Stock Exchange, Mumbai vs Vinay Bubna and others

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1999 Supreme(Bom) 76

IN THE HIGH COURT OF BOMBAY
(O.O.C.J.)
A.C. Agarwal A.V. Savant, JJ.
The Stock Exchange, Mumbai..... Appellants.
Versus
Vinay Bubna others ..... Respondents.
Appeal No. 1101 of 1998 in Arbitration Petition No. 130 of 1998, decided on 4/5-2-1999.
Advocates appeared :
Virag Tulzapurkar with P.N. Modi Nihar Mody i/b Wadia Gandhy and Co., for appellants.
Sailesh Shah with Prakash Ganwani i/b Poddar Co., for respondent No. 1.
Ajay Khandar, for respondent No. 2.

Headnote:Bombay Stock Exchange Bye-laws
       Nos. 248 and 249(a) Securities Contracts (Regulation) Act, 1956, Section 9(1)-See Arbitration and Conciliation Act, 1966, Sections 2(4) and 10.
       Sections 2(4) and 10-See Securities Contracts (Regulation) Act, 1956, Section 9.
       Section 2(4) and 10-Bombay Stock Exchange Bye-laws os. 248 and 249(a)-Number of members in arbitral tribunal-Validity of numbers - Contravention of Section to by Byelaws of stock exchange-Held-Section is pari materia with Section 46 of Arbitration Act, 1940 and Conslitiation of Tribunal under Bye-laws 249(a) of stock exchange in covered. The section after deleting the portions are not relevant for resolving the controversy at hand would read as under. This part shall apply to every arbitration under any other enactment for the time being in force except in so far as the provisions of this part are inconsistent with that other enactment or with any rules framed there under. The question which is posed for Courts consideration is whether the bye-law 249(a) of stock exchange falls under the phrase any other enactment which is inconsistent with the provisions of Section 10 of the Act. Section 9 of the Securities Contracts (Regulation) Act deals with the powers of the stock exchange to make bye-laws. Sub- section (1) of Section 9 provides that any recognized stick exchange may subject to the previous approval of the Securities and Exchange Board of India make byelaws for the regulation and control of contracts. Sub-section (2) of Section 9 provides for the subjects which may be dealt with by the bye-laws. Clause (k) of sub-section (2) provides for the regulation of the entering into, making performance, rescission and termination of contracts including contracts between members or between a member and his constituent or between a member and person who is not a member, and the consequences of default or insolvency on the part of a seller or buyer or intermediary. It would, therefore, appear that bye-laws and more particularly bye-law 249(a) has been made in exercise of the powers conferred under the provision of clause (n) of sub-section (2) of Section 9. The byelaw, therefore, has been made under an authority of law. On perusal of Section 2(4) of 1996 Act, Court finds that some is in pari materia to Section 46 of the Arbitration Act, 1940. Both the provisions, in so far as are material, provide that provisions of the Act shall apply to an arbitration under any other enactments for the time being in force except in so far as the Act is inconsistent with that other enactment or with any rules made there under. In AIR 1963 SC 274, Apex Court lays down that "By an Act" means by a provision directly enacted in the statute itself. The words "under the Act" means what is not directly found in the statute but is conferred or imposed by virtue of rules or bye-laws which are framed by a subordinate law making authority which is empowered by the parent Act. By-laws of the exchange are framed in exercise of power conferred under Section 9 of the Security Contracts Regulation Act. Hence, they are statutory. They would thus squarely fall under the phrase "under any other enactment" appearing in sub-section (4) of Section 2 of the Arbitration Act, 1966 and the same in so far as are inconsistent with provisions of the Act would prevail. The view taken by the learned Single Judge will adversely affect thousands of arbitration references pending before 2 arbitrators as also awards passed pursuant to references to 2 arbitrators. Several other Stock Exchange in India have similar provisions for arbitration, and consequently a very large number or pending and completed arbitrations would be adversely and prejudicially affected by the ratio of the impugned order. Having regard to the aforesaid discussion, and observation in 1997 (4) SCC 114. Court is constrained to hold that the impugned judgment and order passed by the learned Single Judge cannot be sustained and the same is accordingly set aside. Court hold that arbitrations under the bye-law 249(a) of the bye-laws of the exchange are valid.
