TaxTMI 
TaxTMI 
2021 (4) TMI 1392
X X X X Extracts X X X X
X X X X Extracts X X X X
....y Stock Exchange under the Bye-laws, Rules and Regulations of the Bombay Stock Exchange. Respondent no. 2 is wife of the appellant and was a separate constituent of respondent no. 1. 3. Sometime in the year 1999, the appellant had executed an individual Client Registration Application form as per the format given by the respondent no. 1 to carry on transactions on the Bombay Stock Exchange for the purchase and sale of various shares. Respondent no. 1 did not execute a client broker agreement with the appellant but had executed an individual client registration application form dated 1st August, 1999. 4. It was the case of the appellant that at the end of the settlement period A-42 on 31st January, 2001 there was an admitted credit balance of Rs. 7,40,020/- due and payable by the respondent no. 1 to the appellant. On 16th February, 2001, the appellant paid a further sum of Rs. 2 lakhs to the respondent no. 1 thus taking the credit balance is the sum of Rs. 9,40,020/-. It is the case of the appellant that no further transactions were carried out by the appellant in respect of the said account with respondent no. 1. At the end of the period February, 2001 when the appellant deci....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... respondent no. 1 filed a rejoinder to the Written Statement of respondent no. 2. Appellant and respondent no. 2 also filed a separate sur-rejoinder. On 6th November, 2002 the respondent no. 1 filed an Affidavit in lieu of examination-in-chief of Deepika Chokshi, one of the Director of the respondent no. 1 and of another witness. The respondent no. 1 also filed written submission before the Arbitral Tribunal. The said witness examined by the respondent no. 1 was cross-examined by the appellant's counsel. The Arbitral Tribunal made an Award on 26th February, 2004 directing the appellant and the respondent no. 2 to pay jointly and severally to the respondent no. 1 a sum of Rs. 11848069/- with interest at the rate of 9% per annum from 1st May, 2001 till the date of payment. The Arbitral Tribunal rejected the counter-claim filed by the appellant. 8. Being aggrieved by the said Arbitral Award, the appellant as well as respondent no. 2 filed two separate Arbitration Petitions bearing No. 309 of 2004 and 308 of 2004 under Section 34 of the Arbitration Act before this Court. By an order dated 23rd August, 2005, a learned single Judge of this Court dismissed both the Arbitration Peti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... lien, set-off, counter-claim charge or otherwise against moneys standing to the credit of clients account. It is further provided that it shall also be compulsory for all Members brokers/sub-brokers to receive or to make all payment from or to the client strictly by way of account payee crossed cheques or demand drafts or direct credit into the bank account through NEFT or any other modes as so permitted by the Reserve Bank of India. Member brokers shall accept cheques drawn only by clients and issue cheques only in favour of the clients. However, in exceptional circumstances Member broker may receive payment in cash, to the extent that there is no violation of the Income Tax requirement for the time being in force. 12. It is submitted by the learned counsel that the respondent no. 1 had accordingly opened two separate accounts of the appellant and the respondent no. 2 respectively. All the transactions were carried out by the appellant-respondent no. 2 separately and were entered in those two separate accounts of the appellant and the respondent no. 2 respectively. It is submitted that the respondent no. 1-broker could not have held the appellant liable for the transactions, i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt' account to other, however, the practical side of it suggest that considering past experience and considering joint and several liability and considering their heavenly bestowed relationship, the Arbitral Tribunal upheld that such a transfer as made by the respondent no. 1 Member was in order. He submits that the said findings of Arbitral Tribunal is ex-facie, perverse and contrary to the Bye-laws, Rules and Regulations of the Stock Exchange, Mumbai and also the SEBI requirements. The Arbitral Tribunal could not have passed an Award against the petitioner on the basis of bestowed relationship between husband and wife. No finding of joint and several liability could be rendered by the Arbitral Tribunal passed on the alleged oral agreement between the appellant and the respondent no. 1. 16. Learned counsel for the appellant invited our attention to the part of the Award at page 54 of the paper book referring to the written submissions made by the appellant contending that the claim filed by the respondent no. 1 was bad for misjoinder of parties and causes of action as the respondent no. 1 had entered into separate client broker agreement with respect of the respective separ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Arbitration Act in support of the submission that the Arbitration Agreement is required to be executed in writing. The respondent no. 1 and the respondent no. 2 had invoked the Arbitration Agreement between the respondent no. 1 and respondent no. 2 and not between the respondent no. 1 and the appellant. The Arbitral Tribunal had thus no jurisdiction to entertain any claim in so far as appellant is concerned. He submits that even if the appellant was an agent of the disclosed principal, the appellant cannot be held liable. Learned counsel for the appellant invited our attention to few observations made by the learned single judge in the impugned order dated 23rd August, 2005. He submits that the learned single Judge has erroneously held that it was an implied term in the written contract executed between the respondent no. 2 and the respondent no. 1 and it was agreed to between the parties orally that if there was any debit balance in the account of the wife, both, the husband and wife would be jointly and severally liable. 