Calcutta High Court
S And D Securities (P.) Ltd. vs Union Of India (Uoi) on 5 February, 2003
Equivalent citations: [2005]124COMPCAS340(CAL), [2004]54SCL329(CAL)
Author: Ashok Kumar Mathur
Bench: Ashok Kumar Mathur, Jayanta Kumar Biswas
ORDER Ashok Kumar Mathur, CJ.
1. This is an appeal directed against the order passed by the learned single Judge dated 2nd May, 2002 whereby the learned single Judge has dismissed the writ petition holding that the present dispute can be referred to arbitration at the instance of the constituent of a trading member.
2. The brief facts which arc necessary for disposal of the present appeal are that the writ petitioner is a company registered under the Companies Act, 1956 (hereinafter referred to as the petitioner-company) and the writ petitioner No. 2 is one of the Directors of the petitioner-company. The appellant/writ petitioner company is a registered Stock Broker and is a trading member of National Stock Exchange of India Limited (hereinafter referred to as the NSE). The respondent No. 5 is also a company registered under the Companies Act and it has opened an account with the petitioner-company (share broker) and purchased certain shares.
3. The case of the petitioner-company is that in the year 1996 under instructions from respondent No. 3 the petitioner-company opened an account being No. K-005 in the name of respondent No. 3 Thereafter in 1997 respondent No. 3 introduced his son, the respondent No. 4 and on their joint requests, the petitioner-company opened another account being No. S-025 in the name of respondent No. 4 with respondent No. 3. It is alleged that the petitioner-company on 17th April, 1999 in terms of the instruction given by respondent Nos. 3 and 4 purchased 4000 equity shares of GMDC Limited with its own fund and that purchase was duly entered in the account No. S-025 of the respondent Nos. 3 and 4 but the price including commission of the petitioner-company remained due. It is alleged that the respondent Nos. 3 and 4 subsequently introduced respondent No. 5 to the petitioner-company as their sister concern and on the request of respondent Nos. 3 and 4 the petitioner-company opened an account in the name of respondent No. 5 being account No. B-037. On or about 23rd April, 1999 respondent Nos. 2 and 3 made over a cheque to the petitioner-company for a sum of Rs. 1,95,047 drawn by respondent No. 5 in favour of the petitioner-company with a request to the petitioner-company to transfer the said 4000 equity shares, so purchased in the name of respondent No. 4, in favour of respondent No. 5 and the petitioner-company accordingly transferred the said shares in favour of respondent No. 5. On or about 18th May, 1999 as instructed by respondent No. 3, the petitioner-company sold and transferred 1000 equity shares of GMDC out of the 4000 equity shares so purchased and the sale proceeds of Rs. 69,550 was entered into the account of respondent No. 5. Thereafter, on 11th June, 1999, respondent No. 5 requested the petitioner-company to transfer remaining 3000 equity shares of GMDC Limited in favour of respondent No. 5. To that the petitioner-company demanded the dues of respondent No. 5 as per its account duly maintained by the petitioner-company. The case of the petitioner-company is that respondent No. 5 failed to make payment of the dues of the petitioner-company. As the petitioner-company refused to transfer the shares, the respondent No. 5 by letter dated 8th June, 1999 informed the NSE of the said conduct of the petitioner-company and in the said letter a request was made of the NSE to directed the petitioner-company to immediately deliver 3000 equity shares of GMDC to respondent No. 5 and if the petitioner-company fails to do so, refer the case to arbitration. A copy of this letter was also sent to the petitioner-company. The petitioner-company wrote to the NSE refuting the claim of respondent No. 5. However, the petitioner-company did not raise any objection to the claim for arbitration raised by respondent No. 5 in its letter dated 8th June, 1999.
4. The NSE in its reply by communication dated 20th November, 2001 informed the petitioner-company to submit its defence to such arbitration proceedings and in the event of petitioner-company's failure to do so, the petitioner-company was informed that arbitrator may be appointed to proceed with the arbitral proceeding.
