Arbp142.09 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO. 142 OF 2009 Sytematix Shares & Stocks (India) Ltd. A Company duly registered under the Companies Act, 1956, having its Registered office at EGA Trade Centre, 4th Floor, 809, Poonamalle High Road, Kilpark, Chennai – 600 010 and Corporate office at 2nd Floor, J.K. Somani Building, British Hotel Lane, Bombay Samachar Marg, Fort, Mumbai-400 001. ...Petitioner. Vs. Vimal Agarwal, 63, Ashoka Apartments, 68, Nepeansea Road, Mumbai – 400 006. ...Respondent. Ms. Mili Thakkar with Mr. Vipul Shukla for the Petitioner. Mr. Gaurav Joshi i/by M/s. Vimadalal & Co. for the Respondent. CORAM :- ANOOP V. MOHTA, J. DATE OF RESERVING THE JUDGMENT :- 3rd DECEMBER, 2009. DATE OF PRONOUNCING THE JUDGMENT:- 4th JANUARY, 2010 Arbp142.09 2 JUDGMENT :- 1 The Petition is under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, the Arbitration Act), thereby challenge is made to the award dated 15/09/2008, 21/10/2008, passed by the Sole Arbitrator, appointed by National Stock Exchange of India Limited Mumbai (for short, NSEIL), in the matter of Arbitration No. F&O/M-0192/2008 under the Rules and Regulations and Bye-laws of the NSEIL. 2 The basic events as per the Petitioners are as under:- In December, 2007, the Respondent approached the Petitioners for trading in Futures and Options Segment in NSE & BSE and executed a Member-client Agreement and Know-Your-Client Form and submitted PAN Card and other requisite documents including a Passport and a DP Statement for opening an Account. The Respondent was allotted a Unique Client ID Code No. HN172. 3 On 31/12/2007, after a telephonic conversation, first transaction took place for purchase of 9636 shares of Sterlite Industries Ltd. at the rate of 1042.53 in the F & O Segment and a Contract Note dated 31/12/2007 was issued in favour of Respondent. 4 On 01/01/2008, E-mail sent for trade confirmation along with the contract Note and also sent through the Courier. 5 On 04/01/2008, the Petitioners called the Respondent on telephone Arbp142.09 3 and informed the Debit in the account of Rs.23,49,000/-. The Respondent agreed to send a cheque in one hour. On the same day, as per the instructions of the Respondent, the Petitioners squared off 2190 Shares @ Rs.1058.47 and issued a Contract Note for the same and sent it by e-mail and by the Courier also. 6 On 05/01/2008, the Petitioners again sent e-mail for trade confirmation along with the Contract Note and the Bill. The Respondent received the same. 7 On 07/01/2008, instead of Rs.23 lacs as agreed, the Respondent had sent a cheque for Rs.15 lacs. From 04/01/2008 to 18/01/2008, the Petitioners called the Respondent on telephone and requested for payment of balance amount. On 21/01/2008, the Petitioners called the Respondent on Telephone and requested for payment of balance amount and sent Ledger Account by e-mail. 8 On 30/01/2008/ 31/01/2008, as per instructions of Respondent the outstanding position was rollover for the next month expiry and Contract Note was issued and sent by e-mail as well as by courier. The Petitioner called the Respondent on telephone and informed about Rollover. 9 On 01/02/2008, the Contract notes for the trades done on January 30, 2008 were received by the employee of the Respondent who was the same person who had signed letters dated February 12 and 20, 2008 on behalf of the Respondent. Arbp142.09 4 10 On 02/02/2008, the Petitioners sent e-mail and informed regarding penalty levied by Exchange for shortage of margin Money and informed regarding debit of the penalty in his account and thereafter sent e-mails from time to time. 11 On 08/02/2008, the Petitioners sent a ledger account from 01/02/2008 to 08/02/2008 by courier. On 12/02/2008, the Petitioners sent another ledger account from 01/02/2008 to 12/02/2008. The said ledger was received by the employee of Respondent who was the same person who had signed letters dated February 12th and 20th, 2008 on behalf of the Respondent, which were allegedly sent by the Respondent. 12 On 20/02/2008, the Respondent issued letter alleging issuance of letter dated 12/02/2008 and admitting the receipt of statement of account, but submitted that the sum of Rs.15 Lacs paid was towards refundable deposit. It was also admitted therein the receipt of couriers and requested for corrections of statement of accounts. 13 On 22/02/2008, the Petitioners replied to the said letter and clarified the position. 14 On 26/02/2008, sent e-mail to Respondent to inform that the position would be squared off by 28/02/2008 and the Respondent would be responsible for loss/profit, if any. 15 On 27/02/2009, as alleged, as the Member-Client Agreement as well Arbp142.09 5 as KYC were lost in transit along with other documents of other clients, the Petitioners lodged Police Complaint at Chennai. On the same day, the Respondent’s advocate issued legal notice. On 05/03/2008, the Respondent made complaint dated 03/03/2008 to NSEIL. 