Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2021 Supreme(Bom) 1048

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
R.D. Dhanuka, V.G. Bisht, JJ.
Jatin Pratap Desai - Appellant
Versus
A.C. Chokshi Share Broker Private Limited - Respondent
Appeal No. 126 of 2006; Arbitration Petition No. 309 of 2004
Decided On : 29-04-2021

Advocates appeared:
Simil Purohit, Advocate, Vishal Pattabiraman, Advocate, M/S Purohit And Co, Advocate, Sharan Jagtiani, Advocate, Raghav Gupta, Advocate, Jyoti Pardeshi, Advocate, M/S Wadia Ghandy And Co, Advocate

An arbitral tribunal lacks inherent jurisdiction to adjudicate a claim against a third party arising out of a private transaction not governed by an arbitration clause.

Headnote:
The Bombay High Court held that an arbitral tribunal lacked inherent jurisdiction to adjudicate a claim against a third party arising out of a private transaction not governed by a statutory arbitration clause. The court found that the respondent had not invoked the arbitration agreement between the appellant and the respondent and had illegally clubbed two separate causes of action in the same arbitration.
Fact of the Case:

The appellant, a constituent of the respondent stockbroker, had two separate accounts with the respondent. The respondent filed an arbitration claim against the appellant and the appellant's wife, who also had an account with the respondent, for an alleged debit balance in the wife's account. The appellant argued that the claim against him was barred by the arbitration agreement between the respondent and the wife, and that the arbitral tribunal lacked jurisdiction to adjudicate the claim against him.
Finding of the Court:

The court found that the arbitration clause in the agreement between the respondent and the wife was not invoked by the respondent, and that the claim against the appellant was based on an alleged oral understanding between the appellant and the respondent. The court held that the arbitral tribunal lacked inherent jurisdiction to adjudicate the claim against the appellant because the claim did not arise out of a transaction governed by the arbitration clause, and because the appellant was not a party to the arbitration agreement between the respondent and the wife.
Issues: 1. Whether the arbitral tribunal had jurisdiction to adjudicate the claim against the appellant. 2. Whether the appellant could be impleaded as a party respondent in the arbitral proceedings in respect of the dispute between the respondent and the appellant's wife.
Ratio Decidendi: The court held that the arbitral tribunal lacked inherent jurisdiction to adjudicate the claim against the appellant because the claim did not arise out of a transaction governed by the arbitration clause, and because the appellant was not a party to the arbitration agreement between the respondent and the wife. The court relied on the following principles: * An arbitral tribunal's jurisdiction is limited to the disputes specified in the arbitration agreement. * A third party cannot be impleaded as a party respondent in an arbitration proceeding unless there is an arbitration agreement between the third party and the claimant. * Even if a third party consents to being impleaded as a party respondent, the arbitral tribunal cannot acquire jurisdiction over the third party if the claim against the third party does not arise out of a transaction governed by the arbitration clause.
Final Decision: The court allowed the appellant's appeal and set aside the arbitral award and the order of the lower court confirming the award.

Judgement Key Points

Key Points: - The arbitral tribunal lacks inherent jurisdiction to adjudicate a claim against a third party for a private transaction not governed by the arbitration clause. [4000662320095] - There is misjoinder of parties in the arbitration under Bye-law 248(a), where claims arise from private transactions not on the floor of the exchange. [4000662320093] - For third-party impleadment, arbitration under Bye-law 248(a) requires disputes between specified parties arising from dealings on the floor of the Exchange; consent alone cannot confer jurisdiction over a non-party to the arbitration agreement. [4000662320075][4000662320061] - Bye-law 248(a) restricts arbitrable disputes to those arising from dealings, transactions, and contracts made subject to Exchange rules; private transactions fall outside unless covered by the applicable arbitration clause. [4000662320060][4000662320063] - The award against a third party for a private transaction not covered by the arbitration clause constitutes lack of inherent jurisdiction. [4000662320091]

How to determine whether an arbitral tribunal has inherent jurisdiction to adjudicate a claim against a third party arising from a private transaction not governed by an arbitration clause?

