TaxTMI 
TaxTMI 
2015 (3) TMI 112
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....cations, any rules, regulation and guidelines issued by SEBI and stock exchange rules, regulations and bye laws that may be in force from time to time. 6. All trades, transactions and contracts are subject to the Rules and Regulations of the Exchange including arbitration as per stock exchange rules and shall be deemed to be and shall take effect as wholly made, entered into and to be performed in the city of Mumbai and the parties to such trade shall be deemed to have submitted to the jurisdiction of the Courts in Mumbai for the purpose of giving effect to the provisions of the Rules and Regulations of the Exchange. 7. The client may give orders telephonically, as it suits the client and is convenient to the client, such telephone orders will be executed by the broker at the cost and risk of the client. For safety, the client is advised to send written orders. The client agrees to collect his contracts for the day from Member's office at the end of day before 6:30 p.m. The client also agrees to collect the bill for a settlement within two working days from the end of settlement and will point out objections if any within another two working days, or else the bill/contrac....
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....rary to the circulars issued by the Securities & Exchange Board of India (SEBI), including the circulars dated 05.03.2001 and 07.03.2001. The circular dated 05.03.2001 imposed the additional margin on the sales of the shares with effect from 06.03.2001. The circular dated 07.03.2001 banned short sales. The respondent had not provided the appellant the bill for settlement No.50. Despite payment of Rs. 50.00 lacs in the name of the respondent's sister concern, neither the respondent nor his sister concern purchased the shares on the appellant's behalf on 12.03.2001. The payment to the sister concern was at the respondent's request. The respondent had been held guilty of short selling 75,000 shares of ARB Ltd. The appellant apprehended that the respondent had resorted to large scale short selling various scrips, including of ARB Ltd. The appellant therefore, called upon the respondent and contended that the arbitrators also ought to direct the respondent to furnish him the copies of the trades executed by the respondent on behalf of the appellant as well as the other constituents under settlement Nos.50, 51, and 52 i.e. for the period 12.03.2001 onwards in respect of certa....
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....nding purchase position of the Respondent in the scrip of ARBL on the subsequent day) as more specifically stated hereinabove. It is thus, clearly apparent that a comparison of the said letter of the Applicant dated 19th March 2001 with the said alleged contract notes of the Applicant clearly shows that the two are contradictory and smacks of foul play having been played by the Applicant Broker. This limited aspect by itself clearly demonstrates that the aforesaid submission as made by the Respondent regarding inspection of the documents is of grave importance and ought to be considered and granted by this Hon'ble Forum." 5. As we noted earlier, the appellant had also filed an application under section 27 of the Act. The application reiterated what was set out in the written statement. The application further stated as follows : "No details of squaring off in respect of the appellant have been furnished prior to the filing of the arbitration proceedings". As regards the net purchase position in settlement No.51, the appellant expressed an apprehension that the purchases were pursuant to the sales by other members of the exchange and/or their constituents in violation of the ....
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....s, the learned counsel appearing on behalf of the appellant raised the following submissions :- (I). The respondent's membership having been suspended by the Bombay Stock Exchange he was not entitled to invoke arbitration under the rules of the BSE notwithstanding the transactions in question having been entered into prior to the order of suspension. (II). The transactions were null and void as the respondent failed to provide the appellant with the contract notes of the carry over the transactions. (III) The award is in violation of the principles of natural justice as the appellant was denied an opportunity of cross-examining the respondent and the arbitral tribunal rejected the appellant's application under section 27. (IV). The respondent did not give the appellant prior notice before closing out the alleged outstanding position of the appellant thereby rendering the transactions void being in violation of the Regulations of the BSE. (V) The award was based on extraneous and irrelevant material. 8. We will refer to the award and to the impugned judgment after dealing with Mr. Dwarkadas' first submission challenging the jurisdiction of the arbitral ....
