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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION APPLICATION NO. 68 OF 2007
Asit C Mehta Investment Intermediates Ltd. )
Through Nucleus House, 5th Floor )
Saki Vihar Road, Andheri (East) )
Mumbai 400 072 ).. APPLICANT
Versus
Through Chairman
Central Depository Services (India) Ltd. )
)
P J Tower, 16th Floor, Dalal Street )
Fort, Mumbai 400 001 ).. RESPONDENTS
Mr M L Sharma for the Applicant.
Mr Raj Patel i/b M Humranwala for the Respondent.
CORAM : SWATANTER KUMAR, CHIEF JUSTICE
JUDGMENT RESERVED ON : 12TH SEPTEMBER 2008
JUDGMENT PRONOUNCED ON : 25TH SEPTEMBER 2008
JUDGMENT
This is an application under Section 11 of the Arbitration &
Conciliation Act, 1996 (hereinafter referred to as “the Act”). The
Applicant is a Company registered under the Companies Act, 1956
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and is carrying on the business of securities. The said Company is
also having the membership of National Stock Exchange, the Stock
Exchange, Mumbai and Security Depository. The Respondent
Company – Central Depository Services (I) Ltd. (hereinafter referred
to “as CDSL”) – again is a Company incorporated under the provisions
of the Companies Act, 1956 and having its registered office at
Mumbai. In May 2005, the Respondent Company sent a copy of the
complaint dated 30th April 2004 of Vipin Abrol asking to provide copies
of documents, etc. According to it, Vipin Abrol who was having family
relations with Manish K Sahgal and his family members had handed
over various shares and and signed documents, slips, etc. to Manish
K Sahgal for dealing on their behalf as his agent. He sold directly
from his accounts various shares but the proceeds had not been
credited into his trading accounts. Manish Sahgal did not return back
to Jalandhar and that they needed copies of these documents.
According to the Applicant, he came to know of registration of a FIR
No.259 dated 20th October 2004 which was filed by Vipin Abrol and
his family members against their agent Sahgal with the S.P. of
Jallandhar, Punjab. The matter is even pending in Court. The Abrol
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family had alleged that besides giving the above shares, they had
also given cheques for different denominations. The National Stock
Exchange had sent one copy of the complaint filed by Abrol stating
that on 24th November 2003 they sold wrongly 1148 TISCO shares
without authorization. Mohan Abrol even gave a copy of the trading
account on 28th September 2006. It was primarily a dispute between
claimants and their agents to avoid business conflict and in good faith,
the Applicant deposited 1722 TISCO shares and took cheques
totalling Rs.44,832/-. The Respondent issued a letter dated 16th July
2006 stating that they are transferring the said amount and shares to
the Claimants without any further steps because Claimant had filed
indemnity bond declaration, etc. In view of the various disputes that
had arisen, the Applicant gave a legal notice dated 31st January 2007
to the Respondent asking them to appoint Arbitrator to resolve the
issue through arbitration proceedings in accordance with their own
bye laws. According to the bye laws of National Stock Exchange
(hereinafter referred to as “NSE”) and CDSL, there is no valid
arbitration agreement and the Respondents had no right to give up
the shares to the claimants. This notice date 31st January 2007 was
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replied to by the Respondent vide their letter dated 2nd February 2007.
Primarily, according to the Applicant, the Respondent by themselves
on behalf of the Claimant had no right to liquidate, merge, transfer or
use them in any manner for themselves or for any third party the
shares and other documents particularly when they had no legal order
from any competent Court or authority. After the letter dated 2nd
February 2007, no further response was received and resultantly the
Applicant filed the present Arbitration Application praying for
appointment of an Arbitrator in the matter as per the provisions of
Section 11 of the Act.
2. According to the Applicant, the Respondent had no right
to appoint an Arbitrator as they failed to act as per the notice dated
31st January 2007. This was contested by the Respondent. However,
it is not disputed that there is an arbitration clause existing and
binding between the parties. However, according to the Respondent
CDSL, they have no objection to take recourse to the arbitration
clause and acting in terms thereof. It is their contention that the
requirement for invoking an arbitration clause has not been satisfied.
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3. Having heard the learned Counsel appearing for the
parties, the limited question that needs to be examined by the Court is
what is the effect of the letter dated 31st January 2007 and the reply
given by the Respondent dated 2nd February 2007 and the
consequences that would flow keeping in view the arbitration clause
admitted between the parties. It is not in dispute before the Court
that Clause 22 of the bye laws provides for arbitration and the
methodology that has to be adopted for implementing the arbitration.
