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2004 (8) TMI 404

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..... aid with interest which is specified in the award. The Respondent No. 1 has been directed, on receiving payment from the Petitioners, to deliver certain securities to the Petitioner. By the award which is challenged in the Arbitration Petition No. 594 of 2001, the Petitioner in that Petition is directed to pay an amount of Rs. 17,13,720 with interest to the Respondent No. 1. 4. Facts that are relevant and material for deciding these two petitions are that the Respondent No. 1 in both these petitions filed Arbitration Reference in the Arbitration Dispute Cell of the Bombay Stock Exchange contending that he was member of the Bombay Stock Exchange till 27-1-1998 from which date he has been declared as defaulter. According to the Respondent No. 1, Shri Omprakash Roongta who is Petitioner in Arbitration Petition No. 595 of 2001 was his constituent. According to statement of claims submitted by the Respondent No. 1 during 1994 the said Omprakash approached the Respondent No. 1 for carrying out transaction in shares on his behalf. In view of the order that I propose to pass in these petitions, it is not necessary to go into details of the transactions between the parties. Suffice to .....

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..... the first question for consideration, on behalf of the Petitioners it is submitted that there was no arbitration agreement in existence between the parties at the time when the dispute was decided by the arbitrators. It is submitted that the provisions in the bye-laws of the Stock Exchange providing for arbitration between a member and non-member is bye-law No. 248( a ). It is submitted that the provisions of bye-law No. 248( a ) constitutes an arbitration agreement between the parties and the authority of the arbitrators to deal with the dispute is to be strictly determined on the basis of contents of bye-law No. 248( a ). It is submitted that in order that the dispute becomes arbitrable under bye-law No. 248( a ) there are two requirements. First requirement is that the dispute must be between the member and non-member, both at the time of reference as also at the time of decision of the arbitration. Thus in order that the Arbitral Tribunal can decide the dispute, the member who is party to the arbitration must continue to be the member till the award is made. The second requirement is that the claim or dispute must arise in relation to dealing and transaction made subject to rul .....

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..... it operates in relation to the transactions which are conducted in accordance with rules, bye-laws and regulations of the Stock Exchange and which are between the members and non-members. Continuance of the status as member till the decision of the dispute by the arbitrator is not necessary. 9. I have heard the learned Counsel appearing for the Bombay Stock Exchange. The Bombay Stock Exchange supported the arguments advanced on behalf of the Respondents. It is submitted that the settled interpretation of bye-law No. 248( a ) is that the provisions of that bye-law are attracted if the transaction is between the member and non-member and is governed by the provisions of the bye-laws, rules and regulations of the Bombay Stock Exchange and continuance of the status of the member till the award is made is not necessary. In my opinion decision on the question raised whether the Arbitral Tribunal loses its jurisdiction to decide the dispute between a member and non-member in case a member who is party to the dispute ceases to be a member before award is made by the Arbitral Tribunal depends on what is the scheme of the bye-laws, rules and regulations of the Bombay Stock Exchange in th .....

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..... t of any dealings, transactions and contracts of a date prior or subsequent to the date of this contract (including any question whether such dealings, transactions and contracts have been entered into or not) shall be submitted to and decided by arbitration in Bombay as provided in the Rules, Bye-laws and Regulations of the Stock Exchange, Bombay." Thus, it is clear that the arbitration clause contained in the bye-laws is attracted to the transactions. The next provision which, in my opinion, is relevant is provision of bye-law No. 248( a ). It reads as under: "248( a ). All claims (whether admitted or not) difference and disputes between a member and a non-member or non-members (the terms non- member and non-members shall include a remisier, authorised clerk, a sub-broker who is registered with SEBI as affiliated with that member or employee or any other person with whom the member shares brokerage) arising out of or in relation to dealings, transactions and contracts made subject to the Rules, Bye-laws and Regulations of the Exchange or with reference to anything incidental thereto or in pursuance thereof or relating to their construction, fulfilment or validity or in re .....

