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TMI Blog2004 (12) TMI 379X X X X Extracts X X X X X X X X Extracts X X X X ..... t by the respondent for and on behalf of the appellant and that by reason of the non-payment for the shares, the NSE declared the respondent as a defaulter on 19th June, 2001. On 21st June, 2001, the respondent referred his claim against the appellant to Arbitration under the Bye-laws of the NSE. The appellant contested the claim and contended that the Arbitration reference under the Bye-laws was not maintainable on the ground that the same was filed after the respondent had been declared a defaulter. The appellant also filed a counter claim against the respondent before the Arbitral Tribunal. 3. On 31st July, 2002, the Arbitral Tribunal passed an award in favour of the respondent for an amount of Rs. 3,46,89,636 after rejecting the preliminary objection raised by the appellant as to the maintainability of the arbitration proceedings. The Arbitral Tribunal held that the transactions in question had been completed prior to the respondent being declared a defaulter and that the respondent was not in any way debarred or prevented from pursuing his claim to recover amounts due from the appellant in respect of such transactions. 4. Challenging the award the appellant filed an applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the NSE Rules and Bye-laws. 8. The appellant submitted that Rule 33 of the NSE Rules which were framed under section 8 read with section 3(2) of the Securities Contract (Regulation) Act, 1956, provides for the cessation of a trading member's right of membership immediately he is declared a defaulter. It is submitted that Rule 33 read with Chapter XI of the Bye-laws would show that a defaulter member had no right to refer a dispute to arbitration. Our particular attention was drawn to Bye-laws 1 and 1-C in which the right of trading members to refer a dispute to arbitration not only in respect of on going transactions but also in respect of transactions prior to a member being declared a defaulter had been provided for. The appellant's contention is that although the dispute relating to a defaulter member survived, the defaulter member loses his right to refer the dispute to arbitration by reason of Rule 33. According to the appellant the dispute in respect of such period could only be raised by the Defaulters' Committee in terms of Bye-law 11 of Chapter XI. 9. Other bye-laws in Chapter XII were also referred to show that it is the Defaulters' Committee which was required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bye-laws between the trading members and their constituents to arbitration could not be said to be a right simpliciter. Parties to the arbitration agreement were obliged to refer disputes to arbitration. Rule 1C, according to the respondent clearly indicated that the disputes arising out of a transaction prior to a trading member being declared a defaulter survived and could be referred to arbitration only by the parties to the arbitration agreement. The Defaulters' Committee was not a party to the arbitration agreement. The decisions cited by the appellant have been distinguished. It has been emphasized that the provisions of the Provincial Insolvency Act, 1920 relied upon by the appellant were vastly dissimilar with the provisions of the Rules and the Bye-laws of NSE. It is submitted that Bye-law 11 did not envisage a complete vesting of all assets of the defaulting member in the Defaulters' Committee. There was a limited vesting of certain assets which did not cover contractual rights of a defaulting member against a non-member. It was finally submitted that neither the Defaulters' Committee nor NSE had ever asserted the right to refer the disputes of a defaulting member to arb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for in the Bye-laws and Regulations (Bye-law 14), Bye-law 1 prescribes requirements for reference to arbitration with regard to claims, differences and disputes inter alia between Trading Members and Constituents in the following manner: "(1) All claims, differences or disputes between the Trading Members inter se and between Trading Members and Constituents arising out of or in relation to dealings, contracts and transactions made subject to the Bye-laws, Rules and Regulations of the Exchange or with reference to anything incidental thereto or in pursuance thereof or relating to their validity, construction, interpretation, fulfilment or the rights, obligations and liabilities of the parties thereto and including any question of whether such dealings, transactions and contracts have been entered into or not shall be submitted to arbitration in accordance with the provisions of these Bye-laws and Regulations". Rule 1(C) deals with disputes of defaulting members. It says: "(1C) The provisions of Bye-laws (1), (1A) and (1B) shall become applicable to all claims, differences, disputes between the parties mentioned therein for all dealings, contracts and transactions made subject t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Member and no arbitration shall lie between the Exchange and a Trading Member". 14. Rule 33 does not provide for the vesting of any rights in the Defaulters' Committee. The Exchange and the Defaulters' Committee are not the same. The Defaulters' Committee is set up under Chapter XII Bye-law 30 and may be constituted by the Board of Directors from time to time at any point of time. Not less than 60% of the members of the Defaulters' Committee shall be from among non-trading members who shall be nominated by the Exchange with the prior approval of Securities and Exchange Board of India. 15. Bye-law 11 on which particular emphasis has been placed by the appellant to support his argument that the Defaulters' Committee could refer the disputes of a defaulting member to arbitration reads thus: "The Defaulters' Committee shall call in and realize the security deposits in any form, margin money, other amounts lying to the credit of and securities deposited by the defaulter and recover all moneys, securities and other assets due, payable or deliverable to the defaulter by any other Trading Member in respect of any transaction or dealing made subject to the Bye-laws, Rules and Regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the recovery of the dues of the defaulter. The words do not convey any intention to permit the Defaulters' Committee to also refer disputes in the name of the defaulter to the arbitrator under Rule 1C. The effect of the express empowerment of the Committee "to initiate action in Courts of law" cannot be read as implying initiating a reference to arbitration. Had the intention behind the Bye-laws been to similarly authorize the Committee for the purposes of Bye-law 1C, it would have been expressly so provided. The plain language of the Bye-law precludes the Defaulters' Committee from referring defaulters' claims to arbitration. This may be contrasted with section 59(h) of the Provincial Insolvency Act, 1920 which in terms authorizes the Receiver of an insolvent's property to refer any dispute to arbitration in order to realize the property of the insolvent. 19. The submission of the appellant then was that if the defaulter were left free to pursue the arbitration to recover monies due to him, it would be possible that he may misappropriate any amounts realized thereby. The argument is an argument of desperation and is not based on any known principle of interpretation. 20. The p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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