OMP 436/2005 & 9/2006 Page 1 of 22 F-142-A * IN THE HIGH COURT OF DELHI AT NEW DELHI + I.A. No. 11557/2009 in O.M.P. 436/2005 INDIABULLS SECURITIES LTD. ..... Petitioner Through: Mr. Rajeev K. Virmani, Sr. Advocate with Ms. Rashmi Virmani and Ms. Srilekha Sridhar, Advocates. versus AMULYA RATAN DHAR ..... Respondent Through: Mr. Abhijeet Chatterjee, Advocate with Mr. S.P.M. Tripathi and Mr. Subodh K. Pathak, Advocates. AND + O.M.P. 9/2006 INDIABULLS SECURITIES LTD. ..... Petitioner Through: Mr. Rajeev K. Virmani, Sr. Advocate with Ms. Rashmi Virmani and Ms. Srilekha Sridhar, Advocates. versus ARATI DHAR ..... Respondent Through: Mr. Abhijeet Chatterjee, Advocate with Mr. S.P.M. Tripathi and Mr. Subodh K. Pathak, Advocates. % Date of Decision : DECEMBER 02, 2009 CORAM: HON'BLE MR. JUSTICE MANMOHAN 1. Whether the Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporter or not? Yes. 3. Whether the judgment should be reported in the Digest? Yes. OMP 436/2005 & 9/2006 Page 2 of 22 J U D G M E N T MANMOHAN, J: (ORAL) 1. Both OMP Nos. 436/2005 and 9/2006 have been filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “Act 1996”) challenging the Arbitral Awards dated 26th August and 30th September, 2005. Since common issues of fact and law arise in both the proceedings and respondents in the two petitions are husband and wife, the said two petitions with consent of parties are being disposed of by a common order. 2. Mr. Rajeev K. Virmani, learned senior counsel for petitioner submitted that the arbitral tribunals had failed to appreciate that the claims filed by the respondents were barred by limitation. In this connection, Mr. Virmani, relied upon Chapter XI of the Bye laws of the National Stock Exchange of India Limited. The relevant portion of the said Chapter reads as under:- CHAPTER XI ARBITRATION xxxx xxxx xxxx xxxx Limitation period for reference of claims, differences or disputes for arbitration (3) All claims, differences or disputes referred to in Bye laws (1), (1A), (1B) and (1D) above shall be submitted to arbitration within six months from the date on which the claim, difference or dispute arose or shall be deemed to have arisen. The time taken in conciliation proceedings, if any, initiated and conducted as per the provisions of the Act and the time taken by the Relevant Authority to administratively OMP 436/2005 & 9/2006 Page 3 of 22 resolve the claim, differences or disputes shall be excluded for the purpose of determining the period of six months. Explanation :- (1) In cases where the date of claim, difference or dispute is not ascertainable, it shall be deemed to have arisen on the date of expiry of six months from the date of the transaction in respect of which the claim, difference or dispute has arisen. (emphasis supplied) 3. In support of his submission, Mr. Virmani relied upon a judgment of the Supreme Court in HCG Stock & Share Brokers Ltd. v. Gaggar Suresh reported in (2007) 2 SCC 279 wherein it had been held as under: 3. …….The learned Single Judge in turn has affirmed the order of the Arbitral Tribunal whereby the Arbitral Tribunal has upheld the objection of the respondent that the claim raised by the appellant is barred by limitation as per bye- laws of the National Stock Exchange of India Limited. xxxx xxxx xxxx xxxx 5. In regular course of business the appellant maintained an account of the respondent in its books of accounts and from time to time the appellant forwarded to the respondent the extracts of the said account, which was received, retained and accepted by the respondent and at no point of time the respondent raised any dispute regarding the extract of the accounts. At the foot of the said account of the respondent so maintained by the appellant a sum of Rs 49,79,388.17 paise remained due and payable by the respondent to the appellant as on 31-12-1999. The appellant also sent confirmation letter to the respondent along with a copy of the statement of accounts and the respondent never raised any query nor did the respondent raise any objection and on the contrary, the respondent kept on promising to pay the outstanding dues in his accounts. The respondent sought some time for making the payment because of financial difficulties. However, after some time the appellant became suspicious and lodged a complaint against the respondent with the Economic Offences Wing on 21-3-2003. The appellant submitted that the cause of action has arisen when it filed the complaint against the respondent with the Economic Offences Wing on 21-3-2003 OMP 436/2005 & 9/2006 Page 4 of 22 and, therefore, the claim was within time and the same is not barred by limitation. The respondent filed his reply and raised an objection that the claim is barred by time. Apart from other objections which have been raised by the respondent, the respondent raised the plea of limitation