Mr. Harinarayan G. Bajaj vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Order Reserved On: 20.10.2015 Date of Decision : 28.10.2015

Appeal No. 182 of 2015

Mr. Harinarayan G. Bajaj 406, Commerce House 140, Nagindas Master Road Fort, Mumbai- 400 023 ...Appellant

Versus

1.

The Bombay Stock Exchange Limited Jeejeebhoy Towers, Dalal Street, Mumbai- 400 001

2. Madhukar Sheth 603, Elizabeth Apartment BSM Road, Mumbai- 400 013 ...Respondents

Mr. Shailesh H. Bajaj, Chartered Accountant for the Appellant.

Mr. Kingshuk Banerjee, Advocate i/b Wadia Ghandy & Co. for Respondent No. 1

Mr. Purvish Jitendra Malkan, Advocate for Respondent No. 2

CORAM: Justice J.P. Devadhar, Presiding Officer Jog Singh, Member

Per: Justice J.P. Devadhar

1. Appellant is aggrieved by the order passed by the Bombay Stock

Exchange Limited ("BSE" for short) on February 12, 2015. By that order

the BSE has declined to register the Arbitration Application filed by the

appellant against the respondent no. 2 on the ground that although the

Division Bench of the Bombay High Court has set aside the Award 2

passed by the Arbitral Tribunal of BSE, the respondent no. 2 has

challenged the said decision before the Apex Court and therefore, during

the pendency of the said proceedings before the Apex Court, the

Arbitration Application filed by the appellant cannot be entertained and

referred to the Arbitral Tribunal for its fresh decision.

2. Facts relevant for the present appeal are as follows:-

a) On June 15, 2001 the respondent no. 2, a member of

BSE initiated Arbitration Proceedings against the

appellant claiming an amount of ` 1,58,39,459.57. In

the said Arbitration Proceedings the appellant filed a

counter claim amounting to ` 27,62,427.27.

b) The Arbitral Tribunal of the BSE by its Award dated

November 07, 2003 allowed the claim of the

respondent no. 2 and rejected counter claim of the

appellant on the ground that the said amount of

` 27,62,427.27 was adjusted against the purchase

transactions of the appellant with the respondent no.

2's broking entity, which transactions were found to

be valid and subsisting by the Arbitral Tribunal.

c) Challenging the aforesaid Award, appellant filed

Arbitration Petition under Section 34 of the

Arbitration and Conciliation Act, 1996 (" 1996 Act" 3

for short) before the Bombay High Court. It is not in

dispute that in the said Arbitration Petition appellant

had challenged the decision of the Arbitral Tribunal in

allowing the claim of respondent no. 2 as also the

decision of the Arbitral Tribunal in rejecting the

counter claim of the appellant.

d) By a judgement and order dated July 26, 2004

Learned Single Judge of the Bombay High Court

dismissed the Arbitration Petition filed by the

appellant under Section 34 of the 1996 Act.

Challenging the aforesaid order, appellant filed an

appeal and by a judgement and order dated September

04, 2014 a Division Bench of the Bombay High Court

allowed the appeal filed by the appellant and set aside

the Award.

e) Challenging the aforesaid Division Bench decision of

the Bombay High Court dated September 04, 2014 the

respondent no. 2 has filed a Special Leave Petition

("SLP" for short) before the Apex Court and the same

is pending.

f) In the meantime on December 30, 2014 appellant filed

an Application before the BSE seeking reference of

the dispute between the appellant and respondent 4

no. 2 (which was registered as counter claim in the

earlier arbitration proceedings) to the Arbitral

Tribunal of the Stock Exchange. By the impugned

communication dated February 12, 2015 the BSE

declined to accept the Arbitration Application on the

ground that the respondent no. 2 had filed an SLP

against the Division Bench decision of the Bombay

High Court dated September 04, 2014. Challenging

the aforesaid communication of BSE dated February

12, 2015 present appeal is filed.

3. Mr. Shailesh Bajaj, Authorized Representative of the appellant

submitted that under Bye Law 260(2) of the Bye Laws framed by BSE it

was obligatory on part of the Stock Exchange to entertain the application

filed by the appellant especially when the Award made by the Arbitral

Tribunal is set aside by the Bombay High Court. Since the Apex Court

has not stayed operation of the Division Bench decision of the Bombay

High Court, it is submitted on behalf of the appellant that the Arbitration

Application ought to have been accepted subject to decision of the Apex

Court in the SLP Filed by the respondent no. 2.

