R.C Goenka v. Chase Trading Co. And Another

1. Petitioner by the present petition impugns the Award passed under the Arbitration and Conciliation Act, 1996 on 17th January, 2001. By the said Award, the Arbitral Tribunal upheld the objections of the respondents herein that the claim was barred by limitation and accordingly rejected the reference. That Award has been impugned on the ground that the transactions were transactions before the bye-laws of Stock Exchange came to be amended and consequently they would not apply to transactions or in respect of a cause of action which had arisen before the bye-laws were amended. The transactions between the parties were of the year 1991–1992. The amendment to the bye-laws was brought into force on 29-8-1998. Earlier, petition had filed an arbitration reference on 6-11-1997 in respect of the same subject matter. It was numbered as Reference No. 278 of 1997 and was withdrawn on 5-8-1998. It is subsequent to this that the fresh reference was made to the Arbitral Tribunal. As noted earlier, the material on record shows that the transactions between the parties were of the year 1991–1992. The last entry in the books of accounts was on 22-3-1993.

2. The case of the petitioner is that there was a fire in the office of the petitioner on 1-8-1994. After reconstructing the records, it was seen that large amounts of moneys were due and payable by the respondent No. 1 to the petitioner. Petitioner after reconstructing the records on 6-11-1998 filed arbitration reference before the Bombay Stock Exchange under the rules, bye-laws and regulations of the Stock Exchange. The reference made was numbered as Reference No. 278 of 1997 and filed against one Sajjan Kumar Jagodia and his Associates. At the time the first reference was made, there was no period of limitation in respect of claims between a Member and Constituent and or vice versa. Before the Arbitral Tribunal various objections were raised in view of which, Applicant was allowed to withdraw the reference on 5-8-1998 with liberty to file new reference.

3. Petitioners pursuant to the liberty granted, filed application for reference on 11-10-1999. The same was referred and was numbered as Arbitration Reference No. 234 of 1999. As already set out, the bye-laws of the Stock Exchange were amended from 29-8-1998. By the amendment, limitation has now been provided in respect of transactions between Members and Constituents. The Respondents herein before the Arbitrators raised a preliminary objection that the claim preferred was barred by limitation and consequently the reference ought to be dismissed. The Arbitral Tribunal considered the above contention arrived at the conclusion that the bye-laws as amended would apply to the present reference as it was filed on 11-10-1999 and the bye-laws has come into force on 5-8-1998. The Arbitral Tribunal noted that the last entry in the books of accounts had been made on 22-3-1993. After excluding the period between 21-5-1998 to 5-8-1998 the Arbitral Tribunal found that the dispute was barred by limitation and therefore, rejected the reference.

4. At the hearing of the petition, on behalf of the petitioner, it is contended that considering the findings by the Arbitral Tribunal itself that the last entry in the Books of Account being 22-3-1993, these would be transactions before the bye-laws were amended on 29-8-1998. The amended bye-laws would only apply to transactions after the amendment and not cover transactions in respect of which cause of action had arisen before the amendment. Considering the issue involved and as it would affect other references, notice was issued to the Bombay Stock Exchange as to their stand on the issue. It was the Bombay Stock Exchange that had framed the Bye-law. On behalf of the Bombay Stock Exchange, their learned counsel after taking instructions has made a statement to this court that it is the stand of the Bombay Stock Exchange that only transaction which have been entered into after 29-8-1998 would be covered by the amended bye-laws. Transaction previous to that period, and completed before that period would be covered by the bye-laws as earlier existing. In other words if the cause of action had arisen before the bye-laws as amended had come into force, the bye-laws as amended would not apply.