5. This communication dated 20th November, 2001 was challenged by the petitioner-company by filing the present writ petition contending that in absence of the arbitration agreement between petitioner-company and respondent No. 5, the said direction on the petitioner-company to submit to the arbitration proceeding is wholly without jurisdiction. Therefore the main contention of the petitioner-company in the writ petition was that there was no arbitration agreement between the petitioner-company and respondent No. 5, therefore, the NSE cannot insist on the petitioner-company's submitting to the jurisdiction of arbitrator. Learned counsel for the petitioner-company submitted before the learned single Judge that respondent No. 5 is only a customer and it is not bound by the Regulations or Bye-laws of NSE. It was submitted that there is no arbitration agreement between the petitioner-company and respondent No. 5; and that the petitioner-company is a broker and is governed by the NSE Regulations or Bye-laws, but there is no arbitration agreement with the customers like respondent No. 5, therefore, the petitioner-company cannot be forced to unilaterally submit to the jurisdiction of the arbitrator in a dispute between the petitioner-company and its customer. In this connection learned counsel for the petitioner-company relied on Regulation 4.3.1 of the NSE wherein it is laid down that every trading member shall enter into an agreement with each of its constituents, i.e., clients, before accepting or placing order on constituent's behalf. It is further laid down that such agreement shall include provisions specified by the NSE in this behalf in 'Annexurc-3'. Annexure-3 is a form which contains a clause of arbitration. It also mentions that even if a trading member does not enter into an agreement in terms of Annexure-3, then the responsibility of the trading members shall not in any way be reduced due to non-execution of agreement with the constituent meaning thereby that in case the petitioner-company docs not enter into an agreement as given in Annexure 3, then too his responsibility shall not be in any way absolved due to non-execution of agreement with the constituent. That shows that even if agreement has not been executed by the petitioner-company with its client then too the said agreement shall be deemed to have been executed by virtue of the aforesaid regulation. It was further contended by learned counsel for the petitioner-company that in absence of any agreement between the petitioner-company and respondent No. 5, the Bye-laws and Regulations cannot bind the petitioner-company and its customers. It was also contended by the learned counsel for the petitioner-company that by virtue of Clause 3 of Chapter 11 of the Bye-laws of NSE dispute has to be raised within a period of six months and the dispute in the present case has been raised beyond the period of six months. It was also submitted that a civil suit pertaining to the above subject-matter is also pending.
6. As far as the relation of petitioner-company with respondent No. 5 is concerned, that is, like a trader and customer from the facts which have been stated by the petitioner-company in its affidavit, there is no dispute that the aforesaid transaction did take place and a dispute arose out of that transaction. Therefore, on this premise, we have to see how such relations are being regulated by the necessary enactment on the subject. Such transactions are being regulated by the Act known as Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as the Act of 1956). The statement of object of this Act reads as under :
"An Act to prevent undesirable transactions in securities by regulating the business of dealings therein, by prohibiting options and by, providing for certain other matters connected therewith."
7. Therefore, the purpose of the enactment of this Act is that any dispute arising out of the securities has to be regulated by the Act of 1956.
8. 'Contract' has been defined in Section. 2(a) of the Act of 1956, which reads as under :
"2(a) 'contract' means a contract for or relating to the purchase or sale of securities;"
'Member' has been defined in Section 2(c) as under :
"2(c) 'member' means a member of a recognised stock exchange."
9. 'Option in securities' has been defined in Section 2(d) as under :
"2(d) 'option in securities' means a contract for the purchase or sale of a right to buy or sell, or a right to buy and sell, securities in future, and includes a teji, a mandi, a teji mandi, a galli, a put, a call or a put and call in securities."
10. 'Recognised stock exchange' have been defined in Section 2(f) as under:
"2(f) 'recognised stock exchange' means a stock exchange which is for the time being recognised by the Central Government under Section 4;"
'Securities' have been defined in Section 2(h) as under :
"2(h) 'securities' include--
(i) shares, scrips stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate :
(ii) Government securities; and (iia) such other instruments as may be declared by the Central Government to be Securities; and
(iii) rights or interest in securities."
11. In order to effectuate the purpose of this Act of 1956, stock exchanges are recognised under this Act. Section 3 deals with application for recognition of stock exchange. Section 4 deals with grant of recognition to stock exchanges. Section 5 deals with withdrawal of recognition. Section 6 empowers the Central Government to call for periodical returns or direct inquiries to be made. Section 9 empowers recognised stock exchanges to frame their Bye-laws or Regulations. Section 9 reads as under:
"9. Power of recognised stock exchanges to make by laws.--(1) Any recognised stock exchange may, subject to the previous approval of the Securities and Exchange Board of India, make bye-laws for the regulations and control of contracts.
