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High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE A. KULASEKARAN
(1). Gdr Financial Services Private Limited ; (2). Seagul Securities Limited - Appellant
Versus
Allsec Securities Limited - Respondents
Applications Nos. 1894 and 1895 of 1998 In C S. No. 700 of 1997
Decided On : 09 July 2001
Arbitration - Dispute under NSE Bye-laws - Chapter XI - [Section 9, Section 7] - The court analyzed the provisions of the NSE bye-laws and the Arbitration Act, 1996. The court found that the serious allegations of fraud and dishonesty against the defendants were beyond the scope of arbitration and required judicial intervention. The court referred to the provisions of Section 9 and Section 7 of the Arbitration Act, 1996, to support its decision to dismiss the applications for arbitration.
Fact of the Case:
The second and third defendants filed applications seeking to refer a dispute to arbitration as per the bye-laws of the National Stock Exchange (NSE). The plaintiff alleged serious fraud and dishonesty against the defendants, contending that the dispute was beyond the scope of arbitration.
Finding of the Court:
The court found that the serious allegations of fraud and dishonesty against the defendants were beyond the scope of arbitration and required judicial intervention. The court dismissed the applications for arbitration, stating that the disputes could not be resolved by the arbitrator as they were outside the terms and conditions of the NSE bye-laws.
Issues: The issues were whether the dispute between the parties fell under the terms of the agreement, whether the charge of fraud could be decided by the arbitrator, and whether the relief sought by the plaintiff was beyond the powers of the arbitrators and could only be granted by the court.
Ratio Decidendi: The court's decision was based on the finding that the serious allegations of fraud and dishonesty against the defendants were beyond the scope of arbitration and required judicial intervention. The court referred to the provisions of Section 9 and Section 7 of the Arbitration Act, 1996, to support its decision to dismiss the applications for arbitration.
Final Decision: Both the applications seeking arbitration were dismissed by the court.
A. KULASEKARAN, J.
A. No. 1984 of 1998 is filed by the second defendant viz., GDR Financial Services Ltd., and A. No. 1985of 1998 is filed by the third defendant viz., Seagul Securities Ltd., against All sec Securities Ltd., plaintiff, both praying for identical relief to refer the dispute referred to in the suit to arbitration as contemplated under the bye-laws of the National Stock Exchange (NSE).
The case of the second defendant/applicant in A. No. 1894 of 1998is that the plaintiff/respondent herein is a registered member of the NSE and is permitted to have constituents to trade in stocks and securities; that the applicant herein opened an account with the respondent and was assigned the following numbers-G0006 and G0007 and a formal client member agreement as required by the NSE was executed between the second defendant and the plaintiff on October 4, 1995, to regulate the transactions, and that all the transactions are subject to the bye-laws of the NSE. According to the second defendant, under Chapter XI of the said bye-law, all differences and disputes between a trading member and constituent arising out of or in relation to dealings on the exchange or with reference to anything incidental thereto or in pursuance thereof or relating to their construction, fulfilment or validity or rights, obligations and liabilities shall be referred to and decided by an arbitration. It is stated by the second defendant that the plaintiff has rushed to this court by way of a frivolous suit relating to the accounts maintained by them, which are disputed by this defendant and as such the suit is not maintainable. Further the subject matter of the suit is referable only to the arbitrator and not to be decided in a suit by this court. The other contentions are that the claims of the plaintiff against each and every defendant are independent in nature based upon different causes of action and the same cannot be mixed up and therefore the suit is bad for non-joinder of parties. In support of the said contention, this defendant has mentioned that under the garb of executing the contracts of this defendant, the respondent has fraudulently inserted a sale transaction of 48, 500 shares of Reliance Industries Ltd., at Rs. 217.15 aggregating to Rs. 1, 05, 31, 775.00which was not ordered by them but the entries were made in his account to accommodate vested interest persons. The contract Note No.3375 dated July 16, 1996, is a testimony to the above-said alleged scandalous transaction. Yet another transaction dated October 22, 1996, involving the debit entries to this defendant's account to the tune of Rs.3, 75, 500 with the intention to accommodate some vested interest person and he has given a complaint before the NSE on December 30, 1997, which was rejected by the NSE on the sole ground that the suit is pending before this court.
The third defendant/applicant in A. No. 1895 of 1998 also raises identical issues referring to the provision of Chapter XI and further avers that the suit claim against them is not at all maintainable since his account shows a credit balance of Rs. 45, 28, 608.10. It is also alleged by this defendant that the respondent has interpolated with the accounts of the applicant and vexatiously raised the suit claim and that it is an independent legal entity distinct in status and ownership and as such to attach liability on the basis of some other accounts, which are distinct from them, is unsustainable in law. This defendant has also taken the plea of mis joinder of causes of action.
A common counter has been filed by the plaintiff denying all the averments and stated that when serious allegations of fraud have been alleged and which required to be proved before any relief can be granted, it would not be within the scope of arbitration. The allegations made by this plaintiff in the suit are similar which cannot be decided in arbitration proceedings, which are of a serious nature. It is further stated that the arbitrator
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