Bombay High Court
SHRI.BIPIN KANTILAL KAPADIAversusTHE STOCK EXCHANGE BOMBAY
- Decided
- Disposal
- Disposed Off
Holding
The appellate court held that the Bombay Stock Exchange is liable to refund Rs 10,58,000 with interest because the trade was annulled and the exchange’s indemnity under Bye‑law 315J does not protect it, and the suit is not barred by limitation or mis‑joinder.
Summary
The appellant, a stock broker, purchased 44,600 shares of Energy Products India Ltd through the Bombay Stock Exchange but received only 23,000 shares, the remaining 21,600 shares being short‑delivered by member‑broker K.F. Vora. The exchange annulled the disputed trade, returned the shares to Vora and repeatedly urged the appellant to take delivery, which the appellant refused, seeking a refund of Rs 10,58,000. The trial court dismissed the suit, holding the exchange was merely a facilitator and protected by Bye‑law 315J, and that the suit was barred by limitation and mis‑joinder. On appeal, the High Court examined the effect of the annulment, the applicability of Bye‑law 315J, Section 28 of the Indian Contract Act, and the necessity of joining Vora as a party. The Court held that the exchange’s indemnity did not shield it, the trade’s annulment created a liability to refund, and the suit was not barred by limitation or mis‑joinder. Consequently, the appeal was allowed, the trial court’s decree set aside, and the exchange ordered to pay the refund with interest.
Issues considered
- Whether the Stock Exchange, as a facilitator, is liable to refund the appellant for short‑delivered shares.
- Whether the annulment of the trade bars the appellant’s claim against the exchange.
- Whether Bye‑law 315J indemnifies the exchange from liability in this context.
- Whether Section 28 of the Indian Contract Act renders the indemnity clause void.
- Whether the suit is barred by limitation.
- Whether the non‑joinder of member‑broker K.F. Vora renders the suit defective.
Legislation cited
Subjects
- stock exchange
- share delivery
- annulment
- indemnity
- mis‑joinder
- limitation
- Bye‑law 315J
- arbitration
- Section 28
- refund
Judgment
02-FA 2274-25.DOC
JYOTI IN THE HIGH COURT OF JUDICATURE AT BOMBAY
RAJESH
MANE CIVIL APPELLATE JURISDICTION
Digitally signed by
JYOTI RAJESH
MANE
Date: 2026.09.11
19:26:27 +0530 FIRST APPEAL NO. 2274 OF 2025
Shri. Bipin Kantilal Kapadia
of Bombay Age 74 years, Indian Inhabitant
carrying business as Proprietor in the
style of Messrs Ishverial T. Nanavati,
Share and Stock broker and having office
at 415, Stock Exchange Tower, Dalal
Street, Fort, Mumbai - 400023 ...Appellant/Original Plaintiff
Versus
The Stock Exchange Bombay
Having office at Stock Exchange Tower,
Dalal Street, Fort, Mumbai-400023. ...Respondent/Original Defendant
______
Mr. Amit Shroff a/w. Mr. Vinayak Suthar, for Appellant.
Ms. Radhika Gupta and Mr. Taha Mirza i/b. Khaitan & Co. for Respondent.
_______
CORAM: AARTI SATHE, J.
RESERVED ON: 28 AUGUST 2026
PRONOUNCED ON: 11 SEPTEMBER 2026
JUDGMENT
1. The present First Appeal is filed by the Appellant, being aggrieved by the
judgement and decree dated 29 th April 2017 passed by the learned Bombay City
Civil Court in City Civil Court Suit No. 7708 of 2000, whereby the following
order came to be passed:
“ORDER
1. The Suit No. 7708 of 2008 (H.C. Suit No. 164 of 2000) is dismissed with costs.
2. Decree be drawn up accordingly.
3. Accordingly, suit is disposed of.”
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Facts:-
2. The case of the Appellant is as follows:
I) The Appellant is a share and stock broker and a member of the Respondent
Stock Exchange, Bombay (hereinafter referred to as the “Respondent-Exchange”).
The Appellant is a recognised member of the Respondent-Exchange, and carries on
business as a proprietor of the firm in the name and style of M/s. Ishwarlal
Nanavati, having Clearing No. 279. The Respondent-Exchange is a recognised
Stock Exchange under the Securities Contracts (Regulation) Act, 1956 (“SCRA”).
The Respondent-Exchange and its members are governed, inter alia, by the Rules,
Bye-Laws and Regulations of the Respondent-Exchange, which have statutory
force.
II) Sometime on 9th September 1996, in the course of its brokerage
business, the Appellant purchased 44,600 shares of Energy Products India Limited
(“EPL”), bearing Scrip Code No. 531620, in Settlement No. 14/96-97 (B2 Group
Securities).
III) The aforesaid purchase was made by the Appellant on behalf of its clients. It
is the Appellant’s contention that, upon purchase of the said shares from the open
market through the Respondent-Exchange, the requisite confirmations, memos,
contract notes, bills and other relevant documents were duly issued to the
respective parties.
IV) It is also the Appellant’s contention that the aforesaid 44,600 shares were
purchased during Settlement No./Valan No. 14/96-97, for the period commencing
from 9th September 1996 and ending on 13th September 1996.
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V) It is further the Appellant’s contention that, in respect of the transaction
involving the aforesaid 44,600 shares, the Respondent-Exchange issued a
statement of payments and receipts. It was thereafter that the Appellant came to
know that the transaction pertaining to the entire quantity of 44,600 shares had
been executed with three other member-broker of the Respondent-Exchange, who
had acted as vendors on behalf of their respective clients. The relevant broker
members and the quantity of stock of shares sold by them to the Appellant's clients
are as follows:
Dr. No. Name of Broker Quantity Script Std. Rate Amount(Rs.)
1,370 K.P.Vora 21,600 Energy Products (I) 49 10,58,000/-
Ltd.
2,259 Hasmukh T. Shah 18,500 … do … 49 9,06,500/-
3,221 Gautam Nemani 4,500 … do ... 49 2,20,500/-
The pay-in and pay-out dates for settlement number 14/96-97 was 9 th
September 1996 and 13th September 1996 respectively.
3. Pursuant to the Rules, Regulations and Bye-Laws of the Respondent-
Exchange and in accordance with the procedure and practice followed by the
Respondent-Exchange, a statement of Payment and Receipt bearing statement No.
19-20 dated 4th October 1996 was issued. By the said statement, the Appellant’s
account was debited with an amount of Rs. 22,30,000/- towards the purchase of
44,600 shares through the Respondent-Exchange.
4. Further, by way of the deliver and receive order for settlement No.
17/96-97, the aforesaid 44,600 shares were to be delivered by the following
members to the Appellant:
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A: 4,500 shares by Mr. Gautam Nemani
B: 18,500 shares by Mr. Hasmukhlal Shah
C: 21,600 shares by Mr. K. F. Vora (the disputed shares)
5. It is the Appellant’s contention that, in accordance with the Rules and
Regulations of the Respondent-Exchange, the Appellant was required to deposit
the requisite amount with the Clearing House of the Respondent-Exchange within
one week from the date of issuance of the statement of Payment and Receipt. Upon
such deposit, the Appellant would, after the expiry of a further period of one week,
be entitled to receive physical delivery of the shares from the Clearing House.
6. Considering that the pay-in and pay-out dates for settlement No.
17/96-97 were 10th October 1996 and 14th October 1996, respectively, the
Appellant deposited the requisite amount with the Clearing House of the
Respondent-Exchange.
7. On account of various transactions undertaken by Mr. K. F. Vora, who was
also a member of the Respondent-Exchange, he was required to deliver 60,000
shares of EPL in settlement No. 17/96-97. Out of the said 60,000 shares, upon
giving effect to the netting and settlement procedure, the disputed shares were
required to be delivered to the Appellant.
8. It is the Appellant’s contention that, having deposited the requisite
amount with the Clearing House of the Respondent-Exchange, the Appellant
became entitled to receive physical delivery of the share certificates pertaining to
the entire quantity of 44,600 shares of EPL on or about 17th October 1996.
9. However, despite the Appellant having deposited approximately
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Rs.23,00,000/- with the Clearing House of the Respondent-Exchange, the
Clearing House delivered only 23,000 shares, resulting in a short delivery of
21,600 shares. The said short-delivered shares were valued at Rs. 10,58,000/- and
were required to be received from the broker/member, Mr. K. F. Vora.
10. It is the Appellant’s contention that, on account of the short delivery,
the Appellant repeatedly made inquiries with the Clearing House of the
Respondent-Exchange and other departments of the Respondent-Exchange.
However, the said efforts did not yield any result. The Appellant was informed that
Mr. K. F. Vora had not defaulted in depositing the disputed shares with the
Clearing House and that an inquiry was pending in respect of the scrip of EPL.
11. In the meanwhile, disciplinary proceedings were initiated against Mr. K. F.
Vora and certain other brokers. Ultimately, in or around November 1996, the
transactions in respect of EPL shares entered into in settlement Nos. 13/96-97 and
14/96-97 were cancelled/annulled. Consequently, approximately 69,400 shares
were returned by the Clearing House to the concerned broker members in or about
December 1996.
12. The aforesaid decision was taken pursuant to a meeting of the Governing
Body of the Respondent-Exchange held on 14th October 1996, wherein it was
noted that certain transactions undertaken by brokers in respect of EPL shares were
not genuine commercial transactions, but were fictitious transactions. It was further
noted that the concerned brokers had admitted in writing before the Respondent-
Exchange that such fictitious transactions had been undertaken.
13. Pursuant to the aforesaid action, the trading rights of Mr. K. F. Vora were
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also suspended by the Respondent-Exchange.
14. On 11th December 1996, the Respondent-Exchange released the
disputed shares to Mr. K. F. Vora and called upon him to collect the said shares
from the Clearing House.
15. As the Appellant had not received the disputed shares, by a letter dated
19th April 1997, the Appellant informed the Respondent-Exchange that it was no
longer interested in receiving the disputed shares and, instead, called upon the
Respondent-Exchange to refund the amount of Rs. 10,58,000/- paid towards the
purchase of the disputed shares.
16. As the Appellant received no response from the Respondent-Exchange for
approximately three months to its letter dated 19 th April 1997, the Appellant, by a
further letter dated 5th July 1997, reiterated its demand for refund of the aforesaid
amount. By a letter of the same date, i.e. 5th July 1997, the Respondent-Exchange,
however, called upon the Appellant to collect the disputed shares from the Clearing
House. The Appellant, by its letter dated 24 July 1997, declined to accept the said
shares on the ground that, by that stage, the shares were no longer of any benefit to
the Appellant. However, on the very same day, the Respondent-Exchange once
again called upon the Appellant to collect the disputed shares from the Clearing
House.
17. On 20th August 1997, the Appellant, by a letter of even date addressed
to the Respondent-Exchange, once again reiterated that, at such a belated stage, it
was unjust, unfair and inequitable on the part of the Respondent-Exchange to
require the Appellant to accept delivery of the disputed shares. The Appellant
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accordingly called upon the Respondent-Exchange to refund, without any further
delay, the sum of Rs. 10,58,000/- together with interest thereon.
18. It is the Appellant’s contention that, after a lapse of approximately six
months, the Respondent-Exchange, allegedly misusing its powers, addressed a
letter dated 23rd February 1998 to the Appellant, once again calling upon the
Appellant to collect the disputed shares from the Clearing House.
19. Thereafter, the Appellant filed L.C. Suit No. 7708 of 2000 against the
Respondent seeking the following reliefs:
(a) A declaration that the transaction under Valan No. 14/96-97 was void.
(b) A direction and order against the Respondent-Exchange for refund of sum of
Rs.18,39,750/- along with further interest.
(c) In the said suit, Mr. K.F. Vora was not made party as it is the Appellant's
contention that the Respondent-Exchange was liable to pay the amount as sought
for by the Appellant.
20. Between 2008 and 2017, the proceedings continued before the learned
Trial Court and ultimately culminated in the passing of the impugned judgment
and decree dated 29th April 2017.
21. In its Written Statement dated 25 th November 2008, the Respondent-
Exchange raised, inter alia, the following defences:
(i) The Respondent-Exchange contended that the suit was barred by limitation and
was, therefore, not maintainable. It was submitted that the suit had been filed more
than three years after the accrual of the cause of action and, consequently, the
period of limitation had expired.
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(ii) It was further contended that the Appellant had failed to offer inspection of
certain documents to the Respondent-Exchange. The Respondent-Exchange also
contended that the Appellant had no cause of action against the Respondent-
Exchange and that the plaint did not disclose any cause of action against the
Respondent-Exchange.
(iii) It was further contended that the entire suit was an attempt on the part of the
Appellant, in its capacity as a member-broker, to shift and recover its losses from
the Respondent-Exchange.
iv) It was further contended that the Respondent-Exchange was merely a facilitator
and regulator of the business of purchase and sale of securities and did not itself
participate in such transactions. The Respondent-Exchange merely provided a
marketplace where its member-brokers could buy and sell securities. It was,
therefore, submitted that the Respondent-Exchange could not be held liable for
any losses suffered by the Appellant, even if such losses arose in the course of
transactions undertaken by the Appellant on the Respondent-Exchange. It was also
contended that the relevant provisions of the SCRA and the applicable Rules, Bye-
Laws and Regulations protected the Respondent-Exchange, its Governing Body,
Clearing House, members and office-bearers from liability for any act or omission
done in good faith and/or in the due discharge of their duties and functions in
furtherance of the objects of the SCRA and in accordance with the applicable
Rules, Bye-laws and Regulations.