       Sections 2(4) and 10 Securities Contracts (Regulation) Act (42 of 1956), Section 4 and Bombay Stock Exchange Regulations, Bye-law 249 as it stood before amendment on 29th August, 1998-Bye-Iaw 249(a) providing for reference to even number of arbitrators-The said bye-law is a statutory bye-law having the force of enactment within meaning of Section 2(4) of the 1996 Act and it, being inconsistent with the provisions of Section 10 of the 1996 Act, the same will prevail over provisions of Section 10 of 1996 Act-Requirement of Section 10 in the matter of number of arbitrators not to be an even number not applicable.- The controversy between the parties related to the interpretation of Sections 2(4) and 10 of the Arbitration and Conciliation Act, 1996 as also bye-law 249(a) of the Bombay Stock Exchange which requires reference to two arbitrators one to be appointed by each party. The dispute that had arisen between the parties was covered by the provisions of the Securities Contracts (Regulation) Act, 1956. The dispute was referred to Arbitral Tribunal consisting of even number of Arbitrators i.e., two Arbitrators. By the impugned judgment and order the single Judge of the High Court held that the reference made to the Arbitral Tribunal of even number of Arbitrators was in contravention of Section 10 of the Arbitration Act which contemplates reference to an odd number of Arbitrators and hence, the award was liable to be quashed and set aside. The question arising for consideration was whether the aforesaid bye-law 249(a) falls under the phrase" any other enactment which is inconsistent with the provisions of Section 10 of the Arbitration Act" as provided in Section 2(4) of the said Act. Rules and bye-laws framed by the Exchange are framed under an authority conferred by an enactment i.e., Regulation Act. Therefore, bye-law 249(a) of the Exchange is statutory bye-law having the force of enactment within the meaning of sub-section (4) of Section 2 of 1996 Arbitration Act and since the said bye-law is inconsistent with the provisions of Section 10 of the said 1996 Act, insofar as the number of Arbitrators is concerned, the bye-law would prevail. AIR 1943 (30) Bom 197, Arbi. Pem .. No. 199 of 1991, dated 10.12.1991, 1995 (2) Mh LJ 770, 1996 (3) BCR 204, Arbi. Petn. No. 179/92, dated 11.11.1998, AIR 1961 SC 1285, AIR 1963 SC 274, 1977 Lab IC 1812, 1997 (4) SCC 114,1952 AC 109, AIR 1953 SC 244, AIR 1975 SC 1935, AIR 1968 Bom 347, 1997 (4) SCC 114, Rel.
       Section 10-Securities Contracts (Regulation) Act, 1956, Section and Bye-laws No. 249(a) there of Award by Arbitral Tribunal Consisting of even member of arbitrators Validity-Not valid in view of Section 10 of Act 19%-But valid under Byelaws No. 249(a) framed under Act, 1956-Held, Bye-laws No. 249(a) will prevail over provisions of Section 10 of Act 1996 and thus award is valid Bye-law 249(a) of the appellant exchange is a statutory bye-law having the force of enactment within the meaning of sub-section (4) of Section 2 of the 1996 Arbitration Act and since the said bye-law is inconsistent with the provisions of Section 10 of the said 1996 Act, in so far as the number of arbitrators is concerned, the bye-law would prevail.
       Even if two views are possible, things which have been adjudged along ago should be allowed to rest in peace-Merely because another view is possible, such a recourse in not permissible in law Interpretation of law is not a mere mental exercise (1997) 4 SCC 114, Relied on.
       Securities Contract (Regulation) Act, 1956
       Section 9-Arbitration and Conciliation Act, 1996, Sections 2(4) and 10-Bye-law No, 249(a) framed by stock exchange-Whether bye-laws of Exchange statutory provisions are valid-Bye-laws framed under Section 9 of the Regulation Act-Thus statutory provision-Same saved by Section 2(4) of Act 1996 and will prevail over provisions of Section 10 of this Act-Thus valid,-The phrase under any enactment includes bye-laws, rules, regulations ordinances, statutes etc. From the aforesaid decision it would be clear that the word enactment would mean and include bye-laws framed under an Act. It would, therefore, follow that the bye-laws framed under the Regulation Act would form part of the Regulation Act and the same will prevail over provisions of Section 10 of the Arbitration and Conciliation Act, 1996.
       A conclusion is, therefore, irresistible that bye-law 249(a) is a statutory bye-law. The same will operate and will apply in respect of all arbitrations under the Regulation Act and the same will not be hit by the provisions of Section 10 of the Arbitration and Conciliation Act, 1996. Aforesaid bye-law will be saved by the provisions of Section 2(4) of 1996 Act and will prevail over the provisions of Section 10 of the Act. The decision of the learned Single Judge taking a contrary view is thus liable to be set aside. The award passed by the Arbitral Tribunal consisting of an even number of arbitrators as provided under the bye-law would be valid and the same will not be rendered void by virtue of the provisions of Section 10 of 1996 Act.
       Section 9(4)-Bombay Stock Exchange Regulations, Bye-law 249(a)-Bye-laws made prior to grant of recognition to a Stock Exchange do not require publication in the Official Gazelle-Bye-law 249(a) being byelaw prior to its recognition under Section 4 did not require publication in the Official Gazelle under Section 9(4) of the 1956 Regulation Act but would still be valid and enforceable. AIR 1968 Born 347-Relied on.
       Section 30-Stock Exchange Rules, 1957, Rules 16 and 43-Defaulting share broker.- On a default being committed the share broker ceases to become a member of exchange and his membership card can be sold and the proceeds distributed against his creditors.

