Bombay High Court
Nirav Securities (P.) Ltd. vs Mrs. Prabhuta Motiram Adhvaryu on 26 July, 2002
Equivalent citations: 2002(6)BOMCR745, (2002)4BOMLR340, 2002(4)MHLJ478
Author: S.A. Bobde
Bench: S.A. Bobde
JUDGMENT S.A. Bobde, J.
1. By this petition under section 34 of the Arbitration and Conciliation Act, 1996 ('the Act') the Petitioner Nirav Securities P. Ltd., who are brokers have challenged the award dated 5-6-2000 rendered by an arbitrator under the bye-laws, rules and regulations of the National Stock Exchange of India. By the award, the petitioner has been directed to deliver certain shares specified therein to the respondent, their client.
2. The dispute between the petitioner broker and the respondent-constituent arose as follows :
The petitioner entered into certain transactions on behalf of the Respondent and certain other members of the Respondent's family.
(a) It appears that the Respondent had purchased 500 shares of M.T.N.L. on 13-10-1998. The Petitioner was to deliver the shares on 21st October, 1998 being the date of settlement.
3. Apparently, the petitioner failed to deliver the shares under the transaction (a) on the date of settlement, i.e., 21-10-1998.
4. On 24-11-1998 one Keyur H. Adhvaryu, addressed a letter, inter alia, on behalf of the Respondent to the Petitioner. Keyur H. Adhvaryu stated that the Petitioner had entered into purchase and sale transactions on behalf of the members of the Adhvaryu family including the Respondent. A reference was made in the letter to the purchase of 500 shares of M.T.N.L. made on behalf of the Respondent. A clear and unequivocal demand asking the Petitioner to deliver the shares that were purchased, was made.
5. On 27-11-1998 the Petitioner replied and raised certain defences. The Petitioner stated that the demand made by the Respondent in the letter is absolutely false and is denied. At this point of time it is clear that a dispute had arisen between the parties since the Petitioner had denied the Respondent's claim as false.
6. The respondent thereafter did nothing up to 17-7-1999. On this date, the Respondent approached the Investors Grievance Cell of the National Stock Exchange in respect of 500 shares of M.T.N.L. making a grievance of non-delivery.
7. On 10-1-2000 the Respondent made a reference to arbitration.
8. In defence the petitioner raised a question of limitation. According to the petitioner, the claim was barred by Bye-law No. 3 of Chapter XI which deals with arbitration. The said Bye-law No. 3 reads as follows :
"Limitation period for reference of claims, differences or disputes for arbitration:
All claims, differences or disputes referred to in 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, differences or disputes shall be excluded for the purpose of determining the period of six months."
9. The learned arbitrator recorded that the Petitioner did not press the question of limitation and agreed to continue with the matter. Nonetheless, the arbitrator decided the question of limitation. The only reason why the Petitioner's contention for limitation has been rejected by the arbitrator is that the time taken by the relevant authority, presumably referring to the investors grievance cell, to administratively resolve the claim, difference's or disputes, is liable to be excluded for the purpose of determining the period of six months.
10. Mr. Khandhar, the learned counsel for the Respondent, raised a preliminary objection to the point of limitation, on the ground that it was given up before the learned Arbitrator. Assuming that the said point was given up, it is clear that by reason of section 3 of the Limitation Act, which undisputedly applies to arbitration proceedings by virtue of section 43 of the Arbitration and Conciliation Act, 1996, the learned arbitrator was bound to consider the said plea. Indeed, he has considered the said plea and has rejected the same for the reasons stated above.
11. Mr. Khandhar, the learned counsel for the Respondent, next submitted that assuming that the arbitrator has decided the question of limitation wrongly, his decision cannot be questioned since the question was specifically referred to him. The learned counsel relied on a decision of the Supreme Court in the case of Sudarsan Trading Co, v. Government of Kerala , where their Lordships referred to the earlier decision of the Supreme Court in Alopi Parshad & Sons Ltd. v. Union of India where the Court observed as follows :
"The same principle has been stated in Alopi Parshad & Sons Ltd. v. Union of India. There this Court held that the award was liable to be set aside because of an error apparent on the face of the award. An arbitration award might be set aside on the ground of an error on the face of it when the reasons given for the decision, either in the award or in any document incorporated with it, are based upon a legal proposition which is erroneous. But where a specific question is referred, the award is not liable to be set aside on the ground of an error on the face of the award even if the answer to the question involves an erroneous decision on a point of law. But an award which ignores express terms of the contract, is bad."
