Oral Contract Undertaking Joint & Several Liability Can Fall Within Scope Of Arbitration Clause: Supreme Court
The Apex Court was hearing a Civil Appeal in which the issue arose was, whether the husband can be held to be jointly and severally liable for the debit balance that had accrued in the wife’s account.
The Supreme Court in a recent Judgment, held that an oral contract undertaking joint and several liability falls within the scope of the arbitration clause and the Arbitral Tribunal can exercise jurisdiction over the spouse of the party.
The Court held thus in a Civil Appeal in which the issue arose was, whether the husband could have been made a party to the arbitration that was invoked by the registered stock broker and held to be jointly and severally liable for the debit balance that had accrued in the wife’s account.
The two-Judge Bench of Justice P.S. Narasimha and Justice Sandeep Mehta observed, “… by interpreting Bye-law 248(a) of the Bombay Stock Exchange Bye laws, 1957 that provides for arbitration between members and non-members of the BSE, and considering the nature of respondent no. 1’s involvement qua transactions conducted in respondent no. 2’s account, we have held that an oral contract undertaking joint and several liability falls within the scope of the arbitration clause and the arbitral tribunal could exercise jurisdiction over respondent no. 1.”
Senior Advocate Dhruv Mehta appeared on behalf of the Appellant while Advocate Mayilsamy K. appeared on behalf of the Respondents.
Brief Facts
The issue that arose in this case was whether the Respondent No. 1, who was the husband of the Respondent No. 2, could have been made a party to the arbitration that was invoked by the Appellant, who was a registered stock broker, and held to be jointly and severally liable for the debit balance that had accrued in the wife’s account with the Appellant. The Arbitral Tribunal found that both Respondents (husband and wife) were jointly and severally liable for repaying the debit balance in the wife’s account and their Applications under Section 34 of A&C Act to set aside the arbitral award were dismissed by the Single Judge of the High Court. However, the Division Bench allowed the Section 37 Appeal preferred by the wife and set aside the arbitral award only against the husband. Hence, this was challenged before the Apex Court by the husband.
Reasoning
The Supreme Court in view of the above facts, said, “… considering the settled jurisprudence on the scope of judicial intervention under Section 34 and Section 37 of the Act, we have held that the arbitral tribunal arrived at a reasonable conclusion, based on evidence, as to the joint and several nature of the respondents’ liability. The arbitral award does not suffer from perversity and patent illegality as has been held by the High Court in the Section 37 appeal, and therefore, we have upheld the arbitral award in its entirety.”
The Court noted that an award can be set aside as being opposed to the “fundamental policy of India” if it is perverse, i.e., the finding is not based on evidence, or the Arbitral Tribunal takes something irrelevant into account, or ignores vital evidence; however, an award is not perverse if the finding of fact is a possible view that is based on some reliable evidence.
“… it is clear that the High Court, while exercising jurisdiction under Section 37, adopted an incorrect approach. The arbitral tribunal’s findings are definitely based on evidence, as has been rightly held by the Section 34 court. The High Court, at the stage of the Section 37 appeal, took an alternative view on this finding of fact by reappreciating evidence. The arbitral tribunal’s conclusion was based on oral and documentary evidence regarding the conduct of the parties, which leads to a reasonable and possible view that there is joint and several liability. Hence, the High Court, while exercising jurisdiction under Section 37, has incorrectly held the award to be perverse”, it observed.
The Court further emphasised that once the Arbitral Tribunal arrived at a finding that the husband is jointly and severally liable for the debit balance in wife’s account, Bye-law 247A in fact permits the withdrawal of the credit balance from husband’s account, and therefore, the adjustment of accounts is legal and valid.
“Although the arbitral tribunal has held that written authorisation for such adjustment is required, we find nothing in Bye-law 247A or in the SEBI Guidelines, on which this Bye-law is based, that mandates the same”, it added.
The Court, therefore, came to the following conclusions –
i. Under Bye-law 248(a), the Arbitral Tribunal could have exercised jurisdiction over the husband on the basis of an oral contract that he would be jointly and severally liable for the transactions undertaken in wife’s account. Such oral contract would not amount to a “private” transaction that falls outside the scope of arbitration.
ii. The High Court did not correctly exercise jurisdiction under Section 37 as it reappreciated evidence and examined the merits of the award. Upon examination of the findings of the Arbitral Tribunal, it is clear that the 36 award is not liable to be set aside on the grounds of perversity or patent illegality.
Accordingly, the Apex Court allowed the Appeal, set aside the High Court’s Order, and upheld the Arbitral Award.
Cause Title- AC Chokshi Share Broker Private Limited v. Jatin Pratap Desai & Anr. (Neutral Citation: 2025 INSC 174)
Appearance:
Appellant: Senior Advocate Dhruv Mehta, AOR Pranaya Goyal, Advocates Dharav Shah, and Dhawal Desai.
Respondents: AOR P. Soma Sundaram, Advocates Mayilsamy K, Gayathiri A. S, Arun Pandiyan S, V. Pavel, and A Siva Raman.