(v) It was further contended that the reliefs sought by the Appellant in the suit
could not be claimed against the Respondent-Exchange and, if at all, would lie
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inter se between the concerned members with whom the Appellant claimed to
have entered into the transactions. The Respondent-Exchange accordingly
contended that the suit was bad for misjoinder and/or non-joinder of necessary
parties and, in any event, was not maintainable and was liable to be dismissed with
costs.
vi) The brief elaboration of the manner in which shares were traded in the
Respondent-Exchange was also explained, the same reads as follows:
(a) With effect from 14 March 1995, member-brokers of the Exchange have been
provided with trading terminals connected to the BSE On Line Trading System
("BOLT System"). Through the BOLT system the member-brokers enter orders for
the purchase and / or sale of shares from trader work stations (TWS) installed in their
offices (instead of assembling in the trading ring of the Exchange, as was originally
the practice).
(b) At the relevant time, the 'settlement of trades' (the netting of the purchase and
sales position taken by the member-broker on the BOLT, and the delivery of shares
and payment of monies to the buying and selling member-brokers, as applicable) was
done on an'Account Period' basis where trades done in a trading cycle of one week
(each trading cycle is denoted by a Settlement Number) were consolidated, netted
(share-wise) and the settlement of such netted trades took place on a particular day in
the following week.
(c) The Exchange then generates and issues Delivery /Receipt Orders and Money
Statements for the trades done by the member-broker in each share. The Delivery
and Receive Orders provide information like the share quantity and trade-names of
the member-brokers (with their clearing numbers) who were to deliver / receive the
shares. The Money Statement provides details of payments/ receipts of monies by the
member-brokers in the settlement. The Delivery /Receipt Orders and Money
Statement were made available to the member-brokers.
(d) The shares are then required to be delivered as per the Delivery Orders by the
member broker or a date designated for Shares Pay-in for that settlement.
(e) On a date designated for Funds (money) Pay-in in that settlement, the Clearing
House debits the settlement(valan) account of the member-broker.
(f) On the Shares Pay-out date for that settlement, the shares are transferred / handed
over to the member-brokers, who have a purchase, position in a given settlement.
(g) On the Funds Pay-out date for that settlement, the funds are credited to the
settlement account of the member-brokers.
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(vii) It was further submitted in the Written Statement that, upon the Appellant
not receiving delivery of the disputed shares on the pay-out date, i.e. 14 th October
1996, the Appellant ought to have immediately approached the Respondent-
Exchange. Instead, the Appellant raised a complaint regarding non-delivery of the
disputed shares only after a lapse of approximately six months.
22. It was further contended that the Appellant ought to have approached the
Respondent-Exchange and invoked arbitration proceedings against the member-
broker, Mr. K. F. Vora, in respect of the non-delivery of the disputed shares, rather
than seeking a refund from the Respondent-Exchange and refusing to accept
delivery of the shares from the Respondent-Exchange.
23. The Respondent-Exchange further contended that the EPL shares were
thinly traded and that, between 20th September 1996 and 17th April 1997, the price
of the EPL shares had declined substantially. According to the Respondent-
Exchange, it was on account of such decline in the share price that the Appellant
had suffered a loss and, consequently, was no longer interested in accepting
delivery of the disputed shares. It was further contended that the Appellant
approached the Respondent-Exchange for a refund merely five days after expiry of
the six-month period prescribed under the Rules, Bye-Laws and Regulations of the
Respondent-Exchange for initiating arbitration proceedings against Mr. K. F. Vora.
The Respondent-Exchange accordingly alleged that the Appellant had approached
the Court after suppressing these material facts and, therefore, the suit was liable to
be dismissed.
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24. At the time of leading evidence in the suit, the affidavit in lieu of
examination-in-chief of Mr. Bipin Kantilal Kapadia, the Appellant, was taken on
record, and also the cross-examination was conducted of the Appellant, and the
affidavit in lieu of examination-in-chief of the Respondent-Exchange witness was
also filed.
25. Both parties also produced certain documents and evidence.
26. The trial Court framed issues and answered them as follows:-
ISSUES FINDINGS
Whether the plaintiff proves that he, being a member of : No.
1. the Respondent-Exchange has complied with and acted
in accordance with the Rule, Bye-Laws and Regulation of
Respondent-Exchange applicable in the relevant time?
2. Whether the plaintiff proves that the act of Respondent- : No
Exchange requiring the plaintiff to take, the delivery of
the said share is bad, illegal, unlawful, arbitrary and
without any authority?
3. Whether this Court has jurisdiction to try the present : No
suit?
4. Whether the suit is barred by limitation? No
5. Whether the suit is bad for misjoinder and non-joinder of Yes
parties?
6. Whether the suit is maintainable in the present form? No
7. Whether the plaintiff is entitled to refund of
Rs.10,58,000/- as claimed?
No
8. Whether the plaintiff is entitled to interest @ 24% p.a. as
claimed?
No
9. What order and decree? : As per final
order.
27. By the impugned judgment and decree, the learned Trial Court
answered certain issues in favour of the Appellant and certain issues against the
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Appellant and ultimately dismissed the suit on the ground that the Appellant had
failed to establish its claim.
28. The learned Trial Court held that the evidence on record demonstrated
that the Respondent-Exchange had no role in the purchase and sale transactions
undertaken through the Clearing House and that the Respondent-Exchange was
merely regulating the trading in shares. The learned Trial Court further held that
the suit was bad for misjoinder and non-joinder of parties and that the Appellant
was not entitled to a refund of Rs. 10,58,000/- together with interest from the
Respondent-Exchange.
29. In view of the aforesaid findings, the following points arise for
determination in the present Appeal:
a) Whether the Respondent-Exchange was merely a facilitator and market place
to buy and sell shares and was not liable to pay the refund amount of Rs.
10,58,000/- alongwith interest to the Appellant?
b) Whether there was any privity of contract between the Appellant and the
member-broker Mr. K.F. Vora whose disputed shares the Appellant had not
received entitling the Appellant for the delivery of shares from the said Mr. K.F.
Vora or in the alternative the amount of Rs. 10,58,000/- was receivable from Mr.
K.F. Vora instead of the Respondent-Exchange?
c) Whether once the trade in respect of the disputed shares by Valan No. 14/96-
97 itself was annulled then the act of the Respondent-Exchange to deliver the
shares to the Appellant was legal/correct ?
d) What reliefs are the plaintiffs entitled to ?
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30. Mr. Amit Shroff along with Mr. Vinayak Suthar appeared on behalf of
the Appellant. Ms. Radhika Gupta along with Mr. Taha Mirza instructed by
Khaitan and Company appeared on behalf of the Respondent-Exchange.
