1 jdk IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO. 1 OF 2000 IN ARBITRATION PETITION NO. 377 OF 1999 Savita Oil Technologies Ltd. ] a company incorporated under the ] Companies Act, 1956 having its ] registered office at Nariman Bhavan, ] Nariman Point, Mumbai-400 021 ]..Appellants (Ori.Petitioners) Vs. 1) Mr.Raj Goenka ] 2) Mr. Ravi Goenka ] having office at 251, ] Dr.Dadabhai Navroji Road, ] Mumbai 400 001 and at 723 ] Rotunda Building, Dalal Street ] Mumbai-400 023 ] 3) Mrs. R.C.Goenka of Mumbai ] Indian Inhabitant, residing at ] Goenka House, 16, Walkeshwar Rd. ] Mumbai ]..Respondents 2 .... Mr.Nitin Thakkar Senior Counsel along with Zal Andhyarujina and Aarti Barve i/b Little and Co. for Appellant Mr.Percy Mody along with Prasad Das for Respondents .... CORAM : B.H.MARLAPALLE AND SMT.V.K.TAHILRAMANI, JJ. DATE : 22nd FEBRUARY, 2010 ORAL JUDGMENT [PER B.H.MARLAPALLE,J.]: 1 This appeal arises from the order dated 20th December, 1999 passed in Arbitration Petition No. 377 of 1999 thereby confirming the Arbitrator ’s Award dated 6 th July, 1999 directing the Appellant- Company to pay to the original Respondent an amount of Rs.59,58,100/- along with costs of arbitration. The Appellant-Company had also filed cross claim before the Arbitrators which has been rejected under the very same award. 2 The Appellant is a Company incorporated under the Companies Act, 1956 and initially its name was Savita Chemicals Ltd. During the pendency of this appeal, its name has been changed to Savita Oil Technologies Ltd. Original-Respondent No.1 was a share 3 broker who died during the pendency of this appeal and his legal representatives have been brought on record. It is not in dispute that the Appellant had approached the Respondent-Share Broker for the purchase of shares of Raj Aviation Ltd. and the Appellant had paid an amount of Rs.1,00,00,000/- to the share broker. On 26th October, 1994, at the request of the Appellant-Company, the share broker purchased for the Appellant 10,00,000 shares of Raj Aviation Ltd. at the price of Rs. 15/- per share and thus making a total investment of Rs.1,50,00,000/- as against the amount of Rs.1,00,00,000/- paid by the Appellant to the broker. The Appellant thereafter requested the broker to dispose off the shares and accordingly, on or about 7th November, 1994, the broker finalised the sale transaction of 10,00,000 shares of Raj Aviation Ltd. at the rate of 15.11 per share. Thus, the Appellant was to receive a sum of Rs.1,01,10,000/- by way of sale of ten lacs shares (as against the sale price of Rs.1,51,10,000/-) of Raj Aviation Ltd. The broker handed over a cheque bearing No. 438496 dated 7th November, 1996 for Rs. 1,01,10,000/- and as per the broker, he requested to hand over 10,00,000 shares of Raj Aviation Ltd. for being transferred to the buyer so as to recover from the buyer a sum of Rs.1,51,10,000/-. It is the claim of the Appellant-Company that the cheque given by the broker bounced and therefore, the shares of Raj Aviation Ltd. were not 4 delivered to him for their onwards transfer in favour of the purchaser, whereas, it is the case of the broker that the shares of Raj Aviation Ltd. were not handed over to him so as to transfer the same in favour of the purchasers and to receive the sale consideration of Rs.1,51,10,000/-. Consequently, he did not receive any funds from the purchaser and Company proceeded to deposit the cheque dated 7th November, 1994 which was not honoured. It is the further case of the broker that time and again he requested the Company to return 10,00,000 shares of Raj Aviation Ltd. so that they could be sold and the investment of Rs. 1,00,00,000/- made by the Company could be repaid to it. On 16th November, 1994 he made a fresh attempt by issuing a cheque of Rs. 1,00,00,000/-. On 17th November, 1994 he issued another cheque of Rs. 1,00,000/- so as to make the total sum of Rs.1,01,00,000/- and requested the Company to hand over the shares of Raj Aviation Ltd. for their transfer to the purchaser. The Company did not hand over the shares and the cheques were also not encashed. Again on 2nd January, 1995 as well as on 21st January, 1995 similar attempts were made by issuing cheques of Rs.1,00,00,000/- in favour of it requesting it to hand over the delivery of 10,00,000 shares of Raj Aviation Ltd. for their onward sale. The Company did not do so and it continued to hold the share despite the fact that its investment was only Rs.1,00,00,000/- as 5 against the purchase price of Rs.1,50,00,000/-. As a last attempt, as per the broker, he offered to hand over to the Company, Certificates in respect of ordinary shares of three different Companies i.e. (1) Aashi Leasing and Finance Co. Ltd. (50,000 shares), (2) Kavini Ispat Ltd. (80,000 shares) and (3) Garware Shipping Corporation Ltd. (16950 shares) and requested the Company to return all the shares of Raj Aviation Ltd. as per the letter dated 10th April, 1995. The Company kept shares of these three companies but did not return the shares of Raj Aviation Ltd. Again in the month of May-June 1995, similar attempts were made by the broker by issuing cheques so as to make up for the balance to cover the amount of Rs.1,00,00,000/- by issuing cheques in the sum of Rs.5,00,000/- each (12 