4. Mr. Banerjee learned counsel appearing on behalf of BSE

submitted that the appellant is seeking re-adjudication of the same

arbitration reference which was subject matter of earlier arbitration

reference. However, since the Bombay High Court while setting aside the

Award passed by the Arbitral Tribunal has held that the dispute could be 5

referred back to arbitration only if the respondent no. 2 agrees to such

reference and since respondent no. 2 has not accepted arbitration and

filed SLP, BSE has deemed it fit to reject the application. Counsel for

BSE further submitted that if this Tribunal holds to the contrary then BSE

would abide by that decision.

5. Mr. Malkan, learned counsel appearing on behalf of respondent

no. 2 on the other hand submitted that although the Arbitration Petition

filed under Section 34 of the 1996 Act contained a ground to challenge

the rejection of counter claim, no such argument was advanced at the

hearing of the Arbitration Petition before the Learned Single Judge. On

perusal of the order passed by the Learned Single Judge of the Bombay

High Court on July 26, 2014 it becomes clear that no arguments were

advanced against the decision of the Arbitral Tribunal in rejecting the

counter claim. Therefore, the appellant who is guilty of not arguing the

ground taken in the Arbitration Petition before the Learned Single Judge,

cannot now make a grievance that the ground taken in the arbitration

proceedings has not been considered. In support of the above contention

reliance is placed by the counsel for respondent no. 2 on a decision of the

Apex Court in case of Daman Singh vs. State of Punjab reported in

LXXXVII BOM LR at Page 290.

6. Counsel for respondent no. 2 further submitted that in the

Memorandum of Appeal filed against the decision of the Learned Single

Judge appellant had not taken a ground that the counter claim has been 6

wrongly rejected. Moreover, Division Bench decision of the Bombay

High Court reveals that no argument was advanced relating to the

rejection of the counter claim by the Arbitral Tribunal as well as the

Learned Single Judge of the Bombay High Court. Relying on a decision

of the Kerala High Court in case of Girija and Ors. vs. Rajan and Anr.

reported in I.L.R. 2015 (1) Kerala 910 and a decision of the Apex Court

in the case of Ramchandra S. Mahajan vs. Damodar T. Tanksale reported

in (2007) 6 SCC 737 counsel for respondent no. 2 submitted that the plea

against rejection of counter claim though raised but not argued before the

Learned Single Judge and not raised and argued before the Division

Bench of the Bombay High Court would operate as res-judicata and

hence the appellant is not entitled to reagitate the issue relating to the

counter claim. Accordingly counsel for respondent no. 2 submitted that

there is no merit in the appeal and the same is liable to be dismissed.

7. We have carefully considered the rival submissions.

8. It is not in dispute that in the Arbitration Petition filed under

Section 34 of the 1996 Act, the appellant had specifically taken a ground

that the Arbitral Tribunal was not justified in rejecting the counter claim

of the appellant. Although argument of the appellant in relation to

rejection of counter claim is not to be found in the decision of the

Learned Single Judge, the Division Bench of the Bombay High Court in

para 43 of its order specifically quotes the basis on which the Arbitral

Tribunal rejected the counter claim of the appellant and thereafter sets

aside the Award in its entirety. Once the Division Bench of the Bombay 7

High Court has set aside the Award passed by the Arbitral Tribunal, in its

entirety it is not open to the respondent no. 2 to contend that the Award is

partially set aside and that the Award stands confirmed to the extent it

rejects the counter claim of the appellant. In other words, when a

Division Bench of the Bombay High Court allows the appeal filed by the

appellant and sets aside the Award passed by the Arbitral Tribunal

completely, respondent no. 2 is not justified in contending that the Award

to the extent it rejects the counter claim stands confirmed even after the

Division Bench of the Bombay High Court has set aside the Award.

9. Fact that the Division Bench of the Bombay High Court while

setting aside the Award has recorded only the willingness of respondent

no. 2 to approach the Arbitral Tribunal by December 31, 2014, cannot be

a ground to presume that the Division Bench of the High Court while

setting aside the Award has precluded the appellant from pursuing the

counter claim by reagitating the same before the Arbitral Tribunal.

Division Bench of the Bombay High Court has basically set aside the

Award of the Arbitral Tribunal which allowed the claim of respondent

no. 2 on technical grounds and therefore, recorded willingness of the

respondent no. 2 to go before the Arbitral Tribunal. When the Division

Bench of the Bombay High Court has allowed the respondent no. 2 to

reagitate his claim before the Arbitral Tribunal, it obviously means that

the appellant is permitted to reagitate his counter claim. It is impossible

to hold that the Division Bench of the Bombay High Court while setting

aside the Award in its entirety, has permitted the respondent no. 2 to 8

reagitate the claim before the Arbitral Tribunal but restrained the

appellant from reagitating the counter claim especially when there is

nothing in the Division Bench decision of the Bombay High Court to

suggest that the appellant is precluded from reagitating his counter claim

even when the Award is set aside at the instance of the appellant.

