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TMI Blog2007 (6) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... future interest at the rate of 22 per cent per annum on the basis of averment to following effect : 2.1 Plaintiff is the sole proprietor of the proprietary concern Kat Stocks and her husband Anilkumar Kataria works as general manager of the said proprietary concern. In fact, the suit, is filed through Shri Anilkumar, because he had dealings with defendants and he is fully conversant with the facts of the suit claim. This is because, he looks after day-to-day transactions of the firm, he takes majority decisions regarding business and executes those. The plaintiff firm is engaged in the business of sub-brokership in the trade of shares stocks and securities. 2.2 Defendant Nos. 1 and 2 are real brothers and sons of defendant No. 3. One Abhaykumar of Madras (Chennai) is common relative of plaintiff and defendants. Defendants were introduced to plaintiff by said Abhaykumar and the defendants claimed to be wizards in stock trading. The plaintiff was impressed by the tall claims then made by defendant Nos. 1 and 2 and accepted them as clients of Kat Stocks. Defendants started trading in stock business through plaintiff concern. 2.3 Kat Stocks has an office at Jalgaon and als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showed an amount of Rs. 1,54,63,856.20 as due from K. Ashokkumar Bafna and further sum of Rs. 25,55,233.29 to be due from Ashok Co. 2.7 It is the contention of the plaintiff that in spite of repeated attempts, demands through telephonic calls, visits, meetings and letters from time to time, the defendants have failed and neglected to pay the amounts overdue and, hence, the suit. The cause of action for the suit is said to have partly arisen at Jalgaon, Mumbai and Harda and, hence, suit can be filed at either of the three places. Cause of action is said to have arisen on 10-4-1996 and 28-10-1996 when the defendant firm acknowledged the amounts due to the plaintiff from it. The suit is, therefore, said to be within limitation. 3. In the lengthy written statement filed by defendant No. 1, paras 1 to 14 (pp. 1 to 16), are utilised for denying verbatim all the averments in the plaint. Ultimately, it is contended that the suit and criminal case (referred in paragraph 12 of the plaint) filed by the plaintiff are false and without any cause. Defendant Nos. 2 and 3 have no concern with suit contract or claim. There is no joint family of three defendants. There was oral partition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct cannot be enforced in law. 3.6 It is also pleaded that Kat Stocks is unregistered partnership firm and, therefore, is not entitled to file a suit, in view of section 69 of Indian Partnership Act. Suit is said to be bad for non-joinder of necessary party because, broker Jain is not impleaded as party. Defendants not only have prayed for dismissal of suit, but have also prayed for compensatory costs of Rs. 5,000 in favour of defendant Nos. 2 and 3. 4. All three defendants have filed applications titled as Application under section 20 read with section 151 of Code of Civil Procedure , praying for dismissal of suit for want of jurisdiction. The applications filed by defendant Nos. 1, 2 and 3 are at Exhibits 35, 34 and 33 respectively, copies of which are available at paperbook pages 31 to 37, 24 to 26 and 17 to 19, respectively. All three defendants have specifically referred to paragraph 14 of the plaint, wherein it is claimed that part of cause of action arose at Jalgaon, Mumbai and Harda and, therefore, the plaintiff has a right to file suit at any of these three places. 4.1 Defendant No. 3 has contended that he resides at Harda (Madhya Pradesh) and has no business r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to transactions with defendant No. 1 filed by the plaintiff are from the office of Jain Securities at Bombay. None of the contract notes, or communications are signed in the name of Anilkumar Kataria. Thus, none of the transactions in stock and trade took place at Jalgaon and, therefore, the suit filed in the Jalgaon court is without jurisdiction. 4.6 Shri Anilkumar Kataria is in the employment of JISL since many years and at present, he is the director of JISL. In the year 1995-96 and prior to that, Anilkumar and his wife were residing either at Mumbai or Madras. Because Shri Bhavarilal Jain and his company Jain Securities could not file any money suit against defendant No. 1, the plaintiff has fabricated contents of certain documents annexed to the plaint. Defendant No. 1 had no contractual relationship, much less within territorial limits of Jalgaon court, with the plaintiff. While entering into all the transactions regarding securities and shares with Kat Stocks, defendant No. 1 was always given to understand by Shri Anilkumar that the company is a subsidiary of JISL and that defendant No. 1 is dealing with the said company. All security and share contracts received by defe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of defendant No. 1, is denied as false to the knowledge of defendant No. 2. It is said that defendant Nos. 1 and 2 were staying together at Madras and defendant No. 2 shifted to Harda only in the year 1996. It is the claim of the plaintiff that she has sufficient documentary evidence to establish active involvement of defendant No. 2 in the business of securities and shares. 