membership card is allowed subject to the rules of the Stock Exchange. 5. The terms and conditi....
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....ssued notice to the petitioners informing them of the default committed by them and also terminated the MOU. The Stock Exchange, by its letter dated 22-9-1999, also informed the petitioners that their application for membership cannot be considered in view of the letter dated 7-9-1999, received by it from the respondents. The respondents, on 5-10-1999, also wrote to the Stock Exchange to cancel the application pending for membership by nomination and to treat all other documents made in favour of the petitioners as cancelled. Thus, in turn, the Stock Exchange vide its letter dated 28-12-1999, informed the petitioners about the withdrawal of the application for membership by nomination moved by the respondents. The Stock Exchange also informed the petitioners that the respondents are intending to transfer the membership to some other person. 9. The petitioners through their advocate served on the Stock Exchange a legal notice dated 17-1-2000, and requested it not to transfer the membership in favour of any third party except the petitioners. The petitioners also issued notice to the respondents informing them that the petitioners have made application before the Stock Exchange and ....
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....-laws and regulations of the Stock Exchange. It is submitted that the dealings contemplated and covered by bye-law 248(a) are only the dealings in securities, and by no stretch of imagination the transaction relating to nomination by member which is a subject matter of the present MOU can be said to be the dealings in securities attracting bye-law 248(a) of the Stock Exchange, Mumbai. It is also stated in the affidavit that the MOU in question neither contains any arbitration clause, much less an agreement providing for reference to arbitration of the Stock Exchange, nor the MOU is subject to any bye-law providing for arbitration. In a nutshell, it is being contended that there is no arbitration agreement between the parties. It is thus stated that the provisions of bye-law 248 are not attracted in the facts of the present case and that the said bye-law cannot be deemed to have been incorporated in the MOU. In other words, it is stated that the MOU is not a contract of the nature contemplated by bye-law 248(a), as such, the said bye-law has no application to the MOU in question. 12. On merits of the matter, it is stated in the affidavit that the petitioners are not entitled to spe....
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....y corporate; (ii)Government securities; (iia)such other instruments as may be declared by the Central Government to be securities; and (iii)rights or interests in securities;" Section 3 of the SCR Act provides for application for recognition of stock exchanges. It provides that any Stock Exchange, which is desirous of being recognised for the purposes of this Act, may make an application in the prescribed manner to the Central Government. Every application under sub-section (1) of section 3 has to contain such particulars as may be prescribed and has to be accompanied by a copy of the bye-laws of the Stock Exchange for the regulation and control of contracts and also a copy of the rules relating in general, to the constitution of the Stock Exchange and amongst others relating to the admission into the Stock Exchange of various classes of members, the qualifications, for membership, and the exclusion, suspension, expulsion and re-admission of members therefrom or thereinto. Section 9 provides that any recognised stock exchange may, subject to the previous approval of the Securities and Exchange Board of India, make bye-laws for the regulation and control of contracts. Section 30....
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.... method and procedure for settlement of claims of disputes including by way of arbitration, and also further makes it obligatory to frame bye-laws to meet the contingency arising out of any contravention of the bye-laws so as to render the member concerned liable to on or more punishments like fine, expulsion, suspension from membership for a specified period or any other penalty of a like nature not involving the payment of money. 18. The Mumbai Stock Exchange, being a recognised stock exchange, in exercise of powers conferred under section 9, has famed bye-laws and if the said bye-laws are perused, then it would be clear that the bye-laws are exclusively meant for regulating the dealing in securities and contracts. Similarly, bye-laws have to provide for the method and procedure for settlement of claims or disputes including settlement by arbitration. As such, in exercise of such powers conferred by section 9, bye-law 248 has been framed, which reads : "248. (a) Reference to Arbitration - All claims (whether admitted or not), differences and disputes between a member and non-member (the terms 'non-member' and 'non-members' shall include a remisier, authorised clerk or employee ....
