2006 (1) TMI 262 - HC - Companies Law

Issues Involved:
1. Jurisdiction of Civil Court vs. Arbitration
2. Applicability of Stock Exchange Bye-laws to Non-Members
3. Interpretation of Securities Contract (Regulation) Act, 1956 and Bye-laws of Bombay Stock Exchange
4. Deemed Arbitration Agreement

Issue-wise Detailed Analysis:

1. Jurisdiction of Civil Court vs. Arbitration:
The primary issue is whether the Civil Court has jurisdiction to entertain the suit filed by the petitioners for the recovery of Rs. 23 lakhs or if the dispute must be referred to arbitration as per the bye-laws of the Bombay Stock Exchange. The Civil Judge, Senior Division, Wardha, ruled that the Civil Court does not have jurisdiction and that the matter should be referred to arbitration as per Bye-law No. 248. Consequently, the plaint was returned to the petitioners, and the stay on arbitration proceedings was vacated.

2. Applicability of Stock Exchange Bye-laws to Non-Members:
The petitioners, who are non-members, argued that the bye-laws of the Bombay Stock Exchange should not apply to them. However, the trial court found that even non-members are bound by the arbitration provisions of the bye-laws. Bye-law No. 226(a) stipulates that all contracts made by a member for or with a non-member for the purchase or sale of securities are subject to the Rules, Bye-laws, Regulations, and Usage of the Exchange. Bye-law No. 248(a) further mandates that disputes between a member and a non-member must be referred to arbitration.

3. Interpretation of Securities Contract (Regulation) Act, 1956 and Bye-laws of Bombay Stock Exchange:
The court examined the definitions and provisions under the Securities Contract (Regulation) Act, 1956, particularly sections 2, 9(2)(k), and 9(2)(m), which empower stock exchanges to make bye-laws for regulating contracts and disputes. The court noted that the term 'non-member' is not explicitly defined in the Act but is broadly interpreted in the bye-laws to include any person dealing with a member, thereby encompassing the petitioners.

4. Deemed Arbitration Agreement:
The court emphasized the concept of deemed arbitration agreements under Bye-law No. 248(b), which states that acceptance of a contract subject to arbitration constitutes an agreement between the member and non-member to submit disputes to arbitration. This deemed agreement applies to all dealings, transactions, and contracts, whether prior or subsequent to the date of the contract.

Conclusion:
The High Court upheld the trial court's decision, affirming that the dispute must be referred to arbitration as per the bye-laws of the Bombay Stock Exchange. The court found no jurisdictional error or perversity in the trial court's order and dismissed the writ petition. The judgment underscores the comprehensive regulatory framework established by the Securities Contract (Regulation) Act, 1956, and the bye-laws of the Bombay Stock Exchange, which mandate arbitration for disputes involving securities transactions, even for non-members.

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