29 Apr 2121

Two separate transaction between the two parties cannot be clubbed together in the same reference - Bombay High Court

Case : Jatin Pratap Desai v. A. C. Chokshi Share Broker Private Limited and Mrs. Heena Jatin Desai Appeal No. 126 of 2006 in Arbitration Petition No. 309 of 2004

Court : Bombay High Court

Bench : Justice R. D. Dhanuka & Justice V. G. Bisht

Decided on : 29 Apr 2121

The Relevant Statutes

Bye Rule 247 (a), 248 (a) of Stock Exchange

Clause IX of SEBI guidelines

Section 11 of The Arbitration and Conciliation Act 1996

Brief Facts and Procedural History

1. The Appellant and Respondent no. 2 were the constituents of respondent no 1(who was carrying business of shares and stockbroker and was a registered member of Bombay Stock Exchange. Respondent 2 was the wife of the appellant and was a separate constituent of respondent no.1. In 1999, the appellant had executed an individual Client Registration Application to carry the transactions on the Bombay Stock Exchange but respondent no 1 did not execute. 

2. On 31st  January 2001, there was a credit balance of Rs. 7.40,020 which was due by the respondent and later the appellant paid a sum of Rs. 2 lakh. Afterwards, the credit balance was Rs.9, 40,020. Respondent no. 2 also executed a separate individual Client Registration and were carrying separate transactions with respondent no. 1 . There was a huge debit balance in the account of respondent no. 2 which was disputed by respondent no.1. 

3. In September 2001, respondent no.1 filed an Arbitration application Form under Regulation 15.2 of rules, Bye-laws and regulation of Stock Exchange, Mumbai and stated that both appellant and respondent no.2  as respondents. Further, He showed that the amount of Rs.1, 28, 36,070 was payable by respondent no.2. He filed a Statement of Claim before the Arbitral tribunal of the Stock Exchange against the respondents for the award jointly or severely of amount Rs. 1, 28, 36,070 with the interest of 18 % annum. The Arbitral Tribunal directed both to pay an award of Rs, 1, 28, 36,070 with the interest of 9% annum. After this, the appellant and respondent no 2 filed two separate Arbitration petitions which were dismissed by the learned Single Judge on 23rd August 2005. The Appellant filed an appeal against this order under Section 37 of The Arbitration and Conciliation Act 1996. 

The Issues of the Case

Whether the Arbitral Tribunal has the jurisdiction to entertain such plea or the appellant and respondent no. 2 were jointly liable for the claim under the Arbitration Agreement?

Whether the transaction has taken place under the Bye-laws 248 (a) of Stock Exchange, Mumbai?

The Observations of the Court

1. The Honourable Bombay High Court observed that there was no express or oral understanding which leads to the credit of the appellant account shall be adjusted against the account of respondent no. 2 as there was a violation of Bye-Law 247 A, rules and regulations of Stock Exchange and the SEBI Guidelines. There were two separate and distinct accounts. 

2. The Honourable Bombay High Court held that although it was a private transaction between them, it does not fall under Rule 248 A of the Stock Exchange, Mumbai. Express Authority is required for any kind of adjustment under Clause IX of SEBI Guidelines. 

3. In one of the judgments i.e. S.N. Prasad vs. Monnet Finance Limited and Ors, 2011 (1) SCC 320, It was held that there could be a reference to arbitration only if the arbitration agreement is between the parties under section 11 of The Arbitration and Conciliation Act 1996. 

4. The Honourable Bombay High Court observed that the arbitral tribunal lacked inherent jurisdiction related to the claim against the appellant of private transaction. Appellant was not precluded from raising an objection after the declaration of the award as he does not fall under the category of the third party. Any private transaction could not have been referred under Bye-laws 248 (a) of the Stock Exchange, Mumbai. Respondent no 1 did not invoke the arbitration agreement between the appellant and respondent 1. 

5. The appellant could invoke a separate arbitration agreement, not the counterclaim due to misjoinder of the party. Also, there was no binding contractual agreement between the appellant and respondent 1. The Honourable High Court held that the entire award was without jurisdiction. 

The Decision Held by the Court

1. The appeal was allowed.

2. The award passed by the Arbitral Tribunal dated 26th  February 2004 was set aside and the order passed by the learned Single Judge dated 23th August 2005 was set aside.

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