TMI Blog2001 (7) TMI 1237X X X X Extracts X X X X X X X X Extracts X X X X ..... quired by the NSE was executed between the second defendant and the plaintiff on October 4, 1995, to regulate the transactions, and that all the transactions are subject to the bye-laws of the NSE. According to the second defendant, under Chapter XI of the said bye-law, all differences and disputes between a trading member and constituent arising out of or in relation to dealings on the exchange or with reference to anything incidental thereto or in pursuance thereof or relating to their construction, fulfilment or validity or rights, obligations and liabilities shall be referred to and decided by an arbitration. It is stated by the second defendant that the plaintiff has rushed to this court by way of a frivolous suit relating to the accounts maintained by them, which are disputed by this defendant and as such the suit is not maintainable. Further the subject-matter of the suit is referable only to the arbitrator and not to be decided in a suit by this court. The other contentions are that the claims of the plaintiff against each and every defendant are independent in nature based upon different causes of action and the same cannot be mixed up and therefore the suit is bad for non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first defendant is the managing director of the second and third defendant companies exercising overall control of all the business affairs and the management. The plaintiff also mentioned several transactions with the defendants in order to establish the fraud played by the first defendant and stated that it would be impossible for the arbitrator contemplated under the National Stock Exchange rules to go into the question of whether the first defendant committed a fraud in the summary proceedings. Further the plaintiff pleaded before this court to pierce the veil of the second and third defendants in order to find that both these companies were managed by the first defendant alone, in such a manner that he would evade contractual liability and make illegal gains at the expense of the plaintiff such relief would be beyond the scope and power of the arbitration. Hence he prayed for dismissal of these applications. 5. The points for consideration in these applications are : 1.Whether the dispute between the parties is one arising under the terms of the agreement or outside the terms? 2.Whether the charge of fraud levelled by the plaintiff is a matter, which can be decided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted the power of this court to pass interim orders under section 9. Whereas they have filed an application under section 8 of the Act, to refer the dispute mentioned in the suit to arbitration, the suit is filed on the ground that there is serious allegations of fraud against the parties, which according to the plaintiff cannot be decided by the arbitrator. Learned counsel for defendant Nos. 2 and 3 next relied on the judgment in P. Anand Gajapathi Raju v. P.V.G. Raju [2000] 4 SCC 539. In para 8 of the said decision, it has been held thus : "In the matter before us, the arbitration agreement covers all the disputes between the parties in the proceedings before us and even more than that. As already noted, the arbitration agreement satisfies the requirements of section 7 of the new Act. The language of section 8 is peremptory. It is therefore, obligatory for the court to refer the parties to arbitration in terms of their arbitration agreement. Nothing remains to be decided in the original action or the appeal arising therefrom. There is no question of stay of the proceedings till the arbitration proceedings conclude and the award becomes final in terms of the provisions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndant has committed a clear cut fraud on the plaintiff by permitting trading in one account while showing credit in another account as such it is a fit case where this court could pierce the veil of the second and third defendants to find that both these companies were run and managed by the first defendant and that on account of the clear fraud to evade contractual liability. Whether the said allegations are made with the intention to take the dispute out of the arbitrator clause is to be seen. Learned counsel has proceeded only on the basis of the allegations made in the plaint. 10. As regards points 1 to 3, learned counsel for the plaintiff argued that one G.D. Ramachandran, the first defendant in the suit approached the plaintiff herein in the year 1995 claiming that he was the managing director of the second and third defendant companies and exercising overall control of all the business affairs and management of both the companies. It is pointed out by learned counsel that the said G.D. Ramachandran alone has sworn the affidavit in both these applications on behalf of the applicant companies. The first defendant had opened multiple accounts with the plaintiff all of them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... handed over to the first defendant who used to visit the plaintiff s office almost every day. 11. The first defendant continued to operate the accounts for the subsequent period and the last transaction operated by the first defendant was on November 11, 1996. The position of the individual accounts on that day stood as mentioned below : [ Rs. Second defendant 88,23,849.72 Debit Third defendant 47,11,612.69 Credit Fourth defendant 6,240.26 Debit Fifth defendant 1,46,996.03 Debit Sixth defendant 17,043.56 Debit Net 42,82,516.88 12. On instruction from the first defendant and as per the past practice, the plaintiff had adjusted the credits/debits of all the other accounts to the second defendant s account. Even then, a sum of Rs. 42,82,516.88 was due in the second defendant s account. The duly audited balance-sheet of the plaintiff for the period ending March 31, 1997, showed nil balance in all other five accounts except the second defendant s account which showed a debit balance of Rs. 42,82,516.88. Since the amount d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AIR (11) 1924 Cs. 796; (Sc Lc. 934) and the case of Russell v. Russell [1880] 14 Ch. D 471; 49 L.J. Ch. 268 the learned civil judge is of the opinion that this is a case in which the court should refuse its discretion to stay the proceedings. A perusal of the judgment in Maharajah Sir Manindra Chandra Nandy v. H.V. Low and Co. Ltd. AIR (11) 1924 Cs. 796; (Sc Lc. 934), however, shows that unless a prima facie case of fraud is made out, the proceedings should when an arbitration agreement exists, be stayed. If the plaintiff objects to the case being referred to a domestic Tribunal in accordance with an arbitration agreement between the parties he must make out a substantial and bona fide case of fraud. In the present case, respondent No. 1 has no doubt, made serious allegations of fraud against the appellant. But he did not come into the witness box and the statement on oath of the appellant and the affidavit filed on his behalf stand unrebutted. On the other hand, the applicant has filed two affidavits sworn by respondent No. 1 in which he has denied the allegation of fraud. No doubt, it is said on behalf of respondent No. 1 that these affidavits had been obtained from h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tay. 20. Even assuming that a prima facie case of fraud had not been established by the plaintiff, in this case, the psoition comes to this. Out of the three substantial reliefs, damages for breach of contract, permanent injunction and accounting, the first will be covered by the arbitration clause and the other two will be outside that clause. In such a case it is not just and proper to split up the action by referring the matter relating to breach of contract alone for arbitration and leaving the other matters for a decision by the court." 15. Learned counsel for the applicants/defendant Nos. 2 and 3 argued that the entire transaction is based on the agreement and as such the dispute shall be referred to the arbitrator as contemplated under the bye-laws of the NSE. 16. It is very difficult to accept the contention of learned counsel for defendant Nos. 2 and 3 that the dispute raised by the plaintiff in the suit is one, which could be brought within the purview of the arbitrator. It is the case of the plaintiff that the first defendant with the knowledge of the other defendants has deceived the plaintiff and it is pointed out that several transactions were made at his ..... X X X X Extracts X X X X X X X X Extracts X X X X
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