5.3 So far as reply to application (Exh. 35) of defendant No. 1 is concerned, it is pleaded that the documents signed by defendant Nos. 1 and 2, as also correspondence exchanged between the plaintiff and defendants, clinchingly establishes contractual relationship between the plaintiff and defendants. It is admitted that Jain Securities Ltd. and Kat Stocks shared office at Mumbai, but it is added that there is no relation of whatsoever nature between the two companies. It is also denied that the documents filed by plaintiff are regarding transactions of defendant No. 1 with Jain Securities, Bombay. According to the plaintiff, the defendants have full knowledge of following facts : ( i )Defendants are distant relatives of Anilkumar. (Defendant No. 1 is son-in-law of Anilkumar s aunt). ( ii )Mr. Anilkuma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of facts, mixed questions of facts and law and pure question of law, which can only be decided at the final hearing of the suit and, therefore, the applications are said to be premature. In order to challenge the applications, the plaintiff has relied upon contentions in the plaint, application for attachment before judgment and solemn affirmation in support of those. 6. From the impugned order, it appears that for considering the issue, whether this court has jurisdiction to entertain the suit ? deposition of Anilkumar is recorded on behalf of the plaintiff at Ext. 112 and the witness was cross-examined on behalf of the defendants. Of course, defendants have not led any oral evidence for decision on this preliminary issue. However, instead of considering the issue of jurisdiction (territorial), learned Judge considered the issue, whether the suit is maintainable in the court as per (in view of) the rules and regulations under the SEBI Act ? . After considering the definitions of Security and Board , learned Judge has recorded that mainly objection is on the ground that, in view of section 20A of the SEBI Act, no civil court shall have jurisdiction in respect of any matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , learned Judge was pleased to answer the issue in the negative and order rejection of the plaint. 7. During the course of his arguments, senior counsel, Shri P.V. Mandlik pointed out that all the applications (Exts. 33, 34 and 35) by all the three defendants are titled as one under section 20 read with section 151 of the Code of Civil Procedure, thereby indicating that the challenge was regard-ing territorial jurisdiction of the Court of Civil Judge, Senior Division, Jalgaon. Only in para 4( k ) of Ext. 35 by defendant No. 1, some different ground is made out that, if a person is not conferred status of sub-broker under SEBI Act, the said person cannot deal in any transaction of securities, shares or trade and since the Kat Stocks is not the sub-broker recognised under SEBI Act, all the transactions entered into by Kat Stocks with defendant No. 1, had no legal standing or clothing and, therefore, it is a legal bar for entertaining the suit. The paragraph is concluded, by saying that on this count also, the court has no jurisdiction. It was submitted that, the plaintiff has no registration with SEBI and, hence, provisions of the SEBI Act or the Securities Contracts (Regulation) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tlement of the claims or dispute, including settlement by arbitration. Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992 ( SEBI Regulations ), are the bye-laws framed by the SEBI in exercise of the powers conferred by section 30 of the SEBI Act and as per the provisions of those Regulations, a dispute between the sub-broker and a client is required to be referred to the arbitration through member-broker. In fact, reliance placed by learned counsel, Shri P.M. Shah, is on different provision than the one relied upon in the reported judgment of Nagpur Bench. The learned Judge in the reported judgment, has placed reliance upon the procedure for arbitration as prescribed under article 248( a )/( b ) under chapter arbitration . Reliance is also placed on paragraph 7 and the discussion therein of the judgment of Full Bench of this High Court in the matter of St. Ulai High School v. Devendraprasad Jagannath Singh [2007] 1 Mh. LJ 597, on the issue of "exclusion" of jurisdiction, although otherwise it is a judgment in the matter under MEPS (Conditions of Service) Regulation Act, 1978. It is submitted that SEBI Act and SCRA, being special laws, pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contents quoted hereinabove, learned Judge has given clear indication that she is not dealing with the issue of jurisdiction on the basis of territorial limits of the court. 