cheques) and one cheque of Rs. 8,00,000/- and another cheque of Rs.7,00,000/-. The Company was urged to return 10,00,000 shares of Raj Aviation Ltd. by keeping the shares of three companies and if so required, to transfer them in the name of the Company and for the remaining amount so as to make the total sum of Rs.1,00,00,000/-, these cheques were issued but the Company did not return the shares of Raj Aviation Ltd. and on the contrary, some shares of some of Kavini Ispat were transferred in the name of the Company itself. The Company proceeded to file a complaint under Section 138 of Negotiable Instruments Act on dishonour 6 of cheque of Rs.1,00,00,000/-, which complaint was dismissed. In the meanwhile, the broker approached the Bombay Stock Exchange on or about 30th April, 1998 for reference to arbitration and the reference was accordingly made. During the pendency of this appeal, the Company also filed Summary Civil Suit No. 4212 of 1997 in which, unconditional leave to appeal was granted on 9th April, 2002 and the said order has been confirmed by the Supreme Court on 23rd September, 2002. The reference made to the arbitral board under by law No. 226(a) of the Bombay Stock Exchange resulted in the award dated 6th July, 1999 and as noted earlier, the petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (the Act for short) i.e. Arbitration Petition No. 377 of 1999 came to be dismissed by the learned Single Judge on 20th December, 1999. 3 It is not in dispute that the broker had handed over the original shares of the following Companies with duly executed bank transfer deeds to the company (1) Aashi Leasing and Finance Co. Ltd. (50,000) (2) Kavini Ispat Ltd.(1,18,400) (3) Garware Shipping Corporation Ltd. (16950). It is also not disputed that sixty thousand shares of Kavini 7 Ispat Ltd. came to be transferred by the Company in its favour and 2500 of Kavini part have been sold for the sum of Rs.53,200/-. The arbitration proceedings were initiated in respect of the shares of only two Companies i.e. Kavini Ispat Ltd. and Garware Shipping Corporation Ltd. Before the Arbitrators, the Company had submitted a gross claim in respect of the shares of Raj Aviation Ltd. and the Arbitral Tribunal held that as the said shares were not listed with the Bombay Stock Exchange, the gross claim could not be entertained. 4 Before the Arbitrators as well as the learned Single Judge, the Appellant-Company raised the following three issues challenging the claim made against it by the broker: (a) That there was no agreement of reference between the applicant (broker) and the Respondent (the Company) to arbitration in accordance with Regulations of Stock Exchange, Bombay, in respect of shares of Kavini Ispat and/or Garware Shipping. (b) That the reference to arbitration was barred by law of Limitation as the contract referred to by the applicant containing the agreement of reference, the arbitration was arrived at by 7th November, 1994 and that the reference to 8 arbitration was made only on 30th April, 1998 i.e. more than three years thereafter; and (c) that the reference disclosed no cause of action as the applicant had not stated the basis on which, he had made a claim in the sum of RS.59,58,100/- along with interest. 5 Before us, an additional ground has been raised in the oral arguments namely that the Company had paid an amount of Rs. 1,00,00,000/- by way of loan to the broker and as against this loan, the concerned shares of two Companies i.e. Kavini Ispat Ltd. and M/s. Garware Shipping Corporation Ltd. were handed over by the broker as a security and therefore, there was no transaction or sale or any deal in respect of these shares so as to give a cause of action for arbitral proceedings under the Rules and Regulations of the Bombay Stock Exchange. 6 Before the Arbitral Tribunal, the broker had submitted his Statement of Claim and prayed for the claim to be decided/allowed on the following lines: a) Garware Shipping Corporation Ltd. 16950 shares 9 at the rate of Rs.30 per share, total amount Rs.5,08,500/- b) Kavini Ispat 38400 shares at the rate of Rs. 44 per share, total amount of Rs.16,89,600/- c) Kavini Ispat 80000 shares at the rate of Rs.47 per share total amount Rs.37,60,000/- The market rate for the shares at Serial Nos. (a) and (b) was claimed as on 30th November, 1994 whereas, for the shares at serial no. (c) the market rate as on 8th April, 1995 was claimed. The total claim of all the three shares was raised at Rs.59,58,100/- which has been allowed by the Tribunal. It appears that price of the share claimed was market rate on the respective dates when the shares were handed over to the appellant-Company. 