10. Once the Division Bench of the Bombay High Court has set aside

the Award and allowed the appeal filed by the appellant, there is no

reason as to why the Division Bench of the Bombay High Court would

allow only the respondent no. 2 to reagitate his claim and disallow the

appellant to reagitate his counter claim. In the absence of any finding

recorded to that effect in the order passed by the Division Bench of the

Bombay High Court it is impossible to hold that even after setting aside

the Award at the instance of the appellant, the Division Bench of the

Bombay High Court has prohibited the appellant from reagitating his

counter claim.

11. In para 3(ooo) of the Arbitration Petition filed under Section 34 of

the 1996 Act the appellant had specifically pleaded that the arbitrators

had erred in rejecting the counter claim of the appellant. Even though in

the judgment of the Learned Single Judge there is no reference to the

arguments advanced by the appellant in respect of the Arbitral Tribunal

rejecting the counter claim, in ground (vv) of the Memorandum of

Appeal, appellant had pleaded that the Learned Single Judge failed to

appreciate that the Award of the Arbitral Tribunal was unreasoned and 9

failed to address many of the contentions raised by the appellant. Even

though the said ground in the Memorandum of Appeal does not

specifically refer to the rejection of the counter claim, the Division Bench

of the Bombay High Court, in para 43 of its order dated September 04,

2014, has inter alia quoted that portion of the Award which relates to

rejection of the counter claim of the appellant by the Arbitral Tribunal

and thereafter proceed to set aside the Award in its entirety. Once the

Division Bench of the Bombay High Court has set aside the Award in its

entirety, argument of respondent no. 2 that the appellant had not argued

before the Bombay High Court against the decision of the Arbitral

Tribunal in rejecting the counter claim does not survive at all.

12. Reliance placed by counsel for respondent no. 2 on the decision of

the Apex Court in case of Daman Singh (supra) is misplaced. Unlike in

the case of Daman Singh (supra), it is not the case of the appellant that

the Division Bench of the Bombay High Court has failed to take into

consideration the ground taken in Memorandum of Appeal in relation to

rejection of counter claim. In fact, it is the case of the appellant that since

the Division Bench of the Bombay High Court has allowed the appeal

filed by the appellant and set aside the Award on technical grounds, the

appellant is entitled to reagitate the counter claim before the Arbitral

Tribunal. In other words, grievance of the appellant is not against the

Division Bench decision of the Bombay High Court but against the

decision of the BSE in refusing the implement the Division Bench 10

decision of the Bombay High Court. Thus, the decision of the Apex

Court in case of Daman Singh (supra) is wholly distinguishable on facts.

13. Similarly, decision of the Kerala High Court in case of Girija &

Ors. (supra) and decision of the Apex Court in case of Ramachandra S.

Mahajan (supra)are distinguishable on facts. In fact, the decision of the

Apex Court in case of Ramachandra S. Mahajan (supra) supports the case

of the appellant, because, in that case, while setting aside the judgments

and decrees of the Courts below and remanding the Suit to the Trial

Court, the Apex Court had specifically recorded that since rejection of

counter claim being not pursued in the cross objections, the rejection of

counter claim would stand confirmed. In the present case, there is no

such finding recorded and the Division Bench of the Bombay High Court

has in fact allowed the appeal filed by the appellant and set aside the

Award in its entirety. Thus, the aforesaid decisions relied upon by the

counsel do not support the case of respondent no. 2.

14. Once the Award passed against the appellant was set aside in its

entirely by a Division Bench of the Bombay High Court at the instance of

the appellant on technical grounds, then, under Bye Law 260(2) framed

by BSE, the appellant became entitled to reagitate the issue before the

Arbitral Tribunal. Fact that the respondent no. 2 has challenged the

Division Bench decision of the Bombay High Court, before the Apex

Court could not be a ground for BSE to reject the application filed by the 11

appellant, especially when the Apex Court has not even stayed operation

of the Division Bench decision of Bombay High Court.

15. For all the aforesaid reasons we set aside the impugned order of

BSE dated February 12, 2015 and allow the appeal. We further direct

BSE to entertain the Arbitration Application filed by the appellant subject

to the decision of the Apex Court that may be passed in the SLP filed by

the respondent no. 2 against the Division Bench decision of the Bombay

High Court. We make it clear that we have not expressed any opinion on

merits of the case.

16. Appeal is disposed of in the above terms with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member 28.10.2015 Prepared & Compared By: PK