31. Learned counsel on behalf of the Appellant submitted that the Trial Court
failed to appreciate the facts of the present case and erred in coming to the
conclusion that the Respondent-Exchange was not liable to refund the amount of
Rs. 10,58,000/- to the Appellant. It was further his submission that the learned
Trial Court had come to an erroneous finding that in view of Bye-Law No. 315J of
Rules, Bye-Laws and Regulations of the Stock Exchange Mumbai, 1957.
(hereinafter referred to as "Bye-Laws"), the Respondent-Exchange was indemnified
from any action to be brought against the Respondent-Exchange, the governing
board, the President and the Secretary and employee of the Exchange acting under
their authority inasmuch as in the facts of the present case, it was the Respondent-
Exchange itself which was bound to pay the amount of refund to the Appellant.
32. It was further his submission that considering that the trade in respect of
the disputed shares with Mr. K.F. Vora had been annulled by the Respondent-
Exchange itself in the year 1996, there was no question of any privity of contract
between the said Mr. K.F. Vora and the Appellant. Even otherwise, it was his
submission that no privity of contract could be assumed between the Appellant and
Mr. K.F. Vora inasmuch as it is the Respondent-Exchange and its Clearing House
which is under an obligation to deliver the physical shares by taking the same from
Mr. K.F. Vora and pay the money to the Appellant, which does not make Mr. K.F.
Vora liable for non-delivery of share and non-delivery of money. He therefore
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submitted that the Trial Court had erroneously come to the conclusion that the
suit suffered from non-joinder of parties and hence on that ground also the Suit
was bad in law.
33. He further submitted that the provisions of clause 315J of the Bye-Laws
were hit by Section 28 of the Indian Contract Act, 1872 (hereinafter referred to as
the "Contract Act") inasmuch as Section 28 of the Contract Act specifies that an
agreement by which any party thereto is restricted absolutely from enforcing his
right under or in respect of any contract by the usual legal proceedings in the
ordinary tribunals, or which limits the time in which he may enforce the rights or
extinguishes the right of any party thereto or discharges any party thereto
from any liability under or in respect of any contract on the expiry of a specified
period so as to restrict any party from enforcing his rights is void to that extent.
The relevant Section 28 of Contract Act is reproduced below:
“28. Agreements in restraint of legal proceedings, void.-
Every agreement,—
(a)by which any party thereto is restricted absolutely from enforcing his rights
under or in respect of any contract, by the usual legal proceedings in the
ordinary tribunals, or which limits the time within which he may thus enforce
his rights; or
(b)which extinguishes the rights of any party thereto, or discharges any party
thereto, from any liability,. under or in respect of any contract on the expiry of
a specified period so as to restrict any party from enforcing his rights,
is void to that extent.
Exception 1.—Saving of contract to refer to arbitration dispute that may arise.
—
This section shall not render illegal a contract, by which two or more persons
agree that any dispute which may arise between them in respect of any subject
or class of subjects shall be referred to arbitration, and that only the amount
awarded in such arbitration shall be recoverable in respect of the dispute so
referred.
Exception 2.—Saving of contract to refer questions that have already arisen.—
Nor shall this section render illegal any contract in writing, by which two or
more persons agree to refer to arbitration any question between them which
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has already arisen, or affect any provision of any law in force for the time being
as to references to arbitration.
Exception 3.—Saving of a guarantee agreement of a bank or a financial
institution.—
This section shall not render illegal a contract in writing by which any bank or
financial institution stipulate a term in a guarantee or any agreement making a
provision for guarantee for extinguishment of the rights or discharge of any
party thereto from any liability under or in respect of such guarantee or
agreement on the expiry of a specified period which is not less than one year
from the date of occurring or non-occurring of a specified event for
extinguishment or discharge of such party from the said liability.
(a)Explanation.—
(i)In Exception 3, the expression "bank" means—a "banking company" as
defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of
1949).
(b)"a corresponding new bank" as defined in clause (da) of section 5 of the
Banking Regulation Act, 1949 (10 of 1949);
(c)"State Bank of India" constituted under section 3 of the State Bank of India
Act, 1955 (23 of 1955);
(d)"a subsidiary bank" as defined in clause (k) of section 2 of the State Bank of
India (Subsidiary Banks) Act, 1959 (38 of 1959);
(e)"a Regional Rural Bank" established under section 3 of the Reg, tonal Rural
Banks Act, 1976 (21 of 1976);
(f)"a Co-operative Bank" as defined in clause (cci) of section 5 of the Banking
Regulation Act, 1949 (10 of 1949);
(g)"a multi-State co-operative bank" as defined in clause (cciiia) of section 5 of
the Banking Regulation Act, 1949 (10 of 1949); and
(ii)In Exception 3, the expression 'a financial institution" means any Public
financial institution within the meaning of section 4A of the Companies Act,
1956 (1 of 1956).”
34. In view of the aforesaid provision, he submitted that though this plea was
not taken by him at the time of the suit proceedings the same being a legal
argument could be raised for the first time in the present First Appeal proceedings.
He further submitted that Arbitration proceedings under the Bye-Laws would
primarily apply to disputes between members and not disputes against the
Respondent-Exchange. It was his submission that in the facts of the present case
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since the Appellant had no privity of contract with Mr. K.F. Vora and also that the
annulment of the trade was done by the Respondent-Exchange, the question of
invoking Arbitration against Mr. K.F. Vora would not be the correct position. He
also submitted that even otherwise to invoke Arbitration it is incumbent upon the
party claiming that the disputes are covered by the Arbitration clause to make an
application under Section 8 of the Arbitration and Conciliation Act, 1996
(hereinafter referred to as the “Arbitration Act”) to the Court to refer the matter to
Arbitration. He submitted that in the facts of the present case that no such
application under Section 8 of the Arbitration Act has been made, and hence the
plea of the Respondent-Exchange that Arbitration could be invoked is not a correct
position in law.
35. He further submitted that since the transaction itself of the trade of the
disputed shares were annulled, the question of Mr. K.F. Vora delivering the shares
physically to the Appellant was not possible and hence the question of remedy
against Mr. K.F. Vora of closing out as per the Bye-Laws or seek remedy of
Arbitration of delivery of shares did not arise at all. He further submitted that in
fact after the disputed shares were returned to Mr. K.F. Vora, the Clearing House
of the Respondent-Exchange had themselves categorically asked Mr. K.F. Vora not
to deliver the shares further and placed it under no delivery caption. He further
submitted that in spite of this no delivery status it was sometime in the year 1997
that the Respondent-Exchange post annulment of the trade of the disputed shares
also insisted upon physical delivery of shares to be taken by the Appellant. In view
of the aforesaid submissions, he submitted that the impugned order passed by the
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Trial Court was liable to be set aside and the Respondent-Exchange was bound to
pay the amount of Rs. 10,58,000/- to the Appellant.
