2009 (2) TMI 879 - HC - Indian Laws

Summary

Issues Involved:
1. Maintainability of the suit for declaration and permanent injunction challenging the arbitration agreement.
2. Bar of the suit by Section 5 of the Arbitration and Conciliation Act, 1996.
3. Application under Section 8 of the Arbitration Act by a non-party to the arbitration agreement.
4. Bar of the suit by Sections 34 and 41 of the Specific Relief Act.
5. Jurisdiction of the arbitrator to decide on the validity of the arbitration agreement.
6. Procedural propriety in the appointment of the arbitrator.
7. Validity of the arbitral award.

Issue-wise Detailed Analysis:

1. Maintainability of the Suit:
The court held that a suit for declaration that an agreement containing an arbitration clause is fabricated, forged, and thus null and void, and for a permanent injunction restraining arbitration, does not lie. The suit is barred by Section 5 of the Arbitration Act and Sections 34 and 41(h) of the Specific Relief Act, read with Section 16 of the Arbitration Act. The court emphasized that the Arbitration and Conciliation Act, 1996, marks a significant change from the 1940 Act, with no equivalent to Sections 32 and 33, and that Section 16 now provides the arbitral tribunal the power to rule on its own jurisdiction.

2. Bar by Section 5 of the Arbitration Act:
The court reiterated that Section 5 of the Arbitration Act prohibits the jurisdiction of courts except as provided under the Act. The court noted that allowing a suit challenging the arbitration agreement would negate the effect of the statutory changes and provide a tool for delaying the disposal of claims, which is contrary to the intent of the Act.

3. Application under Section 8 by a Non-party:
The court held that the stock exchange, being the institution to whose arbitration the petitioner/appellant and stock broker had agreed, is entitled to maintain an application under Section 8 of the Arbitration Act. The court clarified that the word "party" in Section 8 refers to a party to the suit, not necessarily a party to the arbitration agreement.

4. Bar by Sections 34 and 41 of the Specific Relief Act:
The court found that the suit for declaration and permanent injunction is barred by the provisions of the Specific Relief Act. The court emphasized that a permanent injunction cannot be granted when an equally efficacious remedy is available, such as the remedy under Sections 16 and 34 of the Arbitration Act.

5. Jurisdiction of the Arbitrator:
The court confirmed that the arbitrator has the jurisdiction to decide on the validity of the arbitration agreement, including allegations of forgery and fabrication. The court cited the Supreme Court's decision in K.V. Aerner Cementation India Ltd. v. Bajranglal Agarwal, which held that the civil court does not have jurisdiction to pass an injunction against arbitral proceedings.

6. Procedural Propriety in Appointment of Arbitrator:
The court found no procedural impropriety in the appointment of the arbitrator. The stock exchange followed the prescribed procedure, and the arbitrator was appointed in accordance with the regulations. The court dismissed the petitioner's contention that the appointment was not in compliance with the regulations.

7. Validity of the Arbitral Award:
The court upheld the arbitral award, finding no grounds to challenge the arbitrator's findings. The court noted that the arbitrator had compared the petitioner's signatures on admitted documents and concluded that the Member Constituent Agreement was signed by the petitioner. The court also addressed other grounds of challenge, including the alleged prohibition on cash payments, and found them to be without merit. The court reduced the interest rate on the awarded amount from 18% per annum to 12% per annum during the pendency of the petition, considering the commercial nature of the transaction.

Conclusion:
The court dismissed both the Regular Second Appeal (RSA) and the Original Miscellaneous Petition (OMP), upholding the arbitral award and imposing costs of Rs. 50,000 to be shared equally by the counsel for the stock broker and the stock exchange.