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2025 (2) TMI 414 - SC - Indian LawsJoint and several liability to repay debit balance in the bank account - Whether respondent no. 1 who is the husband of respondent no. 2 could have been made a party to the arbitration that was invoked by the appellant who is a registered stock broker and held to be jointly and severally liable for the debit balance that had accrued in the wife s (respondent no. 2 s) account with the appellant?. Perversity of the finding of joint and several liability - HELD THAT - Applying the test for perversity under Section 34 it is clear that the High Court while exercising jurisdiction under Section 37 adopted an incorrect approach. The arbitral tribunal s findings are definitely based on evidence as has been rightly held by the Section 34 court. The High Court at the stage of the Section 37 appeal took an alternative view on this finding of fact by reappreciating evidence. The arbitral tribunal s conclusion was based on oral and documentary evidence regarding the conduct of the parties which leads to a reasonable and possible view that there is joint and several liability. Hence the High Court while exercising jurisdiction under Section 37 has incorrectly held the award to be perverse. Patent illegality - HELD THAT - The High Court held that despite noting the need for a client s express authorisation for adjustment of accounts the arbitral tribunal approved an illegal transfer of the credit balance from respondent no. 1 s account to that of respondent no. 2. On going through the arbitral award the finding of the arbitral tribunal is based on past experience meaning the conduct of respondent no. 1 all along acting on behalf of respondent no. 2 joint and several liability and the respondents marital relationship. Bye-law 247A provides that a broker shall not withdraw money from a client s account other than money required for payment on behalf of the client for payment of debt due to the broker from the client or money in respect of which there is a liability of the client to the broker. Once the arbitral tribunal arrived at a finding that respondent no. 1 is jointly and severally liable for the debit balance in respondent no. 2 s account which we have upheld above Bye-law 247A in fact permits the withdrawal of the credit balance from respondent no. 1 s account. Therefore the adjustment of accounts on 05.03.2001 is legal and valid. Although the arbitral tribunal has held that written authorisation for such adjustment is required we find nothing in Bye-law 247A or in the SEBI Guidelines on which this Bye-law is based that mandates the same. Conclusion - The arbitral tribunal had jurisdiction over respondent no. 1 and the High Court erred in setting aside the arbitral award. The arbitral award was upheld in its entirety holding both respondents jointly and severally liable for the debit balance in respondent no. 2 s account. Appeal allowed.
1. **Issues Presented and Considered**
The core issues considered in this judgment are: (i) Whether the arbitral tribunal had jurisdiction under Bye-law 248(a) of the Bombay Stock Exchange (BSE) Bye-laws, 1957, to include respondent no. 1 in the arbitration proceedings based on an oral contract of joint and several liability for the debit balance in respondent no. 2's account. (ii) Whether the High Court correctly exercised jurisdiction under Section 37 of the Arbitration and Conciliation Act, 1996, in setting aside the arbitral award against respondent no. 1 on the grounds of perversity and patent illegality, specifically regarding the finding of joint and several liability. 2. **Issue-wise Detailed Analysis** (i) **Jurisdiction of the Arbitral Tribunal** - **Relevant Legal Framework and Precedents**: The arbitration was invoked under Bye-law 248(a) of the BSE Bye-laws, 1957, which allows arbitration between members and non-members concerning dealings, transactions, and contracts subject to the Rules, Bye-laws, and Regulations of the Exchange. - **Court's Interpretation and Reasoning**: The Court interpreted Bye-law 248(a) to include disputes arising out of or relating to transactions conducted on the stock exchange. It concluded that the oral contract of joint and several liability between the respondents and the appellant falls within the ambit of this Bye-law. - **Key Evidence and Findings**: The Court relied on the oral agreement and the conduct of the parties, including their joint approach to the appellant and the opening of accounts, to establish that respondent no. 1 was effectively a party to the transactions in respondent no. 2's account. - **Application of Law to Facts**: The Court applied the principles from previous judgments, such as ONGC v. Discovery Enterprise, to determine that a non-signatory can be bound by an arbitration agreement if there is a composite transaction and mutual intention to be bound. - **Treatment of Competing Arguments**: The Court rejected the argument that the oral contract was a private transaction not conducted on the stock exchange floor, emphasizing the broad wording of Bye-law 248(a) and the interconnected nature of the transactions. - **Conclusions**: The arbitral tribunal had jurisdiction over respondent no. 1 based on the oral agreement, and the arbitration was not limited to transactions conducted solely under respondent no. 2's client code. (ii) **Exercise of Jurisdiction by the High Court under Section 37** - **Relevant Legal Framework and Precedents**: Section 37 of the Act provides for appeals against orders under Section 34, which allows setting aside an arbitral award on limited grounds, including perversity and patent illegality. - **Court's Interpretation and Reasoning**: The Court found that the High Court erred by reappreciating evidence and substituting its own view for that of the arbitral tribunal, which had based its findings on evidence presented during the arbitration. - **Key Evidence and Findings**: The arbitral tribunal's findings on joint and several liability were based on affidavits and the conduct of the parties, which the High Court wrongly disregarded. - **Application of Law to Facts**: The Court applied the standards for setting aside an award under Section 34, emphasizing that the arbitral tribunal's findings were based on evidence and were not perverse or patently illegal. - **Treatment of Competing Arguments**: The Court addressed the High Court's concerns about the lack of express authorization for account adjustments, finding that the BSE Bye-laws and SEBI Guidelines did not mandate written authorization for such adjustments. - **Conclusions**: The High Court exceeded its jurisdiction under Section 37 by reappreciating evidence and incorrectly setting aside the award against respondent no. 1. 3. **Significant Holdings** - **Core Principles Established**: The Court reaffirmed the principle that an arbitral tribunal's jurisdiction under statutory Bye-laws can extend to non-signatories involved in composite transactions. It also emphasized the limited scope of judicial intervention under Sections 34 and 37 of the Act. - **Final Determinations on Each Issue**: The Court concluded that the arbitral tribunal had jurisdiction over respondent no. 1, and the High Court erred in setting aside the arbitral award. The arbitral award was upheld in its entirety, holding both respondents jointly and severally liable for the debit balance in respondent no. 2's account. The appeal was allowed, and the High Court's order was set aside, reinstating the arbitral award and holding respondent no. 1 jointly and severally liable along with respondent no. 2.
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