Bombay High Court

Abhijeet Saraswat vs Nalamaty Doraiah on 19 December, 2003

Equivalent citations: 2004(2)ARBLR138(BOM), [2005]128COMPCAS608(BOM), 2004(2)MHLJ145, [2004]50SCL657(BOM)

Author:
D.G. Karnik

Bench:
D.G. Karnik

ORDER

D.G. Karnik, J.

1. This petition is filed under
Section 34
of the Arbitration and Conciliation Act, 1996 (for short the
Arbitration Act
) for setting aside the appellate award dated 4th July, 2003 passed by the Appellate Bench of the Stock Exchange, Mumbai.

2. The petitioner is a sub-broker affiliated to the respondent No. 2 who is a broker and member of the Stock Exchange, Mumbai. The respondent No. 1, who was the original claimant before the Arbitral Tribunal, was a constituent of the petitioner and was dealing in purchase and sales of shares on the Stock Exchange, Mumbai through the petitioner.

3. The respondent No. 1 made the following claims against the petitioner:

(i) Rs. 3,47,500 on account of non-delivery of shares.

(ii) Rs. 4,30,500 for non-payment of the sales proceeds of the shares sold.

(iii) Rs. 7,000 towards the dividend on the shares which were not delivered.

(iv) Rs. 30,000 towards the badla charges. (v) Rs. 85,000 interest on the aforesaid amounts.

The aforementioned claims were referred to arbitration under bye-law 248(C) of the Bye-laws of the Stock Exchange, Mumbai. By an award dated 16th December, 2002 the learned arbitrator passed an award against the petitioner allowing the claim of Rs. 3,47,500 towards the nondelivery of shares, Rs. 4,30,500 towards the sale proceeds of the shares and Rs. 4,075 towards the dividend. The claims for badla charges and the past interest were rejected. The claim against the respondent No, 2 who was the principal broker was also dismissed. Being aggrieved by the said award, the petitioner filed an appeal before the Appeal Bench of the Stock Exchange, Mumbai under bye-law 274A. By an order dated 4th July, 2003 the Appeal Bench of the Stock Exchange, Mumbai dismissed the appeal and confirmed the award. This order of the Appeal Bench is challenged in this petition which has been filed on 29th July, 2003.

4. Learned counsel for the respondent No. 1 submitted that as the original award was passed on 16th December, 2002, the petitioner should have filed an application for setting aside of the award under
Section 34
of the Arbitration Act within three months i.e. on or before 15th March, 2003.
The Arbitration Act
does not provide for an appeal against an award of an Arbitral Tribunal but, an award can be challenged only under
Section 34
of the Arbitration Act within a period of 3 months. Bye-law No. 274A which provides for an appeal to the Appeal Bench of the Stock Exchange, Mumbai is inconsistent with the provisions of the
Arbitration Act
and in particular
Section 34
thereof and therefore invalid. As the application for setting aside the award has not been filed within the statutory period of three months, and even within the additional period of one month which can be allowed by the Court under proviso to Sub-section (3) of
Section 34
of the Arbitration Act, the petition is barred by limitation and is liable to be dismissed. Learned counsel for the respondent No, 1 also supported the award on merits.

5. Bye law Nos. 248 to 281D of the Bye laws of the Stock Exchange, Mumbai contain provisions relating to arbitration other than the disputes between the members. Under Bye law 248, all claims, differences and disputes between a member and a non-member or non-members 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 in relation to the rights, obligations and liabilities of remisiers, authorised clerks, sub-brokers, constituents, employees or any other persons with whom a 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. Bye-laws 249 and 250 provide for appointment of an Arbitral Tribunal. Bye law No. 251 provides for the procedure regarding the commencement of the arbitration. Bye law No. 252 provides for limitation for making of a claim and also provides that the
Limitation Act, 1963
shall apply to arbitration under the Bye laws. Bye laws 254, 255 and 256 provide for making of an award and its publication. Bye law 258 provides for correction and interpretation of the award. Bye law No. 259 provides for enforcement of the award. Bye Law 260 is material for deciding the controversy before us and reads as under :

"260. (1) An arbitration award may be set aside by the court on an application made under
Section 34
of the Arbitration and Conciliation Act, 1996 on the grounds mentioned in that section.

