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Hemendra V. Shah v. Stock Exchange, Bombay And Others

Bombay High Court
Jul 14, 1995
Judgment
Subsequent
References
CaseIQ
Case Information
CITATION CODES
citation codes
CASE NO.

Arbitration Petn. No. 71 of 1995

Attorney(S)

Navneet Shah with Niranjan instructed by Niranjan and Co.

Virag Tulzapurkar with Mody instructed by Wadia Ghandy and Co.

Soli Cooper instructed by Maneksha and Sethna

JUDGES

S.N Variava, J.

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Court Opinion Summary

Factual and Procedural Background

The petitioner (formerly a clerk of the 6th Respondent) applied for and obtained membership of the Bombay Stock Exchange (BSE) on 13 April 1989, with the 6th Respondent having given a no-objection and standing as guarantor. The 6th Respondent later claimed that the petitioner was proprietor of R. Dalal & Co. and filed a claim before the BSE for Rs. 2.18 crores arising from transactions in 'A' and 'B' Group shares covering periods between 1986 and 1989. Arbitration under the Rules, Bye-laws and Regulations of the BSE was invoked.

The BSE initially appointed Mr. G.V. Desai as an arbitrator; the petitioner appointed Mr. H.K. Shah as his arbitrator on 13 September 1991. Mr. G.V. Desai resigned on 16 October 1991; the BSE appointed Mr. Ashok Khandwalla in his place, which led to a petition (No. 216 of 1991) and ultimately to a Consent Order dated 13 January 1992. The Consent Minutes recorded the parties' appointment of arbitrators and their submission to arbitration under the Rules, Bye-laws and Regulations of the BSE.

Mr. G.V. Desai resigned again and, by letter dated 18 June 1994, the BSE notified the petitioner of the resignation and that the Executive Director would appoint another Member. The petitioner objected; on 12 September 1994 the BSE appointed the 5th Respondent as arbitrator in place of Mr. G.V. Desai. The present petition challenged (i) the existence of a valid and binding arbitration agreement between the petitioner and the 6th Respondent; (ii) that the 3rd Respondent could fill the vacancy caused by the resignation of Mr. G.B. Desai; (iii) the legality of the purported appointment of Mr. J.B. Bhatt; and (iv) sought a declaration that any award passed would be illegal and invalid.

Legal Issues Presented

  1. Whether there is a valid and subsisting or binding Arbitration Agreement between the petitioner and the 6th Respondent under the Rules, Bye-laws and Regulations of the Bombay Stock Exchange.
  2. Whether the appointment by the Governing Body/President of the BSE (or an Executive Director) of a replacement arbitrator after the resignation of an arbitrator is valid, or whether only a Court may appoint such a replacement when appointments were described as being under Chapter II of the Arbitration Act, 1940.
  3. Whether the arbitration proceedings (and adjudication) are time-barred because an award was not passed within four months and no extension was granted by the BSE (reliance on Bye-laws Nos. 254 and 261).
  4. Whether Section 37 of the Arbitration Act (and limitation provisions) applies to arbitration under the Rules, Bye-laws and Regulations of the BSE, or whether Section 46 operates to treat such arbitration as statutory (i.e., covered by the Arbitration Act insofar as bye-laws are statutory).
  5. Whether arbitration under the BSE Bye-laws can operate in the absence of contract notes and when the petitioner was not a member during the periods in respect of which claims are made.

Arguments of the Parties

Arguments advanced in support of the petition (as recorded)

  • It was urged that most of the claims relate to periods (1986–1989) when the petitioner was not a BSE member and that many claims are time-barred.
  • It was contended that arbitration and adjudication are barred because no award was passed within four months and that the BSE had not extended time (relying on Bye-laws 254 and 261).
  • Reliance was placed on Section 37 of the Arbitration Act and on the proposition that the provisions of the Limitation Act apply to arbitration proceedings.
  • It was argued (by Mr. Shah) that Section 46 of the Arbitration Act applies only to arbitration carried on under an enactment and that arbitration under the BSE Rules, Bye-laws and Regulations is not an arbitration carried on under an enactment; therefore Section 46 would not apply and Section 37 would apply.
  • It was further submitted that because the relevant appointments were said to be under Chapter II of the Arbitration Act, only the Court (and not the Governing Body/President of BSE) could appoint a replacement arbitrator.
  • It was also argued that in the absence of contract notes and a written contract making the BSE Bye-laws applicable, arbitration under those Bye-laws cannot be invoked for the asserted dealings.

