1966 (11) TMI 57 - HC - Companies Law

Summary

Issues Involved:
1. Legality of the Stock Exchange as an association.
2. Validity of the arbitration agreement under the Arbitration Act.
3. Effectiveness of the Stock Exchange bye-laws under the Securities Contracts (Regulation) Act, 1956.

Detailed Analysis:

1. Legality of the Stock Exchange as an Association:
The respondents argued that the Bombay Stock Exchange is an illegal association under Section 11 of the Companies Act, 1956, as it is an unregistered association of more than 20 persons. The court examined the purpose of the Stock Exchange, considering whether it was formed for carrying on business and if that business had the object of acquiring gain by the association or its individual members. The court referred to the rules and bye-laws of the Stock Exchange, particularly Rule 4, which outlines the objectives of the Exchange. The court found that the primary purpose of the Exchange was to regulate and control the trade or business in securities, not to carry on business for profit. The court concluded that the Stock Exchange was not formed for the purpose of carrying on any business and did not have the object of acquiring gain, thus it did not contravene Section 11 of the Companies Act and was not an illegal association.

2. Validity of the Arbitration Agreement under the Arbitration Act:
The respondents contended that the arbitration agreement was invalid because the provisions of Bye-law 250 of the Stock Exchange conflicted with Section 9 of the Arbitration Act, 1940. Bye-law 250 allows the governing board or president of the Stock Exchange to appoint an arbitrator if one party fails to do so, whereas Section 9(b) of the Arbitration Act allows the party who has appointed an arbitrator to appoint that arbitrator as the sole arbitrator if the other party fails to appoint an arbitrator. The court held that Section 9 of the Arbitration Act applies unless a different intention is expressed in the agreement. Since the arbitration agreement between the parties explicitly incorporated Bye-law 250, it expressed a different intention, and thus the provision of Section 9(b) did not apply. The court rejected the contention that Bye-law 250 violated the Arbitration Act and upheld the validity of the arbitration agreement.

3. Effectiveness of the Stock Exchange Bye-laws under the Securities Contracts (Regulation) Act, 1956:
The respondents argued that the bye-laws of the Bombay Stock Exchange were not effective because they were not published in the Gazette of India and the Official Gazette of the State as required by Section 9(4) of the Securities Contracts (Regulation) Act, 1956. The court distinguished between bye-laws made before and after the recognition of the Stock Exchange. It held that only bye-laws made after recognition under Section 9(1) require publication under Section 9(4). Since the bye-laws in question were made before the recognition of the Stock Exchange, they did not fall within the ambit of Section 9 and did not require publication. The court thus held that the pre-recognition bye-laws were valid despite not being published in the Official Gazette.

Conclusion:
The court declared that the arbitration agreement between the parties, as contained in the form of the contract note and the rules and bye-laws of the Stock Exchange, Bombay, was valid and subsisting. The respondents were ordered to pay the petitioner's costs of the petition, as well as the costs of the Stock Exchange, Bombay, taxed as between attorney and client, due to the far-reaching consequences of the respondents' contentions on the legality of the Stock Exchange and its bye-laws.