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TMI Blog2002 (5) TMI 814X X X X Extracts X X X X X X X X Extracts X X X X ..... troduced his son, respondent No. 4, and on their joint requests, the petitioner-company opened another account being No. S025 in the name of respondent No. 4 with respondent No. 3. The further case of the petitioner-company is that on April 17, 1999, in terms of instruction given by respondents Nos. 3 and 4, the petitioner-company purchased 4,000 equity shares of GMDC Ltd., with its own fund and the said purchase was duly entered in the account No. S025 of respondents Nos. 3 and 4 but the price including the commission of the petitioner-company remained due. The petitioners state that thereafter, respondents Nos. 3 and 4 introduced respondent No. 5 to the petitioner-company as their sister concern and on the request of respondents Nos. 3 and 4 the petitioner-company opened an account in the name of respondent No. 5 being account No. B037. On or about April 23,1999, respondents Nos. 3 and 4 made over a cheque to the petitioner-company for a sum of Rs. 1,95,047 drawn by respondent No. 5 in favour of the petitioner-company with a request to the petitioner to transfer the said 4,000 equity shares, so purchased in the name of respondent No. 4, in favour of respondent No. 5 and the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation clause on which respondent No. 5 and the NSE, respondent No. 2 rely is contained in Chapter XI of the bye-laws of NSE. Learned counsel for the petitioner-company submitted that in the instant case, the arbitration clause will be applicable to all the members of NSE and others who as members are governed by such bye-laws and regulations of the NSE. According to learned counsel respondent No. 5, a customer or a constituent of the petitioner-company is a broker and is not governed by such bye-law just because respondent No. 5 has entered into some transactions with the petitioner-company, a member of NSE. Learned counsel further submitted that regulations 4.3.1. of the capital market regulations support the contentions of the petitioner-company. Learned counsel for the petitioner-company relied on 4.3.1 of the said regulation. The said regulation provides as follows : "4.3.1. Every trading member shall enter into an agreement with each of his constituents, i.e, clients, before accepting or placing orders on the constituent's behalf. Such agreement, shall include provisions specified by the exchange in this behalf in annexure 3. The term constituent herein shall not include a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose some time in June 1999, but since no dispute was raised for referring the differences to arbitration within six months, in the instant case, the arbitration clause is not attracted. Learned counsel submitted that under section 21 of the Arbitration and Conciliation Act, 1996 (hereinafter called "the ACA 96"), an arbitration commences on the date from which a request for adjudication of the dispute through arbitration is received by the other party. In this case, no request has been received by the petitioner within six months from the date of the alleged claim. Learned counsel relying on the affidavit of respondent No. 5, also submitted that from the contract notes it is clear that claims by either party can be made either in civil jurisdiction or before the arbitrators. According to learned counsel, the alleged arbitration agreement, assuming the same is attracted in the facts of the case, lacks the mandatory and exclusive nature of an arbitration agreement as contemplated under section 7 of the Arbitration Act. Learned counsel further submitted that in the instant case, already a civil suit has been filed covering the dispute, which is sought to be referred to arbitration. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it, I have been advised to deal with the said allegations in the proper forum and as such I reserve my rights to make submissions with regard thereto in the appropriate forum and I refrain from dealing with the same herein." The petitioner has filed another supplementary affidavit-in-reply on February 11,2002, in answer to the affidavit-in-opposition of respondent No. 5. In the said supplementary affidavit also para. 8.1 of the affidavit-in-opposition of respondent No. 5 has not been denied. Learned counsel for respondent No. 5 further submitted that the question whether there is in existence an arbitration agreement or not is a question which can be decided in the arbitration proceeding itself and the said question cannot be decided by the writ court. Learned counsel for respondent No. 5 referred to section 16(1) of the Arbitration and Conciliation Act, 1996, and contended that under the said section the arbitral tribunal is now competent to rule on its own jurisdiction including on any objection about the existence or validity of the arbitration agreement. Therefore, the question of existence of an arbitration agreement can be decided by the arbitral tribunal. Apart from that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws have the force of law. They are applicable on their own and the application of such bye-laws, does not depend upon any contract between the parties. Learned counsel further submits that the bye-laws which have been so framed have deeming clauses for their extended operation. The deeming clauses on which reliance was placed are set out below. The first deeming clause is clause 4 of Chapter VII of the bye-laws at page 15 to the following effect: "Clause 4, Chapter VII: (a) All dealings in securities on the exchange shall be deemed made subject to the bye-laws, rules and regulations of the exchange and this shall be a part of the terms and conditions of all such deals and the deals shall be subject to the exercise by the relevant authority of the powers with respect thereto vested in it by the bye-laws, rules and regulations of the exchange." The second deeming clause occurs at clause 1 of Chapter X at page 26 and the third deeming clause pointed out is clause 2 of Chapter XI at page 30 of the bye-laws. Those deeming clauses are set out below : "Clause 1, Chapter X : (b) All contracts relating to dealings permitted on the exchange made by a trading member shall in all cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration proceeding is initiated the same will be barred by limitation is wholly misconceived since there is no limitation. However, it is open to the petitioner-company to raise such question before the arbitral tribunal and the aribitral tribunal can decide the same. Learned counsel also submitted that there is no question of the arbitration proceeding being vitiated in view of the criminal proceeding inasmuch as the purpose of both these proceedings is totally different. The arbitration proceeding has been initiated for realisation of dues and claims of the parties whereas the criminal proceeding has been initiated for awarding punishment. Learned counsel also submitted that in the instant case, fraud is not an issue in the dispute between the parties. Therefore, there is no reason why the arbitration proceeding cannot be commenced. Learned counsel also sought to distinguish the cases cited by learned counsel for the petitioner-company. Learned counsel for respondent No. 2 also urged in favour of dismissing the writ petition and allowing the arbitration proceeding to commence. Learned counsel submitted that respondent No. 5 being a constituent of the petitioner-company, a membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember. 