21. The arbitration clause in the agreement with the wife was admittedly invoked. The learned single Judge erroneously held that there was arbitration....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vision bench of this Court in case of Syntrex Corporation Vs. Rajmukar Keshardev and Ors. 2007(6) Mh.L.j. 34 and in particular paragraphs 2 to 5 and would submit that the dispute between the parties i.e. a member and the constituent arising out of the transactions having taken place on the floor of the stock exchange only and the transactions permitted under the Bye-laws of the exchange only could be referred to arbitration and not otherwise. There were no such transactions on the floor of exchange between the appellant and respondent no. 1 which were the subject matter of the said arbitration proceeding filed by the respondent no. 1 against the appellant. 26. Mr. Sharan Jagtiani, learned senior counsel for the respondent no. 1, on the other hand, submits that the arbitration proceedings filed by the respondent no. 1 were under Bye-laws 248 (a) of the Mumbai Stock Exchange and was a statutory arbitration. No notice under Section 21 of the Arbitration Act was required to be issued prior to the date of the filing statement of claim by respondent no. 1 under the Bye-laws of the Stock Exchange Mumbai. The respondent no. 1 had filed a requisite Form i.e. Form 'AA' with the St....
X X X X Extracts X X X X
X X X X Extracts X X X X
....count with respondent no. 1. 29. The learned senior counsel placed reliance on the following judgments in support of his aforesaid submissions. 1) Union of India Vs. Pam Development Pvt. Ltd. (2014) 11 SCC 366 2) Gas Authority of India Pvt. Ltd. And Anr. Vs. Keti Construction (I) Ltd. And Ors. (2007) 5 SCC 38 3) Aditasai Cotspin Pvt. Ltd. Vs. M/s. Louis Drayfus Commodities Pvt. Ltd. 2015 SCC Online Bom 3410 4) Oil and Natural Gas Corporation Ltd. Vs. Comes Services SA. 2003 SCC Online Bom 287 5) P.R. Shah Shares and Stock Brokers Pvt. Ltd. Vs. B.H.H. Securities Pvt. Ltd. And Ors. (2012) 1 SCC 594 6) Banwari Lal Kotiya Vs. P.C. Aggarwal (1985) 3 SCC 255 7) Bombay Stock Exchange Vs. Jaya L. Shah & Anr. (2004) 1 SCC 160 30. It is submitted by the learned senior counsel for the respondent no. 1 that the Bye-laws of the Stock Exchange Mumbai have statutory force and have been rightly applied by the Arbitral Tribunal also against the appellant. He submits that even in the said application form filed by the respondent no. 1 before the Stock Exchange Mumbai, a reference to Bye-laws under 248 (a) was made. The said Form AA....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anted with the order passed by the learned single Judge and also the arbitral Award rendered by the Arbitral Tribunal. 34. Mr. Simil Purohit, learned counsel for the appellant, in his rejoinder argument submits that there was no contract of surety pleaded by the respondent no. 1 before the Arbitral Tribunal. There was no contractual agreement binding between the appellant and respondent no. 1 in respect of the claims made by the respondent no. 1 against the appellant. The respondent no. 1 did not point out any provisions of law holding husband as surety of his wife automatically and becomes axiomatically, jointly and severally liable for the debts, if any, of the wife to any third party. 35. Learned counsel for the appellant strongly placed reliance on Bye-law 248(a) of the Bye-laws framed by the Stock Exchange Mumbai and would submit that the dispute under the said Bye-laws can be referred to arbitration only if all the dealings, transactions and contracts which are made subject to the Rules, Bye-laws and Regulations having taken place on the floor of exchange and not otherwise. It is submitted that no claim arising out of the alleged guarantee or surety of the appellant on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cally raised a plea in the written statement that there was a mis-joinder of the appellant in the said statement of claim filed by the respondent no. 1 and a claim could not have been maintained against the appellant. He submitted that it was a statutory arbitration wherein only specified disputes permissible under Regulation 248(a) between the specified parties mentioned therein only and that also arising out of the "bargains", "dealings", "contract" and "transactions" having taken place on the floor of the exchange could be referred to arbitration and nothing beyond that. Even by consent of the parties, the dispute with a third party in respect of the private transaction could not be referred as disputes to arbitration nor such disputes could be adjudicated upon by the Arbitral Tribunal against such third party even on a consent or such third party not having raised any issue of jurisdiction. 39. It is submitted by the learned counsel that even if the appellant had not even specifically raised the issue of jurisdiction under Section 16 of the Arbitration Act as sought to be canvassed by the learned senior counsel for the respondent no. 1, this being a case of inherent lack of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that there was no written contract notes between the appellant and the respondents. 