16 In the month of May, 2008, the Respondent invoked Arbitration. On 26/06/2008, the Petitioners filed their reply along with documents before the Arbitration Department of NSEIL. 17 On 13/08/2008, the sole Arbitrator heard the matter. The Respondent filed rejoinder dated 12/08/2008. The Petitioners raised the issue of jurisdiction. The matter was adjourned to 11/09/2008 and heard accordingly. 18 On 15/09/2008, the Petitioners filed submissions mentioning therein about the conversations and also annexed the compact disc and transcripts of their conversations. 19 On 23/09/2008, the NSEIL sent award dated 15/09/2008 by which the Petitioners have been ordered to pay Rs.15 lacs with interest % 15% p.a. under covering letter dated 19/09/2008. 20 On 26/09/2008, received the letter from NSEIL dated 19/09/2008, informing that the learned Arbitrator has directed that the matter was closed and the Award would follow shortly. It is evident from the Award that the same was signed by the learned Arbitrator on 15/09/2008 itself. Arbp142.09 6 21 The Petitioner has relied upon the judgment Oil and Natural Gas Corporation Ltd. Vs. Saw Pipes Ltd. (2003) 5 S.C.C. 705, to contend that an award contrary to substantive provisions of law and/or the provisions of Arbitration Act or against the terms of contract would be patently illegal and therefore, would be subject to interference and also (Kiran Singh & Ors. Vs. Chaman Paswan & Ors. AIR 1954 S.C. 340) that a decree passed without jurisdiction is nullity. 22 The strong reliance is placed by the Respondent on the following paragraphs of the Judgment in Hemendra V. Shah Vs. Stock Exchange, Bombay & Ors. 1995(2) Mh. L.J. 770:- “17 It is next submitted that the Arbitration is in respect of the claims for the period 1986 to 1989. It is urged that during that period, admittedly the Petitioner was not a member oif the Bombay Stock Exchange. It is urged that the Arbitration under the Rules, Bye-laws and Regulations of the Bombay Stock Exchange can only take place provided there are Contract Notes between the parties. It is urged that in this case, admittedly there are no Contract Notes between the parties. It is urged that the Arbitration is only in respect of dealings between the parties. It is urged that in the absence of any Contract Notes, there can be no Arbitration under the Rules, Bye-laws and Regulations of the Bombay Stock Exchange. It is urged that there is no written contract which makes Rules, Bye-laws and Regulations of the Bombay Stock Exchange applicable to these dealings. 18 I am unable to accept even these submissions. Bye-law 226(a) provides that all contracts made by a Member for or with a non-Member for the purchase or sale of securities in which dealings are permitted on the Exchange, shall in all cases be deemed to be made subject to the Rules. Bye-laws, Regulations and Usage of the Exchange. The said Bye-law also provides that all such Contracts shall be subject to the exercise Arbp142.09 7 by the Governing Board and the President of the powers with respect thereto vested in it or him by the Rules, Bye-laws and Regulations of the Exchange. 19 Further Bye-law 226(c) provides that in cases of all claims (whether admitted or not), differences and disputes arising out of or in relation to all contracts referred to in sub- clause (a) the parties concerned shall be deemed to have agreed and acknowledged that such contracts have been entered into and are to be performed within the City of Bombay, that they are subject to Arbitration in accordance with the provisions relating to Arbitration contained in these Bye-laws and Regulations. Thus Bye-laws 226(a) and 226(c) make it very clear that all such Contracts or dealings, irrespective of the fact that there may be no contract notes, are deemed to be subject to these Rules, Bye-laws and Regulations. It is clear that these Rules, Bye-laws and Regulations will govern such Contracts and dealings. Such contracts and dealings are also subject to Arbitration in accordance with these Rules, Bye-laws and Regulations.” 