and submitted that the time prescribed for filing any complaint arising out of a dispute, redressal of which can be sought from the panel of arbitrators by National Stock Exchange of India Limited is six months from the date of dispute. In the present dispute the time started running from the date on which the dispute has arisen. The last date on which the appellant has carried out a transaction on behalf of the respondent was 1-7-1999. The respondent submitted that the arbitration proceedings must be terminated since prima facie the dispute is not established as it is hopelessly barred by time. The bye-laws of National Stock Exchange of India Limited provide six months’ period for filing of such complaint and the relevant portion of the bye-laws reads as under: “All claims, differences or disputes referred to in Bye-laws (1), (1-A), (1-B) and (1-D) above shall be submitted to arbitration within six months from the date on which the claim, difference or dispute arose or shall be deemed to have arisen. The time taken in conciliation proceedings, if any, initiated and conducted as per the provisions of the Act and the time taken by the relevant authority to administratively resolve the claim, differences or disputes shall be excluded for the purpose of determining the period of six months.” xxxx xxxx xxxx xxxx 7…….Reference to this communication leaves no manner of doubt that the dispute had already arisen on 8-2-2001 and the last date for resolving the dispute was 19-3-2001. Therefore, even if we take the last cut off date to be 19-3-2001 then too the last date of filing the complaint would be September 2003. Therefore, the complaint was hopelessly barred by time.” 4. Mr. Virmani further submitted that the arbitral tribunals had not found the petitioner responsible for any breach of contract. He stated that Mr. Debjyoti Gupta who had specifically been authorized by the respondents to operate the securities trading/depository account, was an agent of the respondents. In this connection, Mr. Virmani referred to OMP 436/2005 & 9/2006 Page 5 of 22 two undated letters written by the respondents to the petitioner as well as the Memorandum of Understanding executed between the respondents and their agent Mr. Debjyoti Gupta. The two undated letters written by the respondents which according to Mr. Virmani had been written in October, 2002 are reproduced hereinbelow: A) Authorization letter issued by respondents in favour of their agent Mr. Debjyoti Gupta. “M/s. Orbis Securities Pvt. Ltd. F-60, Malhotra Building, Connaught Circus New Delhi – 110001 Subject : Authorization I hereby authorize Mr. Debjyoti Gupta S/o Sh. Satyaki Gupta Resident of 1/1, Dover Lane Kolkata-29, to deal/ execute all transactions in my broking account with M/s. Orbis Securities Pvt. Ltd. Mr. Debjyoti Gupta is also authorized to receive all documents and other communications from M/s. Orbis Securities Pvt. Ltd. and to do all other Acts necessary for operations in my broking account. All transactions done by him with M/s. Orbis Securities Pvt. Ltd. shall be always binding upon me and I shall remain liable for the same. I/We further attest the photograph of Mr. Debjyoti Gupta which is affixed herewith and as also his signatures appended below…” xxxx xxxx xxxx xxxx B) Authorization letter issued by respondents in favour of petitioner. M/s. Orbis Securities Pvt. Ltd. F-60, Malhotra Building, Connaught Circus, New Delhi-110001 OMP 436/2005 & 9/2006 Page 6 of 22 SUBJECT : AUTHORISATION OF GROUP/FAMILY DEALINGS _________________________________________________ Name of Family Constituent Code _________________________________________________ Member/Authorised person Amullya Ratan Dhar 12724 Adhiraj Dhar 12724 Arati Dhar 12726 Aparajita Dhar 12726 Dhee Rahjah Sehgupta 11454 Suprova Sengupta 11454 Debjyoti Gupta 11454 Debjyoti Gupta 10839 _________________________________________________ I do hereby solemnly affirm and declare as under :- 1. That the abovementioned authorised person/members of my family are regularly trading/investing through you on National Stock Exchange of India Ltd. (NSE) and/or any stock exchange(s). For all purposes of operations of my account with you, the above account shall be termed as Group Account. 2. That I hereby authorise you to sell shares standing in my account and to transfer the proceeds of the sale of such shares to the abovementioned accounts to set off outstanding debit amounts in their respective accounts. 3. That I hereby authorise you to set off all outstanding debit amounts in the above mentioned accounts maintained by you in any segment of any stock exchange(s), against the amount standing to the credit of Constituent’s/Family/Group account maintained by you in respect of any segment of any stock exchange(s). 