42. The learned senior counsel for the respondents distinguished the judgment of the Hon'ble Supreme Court in case of Union of India Vs. Popular Builders (supra) on the ground that the case before the Hon'ble Supreme Court in the said judgment was not a case of statutory / institutional arbitration. The arbitration clause in this case has been set out on the bye-laws of the Stock Exchange. There were no arbitrable dispute to be referred to be arbitration in respect of the final bill in the case before the Hon'ble Supreme Court. The appellant was carrying on the dealings/transactions from the trading account of the respondent no. 2. 43. The learned senior counsel distinguished the judgment of this Court in case of Atul R. Shah (supra) on the ground that in that matter the Arbitral Tribunal was not constituted in conformity with Section 10 of the Arbitration Act. The Arbitral Tribunal did not afford reasonable opportunities to the appellant to defend the claims made by the respondents. However, in this case the Arbitral Tribunal was constituted in conformity with not only Bye-laws ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndent no. 2 were put to sufficient notice as regards the commencement of arbitral proceedings against them. REASONS AND CONCLUSION:- 46. The questions fell for consideration in this appeal are:- "(a) Whether arbitral tribunal had jurisdiction to entertain claims made by the respondent No. 1 against the appellant? (b) Whether the appellant could be impleaded as a party respondent in the arbitral proceedings in respect of the dispute between the respondent no. 1 and respondent no. 2 filed under the statutory Bye-laws on the ground that the liability of the appellant and the respondent no. 2 were joint and several though Arbitration Agreement between the respondent nos. 1 and 2 only was invoked by the respondent no. 1? (c) Whether Arbitral Tribunal can be conferred with jurisdiction by consent of parties in respect of the private transaction between them and not having taken place on the floor of the Bombay Stock Exchange under bye-law 248(a) of the Stock Exchange, Mumbai? (d) Whether under Bye-law 248(a) of the Stock Exchange, Mumbai providing for adjudication of the disputes arising only between the parties prescribed therein in relation to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce came down to Rs. 84,85,76,418/-. It was alleged that the appellant and the respondent no. 2 misrepresented to the respondent no. 1 that they were one and the same and both were jointly and severally liable to pay the debit balance plus any other liabilities. In paragraph no. 11 of the statement of claim it was alleged that the appellant and the respondent no. 2 were the constituents of the respondent no. 1. The differences and the dispute had arisen between them which were resolved through the arbitration of the Bombay Stock Exchange. The appellant and the respondent no. 2 resisted the said statement of case filed by respondent no. 1 on various grounds. 50. In the written statement and the counter claim of the appellant it was contended that the claim filed by the respondent no. 1 against the appellant was bad for misjoinder of parties and causes of action. Each individual is a separate legal entity in the eyes of law. The respondent no. 1 had entered into separate Client Broker Agreement with respect of their separate transactions and therefore, the claim as filed by the respondent no. 1 was not maintainable and liable to be dismissed. It was also contended by the appellant....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eu of examination-in- chief filed by a few witnesses examined by respondent no. 1. Arbitral Tribunal held that the appellant and respondent no. 2 are jointly and severally liable to pay the amount as per the said award. The Arbitral Tribunal held that normally and historically the share transactions are done in a family by one person on behalf of the family members and more particularly, husband and wife is a formal unit. Interaction with the brokers' office was done by only one person. This was the position despite the fact that there would be separate client code, separate contract notes, bills and separate bank accounts. It was necessary to have these things separately, considering the documentation necessary for the purpose of tax laws. Broker member may not have seen other family members except their photographs, now on compulsory Broker Client Claim Form. 54. The Arbitral Tribunal accordingly held that the Tribunal upholds the existence of such oral agreement or understanding. It is held that the appellant was mostly coming to the office of the respondent no. 1-broker and had also given instructions sometimes when the respondent no. 2 was out of town and merely under t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rve Bank of India. The member broker shall accept cheques drawn by clients and issue cheques only in favour of the clients. However, in exceptional circumstances, the member broker may receive payment in cash to the extent that there is no violation of the Income Tax requirements for the time being in force. 