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.... machinery for resolving disputes. This machinery is provided by bye-laws only. Rule 5 provides that membership shall constitute a personal permission from exchange to exercise rights and privileges thereto subject to the rules, byelaws and regulations of the exchange. Had it been the intention of bye-law 248(a) to cover transaction relating to securities only, then in that event, it was not necessary for the framers of bye-laws to employ words 'subject to rules' appearing in bye-law 248(a). While interpreting the bye-law 248(a), each word used therein will have to assign its own natural and logical meaning. Consequently, prima facie, the dispute relating to membership and nomination should fall within the sweep of bye-law 248(a). I am, therefore, prima facie of the opinion that the dispute relating to nomination can be the subject matter of arbitration proceedings under bye-laws 248(a). 20. It was also contended by the learned counsel appearing for the respondents that there is no arbitration agreement between the parties. According to him, if an application under section 9 is so made, the court will first have to be satisfied that there exists a valid arbitration agreement. On b....
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....ator in terms of the clause incorporated in the agreement. I, therefore, hold that there is an arbitration agreement between the parties to refer any dispute arising between the parties to an arbitrator. 24. At this juncture, I may mention that this is a prima facie view formed by me after examining the scheme of the SCR Act and bye-laws, rules and regulations of the Stock Exchange in order to invoke the jurisdiction of this Court under section 9. The Act specifically provides that arbitral Tribunal may rule on its own jurisdiction, including ruling on any objection with respect to the existence or validity of arbitration agreement. The arbitral Tribunal shall be free to decide the said questions, if raised, on its own merits without getting influenced by what is stated hereinabove. Point No. 2 25. Once having found that the dispute between the parties is subject to the arbitration machinery provided in the bye-laws of the Stock Ex- change, Mumbai, then the second question which needs to be answered is whether the petitioners are entitled to the interim measures of protection. 26. The Court before the grant of interim measures of protection must broadly satisfy itself that-- (....
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....dy parted with a huge amount of Rs. 43 lakh which the respondents have already acknowledged. The petitioners further contended that it has also been found that there have been various claims outstanding against the respondents which have been raised by various parties. The learned counsel for the petitioners contended that the petitioners have come to know that out of the transactions effected by the respondents, during the period 1995-96, 1996-97 and 1997-98, huge amounts have become due and payable by the respondents as turn-over tax, which the respondents have not paid till date to the SEBI under the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992. Consequently, the petitioners have alleged flagrant breach of the terms and conditions of MOU by the respondents. 28. In order to counter the above submissions, the learned counsel for the respondents contended that the petitioners are not entitled to specific performance of the MOU for the following reasons : (a)the petitioners are in breach of their obligation; (b)the petitioners failed to make payment of the second instalment of Rs. 15 lakh by stipulated date, i.e., 1-3-1999. The said obligation to pay Rs. 15 lakh was abs....
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.... granting interim reliefs can very well be applied while considering the prayer for grant of interim measures under section 9. The discretion of the court can very well be summarised in order to grant interim measures. It is not enough for the petitioner to show that he has a prima facie case but he has to further show-- (i)that in the event of withholding the relief of interim measures, he will suffer an irreparable injury; (ii)that in the event of his success in the arbitration proceedings, he will not have the proper remedy, in being awarded adequate damages; (iii)that in taking into consideration the comparative mischief of inconvenience to the parties, the balance of convenience is in his favour or in other words; (iv)that his inconvenience in the event of withholding the relief of interim measures will in all events exceed that of the respondent in case he is not granted relief; and, lastly, (v)the petitioner must show a clear necessity for affording immediate protection to his alleged right or interest which would otherwise be seriously injured or impaired. 32. It cannot be disputed that the membership card is not a property under section 12 of the Transfer of Property....
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....e period mentioned in sub-clause (i); and (iii)The company is eligible for membership in accordance with rule 19A." [Emphasis Supplied] 33. The scheme of the above rules do provide for nomination by member. The possibility of dispute between the parties arising out of nomination cannot be ruled out. The rules providing machinery to resolve disputes via bye-laws of the stock exchange also cannot be ruled out. The arbitration machinery in the bye-laws cannot be denied. Now turning to the facts of the present disputes, it is clear from clause 10 of the MOU that the respondents agreed to clear all the claims, i.e., arbitration settlement claims, etc., immediately after signing of MOU. The petitioners in para 23 of the petition have specifically alleged as under : "The petitioners submit that apart from the said fact, the petitioners have also come to know that for the transactions effected by the respondents during the period 1996-97 - a sum of Rs. 14,434.09 lakh; during the period 1996-97, a sum of Rs. 61,230.38 lakh and during the period 1997-98, a sum of Rs. 76,579.83 lakh has become due and payable by the respondents as turn-over tax which the respondents have not paid till date....