1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.309 OF 2006 M/s.KNC Shares & Securities Pvt.Ltd. ...Petitioner. vs. Kakerla Venkata Sesha Ravi & another. ...Respondents. --- Mr.S.U.Kamdar i/b. Purohit & Co. for Petitioner. Mr.A.M.Vernekar, for Respondent no.1. Mrs.Krishan i/b. Anil Agarwal, for Respondent no.2. CORAM: D.K.DESHMUKH,J. DATED: 17th October,2006 P.C.:- 1. By this petition filed under Section 34 of the Arbitration and Conciliation Act, the petitioner challenges the Award made by the learned Arbitrator directing the petitioner and respondent no.2 to pay certain amount to the respondent no.1. The award is made against the present petitioner and the present respondent no.2. The claim was made by the present respondent no.1 against the petitioner and the 2 respondent no.2. According to the statement of claim the respondent no.1 had entered into a transactions with the respondent no.2 and because of those transactions on Bombay Stock Exchange certain amounts were payable to the respondent no.1, and therefore, claim was made against the petitioner and respondent no.2. The present petitioner objected to the jurisdiction of the learned Arbitrator to entertain the claim of the respondent no.1 against the petitioner on the ground that according to the bye-law 248(a) of the bye laws of the Bombay Stock Exchange before they were amended in the year 1998 a claim against the sub- broker was not maintainable. The learned Arbitrator by order dated 14.11.2005 overruled the objection and has held that even according to the unamended bye law 248(a) a claim against the sub- broker is maintainable. Thereafter, the learned Arbitrator proceeded further and has made the Award directing the petitioner and respondent no.2 to pay certain amount to the respondent no.1. The learned Counsel appearing for respondent no.1 however, at the outset conceded that under the unamended bye law 248(a) the claim against the sub- broker was not maintainable. He submits that none the less under the unamended bye law 248(a) claim against the present petitioner who is a main broker is maintainable. The learned Counsel submits that respondent no.1 entered into the transactions with the petitioner's sub- broker. According to the learned Counsel, respondent no.2-sub- broker is the agent of the petitioner and 3 therefore, the petitioner is liable because the respondent no.2 acted as his agent in the transactions. The learned Counsel appearing for petitioner however submits that in order to attract application of bye law 248(a) there has to be a transaction between a member viz. petitioner and a non member viz. respondent no.1. He submits that in the statement of claim it is nowhere claimed that either there was a transaction on the stock exchange between the petitioner and the respondent no.1 or that the respondent no.1 had entered into the transaction with the petitioner through respondent no.2 sub broker. The learned Counsel submits that the respondent no.1 has not produced any documents on record which will show that respondent no.2 had entered into the transactions with the respondent no.1 in his capacity as sub- broker of the petitioner. The learned Counsel submits that in the Award liability is fastened on the petitioner on the footing that the respondent no.2 had entered into the transaction with the respondent no.1 in his capacity as sub- broker of the petitioner. 2. It is common ground before me that to the claim that was made by the respondent no.1, the provisions of unamended bye laws 248(a) were applicable. The unamended bye laws 248(a) reads as under:- “248(a) All claims (whether admitted or not), difference and disputes between a member and a 4 non- member or non- members (the terms 'non- member' and 'non- members' shall include a remisier, authorised clerk 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, fulfilment or validity or relation to the rights, obligations and liabilities of remisiers, authorised clerks, 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 the Exchange.” Perusal of the above quoted bye-law shows that the dispute between a member and a non member in relation to the transaction or dealing subject to rules, bye-laws and regulations of the Stock Exchange is arbitrable. Therefore, in order to bring any dispute within the four corners of the bye law 248(a) the respondent no.1 who is claimant will have to assert that the transaction which is subject to rules and bye- laws and regulations of the Stock Exchange took place between the petitioner a member and the respondent no.1 a non member. Perusal of the statement of claim submitted by the respondent no.1 shows that 5 there is no assertion made by the respondent no.1 that respondent no.2 entered into a transaction with the respondent no.1 in his capacity as sub- broker of the petitioner or that he made any representation to the petitioner that he was dealing with the respondent no.1 on behalf of the petitioner. 3. So far as confirmation memos and the bills produced by the respondent no.1 are concerned, they also do not indicate that respondent no.2 was dealing with the respondent no.1 as sub broker of the petitioner. So far as the bills produced by the respondent no.1 on record which is issued by the petitioner in favour of respondent no.2 is concerned, it also does not show that the respondent no.2 had entered into the transaction with respondent no.1 in his capacity as sub- broker of the petitioner. On the contrary in the written statement that was filed by the respondent no.2 before the learned Arbitrator, his case was that the transaction between him and the respondent no.1 were not subject to rules, bye laws and regulations of the Bombay stock exchange. Perusal of the Award shows that the case of the petitioner was that he is not liable to pay anything to the petitioner because there is no privity of contract between the petitioner and the respondent no.1. While dealing with that aspect, the learned Arbitrator has observed in paragraph 12 of the Award that he has already recorded the finding while deciding the preliminary issue that there is privity of 6 contract between the petitioner and respondent no.1. Perusal of the order passed on preliminary issue shows that the learned Arbitrator has held that there is privity of contract between the petitioner and the respondent no.1 because the respondent no.2 had entered into the transaction with the petitioner as sub- broker or agent of the petitioner. But as I have observed above there are neither pleadings nor evidence produced on record by the respondent no.1 to show that respondent no.2 had entered into the transaction with the respondent no.1 in his capacity as sub- broker of the petitioner. The learned Counsel for the respondent no.1 referred to the contract note issued by the petitioner and submitted that this contract note shows that the respondent no.2 was the sub- broker of the petitioner. Even assuming that the contract note shows that the respondent no.2 was the sub- broker of the petitioner, the contact note does not by itself establish that the respondent no.2 entered in the transaction with the respondent no.1 in his capacity as sub- broker of the petitioner. This was required to be established specially, because of the case of the respondent no.2 in his written statement that the transactions between him and the respondent no.1 were not subject to the Rules, Regulations and Bye- laws of the Bombay Stock Exchange. In this view of the matter therefore, in the absence of proper pleadings and evidence the learned Arbitrator should not have recorded the finding that there is privity of contract between the petitioner and the respondent no.1. The Award 7 made by the Arbitral Tribunal which is impugned in the petition is therefore, liable to be set aside. It is accordingly, set aside. The petition is disposed of. No order as to costs. ---