JUDGMENT

A.C. AGARWAL, J.:---Appellant before us is the Stock Exchange, Mumbai (hereafter for the sake of brevity referred to as "Exchange"). It is not a party to the lis which has arisen between respondent Nos. 1 and 2. However, it is adversely affected by the impugned order passed by the learned Single Judge and hence the present appeal.

2. Respondent No. 1 was the original petitioner in the Arbitration Petition filed before the learned Single Judge. Differences having arisen between him and respondent No. 2 who was a broker with the exchange, a reference was made to Arbitrators under Bye-law 248 of the Exchange. Reference was to two arbitrators, one named by each party to the dispute. Before the arbitrators a contention was advanced on behalf of respondent No. 1 that reference to the Arbitral Tribunal consisting of two arbitrators was in contravention of section 10 of the Arbitration and Conciliation Act, 1996 (hereinafter for brevity's sake referred to as "the Arbitration Act"). The arbitrators in consultation, with the Exchange held that the constitution of their panel of arbitrators was valid and was properly constituted. Opponent No. 1 was given an opportunity either to contest the interim order or proceed with the case. Opponent No. 1 decided to proceed ahead with the case. On 22nd January, 1998, an Award was passed rejecting the claim of respondent No. 1. Taking exception to the Award respondent No. 1 on 30th April, 1998 filed an arbitration petition being Arbitration petition No. 130 of 1998 for setting aside the Award.

3. Before the learned Single Judge, by an interim order passed on 4th August, 1998, Exchange was directed to be impleaded as a party respondent to the petition for the purpose of effectively deciding the issue whether section 10 of the Arbitration Act is attracted to arbitrations under the rules bye-laws and regulations framed by the Exchange. The appellant Exchange was accordingly impleaded in the petition as any order passed on the aforesaid issue regarding the validity or otherwise of the constitution of the Arbitral Tribunals under the Rules. Bye-laws and Regulations of the Exchange was bound to have an adverse effect not only on the working of the Exchange but also on the numerous pending arbitration proceedings as also awards passed in respect of disputes pertaining to members or non members of the Exchange.

4. By the impugned judgment and order passed on 7th September, 1998, the learned Single Judge has held that the reference made to the Arbitral Tribunal of even numbers (two arbitrators) was in contravention of the provisions of section 10 of the Arbitration Act and hence, the award was liable to be quashed and set aside. Even on merits, the learned Single Judge has found in favour of respondent No. 1 and has set aside the award on other grounds also. Taking exception to the aforesaid decision of the learned Single Judge, the Exchange has preferred the present appeal.

5. We have heard Shri Tulzapurkar, the learned Counsel appearing in support of the appeal. We have also heard Shri Shah appearing for respondent No. 1 who has supported the view taken by the learned Single Judge. Shri Khandkar appearing for respondent No. 2 has stated that his client will submit to the decision of this Court.

6. The dispute that has arisen between respondent Nos. 1 and 2 is covered by the provisions of Securities Contracts (Regulation) Act, 1956 (hereinafter for brevity's sake referred to as the "Regulation Act"). The controversy between the parties relates to the interpretation of sections 2(4) and 10 of the Arbitration Act, as also bye-law 249(a) of the Exchange which relate to the constitution of Arbitral Tribunals. Section 10 of the Arbitration Act reads as under :

10. Number of arbitrators:--- (1) The parties are free to determine the number of arbitrators, provided that such number shall not be an even number.

(2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of

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1999 Supreme(Bom) 76

Cases Referred (2)