It is clear that in the present case the question of limitation was not a question that was specifically referred to the arbitrator as a question of law but was a question which arose incidentally in the dispute. It arose as a result of denial of the respondent's claim by the petitioner on the ground of limitation. It cannot, therefore, be said that the award was immune from challenge even though it decided contrary to the bar of limitation.
12. Bye-law No. 3 does not provide that the starting point of limitation is only the date on which the cause of action or cause of arbitration arose. It provides for a limitation of six months to be reckoned from :
(a) The date on which the claim arose OR
(b) the date on which the difference or dispute arose OR shall be deemed to have arisen.
13. Taking the date on which the difference or dispute arose as the starting point of limitation, it is clear that the claim is still barred by limitation. By a notice dated 24-11-1998 a demand was made. This demand was rejected and denied by the Petitioner vide its reply dated 27-11-1998. In other words, a dispute came into existence on 27-11-1998. A claim ought to have been made within a period of six months from that date, i.e., the date on which the dispute arose. No such claim was made within that time.
14. Having considered the matter at length, I am of view that reference to arbitration at the instance of the respondent is barred by the aforesaid bye-law.
15. The 500 shares of M.T.N.L. were to be delivered on 21-10-1998. The claim was made in the statement of claim on 10-1-2000. A demand was made on 24-11-1998. The Petitioner rejected this demand on 27-11-1998. A dispute, therefore, clearly arose on this date. However, the request for arbitration was made on 10-1-2000. This claim was, therefore, clearly beyond six months from the date the dispute arose.
16. Mr. Khandhar, the learned counsel for the respondents, submitted that the Petitioners had furnished various statements of account, the last of which was submitted on or about 18-1-1999. According to the learned counsel, therefore, the limitation started running after 18-1-1999. Mr. Dhanuka, the learned counsel for the petitioners, submitted and in my view rightly that, it would not make any difference to the question of limitation since the statement of claim has been filed on 10-1-2000, which is almost a year after the last statement of accounts is said to have been submitted. Moreover, it is clear that the demand was already made on 24-11-1998 and was rejected by letter dated 27-11-1998 as observed above.
17. The next question that need to be considered is the specific provision under which an award which grants claim which is barred by limitation is liable to be interfered with. Mr. Dhanuka, learned counsel for the Petitioner, relied on an unreported decision of the Division Bench of this Court (Pandya & Chandrachud, JJ.) in Appeal No. 301 of 2000 in arbitration petition No. 365 of 1999 Option Pratibhuti & Vinimay Co. Ltd. v. Geetashree Securities P. Ltd. dated 27-6-2000. While considering the same question, i.e., the applicability of Bye-law No. 3, the Division Bench observed in paragraph 3 as follows :
"It was seriously urged before us that this will not cover section 34 of the Arbitration and Conciliation Act, 1996. As it was related to the public policy, in our opinion, will definitely cover the case because the bye-law, which gives a remedy of arbitration, itself is hitting the petition by limitation, and if it is ignored, the entire contract for regulation giving rise to the arbitration would stand truncated and the provision for limitation will lose its meaning. This being the regulation of contract, to ignore a part of the contract, in our opinion, would not be in the interest of public policy at all as the bye-law governs relations of the parties which have been framed by consent of the members and have agreed to act thereunder. Thus, this being eminently a matter of public policy, in our opinion, section 34 would be attracted."
The Division Bench was clearly of the view that an Award contrary to the law of limitation must be held to be in conflict with the public policy of India as envisaged by Section 34(2)(b)(ii).
18. In this view of the matter, it is clear that the learned arbitrator could not have made an award in favour of the respondent in respect of their statement of claim. In particular, the reasons given by the learned arbitrator that the time taken in conciliation proceedings and the time taken to administratively resolve the dispute should be excluded cannot be sustained. Even if the respondent's letter dated 17-7-1999 is considered, the period of six months had already elapsed. In the result, the petition deserves to be allowed.
19. The petition is, accordingly, allowed in terms of prayer Clause (a), which reads as under :
(a) That this Hon'ble Court be pleased to quash and/or set aside the impugned award dated 5-6-2000 made by the learned Arbitrator Shri Kamal Kumar Jalan being Exh. to the Petition.
20. There shall be no order as to costs.