Case Note & Summary
The petitioners, M/s. Prashant Commercial, filed a suit for recovery of Rs. 23 lakhs against the respondent, Rajratan R. Mohta, claiming that the amount was handed over to the respondent for purchase of shares of State Bank of India, TISCO, etc. The petitioners alleged that despite repeated demands, the respondent failed to deliver the shares and kept assuring delivery, leading to the filing of Special Civil Suit No. 236/1998 before the Civil Judge, Senior Division, Wardha. The respondent appeared and raised a preliminary objection that the civil court could not take cognizance of the matter in view of Bye-law 248[a] to [d] and Rule 2[c] of the Rules/Bye-laws and Regulation of Stock Exchange of Bombay framed in 1997, contending that the dispute was covered by an arbitration clause. The respondent also moved the arbitrator, who issued summons to the petitioners. The petitioners sought a stay of the arbitration proceedings, which was granted ex-parte on 1.7.1999 and later confirmed. The trial court heard the parties and by order dated 4th December, 1999, upheld the preliminary objection and dismissed the suit as not maintainable, holding that the dispute was arbitrable under the stock exchange bye-laws. The petitioners challenged this order by filing a Civil Revision Application No. 402/2000, which was withdrawn after the amendment to Section 115 of the Code of Civil Procedure, 1908 by Act No. 46 of 1999, and thereafter filed the present Writ Petition under Article 227 of the Constitution of India. The High Court examined the bye-laws and found that they apply only to transactions through a member of the stock exchange. Since the petitioners paid money directly to the respondent, who was not a member, and the transaction was not through a stock exchange member, the dispute was not covered by the arbitration clause. The court set aside the trial court's order and restored the suit to its original file, directing the trial court to proceed with the suit in accordance with law.
Headnote
A) Civil Procedure - Jurisdiction of Civil Court - Arbitration Clause - The civil court has jurisdiction to entertain a suit for recovery of money unless the dispute is squarely covered by an arbitration agreement. The court held that the transaction between the parties was not through a member of the stock exchange and hence not covered by Bye-law 248 or Rule 2(c) of the Stock Exchange of Bombay Rules/Bye-laws and Regulations, 1997. (Paras 1-4) B) Arbitration - Stock Exchange Bye-laws - Applicability - Bye-law 248 and Rule 2(c) of the Stock Exchange of Bombay Rules/Bye-laws and Regulations, 1997 - The bye-laws apply only to disputes arising out of transactions through a member of the stock exchange. Since the plaintiff paid money directly to the defendant for purchase of shares without involvement of a stock exchange member, the dispute is not subject to arbitration under the bye-laws. (Paras 3-4)
Issue of Consideration
Whether the civil court has jurisdiction to entertain a suit for recovery of money paid for purchase of shares when the defendant contends that the dispute is covered by the arbitration clause under the bye-laws of the Stock Exchange of Bombay.
Final Decision
The High Court allowed the writ petition, set aside the order dated 4th December, 1999 passed by the Civil Judge, Senior Division, Wardha in Special Civil Suit No. 236/1998, and restored the suit to its original file. The trial court was directed to proceed with the suit in accordance with law.
Law Points
- Civil court jurisdiction
- Arbitration clause
- Stock Exchange bye-laws
- Section 115 CPC amendment
- Article 227 of Constitution of India
- Bye-law 248
- Rule 2(c) of Stock Exchange Rules/Bye-laws and Regulations
