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2014 DIGILAW 1696 (BOM)

M. L. Surekha v. S. M. Samant

2014-08-01

A.K.MENON, S.J.VAZIFDAR

body2014
JUDGMENT (Per A.K. Menon, J.) 1. The Appellants in the four appeals are family members. The Appellants have challenged the order and judgment of the learned Judge, dismissing their petitions under section 30 of the Arbitration Act, 1940, challenging the awards passed against them. 2. The learned Single Judge held that the awards were based on appreciation of evidence adduced before the arbitral tribunal consisting of persons who have knowledge of the trade on the basis whereof they had recorded findings of fact. The impugned order contains no other reasons. The learned counsel for both the parties however, requested us to hear the entire case and not to remand the same stating that that would cause them enormous prejudice. We accordingly did so. 3. The facts in each case are similar except as to the amounts claimed and the evidence produced. We propose to deal with the facts of Appeal No.580 of 2004 alone in detail. It was agreed that the result in the other appeals would follow the result in Appeal No.580 of 2004. 4. The Appellant and his family members were constituents of the Respondents in March, 1987 when the Respondents were declared a defaulter. Prior to April, 1983, the Respondents acted as their share-broker and during the relevant period several transactions had taken place including for purchase and sale of shares as well as carry forward transactions. 5. The Respondents invoked arbitration and filed a claim against the Appellants for a sum of Rs.11,45,000/- towards principal and Rs.2,00,375/- towards interest. The Appellants counter claimed Rs.1,61,280/-. Similar claims were made by the Respondents against the other Appellants who also made counter claims. On 30th May, 1998 the arbitrators made their awards directing the Appellants in the above appeals to pay Rs.11,02,250/-, Rs.4,58,569/-, Rs.6,42,806/- and Rs.8,72,261/- respectively. Vide an order dated 18th October, 1999, this Court set aside the awards upon the Appellants depositing the amounts awarded and remanded the matters to the arbitrators. 6. Thereafter, the parties proceeded with the arbitral reference before a different arbitrator on account of the resignation of the earlier arbitrator. The parties led oral evidence and eventually, the arbitral tribunal passed an award on 17th June, 2003 thereby directing the Appellant in Appeal No.580 of 2004 to pay the Respondents a sum of Rs.18,60,100/-. Awards were passed against the other Appellants. The parties led oral evidence and eventually, the arbitral tribunal passed an award on 17th June, 2003 thereby directing the Appellant in Appeal No.580 of 2004 to pay the Respondents a sum of Rs.18,60,100/-. Awards were passed against the other Appellants. Being aggrieved by the said awards, the Appellants filed the above Arbitration Petitions under section 30 the Act to set aside the awards which were rejected by the learned single Judge. 7. Mr.Narula, the learned counsel appearing on behalf of the Appellants challenged the awards on the following grounds :- I). The awards are contrary to the bye-laws of the Bombay Stock Exchange. II). The awards are based on no evidence. III). The findings in the awards are perverse. IV). The awards are contrary to the rules of the natural justice. V). The awards ignored the relevant evidence. Re : I). The awards are contrary to the bye-laws of the Bombay Stock Exchange. Mr.Narula contended that the awards are contrary to the following bye-laws of the BSE :- “Contracts Notes 219. The contract notes rendered by members to nonmembers shall state that the contract is subject to the Rules, Bye-laws, Regulations and usages of the Exchange and subject to arbitration as provided in the Rules. Bye-laws and Regulations of the Exchange and subject to the jurisdiction of the Courts in Bombay. The contract notes shall not contain any provision inconsistent with the Rules, Bye-laws and Regulations of the Exchange. The names of the partners or the sole proprietor of a firm shall be printed on the contract notes. The contract notes shall also be in such form as will provide that the words “Member(s) of The Stock Exchange, Bombay” shall immediately follow the signature. Carry-Over Contracts 222(a) The contract notes rendered by members to non-members in respect of carry-over transactions may be in one of the forms prescribed in the relative Regulation or in such other form or forms as the Governing Board may from time to time prescribe in addition thereto or in modification or substitution thereof. Signing of Contract Notes 223. A contract note shall be signed by the member or by his partner or constituted attorney. Contract Notes Issued by Firms 224. Signing of Contract Notes 223. A contract note shall be signed by the member or by his partner or constituted attorney. Contract Notes Issued by Firms 224. In the case of a firm recognised under the Rules, Bye-laws and Regulations of the Exchange every contract shall be signed only in the name of the firm and no contract note shall be issued in the name of an individual partner or the sole proprietor of the firm.” 8. Mr.Narula submitted that as per the above rules, the Respondents were bound to issue contract notes. The Respondents failed to issue contract notes. In the absence of the contract notes, there is no contract between the parties and as a consequence there is no arbitration agreement between the parties since the arbitration agreement is set out in the contract note itself. Mr.Narula also submitted that even if the contract notes had been prepared, it would make no difference for the above bye-laws required the contract notes to be “rendered” meaning thereby that the broker is bound to deliver the contract notes to his constituents. It is contended by the Appellants that the contract notes were never given to them. 9. We will proceed on