9.1 In earlier paragraphs 9 to 11, learned Judge has clearly recorded a finding that the plaintiff is a sub-broker having no registration certificate as required by the SEBI Act or the Regulations. Negative finding is recorded on the issue of jurisdiction with cryptic observations as under, in paragraph 15 : "The case in my hand is certainly governed by the provisions of SEBI Act and the civil court has no jurisdiction to pass any order or to decide the controversy arisen between the parties. .... It is also observed earlier that to deal with the cases of securities stock, etc., specific enactment like SEBI Act, has come into force. As such, when there is a statutory enactment, the civil court certainly does not have any jurisdiction to try the suit." Before entering into examination of the provisions of the SEBI Act, SCRA and Regulations under either of the Acts, in order to find out whether the legislation has provided alternate forum, thereby expressly taking away jurisdiction of civil court, to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther recognised stock exchange. Although, it is claimed that she has recently applied for such registration, as at present, we do not have any document supporting such a claim. It is also admitted position that the suit claim is towards price of the shares purchased and sold by the defendants. 11. This brings us to consider the Scheme of the SEBI Act and whether that Act specifically bars jurisdiction of the civil court. Reliance is placed upon section 20A of the SEBI Act, which reads, thus : "20A. Bar of jurisdiction. No. order passed by the Board or the Adjudicating Officer under this Act shall be applicable except as provided in section 15T or section 20 and no civil court shall have jurisdiction in respect of any matter which the Board or the Adjudicating Officer is empowered by or under this Act to pass any order and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any order passed by the Board or the Adjudicating Officer by or under this Act." Since this is not a case wherein any order passed either by the Board or the Adjudicating Officer is being challenged or injunction being sought again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It reads : "15Y. Civil court not to have jurisdiction. No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which an Adjudicating Officer appointed under this Act or a Securities Appellate Tribunal constituted under this Act is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act." In order to find out which subject-matters are taken out of competence of civil court, it becomes necessary to find out the subject-matters about which the Adjudicating Officer and the Securities Appellate Tribunal are empowered to deal with. 11.2 Section 15-I refers to Adjudicating Officer and it is evident from the said provision that the Board is required to appoint an officer not below the rank of a division chief to be an Adjudicating Officer for holding an enquiry in the prescribed manner after giving any person concerned a reasonable opportunity of being heard for the purpose of imposing any penalty under sections 15A to 15G, 15H, 15HA and 15HB in fact. Chapter VI-A, which is title ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 20A regarding bar of jurisdiction of a civil court is followed by a saying clause as contained in section 21 of the SEBI Act and the said provision reads, thus : "21. Savings. Nothing in this Act shall exempt any person from any suit or other proceedings which might, apart from this Act, be brought against him." 11.4 We are of a considered view that at least section 21 indicates that civil court shall continue to have jurisdiction over the subject-matters for which the authorities under the Act are not empowered to decide. 12. Although no particular provision of the SCRA, was specifically referred to, we desire to examine the scheme of the Act also in the same manner we have examined the scheme under SEBI Act in paragraph 11 above. 12.1 Section 22E is a provision excluding jurisdiction of the civil court and the same reads as follows : "22E. Civil court not to have jurisdiction . No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Securities Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edure for settlement of claims or disputes including settlement by arbitration." Having taken a survey of the orders those can be passed by the adjudicating officers, SEBI under section 4B and also what are the powers of the recognised stock exchange, we are unable to find out any provision that enables either of these three authorities to resolve the dispute regarding non-payment between a client and unregistered sub-broker. 13. We feel justified in taking such an assessment of the scheme of both the statutes, i.e., the SEBI Act and SCRA, in view of the observations of the Full Bench of this court in the matter of St. Ulai High School ( supra ). In fact, portion from paragraph 7 of the reported judgment, relied upon by learned counsel for respondents, discusses the principles laid down by the Hon ble Apex Court for considering the issue of exclusion of jurisdiction of civil court. In para 7.1, the Full Bench has, after discussing the principles formulated by the Hon ble Apex Court in the matter of Dhulabhai v. State of MP AIR 1969 SC 78, summed up the principles as follows : "The exclusion of jurisdiction of the civil court is not readily inferred. Section 9 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1715, as summarised in paragraph 32 of the judgment and referred to in para 7.4 by the Full Bench of our High Court are on the same lines, as observations in Raja Ram Kumar s case ( supra ). 14. Although reliance is placed by learned counsel for the respondents on observations in the judgment of Nagpur Bench (SJ) in the matter of Prashant Commercial ( supra ), the provision with which the court was dealing with in that matter, was different than the provision on which reliance is being placed by learned counsel for respondents in the present matter. 14.1 For the present matter, learned counsel has referred us to Stock Brokers Regulations and the code of conduct for the sub-brokers prescribed by the said Regulations and contents of model agreement between the broker and sub-broker, as also sub-broker-client agreement. Before taking us to the Stock Broker Regulations, our attention is drawn to the SEBI (Stock Brokers and Sub-brokers) Rules, 1992, and more particularly rule 3. These are the rules framed by the Central Government in exercise of powers conferred by section 29 of the SEBI Act which have come into force, on 20-8-1992, the date of their publication in the Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations of the said stock exchange. The broker shall continue to be responsible for replacing bad deliveries in accordance with applicable "good and bad delivery norms" even after termination of the agreement. Relying upon these contents of model agreement, it was contended by senior counsel Shri P.M. Shah that reference to arbitration is part of terms and conditions which are statutory in the character and, therefore, those are binding upon the plaintiff, irrespective of the fact whether there is/is not a written agreement executed between plaintiff and the defendant. For supporting the proposition, learned counsel has placed reliance upon observations of the Hon ble Supreme Court in the matter of Hyderabad Vanaspathi Ltd. v. A.P. State Electricity Board AIR 1998 SC 1715, and more particularly the contents in paragraph 20 of the judgment, which is captioned as nature of agreement, statutory or contractual ." 14.4 In the reported case, the appellant, a manufacturer of vanaspathi, had entered into two agreements with Andhra Pradesh State Electricity Board, for supply of high tension power. The officers of the Board, after inspection of the factory, noticed pilferage of ene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of a dispute as to the consumption, the adjudication shall be by the officers of the Board, shall be deviative of article 14 of the Constitution of India . The Full Bench of three judges opined that, the creation of adjudicatory process by contractual obligation in condition No. 39 of the Terms and Conditions of Supply of electricity was wholly vitiated and that though there is no bar against the Board to recover compensation for the loss caused to it, even when a consumer is prosecuted for the same offence, under the Act, the enquiry into and estimate of the loss should be made by an independent and properly constituted body. Ultimately, the Full Bench concluded that condition 39 of the conditions framed by the Board, to the extent it prescribes the procedure for adjudication of the dispute relating to pilferage or malpractice of energy and for final assessment of additional charges, is ultra vires of sections 24, 26(6) and clause IV(3) of Schedule of the Act of 1910 and section 49 of Act of 1948, and is wholly vitiated as being arbitrary and violative of article 14 of the Constitution and was accordingly struck down. 14.7 Observations in para 20 of the judgment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercise of powers conferred by sections 29 and 30 respectively of the SEBI Act, are relied upon for demonstrating that a sub-broker requires a registration and also for demonstrating that there is required to be an agreement between a broker and sub-broker [regulation 17(1)( m )] and a sub-broker and client [regulation 15(1)( b ) and ( c ) read with model agreement]. In fact, we have already observed that the model agreements between broker and sub-broker, as also sub-broker and client, contain a clause that dispute between a sub-broker and a client, if cannot be resolved by the broker and thereafter by the Board, is required to be referred to arbitrator in accordance with the rules. Although regulations 17(1)( m ) and 15(1)( b ) and ( c ) compel the broker and sub-broker to enter into agreement, those regulations do not prescribe that the agreement must be in absolute conformity with the model agreement and, therefore, terms and conditions demonstrated in the model agreement possibly cannot be termed as statutory in nature. In the reported matter, the Electricity Board was not required by the section to enter into a written agreement with the consumer, although it had so entered. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions between the two persons, who are not its members ?" 