2. In particular, and without prejudice to the generality of the foregoing power, such bye-laws may provide for :
(a) the opening and closing of markets and the regulations of hours of trade;
(b) a clearing house for the periodical settlement of contracts and differences thereunder, the delivery of and payment for securities, the passing on of delivery orders and the regulation and maintenance of such clearing house;
(c) the submission to the Securities and Exchange Board of India by the clearing house as soon as may be after each periodical settlement of all or any of the following particulars as the Securities and Exchange Board of India may, from time to time, require, namely :--
(i) the total number of each category of security carried over from one settlement period to another;
(ii) the total number of each category of security, contracts in respect of which have been squared up during the course of each settlement period;
(iii) the total number of each category of security actually delivered at each clearing;
(d) the publication by the clearing house of all or any of the particulars submitted to the Securities and Exchange Board of India under clause (c) subject to the directions, if any, issued by the Securities and Exchange Board of India in this behalf;
(e) the regulations or prohibition of blank transfers;
(f) the number and classes of contracts in respect of which settlement shall be made or differences paid through the clearing house;
(g) the regulation, or prohibition of budlas or carry-over facilities;
(h) the fixing, altering or postponing of days for settlements;
(i) the determination and declaration of market rates, including the opening, closing, highest and lowest rates for securities;
(j) the terms, conditions and incidents of contracts, including the prescription of margin requirements, if any, and conditions relating thereto, and the forms of contracts in writing;
(k) the regulation of the entering into, making, performance, recession and termination of contracts, including contracts between members or between a member and his constituent or between a member and a person who is not a member, and the consequences of default or insolvency on the part of a seller or buyer or intermediary, the consequences of a breach or omission by a seller or buyer, and the responsibility of members who are not parties to such contracts;
(l) the regulation of taravani business including the placing of limitations thereon;
(m) the listing of securities on the stock exchange, the inclusion of any security for the purpose of dealings and the suspension or withdrawal of any such securities, and the suspension or prohibition of trading in any specified securities;
(n) the method and procedure for settlement of claims or disputes, including settlement by arbitration;
(o) the levy and recovery of fees, fines and penalties;
(p) the regulation of course of business between parties to contracts in any capacity;
(q) the fixing of a scale of brokerage and other charges;
(r) the making, comparing, settling and closing of bargains;
(s) the emergencies in trade which may arise, whether as a result of pool or syndicated operations or concerning or otherwise, and the exercise of powers in such emergencies, including the power to fix maximum and minimum prices for securities;
(t) the regulation of dealings by members for their own account;
(u) the separation of the functions of jobbers and brokers;
(v) the limitations on the volume of trade done by any individual member in exceptional circumstances;
(w) the obligation of members to supply such information or explanation and to produce such documents relating to the business as the governing body may require.
3. The bye-laws made under this Section may--
(a) specify the bye-laws the contravention of which shall make a contract entered into otherwise than in accordance with the bye-laws void under Sub-section (1) of Section 14;
(b) provided that the contravention of any of the bye-laws shall render the member concerned liable to one or more of the following punishments, namely :-
(i) fine,
(ii) expulsion from membership,
(iii) suspension from membership for a specified period,
(iv) any other penalty of a like nature not involving the payment of money.
(4) Any bye-laws made under this section shall be subject to such conditions in regard to previous publication as may be prescribed, and when approved by the Securities and Exchange Board of India, shall be published in the Gazette of India and also in the Official Gazette of the State in which the principal office of the recognised stock exchange is situate, and shall have effect as from the date of its publication in the Gazette of India:
Provided that if the Securities and Exchange Board of India is satisfied in any case that in the interest of trade or in the public interest any bye-law should be made immediately, it may, by order in writing specifying the reasons therefor, dispense with the condition of previous publication."
12. Section 10 empowers the Securities and Exchange Board of India (SEBI) to make and amend Bye-laws of any recognised stock exchange. Section 11 empowers the Central Government to supersede the governing body of the recognised stock exchange. Section 12 deals with the power of the Central Government to suspend business of recognised stock exchanges. Section 13 empowers the Central Government to declare certain contracts in some areas illegal or same may be declared void under Section 14 and the power of appeal and penalties have been prescribed. The other provisions of the Act of 1956, as far as we arc concerned, have no relevance.
