suit was for recovery of shares of various companies belonging to the plaintiffs share allegedly sold by the defendants 1 & 2, through defendant No.3 and others or for refund of the value thereof with other reliefs. The suit is valued at Rs.1,81,23,273/-.-not an application under Section 8 of the Act. It is an application under Order VII Rule 11 CPC seeking the rejection of the plaint of the plaint on the ground that the arbitration clause bars the suit.- the application is misconceived, the other point urged and replied to by both the counsels viz., in case of fraud, whether the reference can be made to arbitration or not is not considered as the same will not arise in the present set of circumstances.

HONBLE SRI JUSTICE SURESH KUMAR KAIT AND HONBLE SRI JUSTICE D.V.S.S. SOMAYAJULU                 

C.C.C.A.No.320 of 2007

24-10-2017

M. Shankara Reddy and another Appellants/Respondents/Plaintiffs 

Amara Ramakoteswara Rao and 3 others... Respondents/Petitioners/Defendants   

Counsel for the appellants: Sri Mahmood Ali
                                       
Counsel for the Respondents: Sri C.V. Narasimham 

<Gist:

>Head Note:

? Cases referred:

1. 1996 (87) Company Cases 258 
2. 2003 (115) Company Cases 102 
3.  Manu/MH/0215/2006 
4.  (2003) 6 SCC 503
5. (2007) 3 SCC 686
6. (2005) 8 SCC 618
7. (2000) 4 SCC 539
8. (1983) 2 SCC 422
9. (2004) 12 SCC 278
10. (1876) Ch.D 426
11. 1993 SCC (3) 161
12. 1975 (1) SCC 559


HONBLE SRI JUSTICE SURESH KUMAR KAIT       
AND 
HONBLE SRI JUSTICE D.V.S.S. SOMAYAJULU       

CCCA No.320 of 2007 

Judgment (per Honble Sri Justice D.V.S.S. Somayajulu):