7 The Appellant-Company filed its Written Statement and opposed the claim on the grounds stated herein above. It was contended that the broker had accepted his liability towards the company to the tune of Rs.1,00,00,000/- with interest at the rate of 4% per month from 28th December, 1994 as per his letter of 10th April, 1995. The Arbitral Tribunal considered the Statement of Claim as well as Written Statement and other documents as well as Rules 226(a) and 248 10 of the Bye laws and Regulations of the Board. The learned Single Judge also relied upon both these bye laws and held that the view taken by the Arbitrators on the merits of the transaction was a possible view which could not be interfered with in the limited jurisdiction under Section 34 of the Act. Some observations made by the Arbitral Tribunal as well as the learned Single Judge have been seriously contested before us by the learned counsel for the parties. The Arbitrators noted that the transaction was admittedly under the Rules, Bye laws and Regulations of the Bombay Stock Exchange. Similarly, the learned Single Judge noted that admittedly though the broker had sold the shares of Raj Aviation Ltd., the Petitioners who were holders of those shares, did not deliver them to the broker and that some of these shares of Kavini Ispat and Garware Shipping were sold and an amount of Rs.59,58,100/- was collected. It was rightly pointed out by the learned counsel for the broker that if there are any errors on the face of the record in terms of factual position in the pleadings of the parties, the remedy for the Appellant was to move an application under Section 33 of the Act and having not done so, it would not be permissible to raise any grievance for the first time in the appeal proceedings in that regard. Be that as it may, we proceed to decide the appeal on merits. 11 8 The relationship between the parties and giving rise to this appeal commenced from the Appellant-Company approaching the broker to buy shares of Raj Aviation Ltd. and admittedly, 10,00,000 shares of the said Company were purchased by the broker at the rate of 15 per share and handed over to it. The Company had paid only an amount of Rs.1,00,00,000/- as against the total liability of Rs. 1,50,00,000/-. At the instance of the Company, these shares were sought to be sold and sale was finalized at the rate of 15.11 per share. But these shares never came in possession of the broker so as to hand them over to the new purchaser and recover the sale price. The shares of Raj Aviation Ltd. were not listed at the relevant time. 1,18,400 shares of Kavini Ispat and 16950 shares of Garware Shipping Corporation Ltd. along with transfer deeds (blank and duly signed) were delivered by the broker to the Appellant-Company. The Appellant-Company sold some shares and transferred about 60,000 shares of Kavini Ispat in its own name. The shares of Aashi Leasing and Finance Ltd. were not the subject matter of the arbitration proceedings. As the broker was not put in possession of the shares of Raj Aviation Ltd., the sale of these shares as requested by the Appellant, could not be completed by the broker despite the offers made at Rs.15.11 per share. 12 9 Bye law no.192, 226(a) and 248(a) of the Bye laws and Regulations of Bombay Stock Exchange read as under: 192. All bargains in securities in which dealings are permitted shall in all cases be deemed made subject to the Rules, Bye-laws and Regulations of the Exchange which shall be a part of the terms and conditions of all such bargains and they 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. 226. (a) 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 made subject to the Rules, Bye-laws, Regulations and Usage of the Exchange which shall be a part of the terms and conditions of all such contracts and they 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. 248. (a) All claims (whether admitted or not) difference and 13 disputes between a member and a non-member or non- members (the terms `non-member ’ and non-members ’ shall include or remisier, authorised clerk, a sub-broker who is registered with SEBI as affiliated with that member or employee or any other person with whom the member shares brokerage) arising out of or in relation to dealings, transactions and contracts made subject to the Rules, Bye- laws and Regulations of the Exchange or with reference 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 Exchange. 10 The Appellant contended that the Arbitral Tribunal had no jurisdiction because there was no contract note or arbitration agreement in writing as required by Section 7 of the Act. There was no sale of shares and consequently, there was no transaction, no deal in respect of 14 subject shares. Bye-law no.226(a) of the Regulations was not applicable and so was the case with respect to bye-law no. 248. On the issue of limitation, it was contended that the transaction was of 7th November, 1994 whereas the reference to arbitration was made on 30th April, 1998 and thus beyond limitations i.e. beyond the period of three years. 11 A combine reading of bye-law nos. 192, 226(a) and 248(a) indicates that if there is a bargain, contract, dealing and transaction of shares in respect of any listed shares, the arbitral provisions under the Regulations could be invoked for settling the disputes and decisions in respect of a member and constituent. As per the bye-laws, the broker is a member and the Appellant is a constituent. The broker had handed over the shares of two Companies as noted herein above with transfer deeds and some of the shares have been transferred. Undoubtedly, there is a transaction as well as dealing in respect of these shares. Section 2(4) of the Act provides a deeming fiction by which an arbitration under any other enactment or rules made thereunder, would be deemed to be an arbitration agreement between the parties governed by the Regulations. Reliance in this regard has been rightly placed on the decision of this Court (Division Bench) in the case of Stock Exchange, Mumbai Vs. Vinay Bubna and others reported in AIR 1999 Bom 266 15 and in the case of Hemendra V.Shah Vs. Stock Exchange Bombay and others, reported in 1995 (2) Mh.L.J. 770. It would be appropriate to reproduce the observations made in paragraphs 15 and 16 of the decision in Hemendra Shah ’s case (Supra) . 