P.R. Shah Shares & Stock Brokers (P)Ltd vs M/S. B.H.H. Securities (P) Ltd. & Ors

The appellant and the first respondent are members of the Mumbai Stock Exchange, the third respondent herein (`Exchange' for short). The constitution, management and dealings of the Exchange are governed by the Rules, Bye-laws and Regulations of the Exchange. The Rules relate to the constitution and management of the Exchange. The Bye-laws regulate and control the dealings, transactions, bargains and contracts of its members with other members and non- members. The Regulations contain the detailed procedure 2 regarding the various aspects covered by the Bye-laws. Though the Rules, Bye-laws and Regulations of the Exchange were not made under any statutory provision, they have a statutory flavour. Bye-laws 248 to 281D provide for and govern the arbitration between members and non-members and Bye-laws 282 to 315L provide for and govern the arbitration between members of the Exchange.

2. The first respondent raised and referred a dispute against the second respondent and the appellant under the Rules, Bye-Laws and Regulations of the Mumbai Stock Exchange on 29.8.1998 (Arbitration Reference No.242/1998) seeking an award for a sum of ` 36,98,384.73 with interest at 24% per annum on ` 35,42,197.50. In the said Arbitration Reference, the first respondent alleged that appellant and second respondent are sister concerns with Ms. Kanan C. Sheth as a common Director; that Ms. Kanan C. Sheth approached the first respondent to get the carry forward sauda in respect of 50,000 shares of BPL and 15,000 shares of Sterlite Industries Ltd. transferred with the first respondent on behalf of the second 3 respondent which was outstanding with the appellant; that in pursuance of it, on 4.6.1998, the first respondent got the sauda of 15,000 shares of BPL and 15,000 shares of Sterlite transferred to its account through a negotiated deal which is commonly known as `all or none'; that in respect of the said transactions, the first respondent prepared, issued and delivered the contract and bill in favour of second respondent [Contract No. F.11/4/002 dated 4.6.1998 and Bill No.A/11/0236 dated 11.6.1998 for ` 1,07,30,400/- and Bill No.A.11/0236 dated 11.6.1998 for `15,50,670/-]; that as the said amount remained due, the first respondent approached the appellant and second respondent for clearing the said dues; that after several demands, the appellant issued a credit kapli (Credit Slip No.49147 dated 11.6.1998) for payment of `13 lakhs to first respondent along with a copy of the balance-sheet (Form No.31) for settlement (A11/98-99 for ` 13 lakhs); that the said kapli was rejected by the Exchange; that the first respondent, therefore, immediately approached the appellant and second respondent and demanded a cheque for the said 4 amount of ` 15,50,670/-; that in that behalf, the appellant issued cheque (No.992090 dated 11.6.1998) for ` 13 lakhs leaving a balance of `250,670/-; that thereafter prices of the said scripts were falling down and the first respondent requested the appellant and second respondent to get the said souda re-transferred to their account; that they failed to do so, but kept on assuring that there was nothing to worry; that ultimately, at the request of the appellant and second respondent, the souda of 15000 shares of Sterlite was squared by selling the said shares and in respect of the squaring up of the said souda, a bill dated 19.6.1998 for ` 23,89,610.50 was raised by the first respondent for the amount due by appellant and second respondent; that when the first respondent demanded from appellant and second respondent the amounts due; they paid to the first respondent a sum of ` 4.5 lakhs in cash on 18/19.6.1998; that as the souda for the 15,000 shares of BPL still remained outstanding despite requests of the first respondent to square up the same, the first respondent carried forward the said 15,000 shares of BPL to Settlement No.13 and raised a bill 5 dated 26.6.1998 showing ` 8,09,850/- as due to the first respondent; and that the said carry forward purchase of 15,000 shares of BPL was again brought forward to Settlement No.14 on 22.6.1998 and at the request of appellant and second respondent, the said outstanding purchase was sold on 24.6.1998 and 25.6.1998 and in that behalf, a sum of ` 5,42,065/- became due vide bill dated 1.7.1998. According to first respondent, all the bills were drawn on second respondent, as required by the appellant, as the contract dated 4.6.1998 was in the name of second respondent; that Ms. Kanan C. Sheth Director of appellant and first respondent accepted the said bills assuring payment and both were jointly and severally liable to pay the amounts due.

3. The first respondent also alleged in the arbitration reference claim that in view of the non- payment of the amounts due, it wrote a letter dated 2.7.1998 to the Executive Director of the Exchange to prevail upon and direct the appellant and second respondent to pay the amount due, but in spite of the Exchange forwarding a copy of the said letter to 6 appellant and second respondent, the amount remained due; that therefore, the Executive Director of the Exchange through its Investors Service Cell permitted the first respondent to file an arbitration claim against appellant and second respondent. As a sum of ` 35,42,197.50 remained due in spite of demands by adding interest, the total sum due as on 29.8.1998 was ` 36,98,384.73.

