TaxTMI 
TaxTMI 
2026 (9) TMI 962
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....carries on business as a proprietor of the firm in the name and style of M/s. Ishwarlal Nanavati, having Clearing No. 279. The Respondent-Exchange is a recognised Stock Exchange under the Securities Contracts (Regulation) Act, 1956 ("SCRA"). The Respondent-Exchange and its members are governed, inter alia, by the Rules, Bye-Laws and Regulations of the Respondent-Exchange, which have statutory force. II) Sometime on 9th September 1996, in the course of its brokerage business, the Appellant purchased 44,600 shares of Energy Products India Limited ("EPL"), bearing Scrip Code No. 531620, in Settlement No. 14/96-97 (B2 Group Securities). III) The aforesaid purchase was made by the Appellant on behalf of its clients. It is the Appellant's contention that, upon purchase of the said shares from the open market through the Respondent-Exchange, the requisite confirmations, memos, contract notes, bills and other relevant documents were duly issued to the respective parties. IV) It is also the Appellant's contention that the aforesaid 44,600 shares were purchased during Settlement No./Valan No. 14/96-97, for the period commencing from 9th September 1996 and ending on....
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.... 1996, respectively, the Appellant deposited the requisite amount with the Clearing House of the Respondent-Exchange. 7. On account of various transactions undertaken by Mr. K. F. Vora, who was also a member of the Respondent-Exchange, he was required to deliver 60,000 shares of EPL in settlement No. 17/96-97. Out of the said 60,000 shares, upon giving effect to the netting and settlement procedure, the disputed shares were required to be delivered to the Appellant. 8. It is the Appellant's contention that, having deposited the requisite amount with the Clearing House of the Respondent-Exchange, the Appellant became entitled to receive physical delivery of the share certificates pertaining to the entire quantity of 44,600 shares of EPL on or about 17th October 1996. 9. However, despite the Appellant having deposited approximately Rs. 23,00,000/- with the Clearing House of the Respondent-Exchange, the Clearing House delivered only 23,000 shares, resulting in a short delivery of 21,600 shares. The said short-delivered shares were valued at Rs. 10,58,000/- and were required to be received from the broker/member, Mr. K. F. Vora. 10. It is the Appellant's contention that, on....
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....July 1997, declined to accept the said shares on the ground that, by that stage, the shares were no longer of any benefit to the Appellant. However, on the very same day, the Respondent-Exchange once again called upon the Appellant to collect the disputed shares from the Clearing House. 17. On 20th August 1997, the Appellant, by a letter of even date addressed to the Respondent-Exchange, once again reiterated that, at such a belated stage, it was unjust, unfair and inequitable on the part of the Respondent-Exchange to require the Appellant to accept delivery of the disputed shares. The Appellant accordingly called upon the Respondent-Exchange to refund, without any further delay, the sum of Rs. 10,58,000/- together with interest thereon. 18. It is the Appellant's contention that, after a lapse of approximately six months, the Respondent-Exchange, allegedly misusing its powers, addressed a letter dated 23rd February 1998 to the Appellant, once again calling upon the Appellant to collect the disputed shares from the Clearing House. 19. Thereafter, the Appellant filed L.C. Suit No. 7708 of 2000 against the Respondent seeking the following reliefs: (a) A declaration t....
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.... and functions in furtherance of the objects of the SCRA and in accordance with the applicable Rules, Bye-laws and Regulations. (v) It was further contended that the reliefs sought by the Appellant in the suit could not be claimed against the Respondent-Exchange and, if at all, would lie inter se between the concerned members with whom the Appellant claimed to have entered into the transactions. The Respondent-Exchange accordingly contended that the suit was bad for misjoinder and/or non-joinder of necessary parties and, in any event, was not maintainable and was liable to be dismissed with costs. (vi) The brief elaboration of the manner in which shares were traded in the Respondent-Exchange was also explained, the same reads as follows: (a) With effect from 14 March 1995, member-brokers of the Exchange have been provided with trading terminals connected to the BSE On Line Trading System ("BOLT System"). Through the BOLT system the member-brokers enter orders for the purchase and / or sale of shares from trader work stations (TWS) installed in their offices (instead of assembling in the trading ring of the Exchange, as was originally the practice). ....
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.... and refusing to accept delivery of the shares from the Respondent-Exchange. 23. The Respondent-Exchange further contended that the EPL shares were thinly traded and that, between 20th September 1996 and 17th April 1997, the price of the EPL shares had declined substantially. According to the Respondent-Exchange, it was on account of such decline in the share price that the Appellant had suffered a loss and, consequently, was no longer interested in accepting delivery of the disputed shares. It was further contended that the Appellant approached the Respondent-Exchange for a refund merely five days after expiry of the six-month period prescribed under the Rules, Bye-Laws and Regulations of the Respondent-Exchange for initiating arbitration proceedings against Mr. K. F. Vora. The Respondent-Exchange accordingly alleged that the Appellant had approached the Court after suppressing these material facts and, therefore, the suit was liable to be dismissed. 24. At the time of leading evidence in the suit, the affidavit in lieu of examination-in-chief of Mr. Bipin Kantilal Kapadia, the Appellant, was taken on record, and also the cross-examination was conducted of the Appellant, and....