4. That I have given the above authority to Orbis Securities Private Limited with my free consent and without any pressure, threat or coercion from any corner whatsoever. 5. That in future I shall not make any claim from Orbis Securities Private Limited in any manner whatsoever of any amount adjusted from the credit in my account to set off the outstanding debit amounts in the abovementioned accounts and I further state that if anybody on my behalf claims the above said adjusted amount, the said act shall be null and void and shall be ineffective from all corners. OMP 436/2005 & 9/2006 Page 7 of 22 6. That this is my true irrevocable statement and shall remain binding on me. 7. That I hereby undertake to intimate you from time to time of any additions of the Constituents to the said Group Account for the purpose of either allowing them to trade on my behalf or for the purpose adjustment of balance inter se.” (emphasis supplied) 5. The relevant portion of the undated Memorandum of Understanding between the respondents and their agent is also reproduced hereinbelow: MEMORANDUM OF UNDERSTANDING (MOU) This Memorandum of Understanding (MOU) is between Mrs. Arati Dhar, herein after referred to as Client and Mr. Debjyoti Gupta for the purposes of share trading process as agreed upon mutually by both the parties. xxxx xxxx xxxx xxxx 5. This deal is between Mrs. Arati Dhar and Mr. Debjyoti Gupta and Orbis Securities Pvt. Ltd. is in no way connected with this. (emphasis supplied) 6. Mr. Virmani further pointed out that Mr. Debjyoti Gupta was an agent of the respondents and if the respondents were aggrieved by any action of their agent, they should take action against him. In this connection, Mr. Virmani relied upon Sections 226 and 238 of Indian Contract Act which read as under:- 226. Enforcement and consequences of agent's contracts.- Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal consequences, as OMP 436/2005 & 9/2006 Page 8 of 22 if the contracts had been entered into and the acts done by the principal in person. 238. Effect on agreement, of misrepresentation of fraud, by agent.-Misrepresentation made, or frauds committed, by agents acting in the course of their business for their principals, have the same effect on agreements made by such agents as if such misrepresentations or frauds had been made or committed by the principals; but misrepresentations made, or frauds committed, by agents, in matters which do not fall within their authority, do not affect their principals. 7. Mr. Virmani lastly submitted that the concept of apportionment was unknown to law. He submitted that the concept of contributory negligence could not be applied to a contractual matter. 8. On the other hand, Mr. Abhijeet Chatterjee, learned counsel for respondents submitted that petitioner had traded in the shares of the respondents without their knowledge and/or instructions. He submitted that the claims were within limitation as the time taken to administratively resolve the claims had to be excluded under Chapter XI of the National Stock Exchange of India bye laws. In this connection, he drew my attention to the correspondence exchanged between the respondents and National Stock Exchange and in particular to the letter dated 30th March, 2005 issued by the National Stock Exchange wherein the it had been specifically stated that as the National Stock Exchange could not resolve the grievances administratively with the trading member, respondents may, if they so desire take recourse to arbitration. The relevant portion of the said letter dated 30th March, 2005 is reproduced hereinebelow:- OMP 436/2005 & 9/2006 Page 9 of 22 March 30, 2005 Amullya Ratan Dhar & Adhiraj Dhar, Nayabad, 110, Jadavpur Co-op, P.O. Kalikapur, Kolkata 700 099 Dear Sir, This has reference to your complaint against M/s. Indiabulls Securities Ltd. for manipulations in the trading account. The Exchange had taken up the grievance with the trading member for resolving the same administratively. However on account of conflicting claims and counter claims made by the constituent and the trading member, you may, if you so desire, take recourse to arbitration by filing an Application for Arbitration against the trading member M/s. Indiabulls Securities Ltd. Accordingly, kindly submit the application for arbitration along with the following documents. xxxx xxxx xxxx xxxx Please note that the Arbitration is subject to the Bye laws. Rules and Regulations of the Exchange. The Arbitration Application form that may be submitted by the client should be complete in all respects and the Exchange reserves the right to reject the Application for Arbitration, if any of the documents/formalities are not complied with as per the provisions of the Bye Laws, Rules and Regulations of the Exchange and return the same in original along with other relevant documents submitted by you. Further, please note to ensure that the Arbitration