Arguments advanced in opposition (as recorded)

  • Reliance was placed (by Mr. Cooper) on a prior decision in Arbitration Petition No. 199 of 1991 (Vijay Kumar H. Bohra v. Union of India) where it was held that Bye-law 248 of the BSE Bye-laws was framed under Section 9 of the Securities Contracts (Regulation) Act, 1956, that such bye-laws are statutory in character, and that arbitration under them would be covered by Section 46 of the Arbitration Act.
  • It was pointed out (by Mr. Tulzapurkar) that under Bye-law 261 the Governing Body or the President may extend time for making an award and that the Governing Body would be extending time in the present case, undermining the submission of time-bar.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Shivchandrai Jhunjhunwalla v. Mt. Panno Bibi, AIR 1943 Bom 197 Held that arbitration under the Bombay Cotton Contracts Act is a statutory arbitration covered by Section 46 of the Arbitration Act. The judgment was cited by Mr. Shah to support the proposition that statutory arbitrations fall under Section 46; the court noted the decision but observed that it concerned the Bombay Cotton Contracts Act and that Mr. Shah relied on distinctions (including the use of the word "enactment"). The court did not base its final ruling on this authority.
Vijay Kumar H. Bohra v. Union of India (Arbitration Petition No. 199 of 1991), judgment dated 10th December, 1992 (as cited in the opinion) Holds that BSE Bye-law 248 was framed under Section 9 of the Securities Contracts (Regulation) Act, 1956; therefore the Bye-laws are statutory and such arbitration is covered by Section 46 of the Arbitration Act. The court treated this earlier decision as binding and dispositive on the statutory character of the BSE Bye-laws. The court held that this decision "clearly covers" the submissions raised by the petitioner and thereby supported application of Section 46 (and the statutory character of the Bye-laws), leading the court to reject the submission that Section 37 applies and to reject the time-bar argument.

Court's Reasoning and Analysis

The court proceeded through the contested points in sequence, applying the terms of the Consent Minutes, the Bye-laws of the Bombay Stock Exchange, and binding precedent as follows:

  1. Character of the arbitration: The Consent Minutes recorded that the parties had appointed arbitrators by consent and submitted "to the Arbitration in respect of all claims, disputes and differences between us in accordance with the Rules, Bye-laws and Regulations of the Bombay Stock Exchange." The court read these words literally and concluded that the arbitration is governed by the BSE Rules and Bye-laws.
  2. Applicability of Section 46: The court addressed the contention that Section 46 of the Arbitration Act does not apply because arbitration under the BSE Rules is not "under an enactment." The court relied on the earlier decision in Arbitration Petition No. 199 of 1991 (Vijay Kumar H. Bohra v. Union of India), which held that certain BSE bye-laws (Bye-law 248 in that case) were framed under Section 9 of the Securities Contracts (Regulation) Act, 1956 and are therefore statutory in character. The court found that this precedent was binding and "clearly covers" the submissions made by Mr. Shah, and therefore treated the BSE arbitration as falling within the ambit of Section 46 rather than being subject to Section 37 as contended by the petitioner.
  3. Time-bar and extension power under Bye-laws: The court examined Bye-laws 254 and 261. Bye-law 254 requires arbitrators to make their award within four months unless extended with consent of parties or by the Governing Board or President. Bye-law 261 expressly empowers the Governing Board or President to extend time, "whether the time for making the award has expired or not." The court accepted the submission recorded from Mr. Tulzapurkar that the Governing Body would extend time as needed, and held there was "no substance" in the submission that arbitration proceedings were time-barred or that most claims were time-barred. The court concluded Section 37 did not apply to arbitration under BSE Rules and Bye-laws.
  4. Power to appoint replacement arbitrator: The petitioner argued that because the Consent Order referenced Chapter II of the Arbitration Act, only a Court could appoint a replacement arbitrator. The court rejected this: it observed that the Consent Minutes show the arbitrators were appointed by consent and that the parties expressly submitted to arbitration "in accordance with the Rules, Bye-laws and Regulations of the Bombay Stock Exchange." Given that characterisation, the court held the Governing Body or President was entitled under the Bye-laws to appoint another arbitrator when one resigned. The court also noted that Chapter II of the Arbitration Act deals with arbitration without court intervention, consistent with the parties' consent approach.
  5. Validity of arbitration absent contract notes / status of contracts with non-members: The petitioner argued that arbitration under the BSE Bye-laws requires contract notes and a written contract; none existed for the relevant dealings and the petitioner was not a member during the relevant periods. The court relied on Bye-law 226(a) and 226(c): 226(a) deems contracts made by a Member for or with a non-member in permitted securities to be subject to the Rules, Bye-laws and Regulations of the Exchange and subject to the Governing Board/President's powers; 226(c) deems the parties to have agreed and acknowledged that such contracts are to be performed within Bombay and are subject to arbitration under the Bye-laws. The court held these provisions make clear that contracts or dealings are deemed subject to the Bye-laws even if contract notes are absent, and therefore arbitration under the Bye-laws could govern the asserted disputes.