4. Both the second respondent and the appellant filed their objections dated 3.3.1999 urging several common grounds with identical wording which, according to the first respondent, showed that the appellant and the second respondent were colluding with each other, apart from the fact that they had two common Directors. In its statement of objections, the appellant contended that the Arbitral Tribunal of the Exchange had no jurisdiction to enter upon the reference for want of a contract and want of arbitration agreement between the first respondent and the appellant. The appellant also denied that the transaction between the first respondent and second respondent was carried out by the first respondent, for and on behalf of the appellant 7 and under instructions from the Director of the appellant. The appellant contended that the first respondent had made a claim based on fabricated documents. It was also contended that the arbitration reference was bad in law on account of misjoinder of parties and misjoinder of causes of action. It was submitted that the appellant was a member of the Exchange and the second respondent was not a member of the Exchange and the Exchange had a different set of Arbitration Rules governing arbitration in regard to disputes between members and arbitration in regard to disputes between member and a non-member. The appellant also contended that the sum of ` 13 lakhs paid by it to the first respondent by cheque dated 11.6.1998, was not an amount paid in connection with the aforesaid transaction, but was a loan advanced by the appellant to the first respondent.

5. The disputes were heard by a three-member Arbitral Tribunal consisting of Justice D.B. Deshpande, Mr. Hemant V.Shah and Mr. Sharad Dalal as members. The arbitral tribunal called upon the appellant to produce its souda sheets of the dates on which the transactions 8 took place as alleged by the first respondent but the appellant stated that they could not produce those sheets as their computers were not in a working condition. When the Arbitral Tribunal enquired whether there were any documents to show that ` 13 lakhs was advanced as a loan to first respondent (as contended by the appellant), the appellant informed the Arbitral Tribunal that there were no documents to show that it was a loan.

6. The Arbitral Tribunal made an award dated 12.10.1999. The majority (Mr. Hemant V.Shah and Mr. Sharad Dalal) held that the transaction had taken place as alleged by the first respondent and therefore the appellant and second respondent were liable for the amounts claimed. The third arbitrator, in his minority view, while agreeing with the other two arbitrators that the claim against second respondent as claimed deserved to be allowed, held that the claim against the appellant ought to be rejected as the Arbitral Tribunal appointed by the Exchange had no jurisdiction to hear and decide the first respondent's claim against the appellant and the first respondent should approach the 9 proper forum seeking relief against the appellant. Therefore, the Arbitral Tribunal made an award as per the decision of the majority holding that the first respondent was entitled to recover ` 36,98,384.73 from second respondent along with interest at 18% per annum, as demanded, from 4.6.1998 till realization with a further direction that if the second respondent failed to pay the said amount along with interest, then the entire amount or the shortfall amount, if any, shall be made good by the appellant. In effect, there was an unanimous award for the sum of ` 36,98,354.73 with interest at 18% from 4.6.1998 to the date of payment against the second respondent; and in regard to the appellant, the majority held the appellant was liable to pay if second respondent did not pay the amount, whereas the third arbitrator held that the Arbitral Tribunal could not arbitrate the dispute with reference to appellant.

15. A court does not sit in appeal over the award of 18 an arbitral tribunal by re-assessing or re-appreciating the evidence. An award can be challenged only under the grounds mentioned in section 34(2) of the Act. The arbitral tribunal has examined the facts and held that both second respondent and the appellant are liable. The case as put forward by the first respondent has been accepted. Even the minority view was that the second respondent was liable as claimed by the first respondent, but the appellant was not liable only on the ground that the arbitrators appointed by the Stock Exchange under Bye Law 248, in a claim against a non- member, had no jurisdiction to decide a claim against another member. The finding of the majority is that the appellant did the transaction in the name of second respondent and is therefore, liable along with the second respondent. Therefore, in the absence of any ground under section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at.

13. In this case, the first respondent had a claim for ` 36,98,354.73 jointly against second respondent and the appellant. According to the first respondent, it entered into the transaction with second respondent on the instructions of the appellant and on the understanding that the appellant will also be liable and in fact, the appellant accepting its liability, had also paid ` 13 lakhs as part-payment. It is not disputed that appellant and second respondent were closely held family companies managed by the same person (Ms. Kanan C. Sheth). According to appellant the share holdings in appellant was Kanan C. Seth : 105,000 shares, Chetan M. Sheth : 45000 shares and Jasumati P.Shah: 150,000 shares and the shareholdings in second 16 respondent company was Kanan C.Sheth: 100 shares and Chetan M. Sheth: 100 shares.

Re : Contention (ii)

Re : Contention (iii)

Conclusion

17. In view of the above, we find no reason to interfere with the judgment of the High Court and the 20 appeal is accordingly dismissed.