(2) Whenever an award made under these Bye-laws and Regulations is set aside by the court, the matter shall be again referred to arbitration as provided in these Bye-laws and Regulations and the claims, differences and disputes shall be decided by arbitration only."

6. Bye laws 261 to 274 are not material for the purpose of controversy before us. Bye law No. 274A provides for an appeal against the arbitral award and reads as under :

274A Appeal Bench:

1. The Executive Director of the Exchange shall constitute one or more Appeal Benches, each comprising of five arbitrators from the panel of arbitrators constituted by the Governing Board under Bye-law 262(b). Out of the five arbitrators, three shall be non-members and two shall be members.

2. None of the arbitrators who have heard the reference or passed the award shall be a member of the Appeal Bench hearing an appeal against that award.

3. A party dissatisfied with an Award may appeal to the Appeal Bench against such Award within 15 days of the receipt of such award.

4. The party appealing shall pay the necessary fees and charges for preferring the appeal as may be fixed by the Governing Board from time to time,

5. Arbitration Secretary shall accept the appeal memo submitted to him by the party appealing or his authorised representative against the award. The Appeal memo shall state the objections to the award of the arbitrator. The appellant shall unless exempted in whole or in part by the Appeal Bench, on application being made by the appellant deposit with the Exchange in cash the full amount ordered to be paid or the securities or the value at the ruling market price of the securities order to be delivered in the award. Provided that if the party appeal has made an application to the Appeal Bench within 15 days of receipt of the award by the party appealing then the party appealing shall deposit the cash or securities within 15 days of the disposal of the exemption application by the Appeal Bench. The party placing the deposit shall be deemed to have agreed that on the expiry of 3 months from the date of the decision of the Appeal Bench such deposit may be handed over by the Exchange to the other party in accordance with the terms of decision in appeal unless the other party has obtained an order of the court restraining such handing over.

6. A certificate from the Exchange showing that exemption application has been filed or that the deposit if any, required by the Clause (5) has been lodged shall be attached to the appeal.

7. The award of the Appeal Bench has been set aside and/or is pending. The Appeal Bench shall not proceed to hear the appeal unless the Exchange has certified that the required deposit has been made or that no deposit is required to be made by the party appealing.

Hearing and decision of Appeal:

The Arbitration Secretary after all the formalities are complete shall issue notice to the respondent. A copy of the memo of Appeal shall accompany the notice and respondents shall be called upon to appear before the Appeal Bench on the date specified therein. On that day, the Secretary shall place all papers before the Appeal Bench and the Appeal Bench shall on the same day or on some adjourned a date hear the parties and shall make the award in writing giving their reasons for the award. The award made by them shall be deemed to be final and binding on the parties. The judgment of the Appeal Bench shall be a majority judgment and the award shall be as per majority decision.

8. Signing of the Award.

The award made by the Appeal Bench shall be signed by all members of the Appeal Bench.

9. Publication of the Award.

After the award is made, a signed copy of the award shall be delivered to each party.

10. The Appeal to be decided expeditiously :

The Appeal shall be decided by the Appeal Bench expeditiously and as far as possible, within one month of the filing of the Appeal.

11. Application of provisions relating to arbitrations.

All the other Bye-laws of this chapter as far as may be applicable shall apply mutatis mutandis to the proceedings before the Appeal Bench and the award of the Appeal Bench. However, there shall be no appeal from the award of the Appeal Bench.

Bye-laws 275 to 281D are also not material for the purpose of controversy before us.

7. No provision is made in the Bye law 260 for setting aside of an award passed by the Appeal Bench. However, Clause 11 of Bye law No. 274A prescribes that all other Bye-laws of the chapter as far as may be applicable shall apply mutatis mutandis before the proceedings before the Appeal Bench and the award of the Appeal Bench, meaning thereby that an application for setting aside the award passed by the Appeal Bench can be made under
Section 34
of the Arbitration Act.