15.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. 16.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 16 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 Regulation 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. ” In paragraph 18 of the said judgment, this Court observed that bye-law 226(a) provides that all contracts made by a member for or with 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. We have noted that the sweep of Bye-law 248 read with Bye- 17 law 192 is much wider than that of Bye-law 226(a). Dealings and transactions in respect of the listed shares could also be a subject matter of arbitration under Bye-law 248. In the instant case, both the Arbitrators as well as the learned Single Judge independently considered the scheme of Bye-law 248 and held that the claim before the Arbitrators was maintainable and the arbitral proceedings were rightly initiated. The Arbitrators could not be said to have passed the award without jurisdiction. These concurrent findings, in our view, leave no scope for interference in the facts of the transactions/dealings between the parties. We are not inclined to accept the contentions of the Appellant-Company that the subject shares were only kept as a security and there was total absence of dealings or transactions in respect of these shares. The reliance placed on the letter dated 10th April, 1995 by the Appellant- Company, does not appeal to us. The said letter cannot be read in isolation and it has to be considered in the totality of the circumstances in this case. There is sufficient material on record and as has been claimed by the broker that the said letter was a prelude so as to put the broker in possession of 10,00,000 shares of Raj Aviation for their onward sale as was requested by the Company. The Appellant did not part shares of Raj Aviation Ltd. and on the contrary, kept in its possession the subject shares and transferred some of them. It was given an option 18 of either retaining them in its possession or to transfer them in their entirety on the basis of transfer deeds duly signed. In our view, the transaction was complete when these shares were handed over to the Appellant along with transfer deeds in keeping with the normal practice between the broker and the constituent. 12 On the issue of limitation, the Appellant has relied upon the decision in the case of R.C.Goenka Vs. M/s. Chase Trading Co. and another, reported in 2002 (1) Mh.L.J. 776. This Court noted that there was no provision for limitation in the contract entered until 29th August, 1998 except for disputes arising from contract between the members and members. There is nothing in Bye-law 252(2) to hold that it would apply to the contracts which were entered into after amendment was gazetted and the amendments were gazetted on 29th August, 1998 and came into force on the same day. There is nothing to indicate that they were to be retrospective in character. In the instant case, the subject shares have been handed over on or about 10th April, 1995 but in any case, prior to 29th August, 1998 and reference to the Arbitration was made on 30th April, 1998. Hence, the issue of limitation as raised, would not be applicable. 19 13 We have also noted that the contention of the Appellant by referring to the letter dated 10th April, 1995 that there was a loan transaction between the Appellant and the share broker is frivolous and baseless. Both the legal authorities are justified in recording a finding that there was no loan transaction and that there was a dealing/transaction of the subject shares between the broker and the Appellant and therefore, the award passed by the Arbitrators could not be said to be without jurisdiction. On the issue of calculation/fixing of the share price, the Arbitrators considered the claim made by the broker, as per the market price of the shares as on the date when the shares were delivered. The learned Single Judge in the impugned order observed that the Company continued to be the owner of the subject shares which were handed over by the broker in anticipation of delivery of the shares of Raj Aviation Ltd. by the Company and much was said about the said observations before us. It was also submitted that the learned Single Judge was in error in observing that the shares of Raj Aviation Ltd. had given rise to the arbitral proceedings. We have noted herein above that the relationship between the parties leading to the arbitral proceedings has orginated from the purchase of shares of Raj Aviation Ltd. by the broker and for the Company and the Company ’s subsequent request to sell the said shares. It cannot be said that 20 subject shares were handed over in isolation or in consideration of the alleged loan transaction for Rs.1,00,00,000/- by