2000 (4) TMI 766 - HC - Companies Law

Summary

Issues Involved:
1. Whether the dispute relating to the membership card can be a subject matter of reference under bye-law 248(a) of the Stock Exchange Bye-laws, Rules, and Regulations, 1957.
2. Whether the petitioners are entitled to interim measures as prayed for.
3. Appropriate final order.

Issue-Wise Detailed Analysis:

Issue 1: Whether the dispute relating to the membership card can be a subject matter of reference under bye-law 248(a) of the Stock Exchange Bye-laws, Rules, and Regulations, 1957.

The court examined the provisions of the Securities Contracts (Regulation) Act, 1956 (SCR Act) and the relevant bye-laws and rules of the Stock Exchange, Mumbai. The SCR Act defines "contract" as one relating to the purchase or sale of securities and "securities" include shares, stocks, bonds, etc. The Act mandates that recognized stock exchanges create bye-laws for the regulation and control of contracts and the settlement of disputes, including arbitration.

Bye-law 248(a) specifically provides for arbitration of disputes arising out of or in relation to dealings, transactions, and contracts made subject to the rules, bye-laws, and regulations of the exchange. The court noted that the rules and bye-laws operate in different fields; rules govern membership while bye-laws regulate securities transactions. However, the court concluded that since the MOU and its terms must comply with the Stock Exchange rules, the dispute over the membership card falls within the scope of bye-law 248(a). The court held that there is an arbitration agreement between the parties, making the dispute arbitrable under the bye-laws.

Issue 2: Whether the petitioners are entitled to interim measures as prayed for.

The court considered the criteria for granting interim measures: prima facie case, balance of convenience, and potential for irreparable loss. The petitioners argued that they had paid Rs. 43 lakh towards the MOU and alleged breaches by the respondents, including failure to obtain necessary approvals and clear liabilities. The court found that the petitioners had established a prima facie case, as the respondents did not specifically deny the petitioners' allegations regarding unpaid liabilities and breaches of the MOU.

The court noted that the membership card, while not property, is a commercial privilege that cannot be adequately compensated with money. The balance of convenience favored the petitioners, as allowing the transfer of membership to a third party would complicate the arbitration process and potentially create third-party rights outside the scope of the dispute.

Issue 3: Appropriate final order.

Given the findings on the first two issues, the court granted the petitioners' request for interim measures. The court issued an injunction restraining the respondents from alienating, encumbering, parting with possession of, or creating any third-party rights in respect of the membership card. The court emphasized that these observations were tentative and would not influence the arbitration proceedings.

Final Order:
The court granted the interim measures in favor of the petitioners, restraining the respondents from transferring or encumbering the membership card, thereby preserving the subject matter of the arbitration dispute. No order as to costs was made.