IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 24.02.2010 CORAM: THE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMAN O.P.No.165 of 2009 HDFC Securities Ltd. Trade World, C Wing, 1st Floor Kamala Mills Compound Senapati Bapat Marg Lower Parel Mumbai-400 013 represented by its Authorised Signatory Mr.Bharath Rajagopal. .. Petitioner versus 1. Mr.S.Vivekanandan New No.11/20 (Old No.45) Solia Mudaliar Street Mohanur Namakkal-637 015. 2. Mr.M.V.Badrinath Presiding Arbitrator 3. Mr.C.Rangamani Arbitrator 4. Mr.A.V.Haridasan Arbitrator Respondents-2 to 4 having their address at National Stock Exchange of India Ltd. Regional Office 7th Floor Arihant Nitco Park 90, Dr.Radhakrishnan Salai Mylapore, Chennai-600 004. .. Respondents ----- PRAYER: Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award dated 6th March 2008 in AM No.CM/C-0084/2007 passed by the second, third and fourth respondents with costs. For petitioner : Mr.V.Ramakrishnan For 1st respondent : Mr.Kumar Pal R.Chopra ----- ORDER The first respondent before the learned Arbitrator has filed this Original Petition, challenging the award dated 06.03.2008. 2. The first respondent herein was an account holder in HDFC Bank Ltd., Erode Branch and a Trading Member of the National Stock Exchange of India Ltd. The first respondent herein went in for a Member-Client agreement with the petitioner on 18th February 2006. The first respondent opened a demat account with the HDFC Bank. An irrevocable power of attorney was executed in favour of the HDFC Bank authorising the HDFC Bank to transfer funds from his account to the Demat account of the first respondent on the instructions received from the petitioner. In terms of the agreement thus entered into, the first respondent had been having regular trading in stock through the petitioner. It is not denied by the parties herein that the terms of the contract are such that the petitioner has to send regularly the contract notes to the customer like the first respondent as regards the transactions that are carried on by the petitioner for the first respondent, apart from the statement of accounts sent every quarter. At the instance of the first respondent, the petitioner herein began dealing in equities from May, 2006. So long as the first respondent had his trading in equities, there was absolutely no problem between the parties. However, when he was called upon to keep up the margin money, the first respondent took the stand that the petitioner was trading without any authorisation and that the loss suffered could not be fastened on him. In the circumstances, the first respondent herein entered into correspondence with the petitioner. Not satisfied of the stand taken by the petitioner herein, the first respondent made a complaint to the apex body for referring the disputes to arbitration. 3. Learned Arbitrator passed an award in favour of the first respondent herein, directing the petitioner to pay a sum of Rs.4,61,210/- towards the unauthorised sale of shares and trades done and debited to the first respondent's bank account; directing the petitioner herein to pay Rs.1,00,000/- towards compensation for unauthorised sale of shares and hardships caused to the first respondent, apart from a sum of Rs.20,000/- payable towards costs for arbitration proceedings and other expenses. Thus an award for a sum of Rs.5,81,210/- with interest at 12% per annum on the amount of Rs.4,61,210/- from 1st July 2006 to the date of the award and at 15% per annum on the total award amount of Rs.5,81,210/- from the date of the arbitral award to the date of Fixed Deposit Receipt to be made out by the petitioner for a period of not less than 91 days from the Clearing Bank was passed. The interest payable to the first respondent herein from the date of the Fixed Deposit Receipt till the date of payment was stated to be the interest accrued on the Fixed Deposit Receipt till the date of encashment. Thus the said award was passed as against the claim of the first respondent for a sum of Rs.84 lakhs. Admittedly, no Original Petition is filed against this by the first respondent. 4. In so granting the relief to the first respondent herein, learned Arbitrator considered the question of limitation, raised by the petitioner herein, placing reliance on Byelaw 3 of Chapter XI of the National Stock Exchange (NSE) Byelaws. On the merits of the case, learned Arbitrator pointed out that the petitioner took advantage of the fact that the first respondent was not conversant in English and trading in F & O operation and that the petitioner had traded without any specific instruction. Hence, on a perusal of the F&O operations carried out, it was evident that huge volumes of trade had taken place without sufficient funds to the account of the first respondent herein. It was further pointed out by the learned Arbitrator that the petitioner had not posted the first respondent with the necessary contract notes, thereby denying him an opportunity of knowing the actual state of affairs. Learned Arbitrator pointed out that the petitioner had not sent the contract notes/account statement to the first respondent herein as and when the trade took place. Aggrieved by the said award, the petitioner contends that it is evident by the schedule of claim made before the Stock Exchange that the first respondent was, in fact, posted with the contract notes and hence, the contention that the petitioner had traded without instruction is contrary to the facts. 