8. Under
Section 35
of the Arbitration Act, an arbitral award is final and is binding on the parties. Therefore, submitted the learned Counsel, the only method of challenging any award including an award passed at the first instance under Bye-laws of the Stock Exchange, Mumbai can be by making an application under
Section 34
of the Arbitration Act. In fact, Bye law 260 of the Bye-laws of the Stock Exchange, Mumbai specifically states that an award may be set aside on an application under
Section 34
of the Arbitration Act. Therefore, if a person is aggrieved by an award passed at the first instance by the Arbitral Tribunal under the Bye-laws of the Stock Exchange Mumbai, the aggrieved person can and must make an application for setting aside the award within the period of three months as provided in Sub-section (3) of
Section 34
of the Arbitration Act. The said period of three months can be extended by 30 days under proviso to Sub-section (3) of
Section 34
and once the said period expires, the award becomes final and cannot be challenged in any other manner.
The Arbitration Act
does not contemplate of an appeal to an Appeal Bench or any other authority. According to the learned Counsel,
Section 34
is a complete code as to the manner of challenging an award and there is no other method provided under the
Arbitration Act
for challenging an award. The bye law 274A of the Stock Exchange, Mumbai which provides for an appeal is inconsistent with the provisions of the
Arbitration Act, 1960
and therefore void. As no application has been filed within the statutory period for challenging the award passed at the first instance by the arbitral tribunal on 16th December, 2002, the award passed at the first instance has become final and the present petition is therefore liable to be dismissed.

9. In order to consider this contention, it is necessary to refer to Sub-section (4) of
Section 2
of the Arbitration Act, 1996 which reads as under:

"2(4) This part except Sub-section (1) of
Section 40
,
Sections 41
and
shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except insofar as the provisions of this Part are inconsistent with that other enactment or with any rules made thereunder."

10. In Stock Exchange, Mumbai v. Vinay Bubna AIR 1989 Bom. 266 (sic) a Division Bench of this Court had an occasion to consider effect of Sub-section (4) of
Section 2
. Agarwal J., in para 23 of the judgment, observed as under :

"The aforesaid catena of decisions has taken a consistent stand that rules and bye-laws framed by the Exchange are framed under an authority conferred by enactment i.e. Regulation Act and have statutory force of law and the same prevailed and the provisions of
Section 46
of 1940 Act was no impediment in following provisions of the bye-laws."

He further held that the Bye-laws of the Stock Exchange are framed in exercise of the powers, conferred under Section 9 of the Contract Regulation Act and hence by virtue of Sub-section (4), of
Section 2
of the Arbitration Act, the Bye-laws, in so far as they are inconsistent with the provisions of the Act would prevail over the
Arbitration Act
. Sawant, J. in his separate but concurring judgment also held that the Bye-laws of the Stock Exchange have a statutory character and would have force of law and in so far as they are inconsistent with the provisions of the
Arbitration Act
, the Bye-laws shall prevail over the Act. In view of the authoritative judgment of the Division Bench of this Court, it cannot be said that Bye law 274A or any other Bye-laws relating to appeal against the award of an Arbitral Award to the Appeal Bench, are void. The Bye law No. 274A in so far as it is inconsistent with the Act, would prevail over the
Arbitration Act
.

11. At this stage, I may point out that the Bye law 274A or any other Bye-law does not provide that a person aggrieved by the award passed at the first instance by the Arbitral Tribunal of the Stock Exchange must file an appeal to the Appeal Bench. In fact, Bye law 260 itself contemplated that an aggrieved person may file an application under
Section 34
of the Arbitration Act for setting aside the award passed by the Arbitral Tribunal at the first instance. Thus, a person who is aggrieved by an award passed by the Arbitral Tribunal of the Stock Exchange, Mumbai can without filing of an appeal under Bye law No. 274A make an application for setting aside of the award under
Section 34
of the Arbitration Act. If a person aggrieved is certain that the grounds for setting aside of the award under
Section 34
of the Arbitration Act exist, he may not file an appeal under Bye law 274A but may straightaway challenge the award under
Section 34
. Bye law 274A grants him an alternate and appellate remedy. Bye-law 274A does not cast any restrictions on the powers of the Appeal Bench and all questions of law as well as facts can be agitated before the Appeal Bench. On appeal, award passed by the Arbitral Tribunal at the first instance would merge into the judgment and the award of the Appeal Bench. It is the judgment and Award of the Appeal Bench which would govern the rights and liabilities of the parties. Once the appellate award is passed, the award passed by the Arbitral Tribunal at the first instance would not separately exist and would merge into the award of the Appeal Bench and it would no longer be open to any party then to challenge the original award under Bye law 260. Under Clause 11 of the Bye law 274A, the provisions of Bye law 260 are applicable to the appellate award and a petition under
Section 34
of the Arbitration Act can be filed challenging the appellate award.

