1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.161 OF 2007 Manoj Wadhwa .. Petitioner Versus Man Financial Sify Securities India Pvt.Ltd. .. Respondents Mr.Shyam Mehta with Kiran Jain & Neeta Solanki i/b. Kiran Jain & Co. for petitioner Mr.S.Purohit i/b. M/s.Purohit & Co. for respondents. CORAM : S.C.DHARMADHIKARI, J. DATE : 30th July 2009. P.C.: 1] This is a petition under Section 34 of the Arbitration & Conciliation Act, 1996 challenging the Award of the Arbitrators appointed by the National Stock Exchange of India Ltd. Arbitration was held under the Bye-laws, Rules and Regulations of this Exchange before a Panel of Arbitrators. The petitioner was the claimant/ applicant who instituted a claim against the respondent herein. The amount claimed was Rs. 1,40,87,944/- for the losses incurred for unauthorised liquidation of 2 shares (Rs.84,98,744) and not for continuing the open position as on the date of the Arbitration Reference (Rs.55,89,200) plus interest at 18% from the respondents. 2] It is not in dispute that applicant is constituent of respondent who undertook trading on behalf of the petitioner under Client Code since 2nd July 2005. It is the case of the petitioner that on 22nd May 2006, without authorisation from the petitioner, the respondents sold 6400 shares of Maruti Ltd., 21000 shares of Satyam and 6600 shares of Tata Motors in the account of petitioners. Copies of the contract notes were not accepted by the petitioner who informed respondents vide letter dated 24th may 2006 that he would not accept the said trading of 22nd May 2006, inasmuch as all the payments towards Margin and Mark to Market requirements was duly acknowledged by the respondents. Petitioners requested the respondent by letter dated 24th May 2006 to reinstate his position as it existed on 19th May 2006 and also informed the respondents that it would be responsible for all losses and consequences. 3] It is not in dispute that such was the nature of the claim. It is not in 3 dispute that the pay order of Rs.50 lakhs was forwarded. However, the stand of the respondents is that due to high market volatility at around 1.00 p.m. On 22nd May 2006, the margin short fall in petitioners’ account had further increased to Rs.1,10,15,520 which included an Intraday cash margin short fall. As per the Member Client Agreement respondent had right to liquidate the petitioner’s open position to meet the margin shortfall in his account. Hence, the respondents in accordance with the Agreement liquidated part of his open position in the derivative segment. Respondents therefore informed the petitioner that he may be allowed to take fresh position if all stipulated margins are available with the respondents in his account. 4] The correspondence ensued as the petitioner did not accept this stand and ultimately requested for intervention of the exchange and considering the agreement between the parties to refer such matters and disputes to Arbitration, the matter came to be referred to Arbitral Tribunal. The Tribunal permitted the petitioner to file his claim and supporting documents. Respondents filed reply and produced the record. 4 5] It was this claim which was adjudicated upon by the Tribunal and it referred to the nature of the transactions. They were admittedly under “F” and “O” Segment. Not only the parties but the Tribunal was fully aware of the Rules pertaining to such trading and the practice evolved at the exchange. The Tribunal was of the view that due to unusual circumstances on 22nd May 2006, the respondents cannot be faulted for insisting upon the margin cover and since the respondents had to take the risk, it was entitled to insist upon the payment being made. Even otherwise, that is not the dispute. The dispute is that the trading settlement is day to day. The clearance can be the next day. If that is how the clearance has taken place, then, the petitioner’s contention was that the margin short fall was not such as would invite the extreme position on behalf of the respondents. It was a minimal risk which can ordinarily and normally is borne by the Member of the Exchange. 6] Considering this aspect of the matter and finding that the exposure margin on the relevant date shows that there was a margin short fall in petitioners’ account that the Tribunal proceeded to reject the claim of petitioner. 5 7] It is this conclusion which is assailed before me. Mr.Mehta learned Counsel appearing for petitioner contended that the Award is contrary to public policy inasmuch as the Tribunal failed to notice the regulations in the field and more particularly Regulation 3.10. The Tribunal referred to the same but did not consider its impact on the proceedings. He submits that the dispute was of margin money. The application of formula regarding disconnection of the Terminal and the broker is wholly irrelevant to this dispute. The risk that the broker member faces while trading on behalf of clients at the exchange is something which ought not to have influenced the Tribunal in considering the claim of the petitioner. He, then, contended that assuming that such risk was there and it was material and relevant factor, yet, the Tribunal ought to have considered the calculations in their proper perspective. The deficit was at the most Rs.40,681 according to petitioners, once they cover the same by Pay order of Rs.46 lakhs. The pay order could have been forwarded on the next day as settlements during the course of the day take place at the end of the day itself. In these circumstances, the Tribunal should have considered that the risk faced by the broker was not such as would entail 6 in rejecting the claim of the petitioner in toto. 8] Alternatively, the past record of the petitioner ought to have been considered. The petitioner has been regular in paying the margin money. There is no default on his part in the past. It was because of the fact that the petitioner was in Australia that he immediately instructed and got the pay order issued and forwarded it the very next day. In these circumstances, rejecting the claim as a whole was patently erroneous and perverse. The award, therefore, is clearly vitiated and must be set aside. 