the basis that a broker is mandatorily required to issue contract notes and that failure to do so would render the transaction void and that in any event in the absence of a contract note, there would be no arbitration agreement between the parties. This is however, not a case where the Respondents' brokers admit either that they did not prepare the contract notes or that they did not deliver the same to their constituents – the Appellants. The Respondents contend that the contract notes were in fact issued in accordance with the rules, bye-laws and regulations of the Bombay Stock Exchange from time to time. For instance, in paragraph 2 of the statement of claim, the Respondents specifically stated that the contract notes had been submitted in Form-A as prescribed by the rules, bye-laws and regulations of the BSE from time to time ; that the contract notes were prepared in respect of the transactions effected on behalf of the Appellants and that the periodical statements of account maintained by the Respondents in respect of the transactions were prepared and submitted to the Appellants and that the Appellants accepted the same without any objection. A specimen of a contract note was annexed to the statement of claim and the Respondents craved leave to refer to and rely upon the duplicate copies of the contract notes and statements of account prepared and submitted to the Appellants when produced. 10. This therefore, is not a case where a broker admits not having issued or delivered the contract notes to his constituents. The broker in fact expressly contends that he had done so. Thus whether the contract notes were in fact issued or not was a question of fact. It is for the arbitrators to determine the same. The production of the contract notes at the trial / arbitration proceedings is a question of evidence of the same having been issued. That at a trial a party is unable to produce the contract notes does not lead to the conclusion that the contract notes were never issued or delivered. It only means that a party was unable to produce the primary evidence viz. the contract notes which had been issued. The question whether the contract notes were issued or not is a question of fact which can always be determined on the basis of other evidence as well. 11. The arbitrators dealt with this issue. They noted the Appellants' contention that no contract notes were issued to them and the Respondents' contention that the bills and the contract notes were issued on a regular basis. The arbitrators decided this issue in favour of the Respondents on two grounds each of which is clearly independent of the other and in the alternative. We will therefore, ignore the finding of the arbitrators that even if there are no contract notes, they would have jurisdiction in the matter. It is important to note that the arbitrators held that the appellant in Appeal No.580 of 2004 viz. M.L. Surekha acted on behalf of the other Appellants. It is he, who visited the Respondents' office regularly and that it was customary for the Respondents to deliver the bills and the contract notes to the regular customers by hand delivery and in many cases no acknowledgments were sought. This is the finding of fact which cannot be interfered with unless it is perverse, absurd or unsustainable. There is nothing to indicate that the findings are absurd or unsustainable. It is not open therefore, to set aside the award on this ground. 12. This is the finding of fact which cannot be interfered with unless it is perverse, absurd or unsustainable. There is nothing to indicate that the findings are absurd or unsustainable. It is not open therefore, to set aside the award on this ground. 12. The arbitrators did not stop there. They also held that the Appellants had not been able to submit any evidence that taking acknowledgements was a regular feature. It was not even alleged that certain bills which were accepted by the Appellants had been acknowledged. The inference drawn by the arbitrators therefore, that mere absence of the acknowledgements is not determinative of the question whether the bills and the contract notes were issued or not is not only reasonable but justified. The arbitrators rightly refused to reject the claim on this ground. 13. In addition to the above findings of the arbitrators, it is important to note that the arbitrators have also relied upon the Sauda Books, which reflected the transactions. 14. Mr.Purohit submitted that it is only in the reference which is the subject matter of Appeal No.580 of 2004 that the Respondents were unable to produce the contract notes. In the other references a large number of contract notes had in fact been produced. 15. Mr.Narula also contended that the gaps in the bill numbers indicate that the bills had been fabricated. 16. The disputes between the parties in the present case mainly concerns two scrips namely TISCO and ACC. The TISCO scrip moved from “A” list to “B” list which according to Mr.Purohit accounts for the gaps in the bill numbers. These again are disputes on facts which must be left for the decision of the arbitrators. 17. The Respondents further contended that the 'Sauda' books constitute sufficient evidence to conclude that the transactions did in fact take place. The arbitrators had concluded that the said 'Sauda' book reveals that the contracts were placed on a regular basis from 1984 onwards that the claims arise on account of the carry forward transaction, mainly in two scrips, namely, TISCO and ACC and more particularly the TISCO scrip in which the Appellant and his family members, other Appellants had carried forward their transactions. 18. The arbitrators also considered the appellant's case that express instructions to square off were not there. 