1 AP563/09 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.563 OF 2009 Amit Bhardwaj ...Petitioner v/s M/s Marwadi Shares and Finance Ltd. ...Respondents Mr Rajiv Narula i/b M/s Jhangiani Narula and Associates for Petitioner. Mr Ajay Khandhar with Mr Jayant Gaikwad for Respondents. CORAM : D.K. DESHMUKH J. DATE : 25TH MARCH 2011. 2 AP563/09 P.C. :- 1] By this petition, the petitioner challenges the award dated 9 th April 2009 passed by the learned Arbitrator under the Bye-laws of National Stock Exchange. By that award, the learned Arbitrator has directed the petitioner to pay an amount of Rs. 23,13,964.56 with interest to the respondents. The relevant facts are that the respondent who is a stock broker, entered into broker-client agreement on 30 th July 2007. Under that agreement, before the transactions could start, the petitioner was to give margin money to the stock broker. Admittedly, the petitioner did not give margin money, still contrary to the contract between the parties as also the regulations of the Stock Exchange, the respondent started dealing on behalf of the petitioner. It appears that there was loss incurred in those transactions. The reference has been made for recovery of that loss and the award has been made by the learned Arbitrator directing the petitioner to pay amount of loss suffered in those transactions. 3 AP563/09 The defence of the petitioner was that the respondent could not have started any transaction on behalf of the petitioner unless the petitioner gives them margin money. There is a prohibition imposed by the regulations framed by the Stock Exchange which prohibits a trading member from dealing on behalf of the constituent unless and until that constituent has given margin money. This contention has been dealt with by the learned Arbitrator in rather strange fashion. The learned Arbitrator, forgetting that these transactions have taken place contrary to the regulations of the Stock Exchange, has directed payment of the loss made in the transactions because according to the learned Arbitrator, the petitioner earned profit on the transactions when it is an admitted position that at no point of time, any amount was paid by the respondent to the petitioner. The learned counsel appearing for respondent  stock broker submitted that though it is true that they started transacting business on behalf of the petitioner without petitioner depositing any margin money, from the 4 AP563/09 transactions that were undertaken by them, profit was earned, that profit and shares was treated as margin money and further transactions were carried out. In my opinion, the entire approach of the learned Arbitrator is wrong. The statutory regulations have been framed by the Stock Exchange for protecting the system under which the Stock Exchange operates, the requirement has been included in the regulations for taking margin money from the constituent to protect the system and the brokers from any loss that may be suffered on account of the transactions that may be undertaken. The regulations are to be followed by the constituents and the stock brokers. The action of the respondent  stock broker of commencing transaction without taking margin money was not only contrary to the contract between the parties but was contrary to the statutory regulations framed by the Stock Exchange. As the regulations have been framed for the protection of the system, in my opinion, those regulations will have to be followed. If those regulations are not followed, a good reason will 5 AP563/09 have to be given why they are not followed. If the brokers are permitted to carry on transactions contrary to the regulations framed by which they are bound, it will endanger the system itself. In my opinion, the learned Arbitrator was not justified in making the award requiring the petitioner to pay the amount which was being claimed by the respondents on account of illegal and unauthorised transactions. In the result therefore, the petition succeeds and is allowed, the award is set aside. The Office is directed to send copy of this order to the National Stock Exchange. The National Stock Exchange shall make an enquiry to find out if there are any more transactions entered into by the respondent  stock broker of such nature which are contrary to the bye- laws and regulations of the Stock Exchange. If it is found that such transactions are being entered into on regular basis, the Stock Exchange shall take appropriate action against the respondents. At this stage, a request is made on behalf of the respondents for staying the order. The award 6 AP563/09 passed does not become effective till the petition filed under section 34 of the said Act is decided. Therefore, no useful purpose will be served by staying the order setting aside the award. So far as the subsequent part is concerned, a copy of this order is directed to be sent to the National Stock Exchange so that the National Stock Exchange would take appropriate action against the respondents if found guilty and if action is taken by the National Stock Exchange, the National Stock Exchange is bound to follow principles of natural justice. Therefore, no useful purpose will be served by granting stay to this order. The request is rejected. Parties to act on the copy of this order duly authenticated by the Associate / Private Secretary of this Court. Certified copy expedited. ( JUSTICE D.K. DESHMUKH )