36. Per contra, learned counsel on behalf of the Respondent submitted that the
present First Appeal deserves to be dismissed inasmuch as the Appellant has no
cause of action against the Respondent-Exchange and also the plaint did not
disclose any cause of action against the Respondent-Exchange.
37. It is further her submission that the issue regarding application of the
provisions of Section 28 of Contract Act was never raised before the Trial Court
and hence it could not be raised for the first time in the present First Appeal. She
further submitted that the Respondent-Exchange was only a facilitator of buying
and selling securities and the Respondent-Exchange itself does not participate in
buying or selling securities but serves as a market place to buy and sell securities. It
was therefore her submission that the Respondent-Exchange was not liable for any
losses incurred by the Appellant even though the losses may have been incurred in
the course of trading.
38. She further submitted that the reliefs as claimed by the Appellant against the
Respondent-Exchange could not be maintained and the same would have to be
claimed against the member broker Mr. K.F. Vora with whom the Appellant has
transacted and thus the Suit was rightly dismissed for mis-joinder/non-joinder of
necessary parties. She further elaborated on the method of trading of shares at the
Respondent-Exchange at the relevant point of time to contend that the accounting
period in respect of the 44,600 shares of Energy Product India Limited (‘EPL’)
which consisted of the disputed shares, which the Appellant had purchased was
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from the period 9th September 1996 to 27th September 1996. The Pay-in date of
settlement number 17/96-97 was 10th October 1996 and the Pay-out date was
14th October 1996 and since during that time there were investigation proceedings
being conducted against Mr. K.F. Vora and other brokers, the transactions entered
by these brokers were annulled and the said brokers were asked to take back their
shares from the Clearing House pertaining to annulled transactions. It was in these
circumstances that the delivery of shares was an obligation of Mr. K.F. Vora which
was not met by the said Mr. K.F. Vora and hence the Respondent-Exchange was in
no way liable to effect delivery of the same and to make payment of Rs.
10,58,000/- to the Appellant, was the contention of the learned counsel for
Respondent-Exchange.
39. She further submitted that the Appellant should have approached the
Respondent-Exchange immediately after the non-delivery of shares i.e. after 14 th
October 1996, however the same was not done by the Appellants, and he waited
until December 1997 to bring the same to the attention of the Respondent-
Exchange.
40. She further submitted that the appropriate remedy available to the
Appellant was in fact initiating Arbitration proceedings against Mr. K.F. Vora and
not claim a refund from the Respondent-Exchange and refuse to take delivery of
the said shares.
41. She further submitted that the Appellant had chosen not to take delivery of
the disputed shares as the value of the said shares was consistently falling and the
said shares were thinly traded shares and this disincentivised the Appellant to take
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physical delivery of the shares. It was further her submission that the Appellant
was trying to offload the losses they had incurred on to the Respondent-Exchange
and hence the refund of Rs. 10,58,000/- by the Respondent-Exchange was rightly
not made.
Analysis & Findings:-
42. I have perused the papers and proceedings and the impugned order along
with the relevant documents annexed to the First Appeal with the assistance of
learned counsel on behalf of the parties and I proceed to decide the present First
Appeal.
43. On perusal of the proceedings and the impugned order, I am of the
view that the present First Appeal deserves to succeed inasmuch as the Trial Court
has not considered certain vital facts and aspects in the present matter which make
the Respondent-Exchange liable for the payment of Rs. 10,58,000/- to the
Appellant. The subsequent discussion will aid the conclusion that I have reached
at.
a. It is an admitted fact that the Appellant had placed an order of 21600
number of shares of EPL which consisted of the disputed shares of which Mr. K.F.
Vora was a seller through the Respondent-Exchange. It is also an admitted fact
that the Appellant had deposited an amount of Rs. 23,00,000/- in respect of the
purchase of the aforesaid shares which included the disputed shares and the Pay-in
and Pay-out date was between 10th October 1996 and 14th October 1996. In the
written statement itself of the Respondent-Exchange dated 25 th November 2008,
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the Respondent-Exchange has admitted that the governing board of the
Respondent-Exchange had decided to annul the transactions entered into between
Mr. K.F. Vora, Mr. H.V. Shah and GHFL Securities as investigation proceedings
were being conducted against them in respect of suspected trades which were in
the nature of fictitious dealings. As a result of the aforesaid annulment, the case of
the 3 brokers were forwarded to the Disciplinary Action Committee (DAAC) and
the shares pertaining to the annulled transactions were released back to the
concerned member including Mr. K.F. Vora and the member brokers were asked
by the Respondent-Exchange to take back their shares from the Clearing House
pertaining to the annulled transactions which included the disputed shares. Once
that being the case that the trades as entered into by Mr. K.F. Vora as a member
broker being annulled and the shares which included the disputed shares being
returned back to him by the Respondent-Exchange, the question of
physical delivery of the same to the Appellant did not arise at all. The fact that
once an annulment of a trade takes place it means that the trade has come to an
end and thereafter the trading of that share itself is not possible. It would be
beneficial to reproduce the meaning of the term “Annul” as given in the
following dictionaries to demonstrate that an annulment means the end or the
non-existence of a law, agreement or marriage, etc. The relevant dictionary
meanings are given below: -
Oxford Dictionary 2017: -
“Annul” - “To state officially something is no longer legally valid or recognized”
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K. J. Aiyar Judicial Dictionary 17th Edition Vol. 1 2017:-
“Annul” – “To reduce to nothing e.g. annul a decree; to annul or adjudicate
bankruptcy. In Chambers 26th Century Dictionary, the word ‘annul’ has been
assigned the meaning as to make null, to reduce to nothing, to abolish.
P. Ramanatha Aiyar Advanced Law Lexicon 7th Edition Vol. 1 2024:-
“Annul” – “To make void; to destroy; to cancel (as to annul a judgement); nullify;
abrogate; abolish; to do away with; used especially of laws, decrees, edicts, decisions
of Courts, or established rules, usages and the like.
b. Considering that the trades of the Mr. K.F. Vora were annulled, I am of the
view that the argument as canvassed by the learned counsel on behalf of the
Appellant has much substance that the Appellant on behalf of his client was no
longer in a position to take physical delivery of the shares or was not interested in
taking physical delivery of the shares. This to my mind is in view of the fact that
once trading of the shares itself is annulled then by taking physical delivery of the
said shares, there was no purpose which was to be served insofar as the Appellant
is concerned. I am therefore of the view that the argument of learned counsel on
behalf of the Respondent that the Appellant chose not to take physical delivery of
shares only because the share price of the disputed shares were falling is liable to
rejected at its threshold considering that the trading of the said shares was
annulled.
c. I am also of the view that once the trading of the shares was annulled on
14th October 1996 the insistence of the Respondent-Exchange as admitted by
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them in their written statement that the Exchange had made repeated offers to the
Appellants to take delivery of the shares by letters dated 22 nd July 1997, 25th July
1997, 9th September 1997 & 23rd February 1998 would itself raise
serious doubt that how the Respondent-Exchange could effect physical delivery of
shares whose trade has been annulled. To my mind this insistence on the part of
the Respondent-Exchange to force the Appellant to take the delivery of shares of
which do not exist post-annulment is an action which defies all logic.
d. I am further of the view that once the shares were returned to Mr. K.F.