5. Let me therefore, consider as to whether the bye-laws as amended would apply to transactions in respect of which cause of action had arisen before the amendment. Section 43 of the Arbitration Act, 1996, provides that the Limitation Act, 1993 shall apply to arbitrations as it applies to proceedings in the court. However, section 2(4) of the Act of 1996 provides that Part I, except sub-section (1) of section 40, sections 41 and 43 shall apply to every arbitration under any other enactment for the time being in force, as if that other enactment were an arbitration agreement except insofar as the provisions of Part I are inconsistent with that other enactment or with any rules made thereunder. In other words, by virtue of section 2(4), of the Arbitration Act, bye-laws of the Bombay Stock Exchange being Arbitration under an enactment would not be covered by section 43 of the Act of 1996. This was noticed by this court in Smt. Ashalata S. Lahoti v. Hiralal Liladhar, 1999 (1) Mh. L.J 352 : 1999 (1) BCR 293. A similar view had been taken in Hemendra V. Shah v. Stock Exchange, Bombay, 1995 (2) Mh. L.J 770 under the Act of 1940. It is therefore, clear considering the Act of 1996, that provisions of the Limitation Act would not apply to arbitration under the bye-laws of the Bombay Stock Exchange. Limitation, if any, if provided by the bye-laws would apply.

6. Insofar as statutory bye-laws are concerned, their nature and the effect of the bye-laws was considered in Dr. Indramani Pyarelal Gupta v. W.R Natu, AIR 1963 SC 274. They have been held to be an exercise in subordinate legislation. The bye-laws framed under the Bombay Stock Exchange have been held to be statutory in character by a number of judgments of this court. The issue for consideration in Indramani (supra) was the validity of a notification issued under the Forward Contract (Regulation) Act, 1952 and as also the amendment of a bye-law under which the notification was issued. Another issue was the meaning of the expression “Under this Act”, in section 3 of the Forward Contracts (Regulation) Act. The latter part of section 2(4) of the Act of 1996 or section 46 of the Act of 1940 is not found in sections 3 of the Forward Contract Act namely “inconsistent with that other enactment or rules made thereunder.”

7. The Judgment in Indramani (supra) had come up for consideration in Vinay Bafna v. Yogesh Mehta decided on 7th September, 1998. One of the issues in the said case was whether the arbitral tribunal having an even number of members as provided under the bye-laws framed by the Bombay Stock Exchange under the Securities Contracts (Regulation) Act, 1956 as they then stood contravened the provisions of section 10 of the Arbitration Act of 1996. The issue arose as under the bye-laws as they then stood, the arbitral tribunal consisted of two members. The issue was whether after the 1996 Act came into force such a bye-law which was clearly in conflict with section 10 would be saved considering section 2(4) of the Act of 1996. In this context, it was noticed that section 2(4) used two expressions “under any other enactment” and “inconsistent with that other enactment or with any rules made thereunder”. Reliance in support of the proposition was sought from the Judgment of Indramani (supra). The majority judgment therein had taken a view that under the Act would mean not only under the Act, but also the rules and bye-laws framed thereunder. The minority view taken by Subba Rao, J. was to hold that the expression “under the Act” meant only under the Act and not under the rules or bye-laws. The majority view was followed namely that the expression “under the enactment” would include under the Act, rules or bye-laws thereunder. However, while construing the expression “inconsistent with that other enactment or with any rules made thereunder” it was held that the bye-laws if they, were inconsistent would not be protected. What would be protected will be to the extent of inconsistency under the Act and the rules. Therefore, the composition of Arbitration Tribunal which provided for two Arbitrators under the bye-laws was held to be contrary to section 10. The basis for that conclusion was that Parliament could not abdicate its essential legislative powers. A rule making power which provides for laying of the rules framed, in Parliament has been held to be an answer to abdication of essential legislative functions. Therefore, the expression “inconsistent with that other enactment or with rules made thereunder” was within legislative competence and did not amount to abdication of essential legislative functions. A bye-law on the other hand even if it was subordinate legislation could not be so protected. Even if parliament had included the expression bye-laws, it had to meet the test of abdication of essential legislative function. It may however, be noted that this was not explained in that judgment but in a subsequent judgment.