23 Under the NSEIL Bye-laws, a Reference to Arbitration is required to be made in case of all claims, differences or disputes between the Trading Members inter-se and between the Trading Members and Constituents arising out of or in relation to the 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. Arbp142.09 8 24 As dispute arose between the Trading Members and Constituents i.e. the Petitioner and the Respondent arising out of or in relation to dealings/ contracts and transactions made subject to the Bye-laws and also with reference to or relating to validity, construction, interpretation, fulfillment, obligations and liabilities of the parties thereto and including the question whether such dealings, transactions and contracts have been entered into or not. Therefore, all these issues were referred to the Arbitration in accordance with the Bye-laws. In view of the Chapter XI of NSEIL By-Laws, I am also of the view that the Arbitration Proceeding, as referred and as decided, is well within the framework of law and the record. The Arbitrator has a jurisdiction to decide and deal with the defence/ disputes/ claims between the parties as there was also dispute about the existence of contract between the parties. The submission that the Arbitrator has no jurisdiction and or no authority to deal with and to decide the dispute between the parties and therefore, the whole award is without jurisdiction and nullity and/or illegal, has no force. In view of the present facts itself, whether the Petitioner or the Respondents have entered into a requisite contracts/ agreements and or whether they have been relationship of trading member and constituent that itself is a dispute/ differences between the parties. The Arbitrator Tribunal has jurisdiction to decide even this relationship. 25 The Arbitration proceedings as provided under these Bye-laws and Arbp142.09 9 Regulations are subject to the provisions of the Arbitration Act to the extent not provided for in these Bye-Laws or Regulations. 26 In the present case, even in view of Section 2(6) of the Arbitration Act and as the parties have no option but to settle and or to claim their disputes as per the provisions of these Bye-Laws and Regulations and as NSEIL Act/ Authority has power and authority to adopt and proceeds as per the Bye-Laws and as the Court in Mumbai has exclusive jurisdiction, the Arbitral Tribunal has a jurisdiction/ authority to deal with the differences and disputes as arose between the parties. In the facts and circumstances, therefore, the reasoning and the opinion that the deed exists between the parties continuing relationship of a Constituent and the Trading Member under the NSEIL Bye-Laws, also need no interference. 27 The Petitioner unable to place on record the signed and or duly executed the Member Client Agreement (MCA), Know Your Client Agreement (KYC) and Client Registration Form (CRF). On the contrary, the case is that those documents are lost in transit and accordingly a complaint was lodged in Chennai on 27/02/2008 and it is still pending. Though the Respondent on 13/03/2008 was called upon the Petitioner to produce the MCA and other documents, the same were not produced till this date. There is also nothing brought on record to show in support of the contention that they entered into the transaction as per the instance/ instruction of the Respondent. There is no dispute that on 08/01/2008 the Arbp142.09 10 Respondent handed over the photo copies of pan card, D.P. Copy and Passport copy along with cheque for a sum of Rs.15,00,000/- (Rupees Fifteen lacs only) drawn on Standard Chartered Bank, Mumbai. As per the Respondent, it was a refundable deposit. There is no dispute that one transaction took place between the parties, but that was not the transaction in question. The transaction was done in Future and Option Segment (F & O) everyday which was squared off. 28 A Trading member may not carry out any transaction in the account of the Client if the margin money is not available. Therefore, alleged business on 31/12/2007 and or thereafter of about one crore on be half of Respondent without margin money also raise various doubts and is unsustainable. The opening of Account without any address proof or without any execution of such documents as required by SEBI, is also a factor which goes in support of the Respondent. It is not even the case of the Petitioner that the Respondent had authorized the Petitioner to trade further for him. The Arbitrator, therefore, has correctly concluded and hold that there was no signed documents or agreements and or authorization given by the Petitioner to trade on his behalf by investing Rs.15 lacs in share market. Any purchase/ sale of shares without instructions and authority of the client/ constituent by the trading members is impermissible. 29 The submission referring to the various e-mails and/or courier Arbp142.09 11 without any different format, without detailed particulars and without contract number, trade date, settlement numbers and settlement date are also unreliable. The Arbitrator has rightly held that there is no trade or confirmation document on record and therefore, mere sending such contract notes and the bills itself do not prove that the trade at the instance or at the request of the Respondent and/or all those transactions were authorized. The Respondent by his letters dated 12/02/2008, 20/02/2008 and 27/02/2008 has raised various disputes including the issue with regard to the existence of the relevant agreement and transactions. 