Arbp289.09 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO. 289 OF 2009 1 Intex Financial Serv ices Pvt.Ltd. A Company incorporated under the companies Act, 1956 having its registered office 905, Dalamal Tower, Nariman Point, Mumbai-400 021. 2 Dinesh Mehta of Mumbai, Indian Inhabitant, Director of Petitioner No.1 having its office4 905, Dalamal Tower, Nariman Point, Mumbai 400 021. ...Petitioners. Vs. Motilal Oswal Securities Ltd. A Company incorporated under the Companies Act, 1956, having its registered office at 81/82, Bajaj Bhavan 8th Floor, Nariman Point, Bombay-400 021. ...Respondent. Ms. Prachi Mhatre i/b. Mr.M.S. Bodhanwala & Co. for the Petitioners. Mr.Dipen Merchant, Sr. Counsel i/b. S. Y. Amane for the Respondent. CORAM :- ANOOP V. MOHTA, J. DATED :- 11TH FEBRUARY, 2010. Arbp289.09 2 JUDGMENT:- 1 Heard finally. 2 The Petitioners have invoked Section 34 of the Arbitration and Conciliation Act, 1996 (for short, the Arbitration Act) in the matter of Award dated 14.11.2008 and Order dated 23.12.2008 passed by the Arbitral Tribunal constituted under the Bye-laws, Rules and Regulations of the National Stock Exchange of India Ltd. (NSEIL, Rules). 3 The basic events as per the petitioners are as under: On 1st November, 2007, the petitioners telephonically requested one Rikesh, the dealer in-charge of the Respondent to execute the sale of 40000 NIFTY on their behalf. It was executed accordingly and confirmed on phone also by the Respondent. However, on 2nd November, 2007, the petitioners repeated and reiterated their objection in respect of the unauthorized purchase of 40000 NIFTY for a sum of Rs.5,935/- and once again requested the said Rikesh to delete the entry of the unauthorized and unilateral purchase of the 40000 NIFTY purportedly stated to be made on behalf of petitioners. 4 The respondent issued Credit Note bearing No.2000700003483 which was received by the petitioners on 5th February, 2008, giving credit of Rs.12,1,080/- for the purchase viz “being 50% of loss on NIFTY trade for 1st November, 2007”. On 11th February, 2008 and 14th February, 2008, by Arbp289.09 3 the letters, the Petitioners therefore informed the Respondent that the said Credit Note was not acceptable to them and called upon the Respondent to revise the Credit Note issued by them for the said some of Rs.12,11,080.00 as per the closing price of NIFTY on the date of expiry of the contract which was Rs.5,634.60. 5 On 25th April, 2008, the petitioners had no option but to raise the dispute before the Arbitral Tribunal in terms of the NSEIL Rules, by their statement of claims. 6 On 30th April, 2008, the respondents had moved a separate application for recovering a sum of Rs.42,21,127.26 from the Petitioners. 7 On 12th August, 2008, by their reply the respondents denied that the purchase of 40000 NIFTY was unauthorized and filed the Counter Claim for a sum of Rs.42,21,127.26 being the amount purportedly due and payable by the petitioners to them. 8 On 14th November, 2008, the Arbitral Tribunal passed the award whereby it is held that the purchase of 40000 NIFTY by the respondents on behalf of the petitioners was unauthorized. 9 On 23rd December, 2008, by an order, the Arbitral Tribunal rectified the errors in the said award whereby the petitioners were directed to pay an amount of Rs.30,10,047.26 as against the said sum of Rs.29,88,047.26. 10 The basic reasoning given by the Arbitral Tribunal is as under:- Arbp289.09 4 “(e) However, there does not seem to be any justification on the part of the Applicant for calculating the loss on the basis of closing rate of 30th November, 2007 in as much as the Applicant could have never predicted for sure that the market would go in bearish spell and they would make profit on the settlement date. It is seen that on certain dates in that month, the closing rates for NIFTY (November, 2007) were given higher than the rates at which the sale position was taken by the Applicant. In F & O market, the client has an option to square off the position before settlement date and perhaps the Applicant would have exercised this option if the market was not favourable to them. The Applicant’s past record with the Respondent shows that in a few cases, they have squared off the option on the same day. In view of this, it is not appropriate on the part of the Applicant to argue that they would have retained the position till the settlement date. Further, it is pertinent to note that the Applicant did not lodge complaint with the NSEID when it was observed that the Respondent neither recorded the position immediately nor gave any positive response. The Applicant preferred to wait for nearly three months and finally lodged the claim for notional loss only after knowing the rates prevailing on the settlement date.” 11 The NSEIL has framed the National Stock Exchange (Future & Option Segment) Training Regulations and has issued a circular dated 8th June, 2000 (Ref. No.NSE/FOTRD/001 & Ref. No.NSE/F&O/1688) which apply to Forward & Option Contract. 12 Even otherwise, by the impugned award the Arbitrators have ordered the Respondents to pay full claim of Rs.24,44,160/- for the wrongful purchase by not accepting the case of Respondent to bear 50% loss of NIFTY trade from 1st November, 2006. 