Holding and Implications

PETITION DISMISSED.

Direct effects and immediate consequences:

  • The petition seeking declarations (no valid arbitration agreement, invalidity of appointments, and that any award would be illegal) was dismissed by the court.
  • There was no order as to costs.
  • The court expedited the issue of a certified copy of the judgment.

Broader implications: The court applied and treated an earlier decision (Arbitration Petition No. 199 of 1991, Vijay Kumar H. Bohra v. Union of India) as binding on the statutory character of certain BSE Bye-laws and therefore on the applicability of Section 46 of the Arbitration Act. The opinion does not announce any novel legal principle beyond its application of that precedent and the Bye-laws; it resolves the present disputes between the parties by reference to those authorities and the Bye-law provisions (226(a), 226(c), 254 and 261).

This summary is based exclusively on the information contained in the provided opinion.

Show all summary ...

1. This petition is filed for a declaration that there is no valid and subsisting or binding Arbitration Agreement between the petitioner and the 6th Respondent. A declaration is sought that the 3rd Respondent is not entitled to fill in the vacancy caused by resignation of one Mr. G.B Desai and that the purported appointment of one Mr. J.B Bhatt is illegal, invalid, inoperative and of no effect. A further declaration is sought that the Award, if any, passed would be illegal and invalid.

2. Briefly stated the facts are that the petitioner was the clerk of the 6th Respondent. The 6th Respondent was a Member of the Bombay Stock Exchange. The Petitioner applied for Membership in the year 1988. It is claimed that the 6th Respondent gave his no-objection and also stood as a Guarantor. On 13th April, 1989, the Petitioner was enrolled as a Member.

3. The 6th Respondent claimed that the Petitioner was the Proprietor of one R. Dalal and Co. The 6th Respondent filed before the Bombay Stock Exchange a claim in a sum of Rs. 2.18 crores against the Petitioner. The claim was in respect of transactions in ‘A’ Group Shares during the period 5th November, 1986 to 18th April, 1989 and in respect of transactions in ‘B’ Group Shares from 27th November, 1986 to 14th September, 1989. Arbitration under the Rules, Bye-laws and Regulations of the Bombay Stock Exchange was invoked. The Bombay Stock Exchange appointed one Mr. G.V Desai as an Arbitrator. On 13th September, 1991, the Petitioner appointed one Mr. H.K Shah as his Arbitrator. This was done without prejudice to his contention.

4. Mr. G.V Desai resigned on 16th October, 1991. The Bombay Stock Exchange appointed one Mr. Ashok Khandwalla in place and stead of Mr. G.V Desai. The Petitioner objected to the appointment of Mr. Ashok Khandwalla. The Petitioner therefore filed a Petition bearing No. 216 of 1991. In this Petition basically the same reliefs as claimed herein were asked for. On 13th January, 1992, a Consent Order in terms of the Minutes was taken in this Petition. The Order read as under:

“1. Parties have already appointed Mr. G.V Desai and Mr. V.K Shah as Arbitrators under Chapter II of the Arbitration Act, 1940. The Arbitration shall proceed in accordance with the Consent Minutes filed under Chapter II of the said Act. Accordingly no Order of reference through the Court is necessary.

2. In view of Arbitration of disputes and differences in accordance with the Consent Minutes taken on record, no Order on the Petition. No Order as to costs.

3. On the request of both sides, it is clarified that neither of the parties has given up any of their claims and contentions.