        This is an appeal filed against the order dated 16.11.2006
passed in I.A.No.1751 of 2006 in O.S.No.118 of 2005.  By the
impugned order, the I Additional Chief Judge, City Civil Court,
Secunderabad rejected the plaint in O.S.No.118 of 2005.
2.      O.S.No.118 of 2005 is a suit filed by Sri M. Sankara Reddy
and Smt. P. Prabhavati against four (4) defendants viz.,
A. Ramakoteswararao, A. Susheela, A. Sashi Bindu and M/s. ASB   
Securities.  As can be seen in the description of the plaint, the suit
was for recovery of shares of various companies belonging to the
plaintiffs share allegedly sold by the defendants 1 & 2, through
defendant No.3 and others or for refund of the value thereof with
other reliefs. The suit is valued at Rs.1,81,23,273/-.
3.      After the suit was filed, the first defendant filed an
application under Order VII Rule 11 CPC pleading inter alia that
the dispute between the parties should be settled according to
arbitration as per Bye-law No.248 (c) of the Bombay Stock
Exchange (BSE) Bye-laws. The said Bye-law was reproduced in   
para-4 of the application.  However, instead of asking for an order
under Section 8 of the Arbitration and Conciliation Act, 1996 (for
short the Act) to refer the parties to arbitration, said defendant
sought for rejection of the plaint.
4.      A reading of the said IA shows that it is filed under Order-VII,
Rule-11 CPC. The prayer is to reject the plaint filed by the
plaintiffs as the Honble Court has no jurisdiction to try this matter
in view of the Arbitration Clause, as contained in the contract
notes as well as BSE Bye-laws.  The application was opposed by
the appellants/plaintiffs.
5.      After hearing the parties, by order dated 16.11.2006, the
learned I Additional Chief Judge held that there is an arbitration
clause in the BSE Bye-laws which applies to the dispute raised,
therefore, the plaintiffs cannot invoke the jurisdiction of the civil
Court.  Unfortunately, while holding that there is valid arbitration
clause, the learned Chief Judge rejected the plaint and left it open
to the parties to invoke the arbitration clause for their redressal.
Being aggrieved, the appellant has filed present appeal.
6.      The matter was heard at length and both the parties were
given ample opportunity to present their case.  Written arguments
were also filed by both the parties.
7.      Sri C.V. Narasimham, learned counsel for the
respondents/defendants filed certain additional documents during
the course of hearing stating that contract notes filed by the
plaintiffs/appellants were not complete in all respects and that the
reverse side of the contract notes were not xeroxed and filed.
Sri Mahmood Ali, learned counsel for the appellants/plaintiffs did
not raise any objection to receive these documents. Hence, the
same are also taken on record and considered.
8.      In order to decide this appeal, the point that arises for
consideration is whether the order of the lower Court rejecting the
plaint is correct or not?
9.      The dispute centers round the sale of shares belonging to the
plaintiffs in O.S.No.118 of 2005 by the defendants 1, 2 & 3 who
were engaged in the business of selling of shares. The 4th defendant
is a sole proprietorship concern of the 3rd defendant.   As per the
averments in the plaint, the 4th defendant was a sub-broker of
Maliram Makharia, Finstock Pvt. Ltd. Mumbai and a member of the
Bombay Stock Exchange.  It is also averred that 2nd defendant was
looking after the affairs of the 4th defendant.  Thus, it is pleaded
that all the defendants were involved in the sale of the shares.  The
prayer in the suit is also for return of the shares handed over by
the plaintiffs by buying back the said shares to the plaintiffs and in
the alternative to pay the value of the said shares with damages
and interest.
10.     The appellants/plaintiffs filed number of documents
including the contract notes issued by the members acting for
constituents as brokers and agents. The contract notes contained a
clause on the face of page itself stating that the contract is made
subject to the Rules, Bye-Laws and Regulations and usages of the
Stock Exchange, Mumbai.  It is also clearly printed on the contract
notes in bold letters that the provisions printed overleaf form a
part of the contract.  As mentioned earlier, during the course of
hearing, the learned counsel for the respondents filed a few
contract notes showing clause printed on the reverse of the same.
Clause 248 (a) of BSE Bye-laws, which is printed on the reverse of
the contract note clearly stating as follows:
Reference to Arbitration:
248 (a) As claims (Whether admitted or not) difference and
disputes between a member and non member or non-members   
(the terms non-member and non-members shall include a
remisier, authorized clerk, a sub-broker who is registered with
SEBI as affiliated with that member or employee or any other
person with whom the member shares brokerage) arising out of or
in relation to dealings, transactions and contracts made subject to
the Rules, Bye-laws and Regulations of the Exchange or with
reference to anything incidental thereto or in pursuance thereof or
relating to their construction, fulfillment or validity or in relation
to the rights, obligations and liabilities of remisiers, authorised
clerks, sub-brokers, constituents, employees or any other persons
with whom the member shares brokerage in relation to such
dealings, transactions and contracts shall be referred to and
decided by arbitration as provided in the Rules, Bye-laws and
Regulations of the Exchange.

      Similarly, Clause 249 (1)(a) is to be following effect:

Appointment of Arbitrators:
249 (i) (a) All claims, differences and disputes which are required
to be referred to arbitration under these Bye-laws and Regulations
shall be referred to arbitration of a sole arbitrator or of three
arbitrators to be appointed by the Executive Director or by the
parties from the Panel of Arbitrators constituted by the Governing
Board, in the manner provided in these Bye-laws and Regulations.
The Executive Director shall appoint a sole arbitrator and
preferably appoint a non-member as sole arbitrator.