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....roker Mr. K.F. Vora whose disputed shares the Appellant had not received entitling the Appellant for the delivery of shares from the said Mr. K.F. Vora or in the alternative the amount of Rs. 10,58,000/- was receivable from Mr. K.F. Vora instead of the Respondent-Exchange? c) Whether once the trade in respect of the disputed shares by Valan No. 14/96-97 itself was annulled then the act of the Respondent-Exchange to deliver the shares to the Appellant was legal/correct ? d) What reliefs are the plaintiffs entitled to ? 30. Mr. Amit Shroff along with Mr. Vinayak Suthar appeared on behalf of the Appellant. Ms. Radhika Gupta along with Mr. Taha Mirza instructed by Khaitan and Company appeared on behalf of the Respondent-Exchange. 31. Learned counsel on behalf of the Appellant submitted that the Trial Court failed to appreciate the facts of the present case and erred in coming to the conclusion that the Respondent-Exchange was not liable to refund the amount of Rs. 10,58,000/- to the Appellant. It was further his submission that the learned Trial Court had come to an erroneous finding that in view of Bye-Law No. 315J of Rules, Bye-Laws and Regulations of the Stoc....
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....hich limits the time within which he may thus enforce his rights; or (b) which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability,. under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to that extent. Exception 1.-Saving of contract to refer to arbitration dispute that may arise.-This section shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred. Exception 2.-Saving of contract to refer questions that have already arisen.-Nor shall this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law in force for the time being as to references to arbitration. Exception 3.-Saving of a guarantee agreement of a bank or a financial institution.....
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....bmitted that even otherwise to invoke Arbitration it is incumbent upon the party claiming that the disputes are covered by the Arbitration clause to make an application under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the "Arbitration Act") to the Court to refer the matter to Arbitration. He submitted that in the facts of the present case that no such application under Section 8 of the Arbitration Act has been made, and hence the plea of the Respondent-Exchange that Arbitration could be invoked is not a correct position in law. 35. He further submitted that since the transaction itself of the trade of the disputed shares were annulled, the question of Mr. K.F. Vora delivering the shares physically to the Appellant was not possible and hence the question of remedy against Mr. K.F. Vora of closing out as per the Bye-Laws or seek remedy of Arbitration of delivery of shares did not arise at all. He further submitted that in fact after the disputed shares were returned to Mr. K.F. Vora, the Clearing House of the Respondent-Exchange had themselves categorically asked Mr. K.F. Vora not to deliver the shares further and placed it under no deliver....
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.... transactions entered by these brokers were annulled and the said brokers were asked to take back their shares from the Clearing House pertaining to annulled transactions. It was in these circumstances that the delivery of shares was an obligation of Mr. K.F. Vora which was not met by the said Mr. K.F. Vora and hence the Respondent-Exchange was in no way liable to effect delivery of the same and to make payment of Rs. 10,58,000/- to the Appellant, was the contention of the learned counsel for Respondent-Exchange. 39. She further submitted that the Appellant should have approached the Respondent-Exchange immediately after the non-delivery of shares i.e. after 14th October 1996, however the same was not done by the Appellants, and he waited until December 1997 to bring the same to the attention of the Respondent-Exchange. 40. She further submitted that the appropriate remedy available to the Appellant was in fact initiating Arbitration proceedings against Mr. K.F. Vora and not claim a refund from the Respondent-Exchange and refuse to take delivery of the said shares. 41. She further submitted that the Appellant had chosen not to take delivery of the disputed shares as the va....
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....nce that being the case that the trades as entered into by Mr. K.F. Vora as a member broker being annulled and the shares which included the disputed shares being returned back to him by the Respondent-Exchange, the question of physical delivery of the same to the Appellant did not arise at all. The fact that once an annulment of a trade takes place it means that the trade has come to an end and thereafter the trading of that share itself is not possible. It would be beneficial to reproduce the meaning of the term "Annul" as given in the following dictionaries to demonstrate that an annulment means the end or the non-existence of a law, agreement or marriage, etc. The relevant dictionary meanings are given below:- Oxford Dictionary 2017:- "Annul" - "To state officially something is no longer legally valid or recognized" K. J. Aiyar Judicial Dictionary 17th Edition Vol. 1 2017:- "Annul" - "To reduce to nothing e.g. annul a decree; to annul or adjudicate bankruptcy. In Chambers 26th Century Dictionary, the word 'annul' has been assigned the meaning as to make null, to reduce to nothing, to abolish. P. Ramanatha Aiyar Advanced Law Lexicon 7....
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....ew, the case of the Appellant (Original Plaintiff) is more probable on the examination of the documents and the evidence on record. f. I am further of the view that as held by me, above, that once the annulment of the trade concerning the disputed shares had taken place, the obligation if any of Mr. K.F. Vora towards the Appellant would not survive. In that situation, there could be no action which the Appellant could possibly bring against the said Mr. K.F. Vora as a member broker. The contention therefore sought to be canvassed by learned counsel on behalf of the Respondent that the correct remedy to the Appellant is to invoke arbitration proceedings under the Bye-laws, is a submission which deserves to be rejected at its very threshold, inasmuch as once there is no remedy itself available against Mr. K.F. Vora, then the question of invoking arbitration against Mr. K.F. Vora does not arise. I am also of the view that there was no privity of contract between the Appellant and Mr. K.F. Vora considering that the very process of trading as explained in the written statement filed by the Respondent-Exchange show that while effecting purchase/sale orders on the trading system,....