4. Consent Minutes marked ‘X’.

5. Issue of certified copy is expedited.”

5. The Consent Minutes read as follows:

“1. We the Applicant and the Respondent By Consent appoint Mr. G.B Desai and Mr. V.K Shah as Arbitrators and submit to the Arbitration in respect of all claims, disputes and differences between us in accordance with the Rules, Bye-laws and Regulations of the Bombay Stock Exchange.

2. The parties will be at liberty to raise all pleas, legal as well as factual for determination by the Arbitrators.

3. The Learned Arbitrators will proceed with the matter as expeditiously as possible.

4. The Award given by the Arbitrators shall be binding on the parties and shall not be challenged in any Court of Law.

5. All the cases pending in any Court shall be withdrawn forthwith.”

6. Thus it is to be seen that Mr. G.V Desai is continued as an Arbitrator. However, in place of Mr. H.K Shah, one Mr. V.K Shah is appointed.

7. Mr. G.V Desai thereafter again resigned. The Bombay Stock Exchange by its letter dated 18th June, 1994, informed the Petitioner of such resignation. The Bombay Stock Exchange also informed the Petitioner that the Executive Director would appoint some other Member. This was objected to by the Petitioner by his letter dated 7th July, 1994. The Bombay Stock Exchange by its letter dated 12th September, 1994 appointed the 5th Respondent as an Arbitrator in place and stead of Mr. G.V Desai. This Petition has, therefore, been filed for the above mentioned reliefs.

8. It is urged that the claim is in respect of transactions for the period 5th November, 1986 to 8th April, 1989 in respect of ‘A’ Group shares and for the period 26th November, 1986 to 14th September, 1989 in respect of ‘B’ Group shares. It is urged that most of these claims are time barred. It is urged that Arbitration Proceedings and adjudication thereof is also barred inasmuch as no Award has been passed within a period of four months. It is submitted that the Bombay Stock Exchange has not extended time. It is urged that for this reason itself, the proceeding cannot continue.

9. In support of this, reliance was placed upon Bye-laws Nos. 254 and 261 which read as follows:

“254. The arbitrators shall make their award within four months after entering on the reference or after having been called upon to act by notice in writing from any party or within such extended time as the arbitrators may fix with the consent of the parties to the reference or as the Governing Board or the President may allow.

261. The Governing Board or the President may if deemed fit whether the time for making the award has expired or not and whether the award has been made or not extend from time to time the time for making the award by a period not exceeding one month at a time from the due date or extended due date of the award.”

10. Reliance was also placed upon section 37 of Arbitration Act. It was submitted that all provisions of limitation act apply to Arbitration Proceedings.

11. Very fairly Mr. Shah also drew the attention of this Court to section 46 of the Arbitration Act, which reads as follows:

“The provisions of this Act, except sub-section (1) of section 6 and sections 7, 12, 36 and 37, shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except in so far as this Act is inconsistent with that other enactment or with any rules made thereunder.”

12. Mr. Shah submitted that section 46 can only apply to an Arbitration which is carried on under an enactment. He submitted that Arbitration under the Rules, Bye-laws and Regulations of the Bombay Stock Exchange is not an Arbitration carried on under an Enactment. He submitted that therefore, section 46 would not apply to such an Arbitration. He submitted that section 37 would apply to Arbitration under the Rules, Bye-laws and Regulations of the Bombay Stock Exchange.

13. Mr. Shah also fairly pointed out an authority of this court in the case of Shivchandrai Jhunjhunwalla v. Mt. Panno Bibi reported in AIR 1943 Bom 197. In this case it has been held that an Arbitration under the Bombay Cotton Contracts Act is a statutory Arbitration as covered by section 46 of the Arbitration Act. Mr. Shah submitted that this Judgment is in respect of an Arbitration under the Bombay Cotton Contracts Act. He submitted that the principles laid down in this Judgment would not apply to an Arbitration under the Rules, Bye-laws and Regulations of the Bombay Stock Exchange. He also submitted that in any event the Judgment does not consider the fact that section 46 uses the word ‘enactment’. He submits that the effect of the term ‘enactment’ being used has not been considered by this Judgment.

14. Mr. Cooper points out that by the Judgment dated 10th December, 1992 in Arbitration Petition No. 199 of 1991, Vijay Kumar H. Bohra v. Union of India, it has already been held that an Arbitration Bye-law 248 of the Bye-laws of the Bombay Stock Exchange, is framed in exercise of the powers under section 9 of the Securities Contracts (Regulation) Act, 1956. It is held that these Bye-laws are statutory in character and that such Arbitration would be covered by section 46 of the Arbitration Act.

