TaxTMI 
TaxTMI 
2007 (7) TMI 406
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....eferred to as 'the Act') it was the petitioner's contention that there was no agreement between the petitioner and the respondent No. 1, nor was there any contract or dealing or transaction between the petitioner and the respondent No. 1. The learned Arbitral Tribunal after hearing the parties by its order dated 19-10-2005, upheld the objections and dismissed the Reference with costs. The order was styled as an Award. The respondent No. 1 aggrieved, preferred an Appeal under the Bye Laws of Mumbai Stock Exchange. After hearing the parties, the Arbitral Tribunal was pleased to allow the Appeal and set aside the Award dated 19-10-2005. The matter was referred back to the Tribunal to be decided on merits. The petitioner aggrieved by the order of the Tribunal dated 17-3-2006 has preferred the present petition. 3. We may firstly reproduce the two relevant Bye-laws of the Mumbai Stock Exchange, being Bye-law 260 and the relevant portion of the Bye-law 274A : "260. (1) An arbitration award may be set aside by the court on an application made under section 34 of the Arbitration and Conciliation Act, 1996 on the grounds mentioned in that section. (2) Whenever an award made under th....
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....ppellate Tribunal, the remedy for the petitioners would be to prefer an appeal under section 37(2) of the Act. It is next submitted that all that Bye-law 274A provides for, is a second submission to arbitration, at the instance of the party dissatisfied with the Award of the Arbitral Tribunal. Such a Bye-law providing for a second submission to arbitration even though styled as an Appeal is in no way in conflict with the provisions of the Arbitration and Conciliation Act, 1996. 6. On behalf of the respondent No. 4, their learned counsel submits that the petitioner having participated in the proceedings and submitted themselves to the jurisdiction of the Arbitral Tribunal and the Appellate Tribunal, is now precluded from challenging the jurisdiction of the Appellate Tribunal. 7. The questions for determination, based on the contention urged by the parties are as under : (i)Is a writ petition on the facts of the case maintainable. (ii)Whether Bye law 274A is ultra vires the provisions of the Arbitration and Conciliation Act, 1996. (iii)Was the appeal preferred by the respondent No. 1 against the order rejecting the reference before the Appellate Tribunal maintainable o....
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....the Supreme Court in SBP & Co. v. Patel Engg. Ltd. [2005] 8 SCC 618 and most specifically to paragraph 45 and direction (vi) of the para 47, which read as under : "45. It is seen that some High Courts have proceeded on the basis that any order passed by an Arbitral Tribunal during arbitration, would be capable of being challenged under article 226 or 227 of the Constitution. We see no warrant for such an approach. Section 37 makes certain orders of the Arbitral Tribunal appealable. Under section 34, the aggrieved party has an avenue for ventilating its grievances against the award including any in-between orders that might have been passed by the Arbitral Tribunal acting under section 16 of the Act. The party aggrieved by any order of the Arbitral Tribunal, unless has a right of appeal under section 37 of the Act, has to wait until the award is passed by the Tribunal. This appears to be the scheme of the Act. The Arbitral Tribunal is, after all, a creature of a contract between the parties, the arbitration agreement, even though, if the occasion arises, the Chief Justice may constitute it based on the contract between the parties. But that would not after the status of the Arbit....
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....ercised jurisdiction. Against the order of Appellate Tribunal, there would be remedy available to the petitioner under section 37(2) of the Act, 1996 as the remedy under section 37(2) would be a remedy against the order of the Tribunal and not the Appellate Tribunal. The other aspect of the matter is that challenge to the vires of a bye law cannot be considered in a challenge to the award under section 34 of the Act and the recourse could be only to the extraordinary jurisdiction under article 226 of the Constitution of India, in the absence of any mechanism under the provisions of the Securities Contracts (Regulation) Act. In our opinion, therefore, considering the discussion, it cannot be said that on the facts of this case the petition as filed is not maintainable. 11. Is Bye law 274-A, ultra vires the provisions of the Act of 1996. To understand the controversy we may refer to the position of law as it earlier stood and understood by the decision of the various High Courts. The Calcutta High Court in Heeralal Agarwalla & Co. v. Joakim Nahapiet & Co. Ltd. AIR 1927 Cal. 647 was considering a clause in a contract between the parties that all disputes arising out of it should....
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.... a private dispute, and the obligation to refer the dispute to arbitration results from the contract between the parties, and not because of any law. Secondly, and more importantly, the contract itself provides that if at any time after the contract has come into existence and is in dispute, the bye-laws of the Madras Oil and Seeds Exchange (P.) Ltd., undergo modifications or alterations, and the parties will abide by those bye-laws subject to such modification". The learned Bench held that these are different stages of arbitration, such as, from a single Arbitrator to a committee of appeal, etc. and it is the award which finally emerges from this procedure, which is conclusive as between the parties, and not liable to be set aside, expect as provided for under section 30 of the Arbitration Act 10 of 1940. The court held, consequently, the provision for appeal is not ultra vires the law of Arbitration as contained in the Act 10 of 1940. The position of law before the Act of 1996 would be that as provision for arbitration is a part of the term of contract between the parties a provision for a second submission or in the nature of an appeal from the first submission has been he....
