Judges: Hon’ble Justice Pamidighantam Sri Narasimha and Hon’ble Justice Sandeep Mehta
Acts & Relevant Sections:
- Arbitration and Conciliation Act, 1996 – Sections 16, 34, 37
- Bye-laws of Bombay Stock Exchange, 1957 – Bye-law 248(a), Bye-law 247A, Bye-law 227(a)
In the case of AC Chokshi Share Broker Pvt. Ltd. v. Jatin Pratap Desai & Anr., the Supreme Court addressed the scope of judicial intervention under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.
Brief Facts:
AC Chokshi Share Broker Pvt. Ltd. (the appellant) served as a stockbroker for Jatin Pratap Desai (Respondent No. 1) and his wife (Respondent No. 2). Both respondents maintained separate trading accounts with the appellant. By early 2001, Respondent No. 1 had a credit balance of ₹9,40,020, while Respondent No. 2’s account had a debit balance of ₹11,40,413. Following a significant stock market downturn, Respondent No. 2’s liabilities escalated to ₹1,18,48,069. The appellant, based on oral instructions from Respondent No. 1, transferred his credit balance to offset his wife’s losses. Subsequently, Respondent No. 1 contested this transfer, asserting the absence of explicit written authorization.
Arbitration and Lower Court Proceedings:
The dispute was referred to arbitration under the Bombay Stock Exchange (BSE) Bye-laws. The Arbitral Tribunal found both respondents jointly and severally liable for the outstanding amount, citing evidence of an oral agreement and the conduct of the parties. Respondents challenged this award under Section 34 of the Arbitration Act. The Single Judge upheld the arbitral award; however, the Division Bench of the High Court, in a Section 37 appeal, set aside the award against Respondent No. 1, stating that the Arbitral Tribunal lacked jurisdiction over him and termed the award as perverse and patently illegal.
Supreme Court Judgment:
The Supreme Court allowed the appeal filed by AC Chokshi Share Broker Pvt. Ltd., setting aside the High Court’s order and reinstating the arbitral award. The Court held:
- Jurisdiction Under BSE Bye-laws: The oral agreement establishing joint and several liability between the respondents fell within the ambit of arbitration as per BSE Bye-law 248(a), even in the absence of a written contract.
- Scope of Judicial Review Under Sections 34 and 37: The High Court exceeded its jurisdiction by re-evaluating evidence and delving into the merits of the arbitral award. The Supreme Court emphasized that under Section 37, the court’s role is limited to assessing whether the Section 34 court correctly exercised its jurisdiction without overstepping its boundaries. Interference is warranted only in cases of awards that are perverse or patently illegal, which was not applicable in this scenario.
This judgment underscores the principle that courts should exercise restraint and uphold the sanctity of arbitral awards, intervening only when there is a clear jurisdictional error or manifest illegality.
Key Legal Precedents Cited:
- P.R. Shah Share & Stock Brokers Pvt Ltd v. B.H.H. Securities Pvt Ltd (2012) – Reinforced the principle that arbitration awards should not be interfered with unless there is a jurisdictional error.
- ONGC v. Discovery Enterprise Pvt Ltd (2022) – Emphasized the limitations on judicial intervention in arbitral decisions.
- Cox and Kings v. SAP India Pvt Ltd (2024) – Discussed the scope of the arbitral tribunal’s jurisdiction under the Arbitration and Conciliation Act.
- Hindustan Zinc Limited v. Ajmer Vidyut Vitran Nigam Limited (2019) – Addressed the extent of permissible judicial review under Section 34 of the Arbitration Act.