8. An appeal was preferred against the said order before the Division Bench of this Court by the Stock Exchange insofar as the finding on the issue of the bye-laws being inconsistent with section 10 of the Act of 1996. Placing reliance on the judgments of this court rendered under the Act of 1940, the appeal was allowed. That judgment is Stock Exchange v. Vinay Bafna, 1999 (3) Mh. L.J 810 : 1999 (2) BCR 597. What was considered was whether bye-law 249(a) falls under the phrase “any other enactment and which is inconsistent with the provisions of section 10 of the Arbitration Act.” The meaning of the expression “inconsistent with that other enactment or with rules made thereunder” and the omission of the word “bye-laws” was neither considered nor dealt with considering the interpretative process of what is essential legislative function. The doctrine of abdication of essential legislative function was neither considered or answered. That issue was also not in consideration in any of the earlier judgments of this court which were considered to by the Division Bench. This has been pointed out as it may have a bearing on the discussion but not necessarily on the conclusion. Consider a situation where a bye-law is made which will either expand or restrict the grounds of challenge under section 34 of the Act of 1996. If a rule is made restricting the challenge, it will be ultra vires the Act. However, under the other enactment if there be a rule because of legislative sanctions the rule, will override the provision of the Act being inconsistent. The doctrine of ultra vires may in such a case be not in issue. Will a bye-law inconsistent with the Act of 1996 prevail because of section 2(4)? Would the legislative power of making plenary legislation or the power conferred on the delegate to make rules which are subject to control by Parliament as they have to be tabled in Parliament as set out in section 84(2) of the Act of 1996, be overridden by a mere “bye-law” made by delegate, the Bombay Stock Exchange assuming Government grants approval to the bye-laws when section 2(4) specifically does not give it. Suffice it to say that Bombay Stock Exchange has now framed new bye-laws under which the composition of the Arbitral Tribunal is in conformity with the provisions of section 10. That issue thereafter insofar as that provision has become purely academic. Law however, cannot remain captive forever. Judicial consistency will require that judgments of larger benches be followed. Law including the doctrine of precedents however has not put an embargo on the thought process, While following the decision of the larger Bench the question noticed is still open for consideration at a later stage. It is in that context that I propose to discuss the judgment in Stock Exchange (supra); as a contrary view can only be persuaded by judicial persuasion; while accepting that until a contrary view is taken, I will be bound by the decision of the larger Bench to maintain judicial consistency considering the doctrine of precedents. The judgment of the Court in Kishore Jitendra Dalai v. Jay Deep Investments, 1996 (3) BCR 204 proceeded on the footing that the bye-laws are statutory. The present issue really came for consideration thereunder the Bye-law of Bombay Stock Exchange. There again the omission of the word “bye-laws” in the expression “inconsistent with that other enactment or with any rules made thereunder” and if so the issue of abdication of essential legislative function was not discussed. From a perusal of all those judgments the common thread seem to be that once the arbitral provision contained in the Bye-laws, falls under the expression “under the enactment”, the bye-law was saved. In Shivchandra Jhunjhunwalla v. Panna Bibi, AIR 1943 Bom. 197 the issue was the power conferred on the Chairman of the East India Cotton Association under the Bye-law to extend time. That was considered in the light of section 28 and Schedule I to the Act of 1940, when it was held that the bye-laws were statutory. In Dr. Indramani (supra) the phraseology “inconsistent with that other enactment or rules” was not in issue as the Forward Contracts (Regulations) act under section 3(a) did not contain that expression. What was under consideration was “by or under the Act”. In Dhanrajmal Govindram v. Shamji Kalidas & Co., AIR 1961 SC 1285, the issue was the bye-laws of the East India Cotton Association Ltd. and the provisions of the Arbitration Act, 1940. A contention was raised that the contract was in violation of the Foreign Exchange Regulation Act, 1947, and in view of the invalidity of the contract the arbitration clause was not binding. That Judgment did not consider or decide the issue of subordinate legislation in that context. The contentions advanced before the Apex Court were (a) that the contract including the arbitration clause was void being in violation of the provisions of the Foreign Exchange Act; (b) for uncertainty and vagueness on two counts; that the petition under section 20 of the Indian Arbitration Act was incompetent, as that section is inapplicable; and (c) the law governing the parties was not the Indian law but the law of British East Africa. The Apex Court observed as under: “Section 46 makes the provisions of any other enactment or any rules made thereunder to prevail over the Arbitration Act, if inconsistent with the later. In view of these several provisions, it is clear that the Arbitration Act applies to all arbitrations and Chapter III makes it applicable also to arbitrations in which the arbitration agreement is asked to be filed in court under section 20 subject however, to this that the provisions of any other enactment or rules made thereunder if inconsistent with the Arbitration Act are to prevail.”