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.... opinion that the two tier arbitration option is not inconsistent with the provisions of the Act, 1996. We are informed at the bar that the matter has been referred to a larger Bench. 14. With this background we may now answer the contention advanced that the Bye-law 274A is ultra vires the provisions of the Act, 1996. Bye-law 260 specifically sets out that the Arbitration Award may be set aside under section 34 of the Act, 1996. Bye-law 274 used the expression "A party dissatisfied with an Award may appeal to the appellate Bench...." In other words, the language is not mandatory or directory, but it is open to any of the parties, if aggrieved by the Award of the Tribunal, instead of challenging the Award under section 34, to prefer an appeal in terms of the bye-laws which forms a part of their contractual terms. We are therefore, of the considered opinion that Bye Law 274A is not ultra vires the provisions of the Act of 1996. 15. Another aspect that has to be considered is whether a provision for a second submission or an appeal as described pursuant to the bye-laws framed under the Securities Contracts (Regulation) Act, considering section 2(4) of the Arbitration and Concil....
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....of the bye law came up for consideration in Babaji Kondaji Garad v. Nasik Merchants Co-operative Bank Ltd. [1984] 2 SCC 50 ; while considering the bye-laws made under that Act, the Supreme Court observed as under : ". . .Bye-law of a co-operative society can at best have the status of an Article of Association of a company governed by the Companies Act, 1956 and as held by this Court in Co-operative Central Bank Ltd. v. Additional Industrial Tribunal, Andhra Pradesh [1969] 2 SCC 43, the bye-laws of a co-operative society framed in pursuance of the provisions of the relevant Act cannot be held to be law or to have the force of law. They are neither statutory in character nor they have statutory flavour so as to be raised to the status of law. Now if there is any conflict between a statute and the subordinate legislation, it does not require elaborate reasoning to firmly state that the statute prevails over subordinate legislation and the bye-law if not in conformity with the statute in order to give effect to the statutory provision the rule or bye-law has to be ignored. The statutory provision has precedence and must be complied with. . ." (p. 62) In Co-operative Central Bank....
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....gislation and its various forms. The learned Judge observed as under : "(41) Subordinate or delegated legislation takes different forms. Subordinate legislation is divided into two main classes, namely, (i) statutory rules, and (ii) bye-laws or regulations made (a) by authorities concerned with local Government, and (b) by persons, societies, or corporations. The Act itself recognizes this distinction and provides both for making of the rules as well as bye-laws. A comparative study of sections 11 and 12 whereunder power is conferred on the Central Government and recognised associations to make bye-laws on the one hand, and section 28, whereunder the Central Government is empowered to make rules on the other, indicate that the former are intended for conducting the business of the association and the latter for the purpose of carrying into effect the objects of the Act. In considering the question raised in this case this distinction will have to be borne in mind." 17. The language of section 2(4) of the Act, uses the expression "under any other enactment" and the second part is "as if that other enactment were an arbitration agreement except insofar as the provisions of this....
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....thods of expression of exercise of power under the statute. In that case the Court observed that the bye-laws are entirely different from notification imposing tax. In Paritosh Bhupeshkumar Sheth case, the Supreme Court was considering the distinction between bye-laws and regulations. We may carefully refer to the following observations : "It is a common legislative practice that the Legislature may choose to lay down only the general policy and leave to its delegate to make detailed provisions for carrying into effect the said policy and effectuate the purposes of the statute by framing rules/regulations which are in the nature of subordinate legislation. Section 3(39) of the Bombay General Clauses Act, 1904, which defines the expression 'rule' states : "Rule shall mean a rule made in exercise of the power under any enactment and shall include any regulation made under a rule or under any enactment". It is important to notice that a distinct power of making bye-laws has been conferred by the Act on the State Board under section 38. The Legislature has thus maintained in the statute in question a clear distinction between 'bye-laws' and 'regulations'. The bye-laws to be frame....
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.... Shah's case (supra), where the Supreme Court has held that they are not made under a statute but having regard to the scheme as also the purported object of the Act they have a statutory flavour that would no longer be a good law. 21. For the purpose of discussion and after the judgment of the Supreme Court in Jaya I. Shah's case (supra), it will not be possible for this court to place the bye-laws made by the stock exchange on the same footing as rules made under the rule making power conferred on it. The rules and regulations made by the Exchange, have a character of their own. The provision for an appeal or second submission, therefore, at the highest would be termed as a contract between the parties. As we have held that such a provision is not incompatible, bye-law 274A cannot be said to be ultra vires the provisions of the Act of 1996. It will, therefore, be difficult to accept a contention that the statutory power of appeal under section 37 or for that matter, the power to challenge Award under section 34, will have to give away to the bye-laws made by the stock exchange. The bye-laws made by the stock exchange is neither 'enactment' nor rule. They at the highest have....