30 The Petitioner’s denial to the alleged transaction dated 31/12/2007, 04/01/2008 and 13/01/2008 by letter dated 20/02/2008 that itself cannot be the reason to overlook the case of the Respondent and to interfere with the reasoned order passed by the Arbitrator. Basically for want of relevant written documents on record and supporting material referring to the telephonic and/or otherwise communication of the Respondent based upon which the Petitioner had carried out transaction in question. There was no trade confirmation document placed on record. The identification number as alleged to be of the Respondent, even if, taken note of, still the issue is that such transactions were carried out by the Petitioner for and on behalf the Respondent as per his instructions, which in the present case as observed above, the Petitioner failed to prove. The parties need to support their case and the claims based upon the supporting material and evidence, Arbp142.09 12 specially when the basic written documents, as required by the Bye-laws are in question including its existence and signatures thereon. The Petitioner failed to do so. The submission that the Arbitrator has no jurisdiction in respect of the alleged claim of the Respondent in view of above reasoning itself is self-destructive and contradictory. 31 With regard to the voice and conversation on the Compact Disc (CD), as the same was submitted with the letter on 15/09/2008 i.e. date on the award was passed and as the Arbitrator has dealt with the said aspect and held that the CD does not prove that the Trade transaction as ordered by him. There is no reason and case to overlook the same. 32 The learned Arbitrator has also considered the mandatory regulations of NSEIL Bye-laws 3.2 and dealt the issue as under:- “3.2 TRADE OPERATION 3.2.1 Trading Members shall ensure that appropriate confirmed order instructions are obtained from the constituents before placement of an order on the system and shall keep relevant records or documents of the same and of the completion or otherwise of these orders thereof. 3.2.2 The Trading Member shall make available to his constituent the NEAT order number and copies of the order confirmation slip/ modification slip be dispatched to the constituent”. “In the present case there is hardly any material to comply with these Regulations. The Applicant has vehemently denied any trade orders while the Respondents have not been able to rebut his denial by any positive, affirmative evidence worth believing. I Arbp142.09 13 have discarded the alleged CD’ in this respect. Further Mr. Aditya finally accepted the position that the Respondent had continued his debit balance for a long period and also traded without adequate margin in the discretion of the Respondent as he was a respectable businessman in the society. But his position was squared off when the losses in the Respondent’s account were more or less equal to his initial amount of Rs.15 lacs received from him. I am of the considered opinion which I reiterate that the CD does not prove at all that the trade transacted in the name of the Respondent was ordered by him. There is no other material to show that the trade was ordered by him. According to me the Applicant is not liable for the losses accumulated in his account.” 33 There was no material to show or placed on record that the trade was ordered by the Respondent. In these backgrounds, the Arbitrator is right by holding that the Respondent is not liable for the loss as culminated in his Account. The submission that no full opportunity was given by the Arbitrator is also unacceptable. Even otherwise, considering the other reasoning as recorded by the Arbitrator, referring to the existence and unsigned documents and as the Petitioner failed to discharge its basic burden to support his case and considering the facts and circumstances of the case, I am of the view that the reasoning so recorded and the decision so given by the Sole Arbitrator is well within the framework of law and the record. There is no breach of principal of natural justice, fair and equal opportunity and above all the award is not perverse. The view so taken, therefore, cannot be stated to be unreasonable, and or contrary to the law and the record. 34 In view of this, the decision that the Petitioner entered into the Arbp142.09 14 alleged transaction without Respondent’s order in writing, without his consent and without his knowledge and therefore, passed the order of refund which in my view is correct. 35 The interest @ 15% p.a. on the said amount of Rs.15,00,000/- (Rupees fifteen lacs only) in a commercial transaction like this, and as it is well within the power and authority of Arbitrator to award the interest as contemplated under the Arbitration Act, I see on that count also, there is no reason to interfere with the same. 36 Resultantly, the Petition is dismissed with no order as to costs. (ANOOP V. MOHTA, J.)