The Arbitral Tribunal, according to the bye laws, means the Sole
Arbitrator or three Arbitrators as the case may be. According to the
bye laws, Clause 22.2 and the other relevant clauses read as under :-
“22.2 CLAIMS, DIFFERENCES AND DISPUTES
22.2.1 All claims, differences and disputes between
CDSL, Users and Beneficial Owners or any
of them (including those inter se between
Users or Beneficial Owners) arising out of or
in relation to any dealings or transactions in
CDSL in respect of any provisions of the Act,
Regulations, Bye Laws or Operating
Instructions shall be referred to arbitration in
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accordance with the provisions of the
Arbitration and Conciliation Act, 1996, as
follows :
22.2.1.1 Where CDSL is a party, in accordance with
Bye Law 22.2.2 hereinbelow
22.2.1.2 In all other cases, in accordance with Bye
Law 22.2.3 hereinbelow
22.2.2 Where CDSL is a party to Arbitration
22.2.2.1 the Arbitral Tribunal shall consist of three
Arbitrators, one Arbitrator each to be
appointed by the Claimant and the
Respondent and the third Arbitrator to be
appointed by the two Arbitrators. The third
Arbitrator so appointed shall be the Presiding
Arbitrator.”
4. After referring to the facts of the case in the legal notice
dated 31st January 2007, the Applicant required the Respondent to
start proper arbitration proceeding, appoint the proper Arbitrator to
resolve the dispute, if and only if CDSL likes to represent the said
claimant to support their claim without any valid Court order or
arbitration proceeding. In paragraph 12 of the said legal notice, it was
further stated that in the circumstances of the case, the Respondent
was requested to appoint the Arbitrator subject to paragraph 10 of the
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legal notice according to the provisions of Bye laws of the CDSL and
to inform about the aforesaid deposit of shares, etc. However, in
paragraph 10 of the notice, it was also stated that the dispute which is
between the participants and the Beneficial Owners (BO’s) will be
reflected/converted into disputes between the Depository and
participants to decide the question whether the CDSL is legally duty
bound or not to follow the provisions of the bye laws of CDSL. In
response to this, as already noticed, vide letter dated 2nd February
2007, the Respondent had informed the Applicant after again referring
to the facts which were with some variance with the facts stated by the
Applicant herein that the complaint of BO’s stood redressed and the
matter has been conclusively settled between the complainant and the
other party and there were no disputes outstanding. They clarified
that they had not received any request for referring the matter for
arbitration from the claimant/complainant or any other party and that it
was needless to record that the arbitration machinery will be given
effect to if such a request is received and on completion of required
formalities mentioned in the bye laws.
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5. A bare reading of the above clauses show that the
arbitration clause is to be acted upon on specific complaint and in the
manner stated therein. Once there is an arbitration clause between
the parties which contemplates that parties would act in a particular
manner with regard to invocation of the arbitration clause, then they
essentially must act in terms thereof. The notice dated 31st January
2007 is not in consonance with the bye laws and the Applicant was
required to act in terms thereof. The Arbitral Tribunal has to consist
of three Arbitrators, out of which one is to be named by the Applicant
out of the list of persons empaneled by the Board. Other is to be
nominated by the other party and the third to be nominated by the two
Arbitrators from the said panel. This request was not met by the
Applicant nor was it adhered to by the Respondent. In other words,
the parties have failed to act in accordance with the arbitration clause
and none of them in fact served the requisite notice as required under
the bye laws. As there is no dispute with regard to the existence of the
arbitration agreement as well as certain disputes have arisen between
the parties which are to be subjected to the Arbitral Tribunal in
accordance with the clause, it had to be necessarily for the parties to
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follow the prescribed procedure of arbitration. It may be noticed that
in paragraph 4 of the reply filed on behalf of the Respondent that the
arbitration clause could not be invoked for want of requirement as
contemplated and as original agreement was to be filed. It is also
stated in the reply that the Applicant and the Respondent were bound
by the bye laws.
6.
In these circumstances, the Arbitration Application is
allowed. However, with a direction that now the Respondent shall act
on the request made by the Applicant for appointment of Arbitrator in
terms of Clause 22 of the Bye laws of the Respondent and provide a
panel of the names for choice by the parties in accordance with the
arbitration agreement.
7. Compliance of this direction should be made within four weeks
from today.
8. Arbitration Application is accordingly disposed of. No order
as to costs.
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CHIEF JUSTICE
july08/judgment/arbap68-07.sxw
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