Vora, then the same being offered by the Clearing House of the Respondent-
Exchange to the Appellant for physical delivery remains a question which has not
been examined by the Trial Court before passing the impugned order.
e. A Civil Court has to decide the case on preponderance of probability. The
Court has to decide that the case of the Original Plaintiff or the case of the
Original Defendant is more probable. In my view, the case of the Appellant
(Original Plaintiff) is more probable on the examination of the documents and the
evidence on record.
f. I am further of the view that as held by me, above, that once the
annulment of the trade concerning the disputed shares had taken place, the
obligation if any of Mr. K.F. Vora towards the Appellant would not survive. In that
situation, there could be no action which the Appellant could possibly bring
against the said Mr. K.F. Vora as a member broker. The contention therefore
sought to be canvassed by learned counsel on behalf of the Respondent that the
correct remedy to the Appellant is to invoke arbitration proceedings under the
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Bye-laws, is a submission which deserves to be rejected at its very threshold,
inasmuch as once there is no remedy itself available against Mr. K.F. Vora, then the
question of invoking arbitration against Mr. K.F. Vora does not arise. I am also of
the view that there was no privity of contract between the Appellant and Mr. K.F.
Vora considering that the very process of trading as explained in the written
statement filed by the Respondent-Exchange show that while effecting
purchase/sale orders on the trading system, there is no one to one contract which is
contemplated between a prospective buyer and prospective seller of shares. The
trading process has been elaborated in paragraph 21 (vi) above.
g. It is therefore clear that once that being the situation as elaborated insofar as
the trading process is concerned and coupled with the fact that the trades in respect
of disputed shares have been annulled, the question of seeking a remedy
against Mr. K.F. Vora either through Arbitration or by invoking any other Bye-
Laws especially Bye-Law No. 282 of the Bye-Laws does not arise at all. In view
thereof, the finding of the Trial Court that the suit is liable to be dismissed on
account of mis-joinder/non-joinder of necessary parties is an incorrect finding
rendered by the Trial Court. In the present case, there was no question of seeking
any relief against the said Mr. K.F. Vora as the transaction in respect of the
disputed shares had been annulled and therefore there was no privity of contract
between the Appellant and Mr. K.F. Vora. The said Mr. K.F. Vora was therefore
not a necessary party to the suit. This view taken by me is fortified by the decision
of the Supreme Court in Moreshar Yadaorao Mahajan v. Vyankatesh Sitaram
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Bhedi (D)1, wherein it has been held that in order to categorize anyone as a
necessary party to a dispute the twin test enumerated therein have to be satisfied. It
must be established that there is a right to some relief against such party in respect
of the controversy involved in the proceedings, and that no effective decree can be
passed in the absence of such a party. The relevant paragraphs of the decision of
the Supreme Court in the case of Moreshar Yadaorao Mahajan (supra) are
reproduced below: -
18. It could thus be seen that a “necessary party” is a person who ought to have
been joined as a party and in whose absence no effective decree could be passed
at all by the court. It has been held that if a “necessary party” is not impleaded,
the suit itself is liable to be dismissed.
19. As already discussed hereinabove, the plaintiff himself has admitted in the
plaint that the suit property is jointly owned by the defendant, his wife and
three sons. A specific objection was also taken by the defendant in his written
statement with regard to nonjoinder of necessary parties. Since the suit
property was jointly owned by the defendant along with his wife and three
sons, an effective decree could not have been passed affecting the rights of the
defendant’s wife and three sons without impleading them. Even in spite of the
defendant taking an objection in that regard, the plaintiff has chosen not to
implead the defendant’s wife and three sons as party defendants. Insofar as the
reliance placed by Shri Chitnis on the judgment of this Court in the case of
Kasturi (supra) is concerned, the question therein was as to whether a person
who claims independent title and possession adversely to the title of a vendor
could be a necessary party or not. In this context, this Court held thus:
“7. …….From the above, it is now clear that two tests are to be satisfied
for determining the question who is a necessary party. Tests are — (1)
there must be a right to some relief against such party in respect of the
controversies involved in the proceedings; (2) no effective decree can be
passed in the absence of such party.”
20. It can thus be seen that what has been held by this Court is that for being a
necessary party, the twin test has to be satisfied. The first one is that there must
be a right to some relief against such party in respect of the controversies
involved in the proceedings. The second one is that no effective decree can be
passed in the absence of such a party.
21. In view of the plaintiff’s own admission that the suit property was jointly
owned by the defendant, his wife and three sons, no effective decree could have
been passed in their absence.
(emphasis supplied)
1 2022 SCC OnLine SC 1307
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h. Further, the Supreme Court in the case of Nak Engg. Co. (P) Ltd. Vs.
Tarun Keshrichand Shah2 has laid down the important principles regarding
necessary and proper parties. Relevant paragraphs of the aforesaid decision are
reproduced below:-
“31. The fundamental distinction between a "necessary party" and a "proper
party" was succinctly explained in Ramesh Hirachand Kundanmal v. Municipal
Corpn., Greater Bombay, wherein this Court held: (SCC p. 528, para 6)
"6.... A necessary party is one without whom no order can be made
effectively. A proper party is one in whose absence an effective order
can be made but whose presence is necessary for a complete and final
decision on the question involved in the proceeding."
32. In Kasturi v. Iyyamperumal, this Court crystallized the twin tests for a
necessary party: (SCC p. 733)
"The question of jurisdiction of the court to invoke Order 1 Rule 10
CPC to add a party who is not made a party in the suit by the plaintiff
shall not arise unless a party proposed to be added has direct and legal
interest in the controversy involved in the suit. ... Two tests are to be
satisfied for determining the question who is a necessary party. The
tests are: (1) there must be a right to some relief against such party in
respect of the controversies involved in the proceedings; (2) no
effective decree can be passed in the absence of such party."
