Summary
The Supreme Court restored an arbitral award holding a husband jointly and severally liable with his wife for the debit balance in her trading account with a stock broker. It held that an oral contract of joint and several liability for exchange transactions falls within BSE Bye-law 248(a), that the jurisdictional objection was waived because it was not raised under Section 16, and that the High Court exceeded its Section 37 jurisdiction by reappreciating evidence to find the award perverse and patently illegal.
Issues
- Whether, under BSE Bye-law 248(a), the arbitral tribunal could exercise jurisdiction over the husband for the debit balance in his wife's account on the basis of an oral contract of joint and several liability, or whether that contract was a 'private' transaction outside the Bye-law.
- Whether a jurisdictional objection not raised before the arbitral tribunal or in the Section 34 petition could be raised for the first time in the Section 37 appeal.
- Whether the High Court, under Section 37, rightly set aside the award against the husband as perverse and patently illegal, including on the ground that the transfer of his credit balance to the wife's account breached Bye-law 247A and SEBI guidelines.
Provisions considered
- Bye-law 248(a), Bombay Stock Exchange Bye-laws, 1957Treated as a statutory arbitration reference, read broadly to cover disputes arising out of, in relation to, or incidental to exchange dealings. The oral contract on who bears liability for transactions on the floor of the exchange was held to be within it, with the husband treated as a 'non-member' client in relation to the wife's account. (¶¶ 10, 11, 12, 13, 14, 19, 32)
- Section 16, Arbitration and Conciliation Act, 1996Since there was no inherent lack of jurisdiction, any objection to the scope of Bye-law 248(a) had to be raised no later than the statement of defence. A bare plea of misjoinder was not a clear jurisdictional objection, which was raised only at the Section 37 stage. (¶¶ 20, 21)
- Section 4, Arbitration and Conciliation Act, 1996A party who does not raise a jurisdictional objection in accordance with Section 16 is deemed to have waived it. The husband had also filed a defence and a counter-claim, thereby submitting to the tribunal's jurisdiction. (¶ 21)
- Section 34 (pre-2015 amendment), Arbitration and Conciliation Act, 1996Applied the pre-amendment text because the petition predated the 2015 amendment. Under it, an award conflicts with public policy if it is patently illegal in a way that goes to the root of the matter, or perverse because it is based on no evidence, takes irrelevant matters into account or ignores vital evidence. A possible view based on reliable evidence is not perverse. (¶¶ 22, 23, 24, 24.1, 27)
- Section 37, Arbitration and Conciliation Act, 1996Held that the appellate court is confined to the Section 34 grounds and may only check whether the Section 34 court exercised its jurisdiction properly. It cannot reappreciate evidence or substitute its own view. The High Court erred by doing so. (¶¶ 22, 27, 32)
- Bye-law 247A, Bombay Stock Exchange Bye-laws, 1957Read as permitting withdrawals from a client's account for money in respect of which the client is liable to the broker. Given the husband's joint and several liability, transferring his credit balance to offset the wife's debit balance was valid, and nothing in the Bye-law or the SEBI guidelines required written authorisation. (¶¶ 28, 29, 30)
- Bye-law 227(a), Bombay Stock Exchange Bye-laws, 1957The broker's general lien over cash credited to a constituent who is indebted to it singly or jointly with others, preserved by clause (E) of Bye-law 247A, also supported the adjustment of accounts. (¶ 31)
Held
- Arbitration under BSE Bye-law 248(a) is statutory. Where spouses opened separate client accounts but orally agreed with the broker to operate them jointly and be jointly and severally liable, they treated their client agreements as joint and composite. The husband was effectively a party to the wife's client agreement and a 'non-member' client in relation to her account. The High Court's view that arbitration was invoked only against the wife was hyper-technical, since the claim was filed against both. (¶¶ 11, 12, 13, 14, 18)
- The tests for joining a non-signatory to arbitration (mutual intention shown by conduct, relationship between the parties, common subject-matter and composite transaction) strengthened this conclusion, even though the arbitration here was statutory. P.R. Shah v. B.H.H. Securities likewise upheld arbitration under the BSE Bye-laws against a person other than the account holder on an understanding of joint and several liability. (¶¶ 15, 16, 17)
- Because the liability arose directly out of transactions on the floor of the exchange, an oral contract fixing who bears that liability is not a 'private' transaction. It falls within the broad words of Bye-law 248(a), which cover matters arising out of, in relation to or incidental to such transactions. (¶¶ 19, 32)
- There was no inherent lack of jurisdiction, so any objection to the scope of the Bye-law had to be raised under Section 16 no later than the statement of defence. Not having done so, and having filed a counter-claim, the husband waived the objection under Section 4 and could not raise it for the first time under Section 34 or Section 37. (¶¶ 20, 21)
- Under Section 37, the court cannot independently reassess the merits by reappreciating evidence. The tribunal's finding of an oral contract of joint and several liability was a finding of fact based on unshaken affidavit evidence, the husband's management of both accounts and the pattern of financial dealings. It was a possible view, so the High Court erred in calling it perverse. (¶¶ 22, 26, 27, 32)
- Once joint and several liability was established, Bye-law 247A, read with the broker's lien under Bye-law 227(a), permitted transferring the husband's credit balance to the wife's account. Neither the Bye-law nor the SEBI guidelines required written authorisation, so the award was not patently illegal. (¶¶ 28, 29, 30, 31)
Result
Appeal allowed; Division Bench order dated 29.04.2021 set aside; arbitral award dated 26.02.2004 upheld in its entirety, with respondent no. 1 jointly and severally liable with respondent no. 2 to pay Rs. 1,18,48,069 with 9% interest p.a. from 01.05.2001; no order as to costs.