5. Referring to the letter written by the petitioner on 22nd May 2006, learned counsel pointed out that on account of the margin shortfall, the petitioner squared off his position on 22nd May 2006 by trading on the shares held by the first respondent. He further pointed out that in the letter dated 12.2.2007, the first respondent had admitted as to the message received over phone from HDFC Securities Ltd., dated 18th May 2006, calling upon the first respondent to deposit a sum of Rs.2.9 lakhs. He further pointed out that thereafter, the first respondent received another letter on 22nd May 2006, informing him about the shortfall and the sale of the securities, for which the first respondent had called for a detailed statement. In the background of the said facts, learned counsel submits that the Tribunal ought to have seen that the claim of the first respondent was totally a time barred one. The first respondent was informed about the transactions then and there, as provided in the contract notes. He submitted that the Tribunal went wrong in ignoring the contract notes annexed to the complaint. The petitioner was careful enough to inform the first respondent as regards the marketing conditions and the availability of funds in the account that existed as early as 18th May 2006 to inform the first respondent about the margin money available and called upon the first respondent to make the payment. Since the first respondent did not make the payment even after that, the petitioner waited till 22nd May 2006. Considering the slow down in the market and the deep fall that the security market witnessed that day, to avoid any further loss to the first respondent, the petitioner was forced to sell the shares, a conduct which could not be taken exception to. Considering the client agreement Clauses 5.21, 6.8 and 7.3 in the light of the contract terms which permit the trading member to have the liberty of selling the shares to square off the position, the view of the arbitral Tribunal that the sale had taken place without the necessary authority, hence, has to be set aside, it being contrary to the terms of the agreement. 6. Learned counsel further pointed out that when the award is passed ignoring the terms of the contract, as held in the decisions reported in (2008) 5 SCC 272 (P.R.Catering Company and another Vs. Oil and Natural Gas Corporation Limited and others) and (2003) 8 SCC 154 (Bharat Coking Coal Ltd. Vs. Annapurna Construction), the award has to be set aside. He also relied on the decision reported in (2007) 13 SCC 236 (Security Printing and Minting Corporation of India Ltd. Vs. Gandhi Industrial Corporation) that if an award is writ with perversity, the jurisdiction of this Court under Section 34 of the Arbitration and Conciliation Act, 1996, calls for setting aside the arbitral award. As regards the claim for damages granted by the Tribunal, learned counsel appearing for the petitioner pointed out to the working originally given by the first respondent at Rs.34 lakhs before the Tribunal as against the claim made for Rs.84 lakhs. No details were given as to the working as regards the compensation for the alleged unauthorised transactions. He also contested the claim on the aspect of limitation. 7. Per contra, learned counsel appearing for the first respondent pointed out that the claim of the petitioner as regards enclosing a statement along with the complaint made to the National Stock Exchange of India was not correct; that there was never an admission by the first respondent that they were posted with the contract notes with every transaction taking place on a particular day. He pointed out that on a mere statement from the Bank, one cannot decipher that the operations of the petitioner were disclosed to the first respondent. In the circumstances, no excepton could be taken to the first respondent seeking arbitration on 24.5.2007. He further pointed out that at no point of time the petitioner had posted the first respondent with the details of the transaction, quite apart from the fact that the first respondent never authorised the petitioner to carry on any sales on behalf of the first respondent. Referring to the letter dated 22.5.2006, learned counsel pointed out that the said letter had not posted the information to the first respondent that the margin money had fallen and that they had sold the shares. Rightly the first respondent sought for the details as regards the trading done on behalf of the first respondent. Since in spite of the frequent enquiry made to the Branch Manager and even after receipt of the same there was no progress from the side of the petitioner, the first respondent wrote a letter on 12.2.2007 and called upon the petitioner to reply to his request. Since even thereafterwards there was no positive reaction, the petitioner had to write a complaint on 16th March 2007. In the background of the said facts, the first respondent invoked the arbitration clause in time, as found by the learned Arbitrator. 8. Making particular reference to the letter written to the National Stock Exchange dated 14.6.2007 calling upon the petitioner to furnish the statement of accounts and the contract notes, learned counsel appearing for the first respondent pointed out that at no point of time did the petitioner give the contract notes, statement of accounts or as regards the despatch of the contract notes. He referred to the view of the learned Arbitrator in Paragraph 4.08 only to submit that the petitioner had miserably failed to send the contract notes to the first respondent herein then and there as to the transaction that had taken place on account of the first respondent. 9. As regards the plea of limitation, learned counsel placed reliance on the decision of the Delhi High Court reported in MANU/DE/1325/2009 (Smt.Biba Sethi and Mr.Nitin Sethi Vs. Dyna Securities Limited) to submit that following the decision of the Bombay High Court reported in AIR 1967 Bombay 472 (Employees' State Insurance Corporation Vs. Bharat Barrel & Drum Manufacturing Co. Pvt. Ltd.), the Delhi High Court considered the question of validity of the provisions on the limitation and the Regulation restricting the right of the aggrieved party to go for arbitration and held that there is no legislative intent in the Securities Act to enable the stock exchanges to prescribe any period of limitation for preferring claims while framing byelaws regulating and controlling contracts. In the context of the decision thus given, Byelaw 3 Chapter XI prescribing limitation on the rights of an aggrieved party to go for arbitration, is violative of Section 28 of the Indian Contract Act and hence, the plea of limitation taken by the petitioner, in any event, has to be rejected. 