1. Stock broker seeking recovery of debit balance from a client and her spouse based on an oral agreement of joint and several liability under BSE Bye-laws. (Para 2 , 3 )
Back
Next 
2025 Supreme(SC) 299
SUPREME COURT OF INDIA
PAMIDIGHANTAM SRI NARASIMHA, SANDEEP MEHTA, JJ.
AC Chokshi Share Broker Private Limited – Appellant
Versus
Jatin Pratap Desai & Anr. – Respondents
Civil Appeal No. 2227 of 2025 Arising Out Of SLP (C) No. 18393 of 2021
Decided on : 10-02-2025
Important Points
The court affirmed the arbitral tribunal's jurisdiction over a husband based on an oral agreement of joint liability for transactions in his wife's account, rejecting claims of lack of jurisdiction and patent illegality.
Subject
Arbitration Law - Commercial Arbitration
Act Referred
ARBITRATION AND CONCILIATION ACT : S.16, S.34, S.37, S.7(4)(c)
Headnote
(A) Arbitration and Conciliation Act, 1996 - Section 34 and Section 37 - Bye-law 248(a) of the Bombay Stock Exchange Bye-laws, 1957 - Joint and several liability - The arbitral tribunal found both respondents jointly and severally liable for the debit balance in the wife's account, which was upheld by the court - The High Court's order setting aside the arbitral award against the husband was reversed, affirming the tribunal's jurisdiction and findings. (Paras 2, 32)
(B) Jurisdiction - The court held that the arbitral tribunal had jurisdiction over the husband based on an oral agreement of joint liability, despite the High Court's contrary finding. (Paras 6.1, 32)
(C) Perversity and Patent Illegality - The court found that the arbitral tribunal's findings were not perverse or illegal, as they were based on evidence and did not violate any legal provisions. (Paras 25, 32)
Facts of the case:
The appellant, a registered stock broker, sought to recover losses from the respondents, a husband and wife, based on an oral agreement of joint liability for transactions in the wife's account. The arbitral tribunal ruled in favor of the appellant, which was later contested by the husband in the High Court. (Paras 3, 4)
Findings of Court:
The arbitral tribunal's award was upheld, confirming the joint and several liability of both respondents for the debit balance in the wife's account. (Paras 32)
Issues: The main issues were whether the husband could be made a party to the arbitration and whether the arbitral award was perverse or illegal. (Paras 9)
Ratio Decidendi: The court ruled that the oral agreement of joint liability fell within the arbitration clause, and the findings of the arbitral tribunal were reasonable and supported by evidence. (Paras 32)
Result: Appeal allowed; the arbitral award is upheld in its entirety.
(B) Jurisdiction - The court held that the arbitral tribunal had jurisdiction over the husband based on an oral agreement of joint liability, despite the High Court's contrary finding. (Paras 6.1, 32)
(C) Perversity and Patent Illegality - The court found that the arbitral tribunal's findings were not perverse or illegal, as they were based on evidence and did not violate any legal provisions. (Paras 25, 32)
Facts of the case:
The appellant, a registered stock broker, sought to recover losses from the respondents, a husband and wife, based on an oral agreement of joint liability for transactions in the wife's account. The arbitral tribunal ruled in favor of the appellant, which was later contested by the husband in the High Court. (Paras 3, 4)
Findings of Court:
The arbitral tribunal's award was upheld, confirming the joint and several liability of both respondents for the debit balance in the wife's account. (Paras 32)
Issues: The main issues were whether the husband could be made a party to the arbitration and whether the arbitral award was perverse or illegal. (Paras 9)
Ratio Decidendi: The court ruled that the oral agreement of joint liability fell within the arbitration clause, and the findings of the arbitral tribunal were reasonable and supported by evidence. (Paras 32)
Result: Appeal allowed; the arbitral award is upheld in its entirety.
Legal Category Hierarchy
- practice and procedure
- commercial law
Advocates appeared:
For the Petitioner(s): Mr. Dharav Shah, Adv. Mr. Dhawal Desai, Adv. Mr. Pranaya Goyal, AOR
For the Respondent(s): Mr. Mayilsamy K, Adv. Dr. Gayathiri A. S, Adv. Mr. Arun Pandiyan S, Adv. Mr. V. Pavel, Adv. Mr. P. Soma Sundaram, AOR Mr. A Siva Raman, Adv.
For the Petitioner(s): Mr. Dharav Shah, Adv. Mr. Dhawal Desai, Adv. Mr. Pranaya Goyal, AOR
For the Respondent(s): Mr. Mayilsamy K, Adv. Dr. Gayathiri A. S, Adv. Mr. Arun Pandiyan S, Adv. Mr. V. Pavel, Adv. Mr. P. Soma Sundaram, AOR Mr. A Siva Raman, Adv.
