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.) Now, it seems to us that what the arbitrator was considering was how the outstanding transaction of the purchase of 125 Tata Deferred shares was performed. The dispute was with regard to the mode of performance of the outstanding purchase transaction of the 125 Tata Deferred shares. When a constituent buys shares, three ways are open to him for performing that contract. He may either take delivery on the due date, or he may enter into a cross transaction prior to the due date, or he may badli the transaction. In this particular case the broker's contention was that this contract of October 23, 1947, was performed under the instructions of his constituent by entering into a cross contract. The case of the constituent was that this contract was not to be performed in the manner suggested by the broker, but was to be performed by entering into a badla transaction. The contract, the performance of which was in dispute, was not challenged or disputed, and that contract was the contract of October 23, 1947. I entirely agree with Mr. Amin that if either the broker or the constituent had disputed the factum or existence of the contract of October 23, 1947, then it would not have been open to the arbitrator to go into that question. Mr. Amin says that the transaction of November 5 is an independent transaction though in practice it results in closing the outstanding transaction of October 23, 1947; in law these two transactions are independent transactions, and if his client disputes the transaction of November 5, 1947, he is disputing the factum or existence of the contract of November 5, 1947. In my opinion, it is a pure question of fact to be determined upon evidence in each case whether a particular transaction is an independent transaction or is a transaction entered into in relation to a prior transaction and for the purpose of working out the prior transaction. On the evidence here and on the contentions to which I have already drawn attention, it is clear in my opinion that the transaction of November 5, 1947, was not an independent transaction but was a transaction entered into for the purpose of working out and performing the outstanding contract of October 23, 1947.