13. In exercise of such power the National Stock Exchange has framed National Stock Exchange (Capital Market) Regulation, 1994 (hereinafter referred to as Regulation) and Bye-laws (hereinafter referred to as Bye-laws) which regulate the relation between the broker and its constituent, that is, client. The Regulations which have bearing on the issues involved in the matter are set out hereinafter.
14. Regulation 1.3.3 defines 'Authorised Person', which reads as under :
"1.3.3. Authorised Person : Authorised Person means a person who is authorised by the Exchange as an approved user of a Trading Member or a Participant and employed whether through a contract of employment or otherwise by a Trading Member for remuneration (whether by way of salary, commission, allowance or otherwise) expressed in terms of money or capable of being so expressed for any kind of work or activity, manual or otherwise, and who gets his remuneration directly or indirectly from the Trading Member or Participant and includes any person employed by or through a contractor and includes any person who is acting in any capacity on behalf of the Trading Member or a Participant for any activity relating to the trades done and executed on the Exchange even if such person is not receiving any consideration or remuneration from the Trading Member or a Participant for the services rendered by him."
Regulation 1.3.7 defines 'Constituent', which reads as under :
"1.3.7 Constituent: A constituent means a person, on whose instructions and, on whose account, the Trading Member enters into any contract for the purchase or sale of any security or does any act in relation thereto.
Explanation : For the purpose of these regulations, the term Constituent includes a Participant as defined under the Bye-Laws of the Exchange unless expressly stated otherwise."
15. Regulation 1.3.16 defines 'Trading Member', which reads as under:--
"1.3.16 Trading Member: Trading Member refers to an entity as defined under Chapter V of the Bye-Laws of National Stock Exchange of India Limited."
16. As per the aforesaid Regulations, Trading Member have been defined in Chapter V of the Bye-laws of the National Stock Exchange of India Limited, which reads as under :
"CHAPTER V TRADING MEMBERS Appointment and Fees (1)(a) The relevant authority is empowered to admit trading members in accordance with the Bye-laws, Rules and Regulations it may frame from time to time in accordance with the Securities Contracts (Regulation) Act and Rules and the SEBI Act.
(b) the relevant authority may specify prerequisites, conditions, formats and procedures for application for admission, termination, re-admission, etc. of trading members of each trading segment. The relevant authority may, at its absolute discretion, refuse permission to any applicant to be appointed as trading member.
(c) The trading member shall pay such fees, security deposits and other monies as may be specified by the Board or the relevant authority from time to time, on admission as trading member and for continued admission. The fees, security deposits, other monies and any additional deposits paid, whether in the form of cash, bank guarantee, securities or otherwise, with the Exchange, by a trading member from time to time, shall be subject to a first and paramount lien for any sum due to the Exchange and all other claims against the trading member for due fulfilment of engagements, obligations and liabilities of trading members arising out of or incidental to any dealings made subject to the Bye-laws, Rules and Regulations of the Exchange. The Exchange shall be entitled to adjust or appropriate such fees, deposits and other monies for such dues and claims, to the exclusion of other claims against the trading member, without any reference to the trading member.
(d) Trading member of any trading segment may trade on the Exchange in the NSE securities applicable to that segment.
(e) Trading members may trade in relevant securities either on their own account as principals or on behalf of their clients unless otherwise specified by the relevant authority and subject to such conditions which the relevant authority may prescribed from time to time. The may also act as market-makers in such securities if they are so authorised and subject to such conditions as under Chapter VIII.
Conditions (2)(a) Trading members shall adhere to the Bye-laws, Rules and Regulations of the Exchange and shall comply with such operational parameters, rulings, notices guidelines and instructions of the relevant authority as may be applicable.
(b) All contracts issued for deals on the Exchange shall be in accordance with the Bye-laws, Rules and Regulations of the Exchange.
(c) Trading members shall comply with such Exchange requirements as may be prescribed by the relevant authority from time to time with regard to advertisements and issue of circulars in connection with their activities as trading members.
(d) Trading members shall furnish declarations relating to such matters and in such forms as may be prescribed by the relevant authority from time to time.
(e) Trading members shall furnish to the Exchange an annual Auditors' Certificate certifying that specified Exchange requirements as may be prescribed from time to time by the relevant authority pertaining to their operations have been complied with.
(f) Trading members shall furnish such information and periodic returns pertaining to their operations as may be required by the relevant authority from time to time.