15. Mr. Shah submits that even in this Judgment the term ‘enactment’ has not been considered. He submits that, therefore, this Judgment also does not deal with the point raised by him.

16. I am unable to accept these submissions. In my view, the Judgment dated 10th December, 1991 in Arbitration Petition No. 199 of 1991 clearly covers the submissions made by Mr. Shah. This Judgment is binding on this Court.

17. As is seen above, under Bye-law 261, the Governing Body can extend time, from time to time. This even though the period may have expired. Mr. Tulzapurkar stated that even if time has not yet been extended, the Governing Body or the President will be extending time to make the Award. Thus there is no substance in the submission that the Arbitration Proceedings and adjudication are time barred. There is also no substance in the submission that most of the claims are time barred. Section 37 of the Arbitration Act does not apply to an Arbitration under the Rules, Bye-laws and Regulations of the Bombay Stock Exchange.

18. It is next urged that this Arbitration is not under the Rules, Bye-laws and Regulations of the Bombay Stock Exchange. It is urged that under the Order dated 13th January, 1992, the appointment of the Arbitrator is under Chapter II of the Arbitration Act, 1940. It is urged that the appointment being under Chapter II of the Arbitration Act, the Governing Body or the President of the Bombay Stock Exchange cannot appoint an Arbitrator in place and stead of Mr. G.B Desai. It is urged that now only the Court can appoint another Arbitrator.

19. I am unable to accept this submission also. If the Consent Minutes are seen it is clear that, under Clause 1 thereof, the Arbitrators were appointed by consent and the parties have submitted to arbitration in respect of claims, disputes and differences between them in accordance with the Rules, Bye-laws and Regulations of the Bombay Stock Exchange. There can be no doubt that this is an Arbitration as per the Rules, Bye-laws and Regulations of the Bombay Stock Exchange. If that be so, then under the Rules, Bye-laws and Regulations of the Bombay Stock Exchange, the Governing Body or the President is entitled to appoint some other Arbitrator in place and stead of the Arbitrator who has resigned. Also the Order itself clarifies that the Arbitrators are appointed under Chapter II of the Arbitration Act. Chapter II deals with cases of Arbitration without intervention of Court.

20. It is next submitted that the Arbitration is in respect of the claims for the period 1986 to 1989. It is urged that during that period, admittedly the Petitioner was not a Member of the Bombay Stock Exchange. It is urged that an Arbitration under the Rules, Bye-laws and Regulations of the Bombay Stock Exchange can only take place provided there are Contract Notes between the parties. It is urged that in this case, admittedly there are no Contract Notes between the parties. It is urged that the Arbitration is only in respect of dealings between the parties. It is urged that in the absence of any Contract Notes, there can be no Arbitration under the Rules, Bye-laws and Regulations of the Bombay Stock Exchange. It is urged that there is no written contract which makes Rules, Bye-laws and Regulations of the Bombay Stock Exchange applicable to these dealings.

21. I am unable to accept even these submissions. Bye-law 226(a) provides that all contracts made by a Member for or with a non-Member, for the purchase or sale of securities in which dealings are permitted on the Exchange, shall in all cases be deemed to be made subject to the Rules, Bye-laws, Regulations and Usage of the Exchange. The said Bye-law also provides that all such Contracts shall be subject to the exercise by the Governing Board and the President of the powers with respect thereto vested in it or him by the Rules, Bye-laws and Regulations of the Exchange.

22. Further Bye-law 226(c) provides that in cases of all claims (whether admitted or not), differences and disputes arising out of or in relation to all contracts referred to in sub-clause (a) the parties concerned shall be deemed to have agreed and acknowledged that such contracts have been entered into and are to be performed within the City of Bombay, that they are subject to Arbitration in accordance with the provisions relating to Arbitration contained in these Bye-laws and Regulations. Thus Bye-laws 226(a) and 226(c) make it very clear that all such Contracts or dealings, irrespective of the fact that there may be no contract notes, are deemed to be subject to these Rules, Bye-laws and Regulations. It is clear that these Rules, Bye-laws and Regulations will govern such Contracts and dealings. Such contracts and dealings are also subject to Arbitration in accordance with these Rules, Bye-laws and Regulations.

23. Accordingly the Petition stands dismissed. There will be no Order as to costs.

24. Certified copy expedited.

Petition dismissed.

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