What is the effect of misjoinder of parties in an arbitration under Bye-law 248(a) of the Stock Exchange, Mumbai?

What are the conditions under which a third party can be impleaded as a respondent in statutory arbitration under Bye-law 248(a) and when is consent of the parties insufficient to confer jurisdiction?

JUDGMENT

R.D. Dhanuka, J. - By this Appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 ( for short, " Arbitration Act"), the appellant (original Petitioner) has impugned the order dated 23rd August, 2005 passed by the learned single Judge dismissing the Arbitration Petition No. 309 of 2004 filed by the appellant.

2. Some of the relevant facts for the purpose of deciding this Appeal are as under:-

The appellant as well as the respondent no.2 were the constituents of the respondent no.1. Respondent no.1 is carrying on business of share and stock broker and is a registered Member of the Bombay Stock Exchange under the Bye-laws, Rules and Regulations of the Bombay Stock Exchange. Respondent no.2 is wife of the appellant and was a separate constituent of respondent no.1.

3. Sometime in the year 1999, the appellant had executed an individual Client Registration Application form as per the format given by the respondent no.1 to carry on transactions on the Bombay Stock Exchange for the purchase and sale of various shares. Respondent no.1 did not execute a client broker agreement with the appellant but had executed an individual client registration application form dated 1st August, 1999.

4. It was the case of the appellant that at the end of the settlement period A-42 on 31st January, 2001 there was an admitted credit balance of Rs.7,40,020/- due and payable by the respondent no.1 to the appellant. On 16th February, 2001, the appellant paid a further sum of Rs.2 lakhs to the respondent no.1 thus taking the credit balance is the sum of Rs.9,40,020/-. It is the case of the appellant that no further transactions were carried out by the appellant in respect of the said account with respondent no.1. At the end of the period February, 2001 when the appellant decided not to carry out any further transactions with respondent no.1, there was a credit balance of Rs.9,40,020/- in the account of the appellant with respondent no.1.

5. It is the case of the appellant that the respondent no.2 also had executed a separate individual Client Registration Application form as per the format given by respondent no.1. The respondent no.1 had opened a separate account of respondent no.2. Respondent no.2 was carrying out separate transactions with respondent no.1 under the said account opened by the respondent no.2. It was the case of the respondent no.1 that there was a huge debit balance in the account of respondent no.2 which debit balance was disputed by the respondent no.2. Sometime in the month of September, 2001 the respondent no.1 filed "Arbitration Application Form" under Regulation 15.2 of the Rules, Bye-laws and Regulations of the Stock Exchange, Mumbai. In the said "Arbitration Application Form" submitted with the Application Committee, Stock Exchange, Mumbai, the appellant and the respondent no.2 were impleaded as a respondents.

6. Reference to arbitration was made under the Bye-Laws 248 (a) of the Stock Exchange. The respondent no.1 had annexed a copy of the ledger balance of the respondent no.2 showing an amount of Rs.1,28,36,070/- payable by the respondent no.2. It is the case of the appellant that since there was a credit balance in the account of the appellant in the books of the respondent no.1, there was no dispute in respect of the said account between the appellant and the respondent no.1. Some time in the month of September, 2001, the respondent no.1 filed a Statement of Claim before the Arbitral Tribunal of the Stock Exchange, Mumbai against the appellant and respondent no.2 inter-alia praying for an Award jointly and /or severally for an amount of Rs.12736670/- together with interest on Rs.11848070/- at the rate of 18% per annum from the date of filing of the arbitration reference till the date of Award and also claimed further interest at the rate of 18% per annum from the date of Award till payment and/or realization.

7. The respondent no.2 filed a Written Statement in the said arbitral proceedings on 25th Octobe

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