(g) Trading members shall furnish to the extent such audited and/or unaudited financial or quantitative information and statements as may be required by the relevant authority from time to time.
(h) Trading members shall extend full co-operation and furnish such information and explanation as may be required for the purpose of any inspection or audit authorised by the relevant authority or other authorised official of the Exchange into or in regard to any trades, dealings their settlement, accounting and/or other related matters."
17. Regulation 4 deals with conduct of business by trading members and Regulation 4.3.1 specifically deals with relation with the constituents. Regulation 4.3.1 reads as under :
"4.3.1 Every Trading Member shall enter into an agreement with each of its constituents, i.e., clients, before accepting or placing order on constituent's behalf. Such agreement shall include provisions specified by the Exchange in this behalf in 'Annexure 3'. The term 'constituent' herein shall not include a Participant. The Exchange may categorise constituents into such types as may be necessary for the above purpose and specify the clauses to be included in agreement to be entered into by the Trading Member depending on the category of such constituent. However, the Trading Member's responsibility shall not in any way be reduced due to non-execution of agreement with the constituent."
18. Regulation 4.3.1 makes a reference of 'Annexure 3' which is a format of an agreement which has to be entered into by the trading member with its constituent or customer. Even if this agreement is not executed then also the responsibility of the trading member shall not in any way be reduced due to non-execution of agreement with the constituent. Therefore, in terms of the aforesaid Regulation responsibility has been placed on the shoulder of the trading member, that is, the stock broker and it is his responsibility to enter into an agreement as per Annexure-3 which contains stipulation that this agreement shall be subject to the Government Notifications, Rules, Regulations, Guidelines issued by SEBI and Stock Exchange Rules, Regulations and Bye-laws that may be enforced from time to time. Clause 1 of 'Annexure 3' reads as under :
"1. The provisions of this agreement, shall always be subject to Government notifications, any rules, regulations and guidelines issued by SEBI and Stock Exchange's rules, regulations and bye-laws that may be in force from time to time."
19. Therefore, in terms of Regulation 4.3.1 even if the appellant has not entered into an agreement as contained in 'Annexure-3' then too it will be deemed that such an agreement exists between the trading member and its constituent, as it has been specifically mentioned in Clause 4.3.1 of the Regulations that non-execution of agreement will not reduce the responsibility of the trading member.
20. Apart from this stipulation as contained in 'Annexure 3' the relationship between trading member and its constituent has been dealt with in detail in Chapter X of the Bye-laws. Bye-law 1 of Chapter X emphasised that all contracts relating to dealings permitted on the Exchange made by a trading member shall in all cases be deemed made subject to the Bye-laws, Rules and Regulations of the Exchange. Bye-law 1, Chapter X is relevant for our purpose, which reads as under :
"(1) All Contracts subject to Bye-laws, Rules and Regulations: All contracts relating to dealings, permitted on the Exchange made by a trading member shall in all cases be deemed made subject to the Bye-laws, Rules and Regulations of the Exchange. This shall be a part of the terms and conditions of all such contracts and shall be subject to the exercise by the relevant authority of the powers with respect thereto vested in it by the Bye-laws, Rules and Regulations of the Exchange."
21. Chapter XI of the Bye-laws lays down provisions for the Arbitration. Bye-law 1 of Chapter XI says that all claims, differences or disputes between the trading member inter se and between trading members and constituents shall be subject to the Bye-laws, Rules and Regulations of the Exchange and shall be subject to arbitration in accordance with the provisions of these Bye-laws and Regulations. Bye-law 1 of Chapter XI reads as under :
"Reference to Arbitration:
(1) All claims, differences or disputes between the Trading Members inter se and between Trading Members and Constituents arising out of or in relation to dealings, contracts and transactions made subject to the Bye-laws, Rules and Regulations of the Exchange or with reference to anything incidental thereto or in pursuance thereof or relating their validity, construction, interpretation, fulfilment or the rights, obligations and liabilities of the parties thereto and including any question of whether such dealings, transactions and contracts have been entered into or not shall be submitted to arbitration in accordance with the provisions of these Bye-laws and Regulations."