18. The arbitrators also considered the appellant's case that express instructions to square off were not there. It is pertinent to note that the Appellant also did not seek any clarification as to whether any transaction had been squared off at the material time. The arbitrators therefore, concluded that the carry forward position was continued apparently in the hope of a rise in prices. This is a possible view and the arbitrators proceeded on that basis, although they found that the action of the Respondent in having continued without the payments from the Appellant was imprudent and lethargic. 19. As far as the counter claim of the Appellant is concerned, the Tribunal held that the Appellant was not able to produce any evidence whatsoever to the extent of Rs.1,61,280/-. The Respondent contended that a sum of Rs.1,61,280/- was part of the carry forward transaction and after the credit of the said amount was given, the appellant's amount continued to be in debit. The fact that the Appellant did not file a claim in respect of Rs.1,61,280/- which was outstanding in December, 1984 was a factor in favour of the Respondent. 20. Thus after considering the entire evidence, the arbitrators came to the conclusion that the transactions had taken place between the parties. No interference with the award in this respect is warranted. 21. Mr.Narula then relied upon the bye-laws 172 and 173, which read as under :- “Closing-out Against Defaulting or Deceased member or constituent 172. A member may effect closing-out against a member who has been declared a defaulter or a deceased member or a defaulting or deceased constituent either by himself buying-in or selling-out the securities in the open market or by buying or selling such securities on his own account as a principal provided that the price is fair and justified by the condition of the market. Closing-out on Member's Responsibility 173. Save as otherwise provided closing-out by buying-in or selling-out shall be effected under the authority of the Secretary but the member at whose instance the buying-in or selling-out is done shall be responsible for the contract made on his behalf. No liability or responsibility shall attach to the Exchange or its employees for any contract made in pursuance of any application for closing-out.” 22. These bye-laws do not carry the Appellants' case any further. No liability or responsibility shall attach to the Exchange or its employees for any contract made in pursuance of any application for closing-out.” 22. These bye-laws do not carry the Appellants' case any further. Bye-law 172 stipulates the manner in which a member may effect closing-out against inter-alia a defaulting constituent. Bye-law 173 stipulates further conditions by which a closing-out may be affected. As rightly submitted by Mr.Purohit, these bye-laws do not stipulate when closing-out is to be done. The arbitrators have held that the transactions were closed out. 23. Nor does the reliance upon these bye-laws support the Appellants' contention that the liability cannot be ascertained except by production of a contract note. The existence of the contract and details thereof, including the rate can always be established even by other evidence, in the event of a party being unable at the trial to produce the contract notes. 24. The challenge to the award on this ground is therefore, rejected. Re : II). The awards are based on no evidence. 25. Mr. Narula relied upon regulation 1.10 of the Regulations of the Bombay Stock Exchange which is as under:- “Official Pads 1.10 Members, their partners and their authorised clerks shall be provided by the Exchange with distinctive official pads for noting down bargains made by them. The official pads shall be issued by the Exchange on payment of the prescribed charges and their use shall be subject to such conditions as the Governing Board may from time to time prescribe. “26. According to Mr.Narula, the members of the Stock Exchange are provided with distinctive official pads (also known as block books) for noting down the transactions made by them which are required to be used subject to the conditions specified by the governing board of the stock exchange. He contends that the Respondents did not produce the block books during the arbitration proceedings. He further submitted that genuine transactions made on the floor of the stock exchange are always noted in the block book and the noting in the block books form the basis of the entries in the 'Sauda' book. According to Mr. Narula, in the absence of the block books, the finding of the arbitral tribunal to the effect that the transactions were genuine is perverse having been arrived at without any basis or evidence. 27. According to Mr. Narula, in the absence of the block books, the finding of the arbitral tribunal to the effect that the transactions were genuine is perverse having been arrived at without any basis or evidence. 27. The non-production of the block books does not appear to have been a ground for challenging the award. It would, in any event, make no difference. As we have repeatedly said whether the transactions had been entered into or not is a question of evidence. The block books would have at the highest indicated that the transactions were carried out on a particular date. Mr.Purohit submitted that the block books, in any event, do not indicate the clients for whom the transactions have been carried out. They merely record the transactions having been carried out on the floor of the exchange on a particular day. These block books thereafter form the basis of the entries in the Sauda books, which contained all the details, including the names of the clients and the rates by which the transactions took place for a particular client. The Sauda books were seen by the arbitrators. The arbitrators also considered the other evidence before coming to the conclusion that the transactions had in fact been carried out. 28. In the circumstances, non-production of the official pads / block books cannot be a ground for holding the awards to be perverse. Re : III). The findings in the awards are perverse. 