Application is submitted within six months from the date on which the claim, difference or dispute arose or is deemed to have arisen, otherwise the Arbitrator may dismiss the arbitration application as time barred under the Byelaws of the Exchange. (emphasis supplied) 9. Mr. Abhijeet, also drew my attention to the findings of the arbitral tribunals wherein they had pointed out specific breaches on the part of the petitioner. Mr. Abhijeet further stated that the entire holding OMP 436/2005 & 9/2006 Page 10 of 22 of the respondents had been fraudulently transferred to the petitioner without any payment being credited to the bank accounts of the respondents. In this connection, Mr. Abhijeet referred to one of the transaction statement of one of the respondents which reads as under: Cut off Date 01-April-2003 TRANSACTION STATEMENT Print Date : 26-May-2005 07:01 PM National Securities Depository Limited DP : INDIABULLS SECURITIES LTD.[ IN302236] IA, 1ST FLOOR, HAMILTON HOUSE, CONNAUGHT PLACE NEW DELHI, 110001 Selection Criteria : Transactions from Date : To Date: 01/04/2003 Client ID 10035909 Category Non House Status Active Name AMULYA RATAN DHAR, ADHIRAJ DHAR Beneficiary Address FLAT NO. E-11 B-2, 426 PRINCE ANWAR SHAH ROAD CALCUTTA Pin Code 700045 Bkg. Date Trans. No. Description Credit Debit Balance ISIN INE676A01019 AVAYA GLOBALCON LTD. EQ Beneficiary Opening Balance 0 27/11/2002 509154 By INDIABULLS SECURITIES LTD 200 200 /10000226 17/03/2003 618858 To INDIABULLS SECURITIES LTD 200 0 /10000226 Closing Balance 0 ISIN INE486A01013 CESC EQUITY 0 Beneficiary Opening Balance 0 27/11/2002 509147 By INDIABULLS SECURITIES LTD 1600 1600 /10000226 03/02/2003 581132 To INDIABULLS SECURITIES LTD 1600 0 /10000226 Closing Balance 0 ISIN INE964A01019 DSQ BIOTECH LTD. EQ Beneficiary Opening Balance 0 27/11/2002 509153 By INDIABULLS SECURITIES LTD 200 0 200 /10000226 17/03/2003 618851 To INDIABULLS SECURITIES LTD 200 0 OMP 436/2005 & 9/2006 Page 11 of 22 /10000226 Closing Balance 0 ISIN INE286A01017 DSQ SOFTWARE EQ Beneficiary Opening Balance 0 27/11/2002 509157 By INDIABULLS SECURITIES LTD 200 200 /10000226 17/03/2003 618852 To INDIABULLS SECURITIES LTD 200 0 /10000226 Closing Balance 0 10. Mr. Abhijeet further submitted that no understanding between the respondents and their agent could override the responsibilities of the petitioner under the Member Constituent Agreement. He emphasized that the arbitral tribunals had come to the conclusion that the password had been wrongly sent by the petitioner to the respondents at the incorrect address and that too by U.P.C. instead of courier. 11. Mr. Abhijeet further stated that none of the transaction statements had been placed by the petitioner before the arbitral tribunals. In this connection, Mr. Abhijeet referred to the finding of the arbitral tribunal in the award dated 26th August, 2005 which reads as under:- “This is a case almost similar to a cyber crime in which someone caught hold of the password of an on-line trader and indulged in trading in shares on his behalf causing clandestinely a loss of about Rs. 20 lacs to him. As there was an involvement of a third party who was allegedly instrumental in effecting trading loss and as a cheating charge had also been leveled, perhaps it would have been a fit case for the law-enforcing Agency to uncover the truth. Nevertheless, Arbitration dwells purely on the role of the Applicant and the Respondent in the whole process and on their respective lapses, which led to the loss. xxxx xxxx xxxx xxxx OMP 436/2005 & 9/2006 Page 12 of 22 The Himalayan blunder committed by the Respondent was that they used indiscriminately the Demat A/c. of the Applicant for the purpose of provision of the margin etc., on account of the alleged trading done on the Applicant’s broking account by transferring shares from the former without keeping the Applicant informed or without giving him time to regularize any deficiency in this regard. True, the system at the Respondent’s end generated a number of information and data relating to trading, margin account, contract notes, ledger statement etc. But in the absence of the “password” the Applicant did not have any means to access these for his use. xxxx xxxx xxxx xxxx ………Fourthly, the Respondent could not also produce any proof/ document of having sent the hard copies of the periodical “Transaction Statements” relating to the Applicant’s Demat Account to him. This was all the more necessary in a situation where the Respondent knew that all transactions in the Applicant’s trading account were being carried out by the Applicant’s AA only (vide statements made by the Respondent in Para 11 and last sentence of Para 18 of their statement of reply received at N.S.E. on 04.06.2005) and hence all “screenshot” reports might not have been brought to his notice. (emphasis supplied) 