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....tly owned by the defendant along with his wife and three sons, an effective decree could not have been passed affecting the rights of the defendant's wife and three sons without impleading them. Even in spite of the defendant taking an objection in that regard, the plaintiff has chosen not to implead the defendant's wife and three sons as party defendants. Insofar as the reliance placed by Shri Chitnis on the judgment of this Court in the case of Kasturi (supra) is concerned, the question therein was as to whether a person who claims independent title and possession adversely to the title of a vendor could be a necessary party or not. In this context, this Court held thus: "7 From the above, it is now clear that two tests are to be satisfied for determining the question who is a necessary party. Tests are - (1) there must be a right to some relief against such party in respect of the controversies involved in the proceedings; (2) no effective decree can be passed in the absence of such party." 20. It can thus be seen that what has been held by this Court is that for being a necessary party, the twin test has to be satisfied. The first one is that....
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....arty, is a person whose presence would enable the court to completely, effectively and adequately adjudicate upon all matters in dispute in the suit, though he need not be a person in favour of or against whom the decree is to be made. If a person is not found to be a proper or necessary party, the court has no jurisdiction to implead him, against the wishes of the plaintiff. The fact that a person is likely to secure a right/interest in a suit property, after the suit is decided against the plaintiff, will not make such person a necessary party or a proper party to the suit for specific performance." 34. Thereafter, in Vidur Impex & Traders (P) Ltd. v. Tosh Apartments (P) Ltd. {, the broad principles governing impleadment were summarized: (SCC p. 413, para 41) "41.... 41.2. A necessary party is the person who ought to be joined as party to the suit and in whose absence an effective decree cannot be passed by the court. 41.3. A proper party is a person whose presence would enable the court to completely, effectively and properly adjudicate upon all matters and issues, though he may not be a person in favour of or against whom a decree is to be made. ....
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....ors in respect of any matter or thing purporting to be done under this Bye-Laws or Regulations nor any suit or proceedings (save for enforcement of the award) against the other party or party to the reference. This Bye-Law comes specifically under the chapter of "References and Appeals to Dispute Resolutions" and it is in respect of a reference which is drawn up under the provisions and it applies only when a reference is made under the relevant Bye-laws. The mandate of Bye-law 315J of the Bye-Laws therefore cannot be read to mean that this indemnity applies in every situation to the Exchange and since in facts of the present case, there was no reference of any dispute as envisaged under the Bye-laws 315B to 315L of the Bye-laws, the submission made on behalf of the Respondent-Exchange that the Respondent-Exchange be protected on account of the aforesaid indemnity deserves to be rejected. Further, it is my view that the Trial Court also in the impugned order has only sought to place reliance upon Bye-Law No. 315J of the Bye-Laws to hold that the Respondent-Exchange was indemnified and could not be made liable for the refund as sought by the Appellant in the present case. The relian....
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....o instruct a member of a direct delivery of the security which he has to deliver under the Bye-Laws to another member who is entitled for them. Further Bye-Law No. 96(b) of the Bye-Laws provides that the member giving and receiving delivery as provided in sub-clause (a) shall be deemed notwithstanding that no direct contract exists between them to have made a contract between sellers and buyers. It however also provides that the rights and liabilities of such members in relation to their immediate contracting parties shall not be deemed to be affected thereby except that the selling member who is the immediate contracting party of the receiving member shall be (unless he himself is the delivering member) released from all responsibility in regard to the title, ownership, genuineness, regularity and validity of the documents received by the receiving members and in regard to the loss and damage arising therefrom which shall be dealt with in accordance of the Bye-Laws and Regulations in relation to documents and registration. The relevant Bye-Law is reproduced below:- 96. Clearing House to Deliver Securities at Discretion (a) The Clearing House is entitled at its di....
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.... party of the receiving member unless he himself is the delivering member would be released from all responsibilities with regard to the title, ownership, genuineness, regularity and validity of the documents received by the receiving member and any loss or damage arising therefrom would not be the responsibility of the selling member. m. I am of the view therefore that in facts of the present case even if there was a deemed contract between the Appellant and Mr. K.F. Vora, the fact that the trade was annulled and that the delivery was not being effected by Mr. K.F. Vora but in fact was being done by the Clearing House would by itself show that there was no relief that the Appellant could have sought against the said Mr. K.F. Vora. Once that being the position the other provisions of other Bye-Laws particularly Regulation 8.44 regarding closing out and Bye-law No. 168 of the Bye-Laws regarding closing out of contracts would not get attracted, inasmuch as in the present case, there was no trade which was left to be closed out. Once that being the undisputed position, the question of bringing any action against Mr. K.F. Vora would not survive and the Appellant has rightly in....