10. Answering the said claim, learned counsel appearing for the petitioner pointed out to the decision reported in [2007] 73 SCL 1 (SC) (HCG Stock & Share Brokers Limited Vs. Gaggar Suresh) as well as to the decision of the Apex Court reported in (2009) 2 SCC 252 (H.P. State Forest Company Ltd. Vs. United India Insurance Co. Ltd.) that the limitation prescribed therein has to be read as to the restriction placed on an aggrieved party to go before a chosen forum, namely, arbitration. In the context of the admitted fact that the petitioner had informed the first respondent about the margin status, the first respondent ought to have seen that in terms of the contract notes, the petitioner was entitled to sell the shares. Consequently, when the claim itself was made beyond the time limit prescribed, the view of the Arbitral Tribunal holding otherwise has to be set aside. 11. Heard learned counsel appearing for the petitioner and the first respondent. 12. A perusal of the Tribunal's order shows that the claim of the petitioner that the contract notes were sent then and there, was found against the petitioner. The learned Arbitrator pointed out that the consistent case of the first respondent was that the petitioner had not enclosed the copy of the contract notes then and there whenever transactions took place on a particular day. Learned Arbitrator particularly referred to the reply from the petitioner herein that the address of the first respondent could not be served by courier and that the contract notes might have been sent by registered post. When the petitioner was asked to produce the necessary evidence as regards the despatch of the contract notes by registered post, there was no evidence forthcoming from the petitioner and that the person who deposed on behalf of the petitioner was not sure as to how the contract notes and account statements were sent. In the circumstances, learned Arbitrator held that the petitioner had not sent the contract notes to the first respondent as and when the trade took place. Being pure finding of fact, I do not find any justification in the submission of the learned counsel appearing for the petitioner that based on the schedule annexed to the plan, there was, in fact, despatch of the contract notes then and there. In the face of the serious dispute raised by the learned counsel appearing for the first respondent as to the genuineness of the document in a petition under Section 34 of the Arbitration and Conciliation Act, 1996, I do not find any justification to rely upon the document produced before this Court which the petitioner claimed as evidencing the admission by the first respondent as regards the receipt of the contract notes. 13. There is yet another reason for rejecting the said claim. The first respondent's complaint was that the petitioner had not been despatching the contract notes then and there. Learned counsel appearing for the petitioner pointed out that the contract notes, at best, can only show the day-to- day transaction and does not touch on the margin money available. Be that as it may, if the client has to know the transaction that had taken place on any particular day and to the extent to which various transactions had taken place, it is but necessary that the customer should be informed through contract notes as to the transaction that had taken place on a particular day. The contract notes assume great significance for the purpose of ascertaining the authorisation at least to do a transaction. 14. Whatever might have been the justification of the petitioner as regards the non-production of the contract notes as required under Clauses 5.21, 6.10 and 7.3, in the background of the fact that the petitioner had not posted the first respondent with the contract notes, having regard to the finding rendered after going through the evidence in this matter, I do not find any reason to differ from the view of the Arbitral Tribunal on this aspect. 15. This takes us to the important question as regards the plea of limitation. Leaving aside the main submission as to the authorisation to do the transaction, it is but necessary that one has to look into the plea on limitation. While referring to Byelaw 3 to Chapter XI, learned Arbitrator pointed out that the dispute between the parties arose in November, 2006 when the petitioner demanded a sum of Rs.2.85 lakhs. The petitioner contended that the dispute arose on 26.5.2006 with the last of the transactions. Taking note of the transactions that had taken place on 26.5.2006, the learned Arbitrator viewed that the dispute had to be deemed to have arisen on or before 25.11.2006 and the first respondent was expected to submit his application for arbitration before 25.5.2007. As the first respondent approached the National Stock Exchange on 12.2.2007 and 24.5.2007 and filed a formal application on 29.9.2007, the period between 12.2.2007 and 17.8.2007 taken by the National Stock Exchange to administratively resolve the issue has to be excluded. In the face of this and going by sub clause (2) to Byelaw 3, the period of limitation was taken from the date of the knowledge that the cause of action was deemed to have arisen on the expiry of six months from the date of the transaction. Hence, the learned Arbitrator held that the claim was well within the limitation period. 