12. In rejoinder, Mr. Virmani stated that in one of the arbitral awards dated 26th August, 2005, the arbitral tribunal had not even dealt with the petitioner’s submissions with regard to limitation. He further stated that as soon as the respondents had requested for change of password, the said change had been carried out by the petitioner. He further pointed out that it was only on 04th May, 2004 that the petitioner’s received a letter from the respondents requesting them not to allow Mr. Debjyoti Gupta to carry out any transaction on their behalf. He stated that immediately after receipt of said instructions on 04th May, 2004, the OMP 436/2005 & 9/2006 Page 13 of 22 petitioner had not permitted Mr. Debjyoti Gupta to carry out any transaction in the petitioner’s account. The respondents’ letter dated 15th March, 2004 received by the petitioner on 04th May, 2004 is reproduced hereinbelow: Date : 15.3.04 To The Relationship Manager, Nayabad Jadavpur Orbis Securities/India Bull, Co-Op PO Kalikapur, Branch Office, 7A/1A, Kolkata-700099 Middle Ten Street, Calcutta-71 Ph: 2432:2886 Sub: Cancellation or Freeze of e-trading business of A/C No. ID 127/26 by Sri Debjoti Gupta with immediate effect i.e. from 15.03.04. Dear Sir, We the Accounts holder of user Id-12726 are requesting you not to allow Mr. Debjyoti Gupta (authorised person) for e-trading business/transaction on our behalf from today i.e. from 15.03.04 because of the following reasons. 1. Violation of MOU 2. Failure of regular payment of monthly- renumerated amount. 3. We have been kept in the dark about the trading till date. So, the e-trading business done by Sri Debjyoti Gupta is no longer valid till further notice. Hence, you are requested to furnish the details of the entire port folio are sold/unsold/purchased shares and liquid cash balance etc. at your earliest. (emphasis supplied) 13. Mr. Virmani also referred to letter dated 31st March, 2004 written by Debjyoti Gupta to the petitioner wherein he had acknowledged in writing that he had received all the contract notices and transaction summary for all transactions done till 31st March, 2004. OMP 436/2005 & 9/2006 Page 14 of 22 14. Having heard the parties at length and having perused the impugned awards, I am of the view that it would be appropriate to first outline the circumstances in which a Court can interfere in arbitration awards passed under the Act, 1996. The Supreme Court in Delhi Development Authority vs. R.S. Sharma and Company, New Delhi reported in (2008) 13 SCC 80 after referring to a catena of cases has held that an arbitration award is open to interference by a court under Section 34(2) of the Act, 1996 if it is either contrary to a statutory provision or contractual provision or is opposed to public policy or justice and morality. 15. As far as the issue of limitation is concerned, I am of the view that immediately on coming to know of misuse of their shares, the respondents had taken steps to administratively resolve the matter. In fact, from the findings arrived at by the Arbitrators, it is apparent that respondents first came to know in the month of May, 2004 of alleged embezzlement of their shares. I am also of the view that the six months period of limitation can only be counted from the date when the respondents became first aware that transactions had taken place in their account and not from the date when the actual transactions as alleged are stated to have taken place. 16. In fact on 21st May, 2004, respondents lodged an FIR and also wrote a letter to the Investor Grievance Cell of the National Stock Exchange. Thereafter, a number of letters were exchanged between the OMP 436/2005 & 9/2006 Page 15 of 22 respondents and Investor Grievance Cell and it was only when the National Stock Exchange of India Limited intimated to respondents that it was not possible to administratively resolve the matter, that the respondents immediately invoked the arbitration clause and filed their claim on 05th April, 2005. 17. I also find that the arbitral tribunal in the award dated 30th September, 2005 has given reasons for rejecting petitioner’s plea with regard to limitation. The reasoning of the arbitral tribunal as contained in the award dated 30th September, 2005 reads as under: “On the point of limitation raised by the Respondent, it is noted that the Applicant has denied having received the password and undertaken any transactions on the net or having given any instructions to Mr. Debjyoti Gupta (AA) for dispose of any of the shares deposited to ISL before January/February 2004 when they claim to have asked Mr. Debjyoti Gupta (AA) to sell off their certain shares and give them the proceeds thereof amounting to Rs.20 lacs but despite repeated reminders Mr. Gupta failed to give them the said amount. Thereupon the applicant sent their letter dated 10.03.2004 to