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..... lter as also a claim arising between a member and non-member after a member is declared a defaulter. If according to bye-law No. 252 a claim which has arisen between a member and non-member after a member has been declared a defaulter is arbitrable, obviously such a firm or a member would not be a member of the Stock Exchange either on the date of reference or on the date of decision. In my opinion, the provisions of bye-law No. 257 also indicates the same thing. It reads as under : " 257. The parties to the reference shall in all things abide by the forthwith carry into effect the award of the arbitrators which shall be final and binding on the parties and their respective representatives notwithstanding the death of or legal disability occurring to any party before or after the making of the award and such death or legal disability shall not operate as a revocation of the reference or award." Perusal of the above quoted provisions shows that an arbitration clause and an award made thereunder continue to be binding on the legal representatives of the dead person. They also continue to be binding on a person who has suffered a legal disability. A reference at this stage may be .....

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..... terpretation of bye-law No. 248( a ). In my opinion, in view of this affidavit and as I find that it is possible interpretation, it will not be appropriate to disturb the settled position. It appears from the affidavit of the Bombay Stock Exchange that on the basis of this interpretation disputes are being decided by the Arbitral Tribunal and arrangements have also been made by the Bombay Stock Exchange for making recovery from the amounts that are due from the such defaulter member for the benefits of the other members and constituents. In the affidavit, the Bombay Stock Exchange has stated thus : " 4.4 It is also pertinent to note that within six months of being declared a defaulter, a defaulter member is entitled to apply for re-admission, subject to various conditions as stipulated in the Exchange Rules, Bye-laws and Regulations. Rule 60(1) of the Exchanges Rules, Bye-laws and Regulations, inter alia , provides that one of the conditions for eligibility to apply for readmission is that the defaulter must make full payment of his liabilities and where the claim of a creditor is the subject matter of an arbitration proceeding under the Rules, Bye-laws and Regulations which i .....

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..... on Act. It is submitted on behalf of the petitioners that second respondent had a duty to disclose certain facts which were likely to give rise to justifiable doubt as to his independence or impartiality. These circumstances were that the advocate appearing on behalf of the first respondent in the arbitration proceedings was throughout the pendency of the arbitration proceedings also acting as an advocate for the Respondent No. 2/Arbitrator in several personal courts matters. The petitioners became aware of this fact on or about 24th October, 2001 after the award was made. It is submitted that the petitioners took search of the proceedings before the Metropolitan Magistrate and discovered several proceedings in which the first respondent s said advocate Shri A.K. Maheshwari has acted as an advocate for the second respondent. The petitioners, therefore, obtained certified copies of those proceedings, which have been filed in these petitions. It is submitted that the second respondent has not denied any of these facts. The first respondent has stated that he was not aware that his advocate was also an advocate for the second respondent/Arbitrator. During the hearing of these petitio .....

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..... ustifiable doubt as to his independence or impartiality. It is to be seen that by this Act the entire law of arbitration has been drastically changed. The power of the Court to interfere with the award made by the Arbitrator is now extremely limited in view of the provisions of section 34 of the Act and therefore, section 12 is in the nature of a procedural safeguard afforded to a party by the Act. Section 12 casts a solemn duty on the Arbitrator, who is put in a position of a Judge to disclose to the parties his interest which is likely to give rise to a reasonable doubt about his independence in the mind of the parties. So far as the question of justifiable doubts as to independence or impartiality is concerned the basis is whether the party to the dispute would have reasonable apprehension in his mind about the independence of the Arbitrator and not whether the Arbitrator thinks that he is capable of being impartial. The following observations from para 17 of the judgment of the Supreme Court in the case of Ranjit Thakur v. Union of India [1987] 4 SCC 611 are pertinent. The said paragraph 17 reads thus : "17. As to the tests of the likelihood of bias what is relevant is th .....

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