58. There was no express or oral understanding given by the appellant that any amount lying to the credit of his account shall be adjusted against the account of the respondent no. 2. The question of adjustment of the credit balance lying in the account of the appellant by the respondent no. 1 with the debit balance of respondent no. 2 did not arise. Though the Arbitral Tribunal took cognizance of this Byelaws requiring express authority of a client for adjustment of the credit and debit balance as the case may be, the Arbitral Tribunal approved the illegal transfer of the credit balance of the appellant in the account of the respondent no. 2 without any express authority or otherwise in violation of Bye-law 247A and also the SEBI guidelines. The adjustment of the credit balance with the debit balance could be permitted only by and under the express authority in respect of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce to anything incidental thereto or in pursuance thereof or relating to their construction, fulfillment or validity or in relation to the rights, obligations and liabilities of remisiers, authorised clerks, sub-brokers, constituents, employees or any other persons with whom the member shares brokerage in relation to such dealings, transactions and contracts shall be referred to and decided by arbitration as provided in the Rules, Bye-laws and Regulations of the Exchange." 62. A perusal of said Bye-law 248(a) clearly indicates that the claims, difference and dispute only between the parties referred in the said Bye-laws arising out of a relation to a dealings, transactions and contracts which are made subject to Rules, Bye-laws, Regulations of the Exchange or with anything reference to anything incidental thereto or in pursuance thereof relating to their construction, fulfillment or validity or in relation thereto shall be referred to or decided by arbitration as provided in the Rules, Bye-laws and the Regulation of the Exchange. Though there was a similar arbitration clause applicable in respect of such dispute between the appellant and the respondent no. 1 in respect of all c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppellant with the debit balance lying in the account of the respondent no. 2 with the respondent no. 1 was without any express authority which was mandatory before carrying out any such adjustment under Clause IX of the SEBI Guidelines. The Hon'ble Supreme Court in case of Deutsche Post Bank Home Finance Limited (Supra) has dealt with the Special Leave Petition converted into Civil Appeal filed by a third party (not a party to the Arbitration Agreement) impugning the order passed by the High Court under Section 11 of the Arbitration Act. Insofar as such third party who was impleaded in an application under Section 11 of the Arbitration Act by the respondent No. 1 was concerned, there was a transaction between respondent Nos. 1 and 2 under an agreement entered into between those two parties. There was a separate loan agreement between the appellant and the respondent No. 1. 66. The Andhra Pradesh High Court accepted the contention raised by the respondent Nos. 1 that the appellant was rightly impleaded as a party respondent in the said application filed by the respondent No. 1 under Section 11 of the Arbitration Act. The Hon'ble Supreme Court in the said judgment adverted....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng an arbitration agreement. There was no doubt that loan agreement dated 21st December, 2006 between the first respondent as borrower and the appellant as a creditor also contained an arbitration clause providing for resolution of disputes in regard to the said loan agreement by arbitration. But the developer was not a party to the loan agreement. There was no arbitration agreement between the developer and the appellant. The first respondent had invoked the arbitration agreement contained in the construction agreement between the first respondent and the developer and not the arbitration agreement contained in the loan agreement between the appellant and the first respondent. 69. It is held that the existence of an arbitration agreement in a contract between the appellant and the respondent will not enable the first respondent to implead the appellant as a party to an arbitration in regard to his disputes with the developer. It is held that if there had been an arbitration clause in the tripartite agreement amongst the first respondent, developer and the appellant and if the first respondent had made claims or raised dispute against petitioner, developer and the appellant with....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... arbitrator with respect of various prayers in the statement of claim in respect of the copyright of one of the parties which was an action in rem and was not arbitrable, since the learned arbitrator inherently lacked the jurisdiction to adjudicate upon such action in rem it would not amount to a waiver under Section 4 of the Arbitration Act. A party even by consent cannot confer jurisdiction on the learned arbitrator in case of action in rem which jurisdiction the learned arbitrator did not have. This Court also adverted to the judgment of Supreme Court in case of Chiranjilal Shrilal Goenka v/s. Jasjit Singh (1993) 2 SCC 507, and followed the principles laid down therein. This Court accordingly permitted the petitioner to raise such issue of jurisdiction for the first time in the petition filed under Section 34 on such ground. We are in agreement with the principles laid down by a learned Single Judge of this Court delivered by one of us (R.D. Dhanuka, J.). In this case also, the arbitral tribunal lacked inherent jurisdiction to deal with the claim against the appellant arising out of private transaction not governed by bye-law 248(a). 73. This Court in case of Smt. Prema Amarl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssed by the learned Single Judge of this Court. The said principles laid down by this Court applies to the facts of this case with greater force. 