9. It is clear from this passage that the Apex Court considering section 46 of the Arbitration Act, 1940 has not said that inconsistent bye-laws are saved. What was saved was the inconsistent provisions of the Act and the rules. This seems not to have been noticed by the Division Bench.

10. We have once again to deal with the nature of the bye-laws as it is pursuant to these bye-laws as amended that limitation has been provided. The expression bye-laws has to be considered in the context of subordinate or delegated legislation. Subba Rao, J. in Indramani (supra) explained it is as under:

“Subordinate or delegated legislation takes different forms. Subordinate legislation is divided into two main classes; namely (i) statutory rules and (ii) bye-laws or regulations made (a) by the authorities concerned with local government and (b) by persons, societies or corporations.” Thus though both are subordinate legislature, they are distinct.

11. Halsbury's Laws of England defines bye-laws as under:

“A bye-law has been said to be an ordinance affecting the public, or some portion of the public, imposed by some authority clothed with statutory powers, ordering something to be done or not to be done and accompanied by some sanction or penalty for its non-observance.”

12. The effect of the new bye-law 252(2) is to make applicable the provisions of the limitation act or other law relating to limitation, applicable to arbitrations, as they apply to the proceedings in a court. For the purpose of limitation an arbitration is deemed to have commenced on the date on which the Application for arbitration is received by the Exchange. Further time taken in arbitration proceedings may be excluded applying the tests laid down in different cases. The bye-laws to come into force had to be published. They were published in the gazette of India on 29-8-1998 and have therefore, come to force on that day. Under the Regulation as amended the composition of the Tribunal whether it will be one or three arbitrators depends on the pecuniary jurisdiction. An appeal is also now provided in a dispute between a member and a non-member. All this indicates that they will apply to new arbitral proceedings. Pending arbitral references are not suspended or composition of the Tribunal altered in term of the new bye-laws. All that the notice dated 20th October, 1998 addressed to the Members indicates that those who have filed arbitration reference between the period 29th August, 1998 and the date of the notice i.e 20th October, 1998 must submit fresh arbitration reference in conformity with the amended provisions. This does not apply to references filed as and up to 28th August, 1998. This by itself would indicate that the respondent themselves have understood that the new bye-laws would apply and be applicable from 29th August, 1998.

13. The only question is whether the bye-law as amended will cover references already pending and would also apply to those references where the cause of action arose before 29-8-1998. There is no dispute that insofar as procedure is concerned, it will apply from 29-8-1998. The question is whether the bye-laws involving limitation will apply to references pending at the time when the new Bye-laws came into force; to references made pursuant to an award being set aside under the Act of 1940 or an award set aside under the Act of 1996, if the cause of action had arisen before the bye-laws came into force or will only apply in respect of contracts entered into after the new bye-laws came into force. Insofar as pending proceedings are considered, section 31(s) of the Limitation Act, 1963 would apply. That would only leave cases of those who had not applied or cases like the petitioner who had withdrawn the reference to file a fresh reference or awards made on a reference before the bye-laws were amended which is set aside and a fresh reference is sought.