22. Clause 2 of Chapter XI of the Bye-laws further lays down that all transactions, dealings and contracts shall be deemed to be subject to these Bye-laws, Rules and Regulations. Bye-law 2 of Chapter XI reads as under :
"(2) Provisions of these Bye-laws and Regulations deemed to form part of all dealings, contracts and transactions : In all dealings, contracts and transactions which are made or deemed to be made subject to the Bye-Laws, Rules and Regulations of the Exchange, the provisions relating to arbitration as provided in these Bye-laws and Regulations shall form and shall be deemed to form part of the dealings, contracts and transactions and the parties shall be deemed to have entered into an arbitration agreement in writing by which all claims, differences or disputes of the nature referred to in Bye-laws (1), (1A) and (1B) above shall, be submitted to arbitration as per the provisions of these Bye-laws and Regulations."
23. Clause 3 of Chapter XI of the Bye-laws provides for limitation period for reference of claims, differences or disputes for arbitration. Clause 3 of the Chapter XI reads as under :
"(3) Limitation period for reference of claims, differences or disputes for arbitration : All claims, differences or disputes referred to Bye-laws (1) (1A) and (1B) above shall be submitted to arbitration within six months from the date on which the claim, difference or dispute arose or shall be deemed to have arisen. The time taken in conciliation proceedings, if any, initiated and conducted as per the provisions of the Act and the time taken by the Relevant Authority to administratively resolve the claim, difference or disputes shall be excluded for the purpose of determining the period of six months."
24. A bare reading of these clauses, as reproduced above, leaves no manner of doubt that once it is established that there is a dealing between the share broker and its customer then all relevant clauses of the Bye-laws, Rules and Regulations shall be deemed to govern such contracts. It is not in dispute that there exists a relationship between the petitioner-company as stock broker and respondent No. 5 as its constituent. It is apparent from the averments by the petitioner-company in its affidavit. Therefore, looking to all the deeming clauses, even if the petitioner-company has not entered into arbitration agreement with the respondent No. 5 as per Annexure-3 in terms of Regulation 4.3.1, then too it will be deemed that the petitioner-company and the respondent No. 5 are subject to the Bye-laws Rules and Regulations of the Exchange and if any dispute arises between the petitioner-company and the respondent No. 5, the respondent No. 5 can certainly request the authorities to refer the dispute to arbitration. Chapter V makes it incumbent on the trading member that he shall adhere to the Bye-laws, Rules and Regulations.
25. It may be relevant to mention here that the idea of introducing this Act of 1956 and the Bye-laws, Rules and Regulations is to regulate the dealings in securities. It is common knowledge that in the recent past number of bungling has taken place in matter of securities and, therefore, the Government came out with pieces of legislation so as to regulate the trading in securities. Bare reading of this Act, Bye-laws, Rules and Regulations make it more incumbent on the trading member to adhere to all these Acts, Bye-laws, Rules and Regulations. The scheme of relevant provisions of the Act Bye-laws, Rules and Regulations have been reproduced above in order to show that repeatedly in all such Bye-laws, Rules and Regulations emphasis has been given on the responsibility of the trading member so that the consumers; that is, the customer may not be cheated. In all the Bye-laws, Rules and Regulations burden has been placed on the trading member that they may not cheat bona fide customers who is interested in dealing in securities. Regulation 4.3.1 has been couched in very positive terms and it leaves no manner of doubt that it is the trading member who is responsible for all these dealings. If he fails to execute the agreement with his customer, as given in 'Annexure 3' which contains a stipulation in Clause 6, the agreement shall be deemed to have been executed. Statute has made such deeming provision. Therefore, an inference of a statutory deeming has to be drawn in the scheme of the provisions of the Act, Bye-laws, Rules and Regulations. In this connection reference may be made to a well known dictum laid down by Lord Asquith in East End Dwellings Co. Ltd. v. Finsbury BC 1952 AC 109, wherein the Learned Judge has observed as under:
"If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it.... The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs."
26. Therefore, in the present case also by reading the provisions of Clause 4.3.1 we have to treat this statutory presumption that there exists a relationship of trader and customer between the petitioner-company and the respondent No. 5.
27. The petitioner-company, at the time of registration with the NSE had given undertaking that it shall abide by all the existing and future laws. The relevant extracts of the undertakings read as under:
"1. The undersigned shall comply with all such requirements, existing and future with regard to and in connection with our appointment as a trading member.