15. Reliance is placed upon the judgment of learned Single Judge of this High Court in the matter of Prashant Commercial ( supra ), wherein in paragraph 9, the learned Single Judge observed : "It is to be noted that even dispute between two non-members is regulated under it and full effect needs to be given to these fictions." The learned Judge was dealing with bye-law No. 248( a ) of Bombay Stock Exchange Regulations/Bye-laws, the text of which is reproduced in paragraph 8 of the judgment. It is somewhat worded as section 9(2)( k ) of the SCRA. For the sake of convenience, we reproduce opening part of the said bye-law. "All claims (whether admitted or not) difference and disputes between a member and a non-member, or non-members. (The term "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to relevant provisions which create a bar against the jurisdiction of civil court, which we have discussed at length in the earlier part of this judgment and he has also not referred to section 21 of the SEBI Act which dilutes bar of jurisdiction created by section 20A [both provisions are reproduced in earlier part (para 10) of our judgment]. 15.2 The learned Single Judge has observed in paragraph 13 that the above case law demonstrates that by SCRA and Regulations/Bye-law of Bombay Stock Exchange, a special procedure and machinery has been evolved for looking into the grievance of person dealing with the sale and purchase of securities. It appears that the two cases were referred before the learned Single Judge, as can be seen from paragraph 6 of his judgment. 15.3 In the matter of Stock Exchange, Mumbai v. Vinay Bubna [1999] 20 SCL 175 (Bom.), there was a reference to arbitration under bye-law 248, by mutual consent and reference was to two arbitrators, one named by each party. Respondent No. 1 was the original petitioner in the arbitration petition. Differences had arisen between him and respondent No. 2, who was a broker with the exchange and, hence, a reference w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be made subject to the Rules, Bye-laws, Regulations and Usage of the Exchange." [para 18] As can be seen from paragraph 17, during the period of relevant transactions, the petitioner was not a member and, therefore, this was a dispute between non-member petitioner and a member-respondent No. 6. In the matter before us, no such bye-law, as bye-law 226( a ) in the reported matter, making all contracts subject to rules, bye-laws, regulations and usages of the exchange, is referred. But, the requirement of making a reference to an arbitrator is demonstrated by longer route that, bye-law requires an agreement between a broker and sub-broker, as also an agreement between sub-broker and client and that model agreements include within those, an arbitration clause. The requirement of regulation is execution of agreement between broker and sub-broker, as also between sub-broker and client. Even regulation 17(1)( m ) and 15(1)( b )( c ) pertaining to agreements between stock broker and his sub-broker and sub-broker-client do not seem to lay down that the parties must stick to all the terms and conditions as indicated in the model agreement. We have also not been able to locate regulatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he arguments advanced by learned senior counsel for the respondents that the dispute is required to be referred to an arbitration. Such an argument was based on the submission that arbitration clause is a statutory term and condition of the contract between broker and sub-broker, as also sub-broker and client. After considering SEBI Rules and Regulations framed in exercise of powers under sections 29 and 30 of the SEBI Act, we have found ourselves to be unable to agree with such a submission. The regulations seem to lay down that there must be an agreement between broker and sub-broker, as also sub-broker and client, specifying the scope of their authority and responsibilities, but regulations do not seem to compel incorporation of all the terms and conditions in the agreement, as per the model agreements in Annexure 4, and more particularly arbitration clause. It is, therefore, not possible to accept the argument that, arbitration clause is a statutory term and condition of a contract between the broker and sub-broker, or sub-broker and a client. The attempt to claim that section 8 of the 1996 Act, would operate as bar against entertainment of the suit, therefore, must fail. 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, of the Code of Civil Procedure, 1908, the plaint is required to be rejected, if it does not disclose a cause of action or if relief claimed is undervalued and the plaintiff, on being required to correct the valuation, fails to do so, or if the plaint is properly valued but insufficiently stamped and the plaintiff fails to remove deficiencies, even on being required by the court to do so, or if the suit is barred by any law. The case certainly does not fall within first three categories. Even if the trial court were to arrive at a conclusion that the civil court has no jurisdiction, either territorial or of the subject-matter, it would have been required to return the plaint as under rule 10 of order 7. Even if we were to uphold the argument of advocate Shri P.M. Shah that there is implied agreement containing arbitration clause, we would have been required to return the plaint (if governed by section 8 of the 1996 Act). 18.1 In paragraph 11 of her judgment, the learned trial Judge observed that the plaintiff is a sub-broker, not having obtained mandatory registration certificate. Although learned Judge has not expressly said so, if the Judge was of the view that, hence, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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