33. This principle has been consistently reiterated. In Mumbai International
Airport (P) Ltd. v. Regency Convention Centre & Hotels (P) Ltd., this Court
reiterated: (SCC p. 423, para 15)
"15. A "necessary party" is a person who ought to have been joined as a
party and in whose absence no effective decree could be passed at all by
the court. If a "necessary party" is not impleaded, the suit itself is liable
to be dismissed. A "proper party" is a party who, though not a necessary
party, is a person whose presence would enable the court to completely,
effectively and adequately adjudicate upon all matters in dispute in the
suit, though he need not be a person in favour of or against whom the
decree is to be made. If a person is not found to be a proper or
necessary party, the court has no jurisdiction to implead him, against
the wishes of the plaintiff. The fact that a person is likely to secure a
right/interest in a suit property, after the suit is decided against the
plaintiff, will not make such person a necessary party or a proper party
to the suit for specific performance."
34. Thereafter, in Vidur Impex & Traders (P) Ltd. v. Tosh Apartments (P) Ltd.
{, the broad principles governing impleadment were summarized: (SCC p. 413,
para 41)
"41.... 41.2. A necessary party is the person who ought to be joined as
party to the suit and in whose absence an effective decree cannot be
passed by the court.
41.3. A proper party is a person whose presence would enable the court
to completely, effectively and properly adjudicate upon all matters and
2 (2026) 3 SCC 631
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issues, though he may not be a person in favour of or against whom a
decree is to be made.
41.4. If a person is not found to be a proper or necessary party, the
court does not have the jurisdiction to order his impleadment against
the wishes of the plaintiff."
35. In the case at hand, Respondents 1 and 2 are not claiming any relief against
the appellant. There is no iota of material to indicate that the relief, as claimed
in the suit against Respondent 3, if granted, would be implemented against the
appellant. Therefore, the appellant is not a necessary party to the suit.
36. The appellant cannot also be construed as a proper party once it has failed
to establish that it is a successor to Respondent 3. In the absence of any
evidence to prove that Respondent 3 has ceased to exist or cannot be
represented in the suit on its own to contest it on merits, we are of the opinion
that the appellant is not even a proper party to provide any assistance to the
court in the suit.
37. This apart, Respondents 1 and 2 who have instituted the suit are dominus
litis and it is for them to choose their adversaries. If they do not array the
proper and necessary parties to the suit, they do it at their own risk. However,
they cannot be compelled to add a party to defend a suit against their wishes.
The decree, if any, passed in the suit would be binding only between the parties
to the suit and would not infringe upon any right of a third party, much less of
the appellant that is not a party to the suit.”
(emphasis supplied)
i. In the facts of the present case, as held by me, applying the
aforesaid tests, the member broker Mr. K.F. Vora cannot be held as a
necessary party, inasmuch as there was no relief that could be sought
against him by the Appellant, and further, an effective decree could be
passed in his absence. Therefore, the Trial Court’s conclusion that the
suit suffered from misjoinder of parties is an erroneous conclusion
that deserves to be rejected.
j. I am also of the view that the bar to initiate proceedings against the
Respondent-Exchange under Bye-Law No. 315J of the Bye-Laws would not be
attracted to the facts of the present case, inasmuch as the said Bye-Law categorically
provides that no party shall bring or prosecute any suit or proceeding against the
Exchange, the governing body, the President, the Secretary or any employee or
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employees of the Exchange acting under his authority or arbitrators in respect of
any matter or thing purporting to be done under this Bye-Laws or Regulations nor
any suit or proceedings (save for enforcement of the award) against the other party
or party to the reference. This Bye-Law comes specifically under the chapter of
"References and Appeals to Dispute Resolutions" and it is in respect of a reference
which is drawn up under the provisions and it applies only when a reference is
made under the relevant Bye-laws. The mandate of Bye-law 315J of the Bye-Laws
therefore cannot be read to mean that this indemnity applies in every situation to
the Exchange and since in facts of the present case, there was no reference of any
dispute as envisaged under the Bye-laws 315B to 315L of the Bye-laws, the
submission made on behalf of the Respondent-Exchange that the Respondent-
Exchange be protected on account of the aforesaid indemnity deserves to be
rejected. Further, it is my view that the Trial Court also in the impugned order has
only sought to place reliance upon Bye-Law No. 315J of the Bye-Laws to hold that
the Respondent-Exchange was indemnified and could not be made liable for the
refund as sought by the Appellant in the present case. The reliance by the Trial
Court on the other Bye-laws also especially Bye-Law No. 92 which speaks of the
liability of the Clearing House would not amount to exonerating the Respondent-
Exchange from the refund of Rs. 10,58,000/-, it has to pay to the Appellants. Bye-
Law No.92 of the Bye -Laws which speaks about the non-liability of the Clearing
House is only in respect of the title, ownership, genuineness, regularity or validity
of any security, transfer deed or any other document passing through the Clearing
House and that by itself cannot be applied to the facts of the present case to absolve
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the Respondent-Exchange from refunding the amount of Rs. 10,58,000/- in
respect of the annulled trade of the disputed shares. It is not the case of the
Appellant that he has sought for damages or any loss suffered on account of trading
but the Appellant only seeks refund of the amount which the Appellant had
deposited with the Respondent-Exchange on behalf of its clients to purchase the
disputed shares. It is an admitted position that the said amount was paid by the
Appellant to the Respondent-Exchange and it is inconsequential whether the said
amount was distributed to the respective receiving members. The ultimate
liability in the facts of the present case especially in view of the fact that the trade in
the disputed shares were annulled would lie squarely on the Respondent-
Exchange. Considering that I have taken this view in respect of applicability of
Bye-law No. 315J of the Bye-Laws, it would not be necessary to consider the
applicability of the provisions of Section 28 of the Contract Act in respect of the
aforesaid Bye-Law. The relevant Bye-Law is reproduced below: -
Indemnity
315J. No party shall bring or prosecute any suit or proceedings whatever
against the Exchange, the Governing Board, the President, the Secretary or any
employee or employees of the Exchange acting under his authority or against
the arbitrators for or in respect of any matter or thing purporting to be done
under these Bye-laws and Regulations nor any suit or proceedings (save for the
enforcement of the award) against the other party or parties to the reference
k. I am further of the view that the Trial Court erred in not considering that
Bye-law No. 96(a) of the Bye-Laws gives the discretion to the Clearing House to
deliver securities which it has received from a member or to instruct a member of a
direct delivery of the security which he has to deliver under the Bye-Laws to
another member who is entitled for them. Further Bye-Law No. 96(b) of the Bye-
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Laws provides that the member giving and receiving delivery as provided in sub-
clause (a) shall be deemed notwithstanding that no direct contract exists between
them to have made a contract between sellers and buyers. It however also provides
that the rights and liabilities of such members in relation to their immediate
contracting parties shall not be deemed to be affected thereby except that the
selling member who is the immediate contracting party of the receiving member
shall be (unless he himself is the delivering member) released from all
responsibility in regard to the title, ownership, genuineness, regularity and validity
of the documents received by the receiving members and in regard to the loss and
damage arising therefrom which shall be dealt with in accordance of the Bye-Laws
and Regulations in relation to documents and registration. The relevant Bye-Law is
reproduced below:-
96. Clearing House to Deliver Securities at Discretion
(a) The Clearing House is entitled at its discretion to deliver securities which it has
received from a member (or to instruct a member to give direct delivery of securities
which he has to deliver) under these Bye-laws and Regulations to another member
who is entitled under these Bye-laws and Regulations to receive delivery of securities
of a like kind.