12. A difficult situation may arise where when the Arbitral Tribunal at the first instance partly grants a claim made by a person and partly rejects it. One of the parties say the claimant may prefer to file an appeal against the rejection of part of his claim and the other party against whom part of claim is granted may choose to straightaway approach the Court under
Section 34
of the Arbitration Act. As stated earlier, Bye law 260 allows him to do so and Bye law 274A does not provide that he must first exhaust the remedy of an appeal before approaching the Court under
Section 34
of the Arbitration Act. Thus, there would be a clear possibility of a conflicting decisions being rendered by two different bodies, one by the Appeal Bench and the other by the Court under
Section 34
of the Arbitration Act. The situation needs to be remedied. It is however, not necessary in the present case to consider what would be the effect when the two parties choose to adopt two different remedies and the two authorities pass conflicting orders. In the present case, no conflict arises because, none of the parties have choosen to challenge the original award passed by the Arbitral Tribunal under Bye law 260 by directly filing a petition under
Section 34
of the Arbitration Act. The petitioner has only challenged the appellate award in which the original award passed at the first instance has merged.

13. In view of what is stated above, the preliminary objection raised by the respondent No. 1 that the petition is not maintainable as it has been passed after the statutory period provided under Sub-section (3) of
Section 34
of the Arbitration Act is rejected.

14. Coming to the merits, the petitioner contended that there was an agreement between the parties on 8th June, 2002 under which certain adjustments were made between the parties. The petitioner had given his Santro Car bearing registration No. MH04 AP 7519 worth Rs. 2,50,000 to the respondent No. 1. The petitioner had further given to the claimant one UPS with four batteries worth Rs. 5000, two computers worth Rs. 35,000 and a plot of land for which initial payment of Rs. 1,00,000 was made by the petitioner to Ms. Sheetal Patel. It was agreed that the balance payment for the plot was to be made by the respondent No. 1 directly to Ms. Patel. The petitioner therefore, claimed a credit of Rs. 4,30,000 by way of adjustment of the value of the properties given by the petitioner to the respondent No. 1. The agreement which was in the shape of a letter dated 10th October, 2002 written by the petitioner and signed by the respondent No. 1 in token of his acceptance, was filed before the Arbitral Tribunal on 8th June, 2002. Notes of the proceedings (Exhibit E to the petition) do show that this agreement was filed by the petitioner and thereafter, the matter was adjourned to 31st October, 2002. The Arbitral Tribunal however, did not deal with this agreement between the parties in its award dated 16th December, 2002. The Arbitral Tribunal has given no reasons for rejecting this claim of adjustment made by the petitioner. The award, so far as it rejects the claim of the petitioner for adjustment, is without reasons. Same thing can be said about the appellate award. The Appeal Bench has enumerated the appellant's grievance (b) as under :

"The Lower Bench did not give credit to the appellant to the extent of assets handed over by the appellant to the respondent No. 1 as per settlement dated 8-6-2002. The adjustment on this count is to the extent of Rs. 4,30,000."

The Appeal Bench has dealt with this submission in one line by saying that:

"On the facts and circumstances of the case, we are unable to accept the contention of the appellant and we uphold the award passed by the Lower Bench."

15. No reasons are given by the Appeal Bench for rejecting the contention of adjustment. Sub-section (3) of
Section 31
of the Arbitration Act states that the arbitral award shall state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given or the award is under the agreed terms under
Section 30
. The initial award as well as the appellate award suffers from the vice of absence of reasons which are mandatorily required to be given under Sub-section (3) of
Section 31
and therefore, the award would have to be set aside.

16. Learned Counsel for the respondent No. 1 submits that it is not necessary to remand back the matter to the Arbitral Tribunal because, Clause 2 of Bye law No. 260 provides that whenever an award is set aside by the Court, the matter can be again referred back to arbitration as provided under Bye-laws and the respondent No. 1 would therefore take separate steps for reference as contemplated under the Bye Laws. Accordingly, the award is set aside and the petition is allowed in terms of prayer Clause (a). In the facts of the case, there shall be no order as to costs.