14. The new Act does not provide for remitting the award as in the case of the Act of 1940. The limited power is as contained in section 33 or section 34(4) of the Act of 1996. Therefore, even if time is saved between the commencement of the arbitration and the date of the order of the Court under section 43(4), a fresh reference will be barred if after excluding such time the reference is barred by limitation. It cannot be contemplated that this was the intention of Parliament when it enacted section 43(4) or of the Bombay Stock Exchange when it framed the bye-law providing for limitation.

15. The real issue to be considered is whether the Bombay Stock Exchange had the power to make a bye-law having retrospective effect and if it was its intention to make bye-law 252, retrospective?

16. It may be important to note that though a Legislature can make law with retrospective effect as its power is plenary the same is not the position insofar as delegated legislation is concerned. The scope of that power is not coextensive with that of the legislature. This was noted by a Division Bench of the Allahabad High Court in Modi Food Products v. Commissioner of Sales Tax, AIR 1956 All. 35. The learned Division Bench observed that the body exercising subordinate and delegated legislative powers cannot make legislation retrospective in effect, unless that power is expressly conferred. Support for that proposition was found in the Judgment of the Apex Court in Strawboard Manufacturing Co. v. Gutta Mill, AIR 1953 SC 95 namely that unless the statute confers express power on the authority to make an order with retrospective effect. Such a power cannot be exercised. Similar view has been taken by Kerala High Court in C.W Motor Service (P) Ltd. v. State of Kerala, AIR 1959 Kerala 347 where the court observed as under:

“The Rule is well settled that even in a case where the executive Government acts as a delegate of a legislative authority, it has no plenary power to provide for retrospective operation unless and until that power is expressly conferred by the parent enactment.”

17. The House of Lords in Howell v. Falmouth Boat Construction Co. Ltd., 1951 A.C 837 expressed the same opinion. Their Lordships observed:

“It would be dangerous power to place in the hands of Ministers and their subordinate officials to allow them whenever they had power to license, to grant the licence expost facto and a statutory power to license should not be construed as a power to authorise or ratify what has been done unless the special terms of the statutory provisions clearly warrant the construction.”

18. A Full Bench of Rajasthan High Court in Government of Rajasthan v. Sangram Singh, AIR 1962 Rajasthan 43, was considering the effect of repeal of old law of limitation and its replacement by a new law. The Full Bench of the Rajasthan High Court noted that it is not always true to say that law of limitation is only a law of procedure and does not bar the remedy altogether so as to destroy the right. It is a well settled proposition of law that the new law of limitation would not revive a barred right. Similarly, it may be taken to be equally well settled that the new law of limitation cannot be construed retrospectively so as to destroy altogether the remedy of litigant to enforce his right in a court of law. In case the remedy to enforce a vested right is altogether barred on the date when the new law comes into force without providing any breathing time to a litigant, that remedy must continue to be governed by the old law of limitation. It is true that the legislature has full powers to make law retrospectively. It is also accepted position that the law of limitation does not extinguish the right but only bars the remedy. The proposition of law may be set out as observed by Asutosh Mookerjee, J. in Manju Bibi v. Akkel Mahmud, 19 Ind Case 793 as under:

“No doubt, we find it frequently asserted in judicial decisions that a Statute of Limitation embodies merely a rule of procedure; but this statement is only generally and not universally true. The essence of the matter is that when a new Statute of limitation which shortens the period for institution of suits and comes into force the moment it becomes law is sought to be made retrospectively applicable to causes of action which have accrued earlier than the length of time prescribed, it ceases to be a statute of mere procedure and serves to destroy pre-existing and enforceable rights. Under circumstances, like these, the Court, when invited to hold that the new statute has retrospective operation, will struggle against the acceptance of such interpretation, unless there is the clearest indication that the Legislature intended to destroy existing rights without notice and thus to penalise innocent litigants.”

19. The position of law from Corpus Juris as quoted in Interpretation of Statutes by Bindra, 1961, Third Edition, Page 586 is as under:

“While it has been said that statutes relating to remedies or procedure may be given a retroactive operation, a more accurate statement of the principle intended is that, unless expressly prohibited by Statute, and in the absence of directions to the contrary, or unless in doing so some contract obligation is violated or some vested right divested, statutes merely affecting the remedy or law of right of action accrued before or after the change in the law. The Legislature has full control over the mode, time and manner of prosecuting suits, and whenever upon consideration of an entire statute relating to those matters, it appears to have been the legislative intent to make it retroactive, it will be given this effect….”