2. The undersigned shall adhere to the Bye-laws, Rules and Regulations framed by NSEIL from time to time.
3. The undersigned shall abide by the code of conduct as laid down from time to time by NSEIL."
28. Therefore, in this background, the view taken by the learned single Judge that by virtue of these relevant Regulations/Bye-laws there is a deemed obligation on the part of the trading member that in the event any dispute arises with its constituents then the constituent can insist on arbitration and the trading member has no option but to submit to the arbitral forum.
29. Learned counsel for the petitioner-company strenuously urged before us that in view of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act of 1996) there should be an arbitration clause in the contract in terms of Section 7(5) of the Act of 1996, but there is no such arbitration clause in the present case; and therefore, the constituent cannot insist on taking the matter to arbitration. The argument of the learned counsel for the petitioner-company is without any basis as we have already discussed above that there is a deeming arbitration agreement as per the Regulation/Bye-laws and it is obligatory on the part of the trading member that it shall abide by the Bye-laws, Rules and Regulations of the NSE. Section 7(5) of the Act of 1996 does not help the petitioner-company, because there exists deeming arbitration agreement between the petitioner-company as trading member with its constituent, that is, respondent No. 5. Therefore, the submission of the learned counsel that by virtue of Section 7(5) of the Act of 1996 in absence of arbitration agreement the petitioner-company cannot be forced to submit to arbitration does not appear to be justified.
30. It was also pointed out that the dispute has not been raised within a period of six months as prescribed in the Bye-laws. We don't need to go into that aspect of the matter, as we have already held that there exists a deemed arbitration agreement between the petitioner-company and respondent No. 5, therefore, this question can be raised by the petitioner-company before the Arbitrator. In this connection learned counsel for the petitioner-company submitted that the question of limitation has to be decided by the Court and drew our attention to a decision of a learned Single Bench of the Bombay High Court in the case of Poise Securities & Exchange Ltd. v. Mansu Investment (P.) Ltd. [2000] 2 Arbi LR 479 (Bom.). In that case it was held by the learned single Judge that after the period of limitation the dispute is not arbitrable being barred by limitation. It was, however, not, held that Court should decide the question of limitation in writ jurisdiction before the Arbitrator undertakes this arbitration exercise. Moreover, there the matter had come before the learned single Judge after the arbitration award was given and the arbitration award was challenged and it was found that it is beyond the period of limitation, therefore, not arbitrable. But that is not the case here.
31. The next judgment cited by the learned counsel for the petitioner-company is a Single Bench decision of the Bombay High Court in the case of Ashalata S. Lahoti v. Hiralal Liladhar [1999] 3 Arbi LR 462. In this case also award was challenged by filing writ petition and in that question of limitation was raised contending that the subject-matter was not arbitrable because of limitation; the award was challenged on the ground of limitation not before the award was given, but after the award was given. Therefore this case also does not help the petitioner. The question of limitation is essentially a mixed question of fact and law. Therefore, this question is left open and can be agitated before the arbitral forum as all the material will be available with the arbitrator to decide whether the dispute is within the period of limitation or not. If it is not within the period of limitation then automatically the arbitrator will record his finding that because of limitation the dispute is not arbitrable.
32. Learned counsel for the petitioner-company also invited our attention to a decision of the Apex Court in the case of Wellington Associates Ltd. v. Kirit Mehta . This case is with regard to existence of arbitration agreement vis-a-vis powers of Chief Justice of India to appoint arbitrator. This case has no relevance to the controversy involved in the present case.
33. The next contention of the learned counsel for the petitioner-company was with regard to forum clause. In this connection our attention was drawn to Annexure-2 wherein it has been provided that "this contract is subject to the jurisdiction of the Courts in Mumbai". This forum clause has no relevance as far as the present controversy is concerned, here the question is whether trading member is subject to arbitration clause or not. This clause only says that this contract is subject to jurisdiction of Courts in Bombay, but it does not talk about reference of the matter to arbitration.
34. Before parting with the case we may observe that the question whether the National Stock Exchange is a 'State' within the meaning of Article 12 of the Constitution or not is not required to be gone into as this matter can be disposed of without going into that question. However, this question is open to debate which would be considered in appropriate case as and when it is required.
35. Therefore, in this view of the matter, we are of the opinion that the view taken by the learned single Judge is justified and there is no ground for this Court to interfere in this Appeal. As a result thereof the appeal is dismissed with no order as to costs.