2009 (3) TMI 1106 - HC - Indian Laws

Summary

Issues Involved:
1. Validity of the arbitral awards rejecting claims as time-barred under the byelaws of the National Stock Exchange (NSE).
2. Applicability of Section 28 of the Contract Act to the byelaws of NSE.
3. Whether the arbitration under NSE byelaws constitutes a statutory arbitration.
4. Entitlement of petitioners to pursue civil suits if arbitration claims are time-barred.

Detailed Analysis:

1. Validity of the Arbitral Awards:
The petitions challenged the arbitral awards dated 6th November 2006, which rejected the claims as being beyond the six-month limitation period prescribed in Bye-law 3 of Chapter XI of the NSE byelaws. The Arbitral Tribunal held that the arbitration was under the byelaws and not under Section 89 of the CPC, and thus, the limitation period set by the byelaws was applicable. The Tribunal also rejected the argument that the period of limitation could not be curtailed by agreement, emphasizing that parties could fix any period for making a reference to arbitration by their contract.

2. Applicability of Section 28 of the Contract Act:
The court examined whether Bye-law 3, which limited the period for reference of disputes to six months, was void under Section 28 of the Contract Act. It was argued that Section 28 applies to contracts and that the byelaws, being a special or local law, were not subject to this section. The court, however, found that the byelaw was contractual and not statutory, thus subject to Section 28. Consequently, the part of Bye-law 3 prescribing a six-month limitation for arbitration was deemed void, and the limitation period would be governed by the Limitation Act.

3. Nature of Arbitration under NSE Byelaws:
The court considered whether arbitration under the NSE byelaws constitutes a statutory arbitration. It was noted that the Securities Contracts (Regulation) Act, 1956, under which the byelaws were framed, does not itself provide for arbitration but mandates that contracts be regulated by the byelaws. The court concluded that the arbitration under the byelaws is contractual, albeit with a statutory flavor, and thus not a statutory arbitration under any enactment.

4. Pursuit of Civil Suits:
The court addressed whether the petitioners could pursue civil suits if the arbitration claims were time-barred. It was held that if the parties have mandatorily agreed to arbitration, then they are bound by the arbitration rules, and a civil suit cannot be pursued if the arbitration claim is time-barred. The court emphasized that allowing a civil suit would make the arbitration agreement contingent, which is impermissible.

Conclusion:
The court set aside the arbitral awards, holding that the part of Bye-law 3 limiting the time for arbitration to six months was void under Section 28 of the Contract Act. The petitioners were allowed to approach the NSE or the Arbitral Tribunal for adjudication of their claims, with each party bearing its own costs. The decision reinforced the applicability of the Limitation Act to arbitration agreements, emphasizing the contractual nature of the NSE byelaws.