Thus, as per the learned counsel for the respondents, it is clear
that the contract note contains an arbitration clause which was
also drawn to the attention of the parties by printing in bold
letters.
11.     However, the stand taken by the learned counsel for the
appellants is that they are not a party to the said clause. He
stated that the arbitration can only apply to the dispute between
the 4th defendant-ASB Securities and Maliram Makharia Finstock
Pvt Ltd.  He also pointed out that the respondent No.4 also filed
another civil suit O.S.No.13 of 2008 against the appellants and a
pro-forma party in which they pleaded in paragraph Nos. 20 & 21
that pursuant to the impugned order in IA No.1751 of 2006, they
preferred an arbitration claim (case No.13 of 2007) which was,
however, rejected by the order dated 16.07.2007 by the arbitrators
on the ground that the transactions are off line transactions.
12.     The learned counsel for the respondents/defendants in reply
to this has relied upon 3 judgments reported in Hemendra V Shah
v. Stock Exchange, Bombay , Viraj Holdings v. Motilal Oswal
Securities Private Limited  and Prashant Commercial v. Rajratan
R. Mohta , wherein it was held that Bye-law 226 (a) provides for
arbitration and that the said clause would apply, even to a dispute
raised by non-member.  The judgment clearly states that in view of
the deeming fiction, a word non-member covers everyone who is
not a member and therefore, held that even members are bound.
13.     It is the submission of the learned counsel for respondents
that once it is held that there is an arbitration clause governing the
dispute between the parties, this Court is bound to refer the parties
to arbitration, particularly in view of the peremptory language used
by Section 8 of the Act. The learned counsel for the respondents
relied upon Hindustan Petroleum Corpn Ltd. V. Pinkcity Midway
Petroleums  and Agri Gold Exims Ltd. V. Sri Lakshmi Knits &
Wovens and others  wherein it is held that the Court has a
mandatory duty to refer the issue for arbitration if it finds that
there is an arbitration clause governing the dispute and the
parties.
14.     As per the learned counsel for respondent, the learned
counsel for the petitioners himself cited the constitution Bench
decision reported in SBP & Co., v. Patel Engineering Ltd. .  In this
decision itself at paragraph No.16, the Honble Constitution Bench
cited P. Anand Gajapathi Raju & Ors vs P.V.G. Raju (Died ) & Ors  ,
whereunder the mandatory language of Section 8 of the Act was
held to be binding on the Courts.  In the present case also, as per
the counsel for respondents the application in IA No.1751 of 2006
though styled one under Order VII Rule 11 CPC, makes a reference
in paragraph No.4 that there is an arbitration clause and that both
the parties must go to arbitration in terms thereof.  There is an
express reference to Section 8 of the Act in paragraph No.5.  It is
also averred in this affidavit that filing of the written statement
would amount to waiver of the arbitration clause.  Thus, in
essence, the necessary ingredients of Section 8 of the Act are
complied with as per the learned counsel for the respondents, Sri
C.V. Narasimham.  The learned counsel also argued that the
plaintiffs/ appellants submitted to the jurisdiction of the arbitrator
by virtue of their letter dated 30.06.2006.  A reading of this letter,
however, makes it clear that that is in the nature of the complaint
of misappropriation, fraud, cheating etc. and is a request to probe
into the matter rather than a request for arbitrator.
15.     Considering all of the above, the question that arises is
whether the lower Court was right in rejecting the plaint.
The lower Court should have seen that Section 8 of the Act only
empowers the Court to refer the parties to arbitration but does
not give the Court an option to reject a plaint.  The lower Court
also lost sight of the fact that Order VII Rule 11 CPC empowers the
Court to reject the plaint, when there is bar to the suit because of
any law.  Section 8 of the Act is not a bar to a civil Court.  It
provides an alternative to a defendant against whom a civil suit is
initiated to submit to the jurisdiction of the civil Court or to make
an appropriate application at appropriate time under Section 8 of
the Act seeking an order to refer the parties to arbitration.
Therefore, Section 8 of the Act cannot be considered as a bar to
the civil suit entitling the rejection of the plaint under Order-VII
Rule-11 CPC.  The bar under Order VII Rule 11 is an absolute bar
to the lis which enables the Court to reject the plaint at the
threshold itself and by merely reading the plaint.  The same is not
the case here.
16.     In addition to this, the other important issue argued by both