Table of Contents
2. Whether a non-signatory is subject to statutory arbitration based on oral agreements and whether findings of joint liability were perverse or patently illegal. (Para 7 , 8 )
3. The court found the oral contract falls within statutory arbitration scope, the jurisdictional objection was waived, and the tribunal's findings were based on evidence. (Para 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 )
4. Statutory arbitration under BSE Bye-law 248(a) extends to non-signatories where conduct and oral agreements indicate a composite transaction and joint and several liability. (Para 13 , 14 , 15 , 19 )
5. Appeal allowed; High Court order set aside; arbitral award upheld in its entirety, holding both respondents jointly and severally liable. (Para 32 , 33 )
6. Can a non-signatory be made a party to arbitration under BSE Bye-law 248(a) based on an oral agreement of joint liability?
Yes. If an oral contract and conduct indicate the parties intended to treat independent agreements as joint and composite, the non-signatory is effectively a client under the Bye-law, making the transaction composite and subject to arbitration. (Para 13 , 14 , 15 , 19 )
7. What is the effect of failing to raise a jurisdictional objection before the arbitral tribunal under Section 16 of the Act?
A plea that the tribunal lacks jurisdiction must be raised not later than the submission of the statement of defence. Failure to do so, especially when participating in proceedings or filing counter-claims, constitutes a waiver under Section 4. (Para 20 , 21 )
8. When is an arbitral award considered perverse under Section 34 and 37 of the Arbitration and Conciliation Act?
An award is perverse if the finding is not based on evidence or ignores vital evidence. However, it is not perverse if the finding of fact is a possible view based on reliable evidence. (Para 24 , 26 , 27 )
9. Does BSE Bye-law 247A permit the adjustment of a credit balance from one client's account to offset another's debit balance?
Yes, if the clients are jointly and severally liable. Bye-law 247A permits withdrawals for debts due to the broker from clients, and Bye-law 227(a) provides a lien over cash for balances due by a constituent singly or jointly. (Para 30 , 31 )
JUDGMENT :
PAMIDIGHANTAM SRI NARASIMHA, J.
1. Leave granted.
2. The issue arising in the present appeal is whether respondent no. 1, who is the husband of respondent no. 2, could have been made a party to the arbitration that was invoked by the appellant, who is a registered stock broker, and held to be jointly and severally liable for the debit balance that had accrued in the wife’s (respondent no. 2’s) account with the appellant. The arbitral tribunal found that both respondents were jointly and severally liable for repaying the debit balance in respondent no. 2’s account, and the respondents’ applications under Section 34 of the Arbitration and Conciliation Act, 19961[Hereinafter “the Act”.] to set aside the arbitral award were dismissed by the learned single judge of the High Court. However, the division bench of the High Court allowed the Section 37 appeal preferred by respondent no. 1 by order dated 29.04.2021 and set aside the arbitral award only against him, which is impugned before us in the present appeal. For the reasons detailed below, we have allowed the appeal and set aside the impugned order based on the following conclusions: First, by interpreting Bye-law 248(a) of the Bombay Stock Exchange2[Hereinafter “BSE”.] Bye- laws, 1957 that provides for arbitration between members and non-members of the BSE, and considering the nature of respondent no. 1’s involvement qua transactions conducted in respondent no. 2’s account, we have held that an oral contract undertaking joint and several liability falls within the scope of the arbitration clause and the arbitral tribunal could exercise jurisdiction over respondent no. 1. Second, considering the settled jurisprudence on the scope of judicial intervention under Section 34 and Section 37 of the Act, we have held that the arbitral tribunal arrived at a reasonable conclusion, based on evidence, as to the joint and several nature of the respondents’ liability. The arbitral award does not suffer from perversity and patent illegality as has been held by the High Court in the Section 37 appeal, and therefore, we have upheld the arbitral award in its entirety.
3. Facts: The relevant facts are as follows. The appellant is a stock broker and a registered member of the BSE. In 1999, the respondent nos. 1 and 2, who are husband and wife respectively, approached the appellant for opening trading accounts and to this end, they executed individual Client Registration Applications on 01.08.1999. As per the appellant, respondent no. 1 represented that the accounts would be jointly operated by both of them and they would be jointly and severally liable for any losses.
3.1 At the end of the settlement period on 31.01.2001, there was an undisputed credit balance of Rs. 7,40,020/- in the account of respondent no. 1, that was payable by the appellant. On 16.02.2001, respondent no. 1 further paid a sum of Rs. 2 lakhs to the appellant, that increased his credit balance to Rs. 9,40,020/-. On the other hand, there was a debit balance of Rs. 7,77,058/- in respondent no. 2’s account on 20.01.2001, which further increased to Rs. 11,40,413/- by 17.02.2001. The appellant’s case is that on oral instruction of respondent no. 1, it transferred the credit balance of Rs. 9,40,020/- from the husband’s account to the wife’s account on 05.03.2001 to offset the losses.
3.2 However, due to a stock market crash in 2001, the debit balance in respondent no. 2’s account bludgeoned to Rs. 1,18,48,069/- as on 12.04.2001, which is the recoverable amount in arbitration.
3.3 The appellant initiated arbitration under BSE Bye-law 248(a) and impleaded both the respondents, seeking an amount of Rs. 1,27,36,670/- with 18% interest from both of them to recover the losses in respondent no. 2’s account. The respondents filed separate written statements. In respondent no. 1’s written statement-cum-counter-claim, he alleged that the appellant’s arbitration claim is not maintainable for misjoinder of parties and causes of action as each
