GHELABHAI MAHASUKHRAM ROY Vs. KESHAVDEV MADANLAL NEMANI

JUDGEMENT

(1.) THIS is an appeal from a judgment of Mr. Justice Bhagwati dismissing a petition of the appellant to set aside an award. The award came to be made in these circumstances. The appellant engaged the respondent as his broker and the respondent put through many transactions under the rules and bye-laws of the Native Share and Stock Brokers' Association of which he is a member. On October 23, 1947, there was an outstanding transaction of purchases of 125 Tata Deferred shares. According to the broker, on November 5, 1947, the appellant gave him instructions to close this outstanding transaction by a sale of 125 Tata Deferred shares, and pursuant to these instructions the broker closed the outstanding transaction. As a result of this a certain amount became due and payable by the constituent to the broker. The broker made a demand, the constituent failed to make the payment, the matter was referred to arbitration under Rule 117 (a) of the Native Share and Stock Brokers' Association, the arbitrator made his award, and it is this award which is being challenged by the petitioner in his petition.

(2.) NOW, the first contention raised before us by Mr. Amin is that the arbitrator was not competent to enter upon a reference because what was disputed before him was the very factum of the contract. It is well established law that if one of the parties to a reference disputes the factum or existence of the contract in respect of which disputes arise and which disputes the arbitrator has got to determine, then the arbitrator has no jurisdiction to decide the question whether in fact the contract was entered into or not. Mr. Amin says that in this case the factum or existence of the contract was disputed by his client and therefore the arbitration was not competent. In order to understand this contention let us see what the' rival contentions of the parties were before the matter went to arbitration. The case of the broker was that on November 5 instructions were given by the constituent through his sub-broker to square up the outstanding transaction of the 125 Tata Deferred shares by entering into a cross contract. The contention of the constituent was that he had given standing instructions to his broker that the outstanding transactions should be badla, and that he went away to Delhi when the transaction was still outstanding. When he returned to Bombay and found that the contract for the transaction of November 5 had been sent to him, he protested and contended that according to his standing instructions the outstanding transaction should have been badla to the next settlement. On these disputes the arbitrator gave his decision holding in favour of the broker.

(3.) WE fail to see, in principle, what difference there can be between a case where a broker closes an outstanding transaction because no margin has been paid to him and the rules permit him to perform the outstanding contract by entering into a cross contract and closing the outstanding contract, and a case where the broker enters into a cross contract pursuant to instructions given by the constituent. The only principle which can be deduced from these cases is that the second contract must be in performance of the first contract and must arise out of the first contract in order that the arbitrator could have jurisdiction to consider any dispute that might arise as to whether instructions were given or not with regard to the second contract. Rule 117 (a) is a submission clause in respect of any trasactions and contracts made subject to the rules or the Association or with reference to anything arising out of or incidental thereto or anything to be done in pursuance thereof. Therefore, if instructions are given in pursuance of an outstanding contract or in relation to an outstanding contract and those instructions are to close an outstanding contract, we fail to see why the contract entered into in pursuance of those instructions cannot be the subject-matter of the reference even though the instructions may be disputed by the constituent. In our opinion, therefore, the learned Judge was right when he came to the conclusion that on the facts of this case the existence or the factum of the contract was not in dispute.