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....embership including the right to attend or vote at any meeting of the Exchange but he may be proceeded against by the Governing Board for any offence committed by him either before or after his suspension and the Governing Board shall not be debarred from taking cognizance of and adjudicating on or dealing with any claim made against him by other members: Rights of Creditors Unimpaired (ii) the suspension shall not affect the rights of the members who are creditors of the suspended member; Fulfillment of Contracts (iii) the suspended member shall be bound to fulfill contracts outstanding at the time of his suspension; Further Business Prohibited (iv) the suspended member shall not during the term of his suspension make any bargain on the floor of the Exchange or transact any business with or through a member provided that he may with the permission of the Governing Board close with or through a member the transactions outstanding at the time of his suspension; Members Not to Deal (v) no member shall transact business for or with or share brokerage with a suspended member during the term of his suspension except with the previous permission of the Governing B....
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....in rule 269(1) "... all rights and privileges to membership including the right to... " establish that the embargo in section 269 is wide. The suspended member is, therefore, deprived of the right and privilege of his membership to have disputes referred to and decided by arbitration as provided in the rules, bye-laws and regulations of the BSE. 11. The submission is not well founded. It is liable to be rejected on two grounds. Firstly, this contention was raised for the first time only in the appeal by seeking to introduce fresh evidence. Secondly, even on principle it is not well founded. We will deal with the second ground first. 12. Even assuming that an arbitration agreement creates a right in a party to have the disputes and differences referred to and decided by the arbitration as provided therein, it would make no difference. In a manner of speaking a party to an arbitration agreement does have a right to compel other parties to have the disputes and differences referred to arbitration. The right is recognized by the Arbitration & Conciliation Act, 1996 (hereinafter referred to as "the Act") inter-alia by invoking the provisions of sections 8, 11 and 45 thereof. Bye-l....
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....reason. 16. Firstly, the period of suspension may run throughout the period of limitation. In that event, obviously the parties would be compelled to file a civil suit or adopt any other proceedings in accordance with law. If the period of suspension is not fixed at the outset, the parties would have to wait till the last date before filing a suit. Even assuming that the period of suspension is for a short period within the period of limitation, it would make no difference. In many cases, it may be necessary for a party to not merely file the proceedings but also seek interim reliefs. If the party is compelled to file the proceedings during the subsistence of the suspension of the membership, it will per-force have to abandon the arbitration agreement and file any other proceedings such as a suit. 17. Although we cannot exclude the possibility in such a case of a party filing a suit due to the exigencies of the circumstances without prejudice to its rights to take recourse to arbitration subsequently, it only complicates the matters unnecessarily. The party would have to first file a suit without prejudice to the arbitration agreement. If the suspension is lifted or set as....
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.... come to an end without adjudication on merits by virtue of the order under section 8 and on the other he would not be entitled to have his claim decided by arbitration. 23. Far more unfair and complicated would be a case where the non-member does not agree to the suspended or expelled member referring his claim to arbitration thereby compelling him to pursue a civil suit but refers his claim to arbitration. The suspended or expelled member would not be entitled to raise a counter-claim either. Such a case would be riddled with unnecessary complexities too obvious to enumerable. There would for instance be a possibility of a conflict of decision between a public forum and a private forum. 24. Let us presume that it is possible and indeed it may theoretically be possible to overcome these difficulties. The answer to this difficulty we will presume is that the non-member/client would be entitled to elect before which forum the suspended or expelled member ought to prosecute his claim. The question of course then would be as to when he must make this election ? Should the suspended or expelled member call upon him to do so before he institutes his proceedings or would it be l....
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....ws expressly provided for the same. On the other hand, a similar provision is not there in the chapter relating to arbitration other than between the members. To read the term former member or suspended member into the definition of member for the purpose of the chapter relating to "arbitration other than between the members" would render the definition in bye-law 315(d) otiose. It must follow that absent any such specific stipulation, arbitration between a member and a non-member cannot be initiated by a suspended member notwithstanding that the relevant transactions or dealings had been entered into before he was suspended. 30. The submission is not well founded. Merely because specific provisions are made in the chapter relating to members, it does not follow that the provisions relating to others are impliedly to the contrary even if otherwise they are not found to be so. To draw such inferences would be inappropriate. The provision was necessary as the involvement of members in the arbitration proceedings between members is different. For instance, Rule 285 contemplates members as arbitrators. It is possible that the BSE intended even former members to be arbitrators. Moreo....
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....en stated in the petition to show that the Umpire has exceeded his jurisdiction in making the Award or in other words he travelled beyond the terms of the contract in awarding the compensation claimed by the respondent. 6. Mr. Zaiwalla, however, contended that the point regarding jurisdiction goes to the root of the matter and, therefore it is open for the appellant to raise this issue even in oral submission though he maintained that the point should be presumed to have been taken or raised in the petition in view of the averment that the Award is contrary to the terms of the contract. He sought to place reliance on the decisions of the Supreme Court in Kiran Singh v. Chaman Paswan and others 1954 Indlaw SC (181) and Sushil Kumar Mehta v. Gobind Ram Bohra (dead) through Heirs 1989 Indlaw SC (260). These decisions are not rendered under the Arbitration Act and we have serious doubt whether these decisions have any application to the petitions u/s. 14 of the Arbitration Act. In any event the issue of jurisdiction raised by the learned counsel is not a pure question of law and it is a mixed question of law and facts and it will totally unfair to allow the teamed counsel to raise t....
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....well as in law as applicable to the facts of this case. As we will demonstrate, the appellant knew and, in any event, should have known the alleged facts and we use the phrase "alleged facts" consciously even during the course of the arbitral proceedings. In the facts and circumstances of this case, it cannot be said that there was good reason to permit the appellant to raise this contention although it was not raised before the arbitral tribunal. 36. Firstly, the contention does not involve a mere question of law. It involves a mixed question of law and of fact as is evident from what follows. Ms.Kumbhat on the other hand contended that the respondent's membership of the BSE had not been suspended. Her submissions establish that the issue involves a seriously disputed question of fact. Mr. Dwarkadas placed considerable reliance upon the said affidavit filed by SEBI. The respondent's BOLT was deactivated and SEBI suspended the registration. The SEBI's suspension of the respondent's registration is, however, not the same as the respondent's membership being suspended by the BSE. The SEBI's affidavit only states that the SEBI by an order dated 12.06.2002 su....
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....rting the appellant's case, militates directly against it. It is the arbitral tribunal and not the Court that is to determine such questions. 39. There was nothing that prevented the appellant from raising these allegations before the arbitral tribunal. As Ms.Kumbhat rightly pointed out the appellant had knowledge of the alleged suspension of the respondent's membership even when the proceedings were pending before the arbitral tribunal. The appellant in his rejoinder to his application under section 27 of the Act before the arbitral tribunal stated that the SEBI had suspended and revoked the respondent's registration for two years. Although the appellant did not state that the BSE had suspended his registration the suspension and revocation by the SEBI ought to have raised a doubt as to the respondent's membership of the BSE also having been affected. Further, and even more important is the fact that in his application under section 27 of the Act before the arbitral tribunal, the appellant alleged that there was an order passed by the BSE of suspending the respondent from the exchange. The averment is as follows :- "(s) It is respectfully submitted that if th....
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....transactions on which the claim was based were a nullity. We find from the perusal of the records that the debit balance in the account of the Respondent is primarily on account of square off of Amaraja Batteries and certain other shares which the Respondent had purchased. It is clear, and nor has the Respondent seriously questioned this position that the purchases were made by the Respondent through the Applicant. His primary contention is that because there were short sales made by various other Brokers, these transactions would be annulled. We are not inclined to accept the contention of the Respondent. Firstly, we find from the record that SEBI and the BSE has examined these transactions and has not found the purchases made through the Applicant Broker to be invalid. We find from a copy of the Enquiry Report which is on record that the Applicant Broker has been censured for not taking initial deposits and adequate margins. Thus already an independent enquiry has established the veracity of the transactions. Further in our considered opinion a contract is valid when both parties to the transaction are ad-idem. This clearly seems to be the position. The Respondent had instruct....