29. Mr.Narula submitted that the findings of the arbitrators are contrary to the evidence on record and therefore, perverse. The submission is on account of an inference drawn by the arbitrators from the following evidence of the appellant's witness :- “Only on reading the claim papers, I came to know that he showed some transaction in my name during this period Prior to that he had orally demanded payments from my father, Shri(f) M.L. Surekha.” 30. The arbitrators observed that the Respondents continuing to carry forward the transactions despite no payment being made by the Appellants was imprudent. They however, held that that cannot be termed as fraudulent. Relying upon the above evidence, they further held that the Respondents had requested the Appellants for payment. The arbitrators observed that the Respondents continuing to carry forward the transactions despite no payment being made by the Appellants was imprudent. They however, held that that cannot be termed as fraudulent. Relying upon the above evidence, they further held that the Respondents had requested the Appellants for payment. It is difficult to understand Mr.Narula's criticism of this inference when the appellant's son Sudarshan Surekha had himself expressly stated in his evidence that the Respondents had orally demanded payments from his father i.e. the appellant in Appeal No.850 of 2004. Nor do we find anything perverse about the further inference drawn by the arbitrators that the transactions reflected in the ledger account were genuine and that the claims arose on that account. Moreover this conclusion was not arrived at only in view of the two sentences from the above deposition of Sudarshan Surekha. There were several other factors which the arbitrators took into consideration while arriving at this conclusion. We have noted some of them earlier. Re : IV). The awards are contrary to the rules of the natural justice. 31. Mr. Purohit rightly pointed out that this ground is not available in the present challenge. The grievance pertains to the previous round of arbitration during which documents of which inspection was sought had not been given. The earlier awards were set aside and the matters were remanded as stated earlier. We find that the aforesaid documents had been provided and the Appellant had complete opportunity before the arbitral tribunal and this ground is of no avail in the present appeal. Re : V). The awards ignored the relevant evidence. 32. Mr.Narula contended that the arbitrators had ignored the following admissions made by the Respondents :- a). “I could not get the contract book of any transaction”. The contention that the Respondents had admitted that the contract notes were not issued is not well founded. This is not what the witness said. He was unable to produce the contract book. We mentioned more than once that there is a difference between the contract notes not having been issued and the party being unable to produce the contract notes at the trial. The Respondents never contended that they had not issued the contract notes. They in fact contended to the contrary. b). He was unable to produce the contract book. We mentioned more than once that there is a difference between the contract notes not having been issued and the party being unable to produce the contract notes at the trial. The Respondents never contended that they had not issued the contract notes. They in fact contended to the contrary. b). “I have no written proof of delivery of any bills to Shri M.L. Surekha (Witness volunteers that he had handed over these bills to him).” Nor do we read the above evidence as an admission that the bills were never issued. In fact the arbitrators had dealt with this aspect in the awards. We in turn dealt with the awards in this respect. The arbitrators found that the appellant used to visit the Respondents' office regularly ; that it was customary for the Respondents to deliver the bills and the contract notes to regular customers by hand delivery and in many cases no acknowledgements were in fact sought and that this was evident from the conduct of the parties. 33. A judgment of the learned single Judge of this Court in Jagmohan Singh vs. Satish A. Sabnis 2004(1) Bom.C.R. 307 is of no assistance to the Appellant's case. The result in that matter turned on the facts of that case. For instance, the contention was that the Respondent therein had not produced any documentary evidence to establish the transactions and that the burden had not been discharged in the facts and circumstances of that case. One of the questions posed by the learned single Judge was whether it was open to the arbitral tribunal after holding that there is nothing in writing that one Nagori entered into the transactions on behalf of the Petitioner to award the claim on hear-say evidence. The Petitioner had in fact filed an affidavit of the said Nagori wherein it was stated that he had not carried out the transactions on behalf of the Petitioner. There was a specific finding that there was no documentary evidence showing any contract note exchanged in respect of the transactions and that the duplicate contract notes produced on record were not signed by the Petitioner. There was a specific finding that there was no documentary evidence showing any contract note exchanged in respect of the transactions and that the duplicate contract notes produced on record were not signed by the Petitioner. The judgment does not hold that even if it is established that the contract notes were issued, the claim must be rejected only on the grounding a party did not produce the same or was unable to produce the same at the trial. 34. In this view of the matter, it is not necessary to deal with the other contentions on behalf of the Respondents regarding the liability to maintain records beyond a certain period of time as per the rules, bye-laws and regulations of the BSE. 35. In the circumstances the appeals are dismissed. There shall be no order as to costs.