the counsels is whether the application that was presented viz.,
I.A.No.1751 of 2006 was an application under Order VII
Rule 11 CPC or an application under Section 8 of the Act.
An ex facie reading of the application shows that it is filed under
Order VII Rule 11 CPC and the relief sought for is that is one of the
rejection of plaint filed by the plaintiffs as the Honble Court has no
jurisdiction to try the case in view of the arbitration clause.
(emphasis supplied).
17.     The learned counsel for the appellants submitted and argued
that in effect it was an application under Section 8 of the Act only,
as can be seen from the averments made in the affidavit, however,
the provision of law was wrongly quoted.  He also submitted that
substance of the application should be looked into if the statutory
power is available. The Court can exercise the power even if the
wrong provision of law is quoted in the application.  The learned
counsel for the respondents relied upon Municipal Corporation of
the City of Ahmedabad v. Ben Hiraben Manilal  and N. Mani v.
Sangeetha Theatre and others  in support of this preposition of
law.
18.     However, it is noticed that as per the averments in the
application, the petitioners in I.A.No.1751 of 2006 have clearly
stated that the Honble Court has no jurisdiction to entertain the
instant suit and the plaint is liable to be rejected, in view of the
arbitration clause provided.  The prayer is for rejection of the plaint
filed by the plaintiffs in O.S.No.118 of 2005.  It is not a case of a
mere wrong provision of law being quoted.
19.     At first blush, the argument of the learned counsel for the
respondents appears to be reasonable, but it is particularly
important to note that when a statute describes or requires a thing
to be done in a particular manner; it should be done in that
manner or not at all.  The popular principle of law is settled in the
very old case of Taylor v. Taylor , which is cited with approval by
the Honble Supreme Court of India in Shiv Kumar Chandha v.
Municipal Corporation of Delhi   and also in Ram Chandra
Keshav Adke v. Govind Joyti.   An application under Section 8 of
the Act is an application that should be made in a particular
manner and at particular time.  The application should be
accompanied by the original arbitration agreement or a certified
copy thereof under Section 8 (2) of the Act.  Even the Andhra
Pradesh Arbitration Rules, 2000 as framed by this Court that every
application under Section 8 of the Act shall be duly signed and
verified. It shall state the provision of law under which it is filed
and contain a statement as described in Rule 4 of the Rules.  Rule
4 (2) also states a certified copy of the arbitration agreement and
certified copies of the relevant documents shall be annexed to every
such application.  Similarly, Rule 7 says that if the application is
not made in accordance with rules, the Court may reject the
application but such rejection order shall not be made without
giving an opportunity to the applicant to rectify the said defects.
The Honble Supreme Court of India in P. Anand Gajapathi Rajus
case (7 stated supra) also laid down that the manner and method
in which an application under Section 8 of the Act should be filed.
20.     In view of above discussion and legal position, this Court is
of the opinion that the application that is filed in this case viz.,
I.A.No.1751 of 2006 is not an application under Section 8 of the
Act.  It is an application under Order VII Rule 11 CPC seeking the
rejection of the plaint of the plaint on the ground that the
arbitration clause bars the suit.
21.     The lower Court understood it as an application under Order
VII Rule 11 CPC only; as can be seen from the reading of the order.
In paragraph No.11 of the impugned order, the lower Court framed
the point for consideration as follows:
whether the plaint in O.S.No.118 of 2005 can be
rejected or not.

22.     In view of all the above, this Court is of the opinion that the
application is misconceived, the other point urged and replied to by
both the counsels viz., in case of fraud, whether the reference can
be made to arbitration or not is not considered as the same will not
arise in the present set of circumstances.
23.     Accordingly, the appeal is allowed and consequently, the
order dated 16.11.2006 in I.A.No.1751 of 2006 in O.S.No.118 of
2005 on the file of the I Additional Chief Judge, City Civil Court,
Secunderbad is hereby set aside.
24.     Consequently, miscellaneous petitions, if any, pending in
this appeal shall stand closed. No order as to costs.

_______________________   
SURESH KUMAR KAIT, J   
_________________________   
D.V.S.S. SOMAYAJULU, J   
Date: 24.10.2017