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....by an application made by the Respondent on 21st of January, 2003 seeking to cross examine the Applicant to prove his defence. The Application is a two paragraph application which does not set out a single reason as to why cross- examination is necessary. A reference to By-law 265 (b) will clear the matter. The bye-law explicitly states that no party shall be entitled without the permission of the Arbitrator to examine a Witness or receive oral evidence. The words used in Bye-law leave no doubt in our mind that oral evidence can be insisted upon only if considered necessary by the Arbitrators. Thus the examination of a Witness is a matter of right but left to the wisdom of the Arbitrators. The Application placed before us is a bland application setting out no reasons as to why a cross - examination was necessary. In the circumstances, considering the facts on record this Tribunal declined to accept the request of the Respondent. We have already put on record that the solitary defence is the veracity of the transactions appearing in the account of the Respondent in the books of the Applicant. We have only stated that the applicant has more than made the burden of proof. These tra....
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....spondent at his instance. As far as the merits are concerned, this is all that the learned Judge said :- "Perusal of the record, however, shows that the Petitioner did not really dispute that he instructed Respondent to make the purchase. It is to be seen that the Respondent had addressed a letter dated 19.3.2001 to the Petitioner demanding the amount in respect of sale of shares made at his instance in settlement no.A-51. The letter was replied to by the Petitioner. The reply is dated 27th March, 2001. Perusal of that reply shows that the Petitioner was not disputing that at his instance shares of Amara Raja Batteries were purchased by the broker. However, the only contention raised, is that the Petitioner did not agree to the sale of the shares by the broker. The Arbitral Tribunal has also observed in its Award that there was no dispute between the parties on shares of Amara Raja Batteries and shares were purchased by the Respondent at the instance of the Petitioner. The only allegation of the Petitioner was that they were short-sold by the broker. So far as that aspect of the matter is concerned, the Arbitral Tribunal has relied upon the order made by the Chairman, Securit....
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..... The documents were the 1-2-A and 1-2-B, Statement/transaction sheets signifying the client code of the respondent's constituent for each date during the period 7th March 2001 and 20th March 2001 in respect of the scrips specified, including those of ARB Ltd. It is also pertinent to note that the Arbitral Tribunal directed the respondent to file 1-2-A and 1-2-B statements. The respondent filed the same. However, that was without the client codes. The appellant also sought delivery statement for the said scrips for settlement Nos. 50, 51 and 52, de-mat details of the respondent and his constituent, statement of account etc. It is important to note that the appellant specifically sought inspection of the original contract notes and original bills annexed or referred to by the respondents in its statement of case. This is not a case where the Arbitrators found that the transactions were established irrespective of whether the respondent had produced the documents or not. There may be cases where a party is unable to produce the document at the trial. The documents or the contents thereof may well be proved in any other manner to the satisfaction of the Arbitral Tr....
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....is no reasoning or consideration of the material on record for coming to this finding. It appears clear to us that the primary reason for rejecting the application under section 27 was the enquiry report. In view thereof, we are in agreement with Mr.Dwarkadas that the rejection of the application under section 27 cannot be sustained. The appellant and the respondent have both been censured. The award could never have been based upon this enquiry report. The enquiry was conducted under section 29 of the SEBI. Moreover, we do not find that the enquiry report in fact establishes the veracity of the transactions. The enquiry report is clearly extraneous material qua the arbitration proceedings. The award could not be made only or even primarily on the basis thereof. Indeed on this ground alone, the award would be liable to be set aside. 49. Even on merits, it is clear that the award is based essentially, if not solely, on the SEBI report and on the finding that the transactions had not been annulled by any authority. The following statement in the award is significant:- "these transactions have not been annulled by any authority as of date and, therefore, a claim based thereon is....