2.The undersigned shall adhere to the bye-laws, rules and regulations framed by NSEIL from time to time. 3.The undersigned shall abide by the code of conduct as laid down from to time by NSEIL." Chapter XI of the bye-laws refers to the mode of settlement of disputes between the trading member and its constituents. The relevant clause of arbitration is as follows : "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." (underlined by court) The sweep of the clause is very wide and it certainly covers a situation like the present one. The main defence of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequently Vice Chancellor Megarry, without disturbing the dictum of Lord Asquith added : "The hypothetical must not be allowed to oust the real further than obedience to the statute compels" Polydoe Ltd. and RSO Records Ire v. Harlequin Record Shop Ltd. and Simon Records Ltd. [1980] 1 CMLR 669 at 673. These tests in interpreting a deeming provision have been accepted by the Supreme Court time and again. It has been consistently held by the apex court that in interpreting such provisions, the court is to ascertain the purpose behind the fiction and after so ascertaining it, the court must assume all those facts which are the inevitable corollaries to the giving effect to the purpose behind the fiction. Then full effect must be given to the fiction and it should be carried to its logical end. This has been made clear in the decision of the Supreme Court in State of Bombay v. Pandurang Vinayak, AIR 1953 SC 244, in which Justice Mahajan accepted the doctrine of Lord Asquith in East End. Subsequently, Justice Madon in American Home Products Corporation v. Mac Laboratories Pvt. Ltd., AIR 1986 SC 137 approved the dictum in East End [1951] 2 All ER 587, HL(E); [1952] AC 109 and Pandurang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent No. 5 has appeared in the suit or taken steps under section 8(1) of the Arbitration and Conciliation Act, 1996. In any event section 8(3) of the Arbitration and Conciliation Act, 1996, is clear that an arbitration proceeding may proceed and an award can be made despite the filing of the suit. Section 8 of the Arbitration and Conciliation Act, 1996, is strikingly different from section 34 of the Arbitration Act, 1940. This was first noticed by the Bombay High Court in the decision given in the case of Bombay Gas Co. Ltd. v. Parmeshwar Mittal, AIR 1998 Bom 118. The apex court also expressed the same view in Smt. Kalpana Kothari v. Smt. Sudha Yadav [2002] 1 SCC 203. The observations of the learned judges in paragraph at pages 208-209 of the report in the judgment rendered in Kalpana Kothari is very pertinent and which is reproduced below : "In striking contrast to the said scheme underlying the provision? of the 1940 Act, in the new 1996 Act, there is no provision corresponding to section 34 of the old Act and section 8 of the 1996 Act mandates that the judicial authority before which an action has been brought in respect of a matter, which is ,the subject matter of an arbitrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the case of General Enterprises, AIR 1978 Cal 407 has no remote relevance to facts in the instant case. Here it is nobody's case that any contract was entered into between the parties by fraud. The next decision cited by learned counsel for the petitioner-company was in the case of West Bengal Comprehensive Area Development Corporation v. Sasanka Sekhar Banerjee, AIR 1985 Cal 290. In that case, the question which was decided was that mere allegation of fraud unconnected with the real point at issue will not be enough to stay arbitration. If in deciding the dispute it is necessary for the arbitrator to enter such questions to decide the real dispute involving the reputation of a professional man, the court will be reluctant to allow the arbitration and in such a case and the trial in open court is more appropriate. In the instant case, fraud is certainly not the main issue against the writ petitioner. Therefore, the considerations which weighed with the learned judges in the case of West Bengal Comprehensive Area, AIR 1985 Cal 290 are not present in the facts of this case. Similarly, the decision of the Supreme Court in the case of Abdul Kadir Shamsuddin Bubere v. Madhav Pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to cite a subsequent judgment of the Court of Appeal taking a contrary view. Thereupon notices were served on learned counsel for the parties and the matter was heard in the presence of the parties by this court again on April 2, 2002. On April 2, 2002, learned counsel for respondent No. 2 relied on the judgments of the Court of Appeal in the case of Pittalis v. Sherefettin [1986] 2 WLR 1003. In that case, the learned judges referred to the decision in the case of Tote Bookmakers [1985] 2 All ER 555 (Ch D) and also to the decision of Lord Justice Davies in Baron v. Sunderland Corporation [1966] 1 All ER 349 (CA). But the learned judges of the Court of Appeal did not accept the views expressed either in Tote Bookmakers [1985] 2 All ER 555 (Ch D) or in Baron v. Sunderland Corporation [1966] 1 All ER 349 (CA) by holding that there is no reason why if an agreement between the two parties confers one of them alone the right to refer the matter to arbitration, the reference should not constitute an arbitration (see page 1008-g). In page 1009 of the report, the learned judges of the Court of Appeal held that Tote Bookmakers [1985] 2 All ER 555 (Ch D) was wrongly decided (see at page 1009 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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