9] On the other hand, Mr.Purohit appearing for respondents submits that the petition under section 34 of the Arbitration and Conciliation Act, 1996 is not an appeal against the Award. This Court cannot re-appraise and re-appreciate the materials which are before the Arbitrator. This Court cannot substitute its views with that of the Tribunal merely because in its opinion another conclusion is possible. If the Tribunal has considered all materials and has rendered finding on fact consistent therewith, then, it is not open for this Court to reopen the issues of facts before the Tribunal. That would mean that the Court is exercising the 7 appellate power. That apart, according to Mr.Purohit, the Tribunal was in no error inasmuch as the nature of the Trading and the clear stipulations in the Member- Client contract permitted the Tribunal to reach a conclusion arrived by it. The Tribunal has adverted to the fact that the market was volatile that day and fell sharply. There was some sort of panic which resulted in closure of trading for one hour. After some order was restored, it was discovered that the margin/ risk factor was such that had the broker not taken prompt steps, his terminal would have been cancelled. That is a factor which cannot be ignored is the opinion of the Tribunal and it is based upon certain stipulations. These are the stipulations in the Rules and Regulations of the Exchange on which members are allowed to trade. Therefore, in this peculiar matter and considering the factual position, the Tribunal has recorded a conclusion that there is no merit in the petitioners’ claim. That need not be disturbed and the petition be dismissed. 10] By applying the tests laid down by the Supreme Court in such cases, I will have to decide this petition. The principles are too well settled and need no reiteration. Suffice it to state that Mr.Purohit is right 8 in his contention that this is not an appeal against the Award. This Court cannot, therefore, go into the minute details and scan the materials as if it exercises appellate powers. What the Arbitrators had before them was the claim of the petitioner against the respondent for recovery of monies on account of his allegation that there was unauthorised sale of shares and that is not justified by the fact that there was a margin short fall. Factually, there was no margin short fall, according to the petitioner, as he has forwarded a pay order on 22nd May 2006 itself in favour of respondent and despatched the same to it on 23rd May 2006. This pay order was in lieu of the payment towards margin and mark to market requirement. This was duly acknowledged by the respondents. The Tribunal proceeded on this basis and the admitted position that the market witnessed very steep down fall on 22nd May 2006. The case of the respondent was that the margin requirements/ short fall was of Rs. 85,15,520/-. The grievance of Mr.Mehta is that pay order of Rs.50 lakhs was in fact received but while making the calculations, the Tribunal did not give benefit of the same to the petitioner. The Tribunal has referred in the award to the fact that it called for explanation and clarification of the respondent. It called for the relevant documents. The Tribunal in its 9 reasoning and conclusion has referred to the undisputed factual position that the margin calls were always honoured by the petitioner. It is not as if it has not considered Regulation No.3.10(b) of the National Stock Exchange (“F” and “O” Segment). It has referred to it in its reasoning and conclusions. It has also referred to the contracts of the Exchange to demand early paying for “F” and “O” segment based on margin obligations (including exposure margins). It also referred to the facts that the sum of Rs.57.59 Crores was collected in F and O segment from the respondents on 18th May 2006 by the Exchange. The evidence in that behalf was submitted before the Tribunal. The Regulations of the Exchange in that behalf also have been referred to at page 14 of the Award. It is in that context that the Tribunal considered the aspect that if the petitioner was the only client of the respondent, then, the trading terminal of the respondent would not have been deactivated because of the marrgin short fall by the Exchange. The total margin available with the respondent in the petitioner’s account and the calculations are also referred. It is not for me to go into these calculations. Suffice it to state that it is undisputed before me that the entire value of the shares, when acquired, was not remitted by the petitioners to the respondent. The 10 Trading was in Future. Therefore, the risk in such trading had to be covered and that was the obligation under the Member-Client agreement. If that was the factual position and that too undisputed and that is how even the parties proceeded, then, it cannot be said that the Tribunal influenced itself by wholly irrelevant and extraneous factors in making the impugned award. At page 17 of the Award, the Tribunal referred to the admitted position and framed relevant question for its consideration. When it found that the petitioner did not give the necessary cover and that there was a clear short fall in the Account, that it proceeded to dismiss the claim of petitioners. 11] The complaint of Mr.Mehta that instead of adjudicating the dispute between the Member and the Client, the Tribunal was carried away by the risk faced by the Member – broker, is not correct, inasmuch as, it is in the peculiar facts of this case and when on 22nd May 206, admittedly the market witnessed a steep fall that the Tribunal concluded that the situation really exposed respondents to the risk of its terminal being deactivated. The calculations have also been referred to at page 22 of the Award. 11 12] In my view, the conclusions reached by the Tribunal are consistent with the materials placed before it. It cannot be said that Tribunal did not take into consideration relevant and germane aspects and factors but was influenced by wholly extraneous and irrelevant matters in making the said award. Its conclusion cannot be said to be perverse either. Once, this is my opinion, then, there is no alternative but to dismiss this arbitration petition. It is accordingly dismissed. (S.C.DHARMADHIKARI, J)