16. As far as Byelaw 3 sub clause (2) is concerned, disputes or difference arising between the parties should 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. In a case where the date of claim, difference or dispute arose is not ascertainable, it shall be deemed to have arisen on the date of expiry of six months from the date of the last transaction in respect of which the claim, difference or dispute had arisen. As far as the present case is concerned, it is not denied by the first respondent herein that the petitioner had intimated about the sale of the shares in its letter dated 22nd May 2006. The letter states that on account of the margin shortfall, they had squared off the position in the first respondent's account and trade had been done in three securities. The petitioner called upon the first respondent to take note of the above and without further enquiry, to get in touch with the petitioner within 24 hours of the receipt of the letter. 17. It may be relevant herein to note that prior to this date, eversince 18th May 2006, the petitioner had telephonically informed the first respondent about the same and called upon him to deposit a sum of Rs.2.9 lakhs. This fact is evidenced vide the first respondent's letter dated 12.2.2007. A reading of the said letter shows that shocked by the said demand, the first respondent contacted the Erode Branch and he was asked to contact the representative of the petitioner therein. On an assurance that the representative would revert back, there was no progress and the first respondent waited for a reply. Subsequently, on 22nd May 2006, admittedly the first respondent received the petitioner's letter. Thereupon, the first respondent contacted the petitioner herein through the Toll Free number and called for the details. The letter written by the first respondent dated 12.2.2007 disclosed the fact about the receipt of the detailed statement from Mr.Romesh, Customer Care Desk, HDFC Securities Ltd. 18. Taking cue from the fact that the petitioner had given the details on an enquiry from the first respondent, the inference is that as on the date of receipt of the letter dated 22.5.2006, the first respondent had the knowledge about the dispute that had arisen between the parties as regards the transaction that had taken place through the petitioner, which, according to the first respondent, was an unauthorised one. Surprisingly thereafterwards, nothing moved from the first respondent. 19. Although learned counsel appearing for the first respondent claimed that he was in oral correspondence with the petitioner, there are no evidence to substantiate as to the course of action taken by the first respondent after the receipt of the statement as admitted in the letter addressed on 12.2.2007. Considering the Byelaw requirement, it is clear that even though the date as to the receipt of the statement from the petitioner is not disclosed in the letter dated 12.2.2007, yet, from the facts stated from the side of the first respondent, it is clear that after the receipt of the letter dated 22nd May 2006 from the first respondent, the petitioner received the statement from the first respondent within a week thereafter. It stands to reason that at least by 22.5.2006 at the latest or the first week of June when the first respondent received the statement, the first respondent had the knowledge in respect of this transaction, though he claimed otherwise. Hence the dispute has arisen even as early as on the date when he had received the intimation as to the margin money request vide letter dated 22.5.2006 which he questoned and sought for the statement. 20. As per Byelaw 3, Chapter XI, the first respondent should have initiated the action within six months from the date on which the claim, difference or dispute arose. The last of the transactions herein was on 22.5.2006. With the knowledge about the transactions done by the petitioner and according to the first respondent, the transactions done were an unauthorised one, the first respondent should have invoked the arbitration clause under Byelaw 3 within six months from 26.5.2006. Having failed to do so, it is difficult for this Court to accept the plea of the first respondent herein that there was no knowledge on the part of the first respondent as to the transactions done by the petitioner and that he should be given the benefit of the National Stock Exchange Trading Regulation 5.4C Part A, which reads as follows: " For the purpose of Byelaw 3 of Chapter XI of the Byelaws of the Exchange, 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 last transaction in respect of which the claim, difference or dispute has arisen. " Going by the admission of the facts as seen from the letter dated 12.2.2007, it is difficult for this Court to accept that in the absence of a specific date as to the knowledge of this transaction, the limitation has to be taken as from the last of the transactions. The contention of the first respondent that the conduct of the petitioner in not furnishing the contract notes disabled him from having the knowledge on the date on which the dispute could be said to have arisen, cannot be accepted, in the face of the admitted fact as disclosed in the letter dated 12.2.2007. In the circumstances, I have no hesitation in holding that the arbitration award went against the Regulations, particularly on the admitted facts. Hence, as rightly pointed out by the learned counsel appearing for the petitioner, the award suffers from perversity, which has to be interfered with by this Court. The Tribunal viewed that the last transaction was on 26.5.2006 and the disputes would be deemed to have arisen on or before 25.11.2006 and the first respondent should have submitted the application for arbitration before 25.5.2007. The first respondent approached the NSE/SEBI on 12.2.2007 and ISE, NSE on 24.5.2007 and filed a formal application on 29.9.2007. The time taken from 12.2.2007 to 17.8.2007 to administratively resolve the issue, if excluded, the claim is not barred by limitation. As rightly pointed out by the petitioner, going by