20. The issue therefore, would be whether the bye-law as framed, the body conferred with the power to make the bye-law was conferred the right to make it retrospectively and if so, whether the bye-laws have been made with retrospective effect. Bye-law 248(b) sets out, that an acceptance whether express or implied of a contract subject to arbitration as provided in sub-clause (a) and with the provision for arbitration incorporated therein shall constitute and shall be deemed to constitute an agreement between the member and the non-member or non-members concerned. All claims (whether admitted or not), differences and disputes of the nature referred to in sub-clause (a) in respect of all dealings, transactions and contracts of a date prior or subsequent to the date of contract shall be submitted to and decided by arbitration as provided in the Rules, Bye-laws and Regulations of the Exchange and that in respect thereof any question whether such dealings, transactions and contracts have been entered into or not, shall also be submitted to and decided by arbitration as provided in the Rules, Bye-laws and Regulations of the Exchange; In other words, disputes prior to or subsequent to the contract. There was no provision for limitation in the contract as a term, until 29th August, 1998 except for disputes arising from Contracts between Members and Members. All that bye-law 252(2) states is that the provision of the Limitation Act, 1963, or any other law relating to limitation shall apply to arbitration under these bye-laws as they apply to the proceedings in the Court. There is nothing in the said bye-laws to hold that the said provisions will also apply to contracts which were entered into and to which contracts, bye-law 252(2) was not incorporated as a term of the contract. In other words, only those contracts which have been entered into after bye-law 252(2) came into force will the provisions of limitation become applicable as a term of the contract. They therefore, become applicable to those contracts-entered into after the amendment was gazetted. This was notified by the notice dated 20th October, 1998. Bye-laws were gazetted on 29-8-1998. They would come into force from 29-8-1998. There is nothing to indicate that they would be retrospective in character. There is nothing also which indicates that they were made with purpose of being retrospective. On the contrary, on behalf of the Stock Exchange, statement is made that they will apply to transactions entered into as on 29-8-1998, when they came into force.

21. Bye-laws framed are now made applicable to transactions between the Member and constituent and vice versa. This form part of the contract which contain terms of limitation unlike contracts entered into earlier. Respondent No. 2 has been conferred powers under Security and Exchange Act to make bye-laws. These bye-laws before they came into force however have to be approved by the Government of India. They are statutory in character. As already noted, bye-laws may be statutory in character, but they cannot be placed on the same footing as rules which are also subordinate legislation. The distinction is that insofar as Rules are concerned, the Act itself provides that they may be placed on the floor of the House of the Legislature or rules which passed the Act, unlike bye-laws. The limitation now applicable to transactions between the Members and Constituent and vice versa is not by an Act of Legislature but by the bye-laws. The view which is being taken will avoid uncertainty and not defeat the claim of persons whose references were made and award set aside or cause of action had arisen before bye-laws were amended.

22. In view of the above discussion and the stand of the second respondent, bye-laws as to limitation as framed would apply only to those transactions which have been entered into as and on 29th August, 1998 and after. Whether the Securities Contract (Regulation) Act confers power on the Stock Exchange to make bye-laws with retrospective effect need not be considered in detail in view of the view taken.

23. Considering the above, as in the instant case, arbitral tribunal has, noted the last entry in the Books of Account was on 22-3-1993 i.e much before 29-8-1998. Petition is allowed and impugned award is set aside. There shall be no order as to costs.

24. It will be open to the petitioners to apply to the second respondent for a fresh reference. The time taken between reference and setting aside of the award or obtaining a certified copy of the award applied for will be excluded for the purpose of limitation, if any.

25. P.A to issue authenticated copy of this order.

Petition allowed.