13 Admittedly, the Respondents have not challenge that part of the award. The Petitioner, therefore, have no reason to challenge this part of Arbp289.09 5 the award. In any way, as by this award they are getting full price claimed by them for wrongful purchase of 4000 NIFTY shares. The notional loss as claimed is unsustainable. There is no supporting and or material clauses and/or clause of the agreed contract between the parties. The notional loss, so claimed, is always the matter of evidence and material. Apart from delay as recorded above, the claim of notional loss as claimed in the circumstances, therefore, in my view is also rightly rejected. 14 The rules are not in dispute. The reliance placed by the Petitioner on various clauses of F & O trading, regulations and even the circular dated 8th June, 2002, in the facts and circumstances are wrongly applied by the Petitioner and the same are unacceptable. 15 There is no perversity. In the facts and circumstances the rejection of notional loss cannot be said to be patently illegal and/or against public policy. The award so passed is just and fair and reasoned one. The view so given by the Arbitrator is plausible and possible view. It is difficult to accept the case that it is beyond the law, agreed rules and/or public policy. ( (2007) 8 S.C.C. 566, Numaligarh Refinery Ltd. Vs. Daelim Industries Co. Limited and ( 2003 (5) S.C.C. 705, ONGC Vs. Saw Pipes Ltd.. 16 The Arbitrators, while considering the counter claim of the Respondents, as it was based on the Debit Balance of the Ledger Account of the Petitioners, arising out of the trade transactions and has recorded the following words:- Arbp289.09 6 “It is pertinent to note that the Applicant (the Petitioners herein) has not disputed the Counterclaim on merits or has not denied the claim on its merits.” 17 The Arbitrator, in fact considered all the aspects and concluded that the loss claimed by the Petitioner at Rs. 5634.60, on 30/11/2007 was not a notional loss. 18 In the present case as recorded, the position was not squared off by closing buy-transaction, neither it was settled. The submission that the outstanding buy-transaction stood automatically expired on the last Thursday of the contract month i.e. 30/11/2007 and therefore, the rate applicable at least the loss to be calculated was the rate applicable on the 30/11/2007 is not correct and rightly considered by the Arbitrators in the present facts and circumstances of the case. 19 The relevant Chapter XI of the NSEIL Bye-laws are as under: “Arbitration 1. All claims, differences or disputes between the Trading Members interse and between Trading Members and Constituents arising out of or in relation to dealings, contracts and transactions made subject to the Bye-Laws, Rules and Regulations of the Exchange or with reference to anything incidental thereto or in pursuance thereof or relating to their validity, construction, interpretation, fulfillment or the rights, obligations and liabilities of the parties thereto and including any question of whether such dealings, transactions and contracts have been entered into or not shall be submitted to arbitration in accordance with the provisions of these Bye-laws and Regulations. (1C) The provisions of Bye-laws (1), (1A) and (1B) shall Arbp289.09 7 become applicable to all claims, differences, disputes between the parties mentioned therein for all dealings, contracts and transactions made subject to the Bye-laws, Rules and Regulations of the Exchange provided such dealings, contracts and transactions had been entered into between the parties mentioned therein prior or to the date on which the Trading Member was either declared a defaulter or expelled or has surrendered his trading membership. (2) In all dealings, contracts and transactions, which are made or deemed to be made subject to the Bye-laws, Rules and Regulations of the Exchange, the provisions relating to arbitration as provided in these Bye-laws and Regulations shall form and shall be deemed to form part of the dealings, contracts and transactions and the parties shall be deemed to have entered into an arbitration agreement in writing by which all claims, differences or disputes of the nature referred to in Bye-laws (1), (1A), (1B) and (1D) above shall be submitted to arbitration as per the provisions of these Bye-laws and Regulations.” 20 In view of the clear agreed and consented contract between the parties, I am accepting the reasoning given given by the Tribunal that the relationship is not of adhoc or temporary nature for individual trade alone. The trading members have to maintain a trading ledger running account. The respondents have claimed to debit balance in the ledger account of the applicant arising from the trade transaction between the parties from time to time. A trading member and its constituent having once entered into the agreement that continues till it is terminated by either of the parties as it is admittedly governed by NSEIL Rules. There is no question of entering into a separate independent and different contract for every trade as contended. Arbp289.09 8 21 In view of above, the Petition is dismissed. No costs. 22 Later on the learned counsel for the Petitioners appeared and seeks stay to the effect and operation of the Judgment. Considering the facts and circumstances, it is granted for four weeks only. (ANOOP V. MOHTA, J.)