76. In this case, the appellant who was impleaded as a party respondent had raised an objection that there was misjoinder of parties and no reliefs could be granted against the appellant by the arbitral tribunal in those proceedings. In our view, in view of there being a statutory arbitration even in this case as prescribed under Bye-laws 248(a) of the Bye-laws framed by the Stock Exchange, Mumbai and in view of the fact that the appellant did not fall under any of the persons described under the said clause in the capacity of a guarantor or as third party, the entire arbitration in so far as Appellant is concerned was totally without jurisdiction. Even if the appellant had not raised any objection in so many clear terms prescribed under Section 16 of the Arbitration Act in such statutory arbitration prescribing the parties whose disputes can be referred to arbitration in relation to dealings, transactions and contract made subject to Bye-laws and Regulations of the Exchange, the arbitral tribunal having lack of inherent jurisdiction, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... respectfully bound by the said principles laid down in the said judgment. 79. A learned Single Judge of this Court in case of Atul R. Shah (supra) has held that if the tribunal is not properly constituted, even if the objection was not raised before the arbitral tribunal, that cannot result in the arbitral tribunal exercising jurisdiction if constitution of the arbitral tribunal was in contravention of Section 10 of the Arbitration Act. Courts cannot confer jurisdiction on themselves, by consent of the parties and clothe themselves with jurisdiction though in a given case, no such jurisdiction vest in such Court. The principles laid down by this Court in the said judgment applies to the facts of this case. 80. In our view, Mr. Jagtiani, learned senior counsel for the respondent no. 1 however is right in his submission that under the Bye-laws, Rules and Regulations framed by the Stock Exchange, Mumbai, the party who wants to make a claim against any party falling under Bye-law 248(a) was not required to give any notice invoking arbitration agreement under Section 21 of the Arbitration Act and is required to file requisite form alongwith statement of claim before the Stock Exc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assist the case of the respondent no. 1. 83. The Supreme Court in case of P.R. Shah, Shares and Stock Brokers Pvt. Ltd. (supra) has considered the facts where the appellant and the first respondent therein were members of the Bombay Stock Exchange. The first respondent had raised and referred a dispute against second respondent and the appellant under the Rules, Bye-laws and Regulations framed by the Bombay Stock Exchange. It was alleged by the respondent no. 1 that the appellant and the second respondent were sister concern with a common director who had approached the first respondent to get the carry forward sauda in respect of certain shares. Those shares were transferred with the first respondent on behalf of the second respondent which were outstanding with the appellant. In that case, all the bills were drawn on the second respondent according to the first respondent as required by the appellant. 84. The arbitral tribunal had held that the transactions had taken place as alleged by the first respondent and therefore the appellant and the second respondent were liable for the amounts claimed. The arbitral tribunal made an award allowing the claim against the appellant ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eme Court in case of Banwari Lal Kotiya (supra) relied upon by the learned senior counsel for the respondent no. 1 is concerned, the Hon'ble Supreme Court has dealt with an arbitral award under the provisions of the Arbitration Act, 1940. The Hon'ble Supreme Court considered Bye-law 248(a) of the Stock Exchange, Mumbai and held that the assent of the parties to actual reference is already there in the agreement; in addition there is a statutory reference and thus the reference being consensual the resultant award would be valid and binding on the parties to the transactions. There is no dispute about the proposition of the law laid down by the Supreme Court in the said judgment that the reference under Bye-law 248(a) was a statutory reference and thus assent of all the parties to the actual reference already was in the agreement. 88. In our view, two separate transactions between two different parties could not have been clubbed together in the same reference, though all such parties were party to such statutory arbitration. The respondent no. 1 admittedly not having invoked the arbitration agreement against the appellant under bye-law 248(a), the appellant could not hav....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the appellant itself was a misjoinder of the party. Since there was a separate arbitration agreement between the appellant and the respondent no. 1, if the appellant was aggrieved in view of the respondent no. 1 not paying the amount lying to the credit in the account of the appellant or in view of the adjustment of credit balance, the appellant could have invoked the separate arbitration agreement prescribed under Bye-laws 248 (a) of Bye-laws framed by the Stock Exchange, Mumbai and could not have filed a counter-claim. The Arbitral Tribunal has dismissed the counter-claim filed by the appellant on the ground that the said counter-claim was filed as counter blast and not sustainable after being adjusted to the account of the respondent no. 2. 92. There is no merit in the submission of the learned senior counsel for the respondent no. 1 that various findings of the facts rendered by the Arbitral Tribunal in this case were rightly not interfered with by the learned Single Judge. In our view, the learned Single Judge ought to have set aside the award on the ground of inherent lack of jurisdiction. Be that as it may, the findings rendered by the Arbitral Tribunal being totally ....