Privity of Contract
(b) Members giving and receiving delivery as provided in sub-clause (a) shall be
deemed notwithstanding that no direct contract exists between them to have made a
contract with each other as sellers and buyers. How-ever the rights and liabilities of
such members in relation to their immedi-ate contracting parities shall not be
deemed to be affected thereby except that the selling member who is the immediate
contracting party of the receiving member shall be (unless he be himself the
delivering member) released from all responsibility in regard to the title, ownership.
genuineness, regularity and validity of the documents received by the receiving
member and in regard to the loss and damages arising therefrom which shall be dealt
with in accordance with the Bye-laws and Regulations relating to Documents and
Registration.
l. It is therefore clear that on reading of the aforesaid Bye-Laws, the Clearing
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House has the discretion to deliver securities which it has received from its member
to make the delivery to another member. In the facts of the present case, the
Clearing House had categorically directed the member Mr. K.F. Vora not to make
further delivery in respect of the disputed shares and thereafter the trade got
annulled of the disputed shares. In such a situation, it is rather flummoxing to this
Court that once such instructions were issued and the trade was annulled by
decision of governing body dated 14th October 1996 reflected in letter dated 26th
July 1997, then the insistence of the Respondent-Exchange by letters dated 22 nd
July 1997, 25th July 1997, 9th September 1997 & 23rd February 1998 to the
Appellant to take physical delivery of shares would be an incoherent situation at
best. In such a situation clearly once the trade being annulled the remedy available
against Mr. KF Vora member by the Appellant would definitely not be justifiable.
Further a reading of 96(b) provides that even though there may be a deemed
contract between the parties yet when the selling member is the immediate
contracting party of the receiving member unless he himself is the delivering
member would be released from all responsibilities with regard to the title,
ownership, genuineness, regularity and validity of the documents received by the
receiving member and any loss or damage arising therefrom would not be the
responsibility of the selling member.
m. I am of the view therefore that in facts of the present case even if there was a
deemed contract between the Appellant and Mr. K.F. Vora, the fact that the trade
was annulled and that the delivery was not being effected by Mr. K.F. Vora but in
fact was being done by the Clearing House would by itself show that there was no
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relief that the Appellant could have sought against the said Mr. K.F. Vora. Once
that being the position the other provisions of other Bye-Laws particularly
Regulation 8.44 regarding closing out and Bye-law No. 168 of the Bye-Laws
regarding closing out of contracts would not get attracted, inasmuch as in the
present case, there was no trade which was left to be closed out. Once that being
the undisputed position, the question of bringing any action against Mr. K.F. Vora
would not survive and the Appellant has rightly invoked the remedy against the
Respondent-Exchange.
n. I am further of the view that the reliance placed by learned counsel for
Respondent-Exchange on the cases of Bombay Stock Exchange Vs. V.S.
Kandalgaonkar 3& Stock Exchange, Mumbai Vs. Vinay Bubna4 would not help her
advance her contentions as they were rendered in a different fact pattern. There is
no dispute that the present Bye-Laws are statutory Bye-Laws as held in the case of
Kandalgaonkar (supra) but in the facts of the present case, the issue not being the
statutory nature of Bye-Laws, but the remedy as sought by the Appellant, this
decision would not apply. Further the reliance of Vinay Bubna (supra) would not
be apposite to the facts of the present case, inasmuch as, the same was rendered in
a fact pattern that is distinct from the facts of the present case. In the aforesaid case,
a dispute had arisen between the two Respondents regarding a transaction effected
between them, and the two parties had accordingly invoked arbitration
proceedings under Bye-Law No. 248 of the Bye-Laws. The dispute was thereafter
referred to an arbitral tribunal consisting of 2 arbitrators, and they had accordingly
3 (2015) 2 SCC 1
4 1999 (3) Mh.L.J. 810
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passed an arbitral award in favour of Respondent No. 2 therein. Respondent No. 1
had then preferred a petition under Section 34 of the Arbitration and Conciliation
Act, 1996 on the ground that the constitution of the arbitral tribunal consisting of
two arbitrators was in contravention to Section 10 of the Arbitration and
Conciliation act, 1996, which was decided in his favour by the learned Single
Judge. The Stock Exchange had therefore filed an appeal against the order of the
Single Judge, wherein it was held that the Bye-Laws of the Stock exchange
providing for arbitration of two arbitrators, being inconsistent with the provisions
of Section 10 of the Arbitration and Conciliation Act, 1996, would prevail over
Section 10 and that while interpreting Section 2(4) of the Arbitration and
Conciliation Act, 1996 stress has to be laid on the words "under any other
enactment". It held that once it is found that arbitration is under the Securities
Contracts (Regulation) Act, 1956, Bye-Laws framed thereunder will prevail and
not Section 10 of the Arbitration and Conciliation Act, 1996. The facts of the
present case, however, are not in respect of the issue of whether the statutory
nature of the Bye-Laws would override the provisions of another
statute/enactment, as there was no reference of the dispute to any adjudicating
authority under Bye-Law No. 315J of the Bye-Laws, since the remedy had been
rightly sought against the Respondent-Exchange and not the member broker Mr.
K.F. Vora.
o. In view thereof, the Trial Court has erred in not appreciating the facts in its
entirety and coming to the conclusion that the Respondent-Exchange was not
liable to make payment to the Appellant on account of non-delivery of disputed
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shares. The suit also did not suffer from non-joinder or mis-joinder of necessary
parties as there was no remedy available to the Appellant against Mr. K.F. Vora
once the trade of the disputed shares was annulled by the Respondent-Exchange
and further the Appellant has only sought the refund amount which had been
deposited with the Respondent-Exchange and not claimed for damages/loss.
44. The points of determination are answered accordingly. In light of the
aforesaid discussion and for all the reasons stated hereinabove, the following order
is passed:
ORDER
i) The present First Appeal is allowed
ii) The impugned judgment and decree dated 29th April 2017 is set aside
iii) The Respondent-Exchange to pay an amount of Rs. 10,58,000/- along with
interest at the rate of 9% from the date of filing of the Suit till payment or
realisation thereof.
iv) In the facts and circumstances, there will be no order as to costs.
(AARTI SATHE, J.)
After pronouncement of Judgment :
1. Learned counsel for the Appellant at this stage has prayed for stay of the
aforesaid order by a period of four weeks. Considering the relief as granted, the
aforesaid request is rejected.
2. Refund of court fees, if any, as per rules.
(AARTI SATHE, J.)
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