TaxTMI 
TaxTMI 
2003 (10) TMI 400
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....he on line screen based trading system of NSE and, in Settlement 10 of 2001 covering the period between 7th March, 2001 and 13th March, 2001, the First Respondent bought for and on behalf of the Appellant, 1,61,000 shares of a Company known by the name of Amar Raja Batteries Limited ("ARBL") in three lots. The Appellant, it was alleged, had initially made a payment of Rs. 50 lakhs by a cheque dated 18th March, 2001. The cheque was returned unpaid and thereafter was substituted by a Banker's Pay Order of a like amount which was encashed. According to the First Respondent, the Appellant had not effected payment of the balance of Rs. 4.12 crores which was due and payable. The First Respondent relied upon contract notes, the bills issued to the appellant and on a copy of the ledger accounts for the relevant period. The First Respondent was initially suspended and thereafter declared as a defaulter on 19th June, 2001 and he avers that the default occurred because of the non-payment by the Appellant of the price of the shares which had been purchased by the First Respondent for and on behalf of the Appellant. According to the First Respondent, the transactions were completed in March 200....
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....before the Learned Single Judge : (i) The membership of the First Respondent of the Stock Exchange stood cancelled on the date on which an application for referring the matter to arbitration was made and consequently, the First Respondent had no locus standi to seek a reference to arbitration; and (ii) The Arbitrators had neither considered, nor recorded any finding on the specific defence of the Appellant that the First Respondent was not in a position to effect delivery of the shares which were alleged to have been purchased by the Appellant and consequently, the Appellant could not be held liable to pay the price of the shares. The Learned Single Judge rejected the first submission holding that on the date on which the shares were purchased, the First Respondent was a member of the Stock Exchange and the Appellant was his constituent. The Learned Single Judge held, relying on the provisions of clause (1B) of Chapter XI of the Bye-laws of NSE that disputes regarding transactions entered into by a member before he is declared as a defaulter continue to be arbitrable. The Learned Single Judge held that though a trading member's right of membership lapses and vests with the exchange....
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.... not make payment for the shares in respect of which purchase orders were placed on the First Respondent. Thereafter, it was observed that there appears to be no dispute that on the date on which the purchases had been made if payment had been made by the Appellant, the shares could have been delivered and transactions could have been completed. The Learned Judge observed that there was considerable substance in the submission urged on behalf of the First Respondent that he is entitled to the purchase price. The Learned Judge noted that the inability of the First Respondent to deliver shares subsequently occurred due to two factors viz., (i) A failure of the Appellant to pay the purchase price of shares as a result of which the First Respondent in turn could not make payment to parties from whom the shares were purchased, consequent upon which he was declared as a defaulter; and (ii) Due to the alleged dealings of the Appellant, delivery of shares to the Appellant had been stopped by the authorities. The Learned Judge held that in case the First Respondent established this position, which course appears to be likely, he would be entitled to the purchase price though the Appellant w....
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....ms, differences, disputes between the parties mentioned therein for all dealings, contracts and transactions made subject to the bye-laws, Rules and Regulations of the Exchange provided such dealings, contracts and transactions had been entered into between the parties mentioned therein prior to or the date on which the Trading Member was either declared a defaulter or expelled or has surrendered his trading membership". [Emphasis supplied] 9. Hence, the provision for arbitration contained inter alia in Bye-law (1) shall continue to apply notwithstanding the declaration of a Trading Member as a defaulter so long as the dealings, contracts and transactions had been entered into prior to the date on which he came to be declared as a defaulter. Under Rule 33 of the Rules governing NSE a Trading Member's right of membership lapses and vests with the Exchange immediately upon his declaration as a defaulter. Rule 33 stipulates that a member who is declared as a defaulter, shall forfeit all his rights and privileges as a member of the Exchange, including any right to the use of or any claim upon or any interest in any property or funds of the Exchange if any. Chapter XII of the Bye-law....
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....nts due from the defaulter. Arbitral proceedings have not been brought within the scope of Bye-law 28. Bye-law 29 provides that if any trading member adopts proceedings in a Court of law against a defaulter to enforce any claim against the defaulter's estate arising out of any transaction or dealing in the market made subject to the Bye-laws, Rules and Regulations of the Exchange before he was declared a defaulter and obtains a decree and recovers any sum of money. Such amount as may be fixed by the relevant authority shall be paid to the Defaulters' Committee for the benefit and on account of the creditor members having claims against such defaulter. 10. Thus neither the rules, nor the Bye-laws abrogate the right of a trading member who is declared as a defaulter to adopt and pursue arbitral proceedings in respect of transactions which were entered into subject to the Rules, Regulations and Bye-laws of the Exchange, prior to the declaration of the member as a defaulter. Upon a declaration of a trading member as a defaulter, his right of membership lapses and vests with the Stock Exchange, Consequent thereto he forfeits his rights and privileges as a member of the Exchange. That....
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....dealt with by the Arbitral Tribunal. The contention of the Appellant was that there can be no direction to the Appellant to pay the price of the shares unless the First Respondent was in a position to effect delivery and since the First Respondent was not in a position to deliver the shares, the Appellant could not be held liable for the payment of the purchase price. The view of the Learned Single Judge that the defence which had been raised was not duly considered was unexceptionable. So was the view that in such a case under the provisions of section 34(4), the Court was empowered to adjourn the proceedings to allow the Arbitral Tribunal to resume the proceedings or to take other action as in the opinion of the Arbitral Tribunal would eliminate the ground for setting aside the arbitral award. On the finding of the Learned Single Judge that a defence which had been raised by the Appellant was not considered by the Tribunal, it was only appropriate and proper that the proceedings before the Court be adjourned so as to enable the Arbitral Tribunal to consider the defence and to arrive at its finding thereon. That would obviate a challenge to the validity of the award on the ground ....