High Court of Judicature at Bombay Hears Notice of Motion for Reference to Arbitration in Dispute Between Commodity Spot Exchange and Member. Defendant Exchange Seeks to Rely on Bye-Laws and Undertaking as Arbitration Agreement Under Section 8 of Arbitration and Conciliation Act, 1996.

Commercial suit filed by Lotus Refineries Private Limited against National Spot Exchange Limited arising from disputes over non-delivery of commodities and unilateral changes to payment and delivery terms. The defendant exchange has applied under Section 8 of the Arbitration and Conciliation Act, 1996 to refer the dispute to arbitration based on arbitration clauses in the bye-laws and an undertaking.

The defendant National Spot Exchange Limited seeks an order referring the parties to arbitration and staying the suit proceedings.

The plaintiff alleged that after undertaking substantial trades on the exchange and fulfilling pay-in obligations, the defendant failed to deliver commodities or issue valid warehouse receipts, and unilaterally modified settlement terms through circulars dated 22 July 2013 and 31 July 2013. The defendant maintains that an arbitration agreement exists and the court should refer the matter to arbitration.

Whether the arbitration agreement contained in Clause 3.1.2 and Clause 15.4 of the Bye-Laws and Clause 11.11 of the Undertaking for Internet Based Trading covers disputes between the Exchange and its member, thereby warranting reference to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996.

The defendant argued that the Bye-Laws and Undertaking contain a valid arbitration agreement covering all disputes with members, and therefore the suit should be stayed and referred to arbitration under Section 8. The plaintiff contended that the conciliation and arbitration provisions in the Bye-Laws are confined to disputes between member and client or between members, and do not extend to exchange-member disputes, as evidenced by the Exchange's letter dated 23 August 2013 rejecting the plaintiff's invocation of conciliation. The plaintiff raised allegations of fraud and misappropriation of goods by the exchange, which could affect the validity and scope of the alleged arbitration agreement.

The present Notice of Motion is taken out by the Applicant/Defendant (“the Defendant”) in the above Suit under the provisions of Section 8 of the Arbitration and Conciliation Act, 1996 (“the Act”), seeking to refer the parties to the above Suit to arbitration as contemplated under the Arbitration Agreement between the Plaintiff and the Defendant contained in Clause 3.1.2 and Clause 15.4 of the ByeLaws of the Defendant Exchange (“Byelaws”), as also Clause 11.11 of the Undertaking for Internet Based Trading (“UIBT”) given by the Plaintiff to the Defendant Exchange. On 19th August, 2013, the Plaintiff invoked conciliation proceedings as per Clause 3.1.2 of the ByeLaws of the Defendant Exchange, by sending a notice of conciliation to the Defendant. However, the Defendant vide letter dated 23rd August, 2013, inter alia rejected the same stating that “the provisions for Arbitration and reconciliation proceedings as contained in the Bye laws of the Exchange pertain to dispute between (a) member and a client; (b) member with another member. It does not pertain to dispute between Exchange and its members. In fact, as a member of the Exchange, you have submitted an Undertaking that you will abide by the decisions of the Exchange and so you cannot resort to arbitration proceedings by raising dispute against Exchange dues”.

On 19 August 2013, the plaintiff invoked conciliation under the Bye-Laws. The defendant rejected the conciliation on 23 August 2013, stating that the provisions did not apply to exchange-member disputes. The plaintiff filed Suit (L) No. 870 of 2013. The defendant subsequently took out the present Notice of Motion under Section 8 of the Arbitration and Conciliation Act, 1996 seeking reference to arbitration. The Court heard the motion and reserved judgment on 14 March 2014, and pronounced judgment on 10 September 2014.

• Arbitration and Conciliation Act, 1996: 8
• Companies Act, 1956: