CS(OS) No.1278/1995 Page 1 of 29 * IN THE HIGH COURT OF DELHI AT NEW DELHI Judgment Reserved on: 21.1.2010 % Judgment Delivered on: 29.1.2010 + CS(OS) No.1278/1995 & C.C.No.2184/1998 SHRI HARI OM MAHESHWARI ………..Plaintiff Through: Plaintiff in person. Versus SHRI SANJAY KUMAR JALAN & ANR. …………..Defendants Through: None. CORAM: HON'BLE MS. JUSTICE INDERMEET KAUR 1. Whether the Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in the Digest? Yes INDERMEET KAUR, J. 1. Present suit has been filed by the plaintiff who is stated to be a member of Delhi Stock Exchange Association Ltd. i.e. defendant No.2. His membership number is D-273 and he is carrying on business of shares and stocks brokers under the name and style of M/s H. Maheshwari & Co. since 24.4.1990. 2. Defendant No.1 is also a member of the defendant No.2. His membership code is D-239 and is carrying on business of shares CS(OS) No.1278/1995 Page 2 of 29 and stock brokers under the name and style of M/s B.K.Jalan & Co. which was subsequently taken over by M/s BKJ Securities Ltd. under the same membership code. 3. Defendant No.2 is a public limited company and is a recognized stock exchange under the provisions of the Security Contract (Regulations ) Act, 1956 ( hereinafter referred to as “the said Act”). This company has been incorporated to facilitate the business of the stock exchange and provides to its members facility of a trading hall, clearing house, settlement of members‟ disputes. It is guided by its Articles, Rules, Regulations, Bye-laws as approved by the Central Government under the provisions of the said Act. These provisions are applicable and binding on all members of the defendant No.2. 4. That under Section 14 of the said Act any contract in shares and securities in contravention of the bye-laws as specified under Clause(a) of sub-Section 3 of Section 9 shall be void. The procedure adopted for share transaction pursuant to the Articles, Rules, Regulations, and Bye-laws of the Stock Exchange have been detailed. (a) It is stated that defendant No.2 issues to its members two books namely the daily transaction book known as a chopri and the errors corrections book. The pages of the chopri are numbered and bear the stamp of the executive director of the defendant no.2. The transaction done in the CS(OS) No.1278/1995 Page 3 of 29 trading hall of defendant No.2 are recorded by the members in the chopri at the end of every trading session and a leaf of the said chopri containing the day‟s transaction is submitted to defendant No.2 on the very same day. Only the transactions entered in the chopri constitute a contract between the members of the defendant No.2. (b) The errors correction book is used to correct a transaction which is already reported to the defendant No.2 during a settlement period through the chopri but for some reason, the transaction has not matched in the in the records of the defendant No.2. Unlike the chopri, the pages of the errors correction book do not bear the stamp of the executive director nor the pages of this book were numbered. (c) On the basis of the transaction reported by the various members through the daily transactions list, defendant no.2 prepares two sets of list, namely:- (i) Match list comprising of transactions reported by both the parties to the transactions and matched. (ii) Error list comprising of the transactions reported by the members but where there is a discrepancy either in the name or code of the CS(OS) No.1278/1995 Page 4 of 29 members or the shares or there is a variation in quantity or rates etc. The members are required to get the errors corrected. Thereafter, a final match list of all the transactions for a particular settlement is prepared and circulated amongst the members by defendant No.2. (d) At the end of each settlement, defendant No.2 fixes rates for every share on the basis of the rates prevailing at the end of the trading session. Delivery of the shares between the members takes place at the rates so fixed by defendant No.2. Amount of difference due to or due by a member is worked out by defendant No.2 for each settlement. Payment of the difference list takes place through clearing house of defendant No.2, at the scheduled date. (e) In respect of the transactions between the members of defendant No.2, no contract note is required to be issued nor any member raises difference bills between themselves because all transactions are compulsorily routed through defendant No.2 who enforces the performance of the contracts entered into by its members. (f) In order to facilitate the payments, members are required to open a current account with the Bank designated by defendant No.2 and the members are required to maintain sufficient funds in the account so that the amounts due by CS(OS) No.1278/1995 Page 5 of 29 them in a particular settlement can be debited through the clearing house. In case a member fails to arrange the funds, defendant No.2 gets the membership card of the defaulting member auctioned to recover the dues. (g) Disputes between the members in respect of the transactions entered in the trading hall of defendant No.2 are settled through the Committees formed by the Board of Directors of defendant No.2. Under Article 127 of the Articles of Association as well as Rule 281 of the Bye-laws of defendant No.2, settlement of disputes between the members and defendant No.2 is done through the process of Arbitration; members are specifically debarred from commencing any legal proceedings against another in terms of Rule 282 of the Bye-laws without the permission of the Board of Directors of defendant No.2. 5. That on or about 15.5.1992 defendant No.2 provided a payment difference list for settlement for the period w.e.f. 7.4.1992 to 08.5.1992. A sum of Rs.14,66,350/- was shown payable by the plaintiff to defendant No.1 of which Rs.14,40,500/- was on account of the difference in the alleged purchase of 3000 share of Bindal Agro and 35000 of Oswal Agro by the plaintiff from the defendant No.1. 6. The amount of Rs.14,40,500/- was worked out as follows :- CS(OS) No.1278/1995 Page 6 of 29 Name of Share Quantity Purchase Delivery Difference Amount Rate Price --------------- ------------ -------- ----- --------------- Bindal Agro 3,000 75.00 54.50 61,500.00 Oswal Agro 35,000 126.40 87.00 13,79,000.00 ----------------- Total 14,40,500.00 ----------------- 7. It is stated that this purchase was neither recorded on the chopri of the plaintiff nor any such purchase was reported to defendant No.2 through the daily transaction list during the said settlement period or in the previous settlement period. 8. In the consolidated match list for the settlement ending on 8.5.1992 the date of purchase of 3,000 shares of Bindal Agro has been shown as on 7.5.1992; purchase of 35,000 shares of Oswal Agro is not appearing in the consolidated match list of transaction for settlement ending on 08.5.1992. However, in the final list of transactions for the said settlement, the transaction of 35,000 shares of Oswal Agro is recorded. 9. It is stated that since there was no transaction of the purchase of 35,000 shares of Oswal Agro and 3,000 shares of Bindal Agro by the plaintiff from defendant No.1 nor any such transaction was reported through the daily transaction list; recording of this transaction by defendant No.2 is violative of the rules, regulations and bye-laws of defendant No.2 and fraudulent in nature. CS(OS) No.1278/1995 Page 7 of 29 10. That this was brought to the notice of the executive director of defendant No.2 but they denied the liability. In spite of efforts defendant No.1 could not be contacted. Plaintiff to save his membership card and to protect his solvency was left with no option but to make the payment shown in the difference payment list for the settlement ending on 08.5.1992. 11. It is stated that on 07.5.1992 when this transaction was recorded the rate of the share of Bindal Agro was Rs.57 as against the rate of Rs.75 shown as the rate on which plaintiff had purchased the shares from the defendant No.1; on 08.5.1992 when the transaction of 35,000 shares of Oswal Agro were recorded the prevailing rate was Rs.87 as against the rate of Rs.126.40 as shown to be the purchase price by the plaintiff from defendant No.1. 12. Plaintiff to square off the purchase of the aforestated shares was forced to sell them in the market and bear the difference between the alleged purchase price and the sale price because otherwise the plaintiff would have to take delivery of these shares by making payment of Rs.47 lacs which was not within the means of the plaintiff. Plaintiff sold 3,000 shares of Bindal Agro and 35,000 shares of Oswal Agro in different lots and at different rates which averaged at Rs.42 in the case of Bindal Agro and Rs.60 in the case of Oswal Agro and thus incurred a loss of Rs.24.23 lacs. CS(OS) No.1278/1995 Page 8 of 29 13. On 16.10.1992, defendant No.1 had lodged claim against the plaintiff for non-payment of Rs.1,75,950/- the settlement period mentioned in this claim was 16.4.1992 to 26.4.1992; 26.4.1992 being a public holiday; this discrepancy itself reflects on the fraud played by defendant No.2 against the plaintiff. 14. On 2.11.1992 a committee of defendant No.2 approved the claim of defendant No.1; this was again a fraud played upon the plaintiff; plaintiff referred the matter to defendant No.2 vide letter dated 12.1.1993 and raised a claim of Rs.27.70 lacs against defendant No.1; Rs.25.95 lacs as detailed supra and an amount of Rs.1,75,950/- which was the fraudulent claim made by defendant No.1 against the plaintiff. In spite of repeated reminders dated 4.3.1993, 15.4.1993 and 18.5.1993 no action was taken by defendant No.2. 15. On 9.11.1993, an executive director of defendant No. 2 informed the plaintiff that he has been granted approval to approach the authority in law to recover his dues from defendant No.1. This was in violation of Article 127 of the articles of association and bye-law 281 of defendant No.2. The plaintiff vide communication dated 17.11.1993 and letter dated 1.5.1995 made representations to defendant No.2 to re-consider the matter but of no avail. 16. It is stated that defendant No.2 in yet another instance of bestowing undue favour to defendant No.1 directed the plaintiff to CS(OS) No.1278/1995 Page 9 of 29 pay to defendant no.1 a sum of Rs.2,72,250/- along with interest @ 18% per annum which was a time barred claim of defendant No.1. Plaintiff disputed this claim. His entry was banned in the trading hall in an illegal manner. Plaintiff filed Suit No.370/93 and Suit No.543/93 against defendant No.2 which matter is pending in a revision petition. 17. Plaintiff has been defrauded by defendant No.1 in the sum of Rs.25,95,450/-. A sum of Rs.14,40,500/- was received by defendant No.1 through defendant No.2 when there was no transaction of the alleged 3,000 shares of Bindal Agro and 35,000 shares of Oswal Agro. A loss of Rs.9,82,500 had been suffered by the plaintiff in squaring off the aforestated purchases; a sum of Rs.1,72,450/- has also been claimed which was a fraudulent claim set up by defendant No.1 against the plaintiff. Plaintiff is also entitled to interest @ 18% per annum on the aforestated amount of Rs.25,95,450/-; the interest worked out is of Rs.12,45,816/-. Decree for a sum of Rs.38,31,266/- has been prayed for. A decree of mandatory injunction has also been prayed for against the defendant No.2 directing the defendant No.2 to exercise its lien on the membership card bearing No.D-239 in the name of M/s BKJ Securities who had taken over the assets of the firm owned by defendant No.1. 18. In the context of the last prayer made by the plaintiff i.e. the prayer for the mandatory injunction against defendant No.2, it is CS(OS) No.1278/1995 Page 10 of 29 pointed out by the plaintiff that he is no longer pressing his prayer. An application i.e. I.A. No.10283/1999 had been filed under Order 39 Rule 1 & 2 & Order 38 Rule 5 CPC seeking this payer, which had been rejected vide order dated 5.2.2003. That order has since attained finality. Plaintiff in view thereof is no longer pressing this alternate prayer. 19. Written statement and counter claim has been filed by defendant No.1. A preliminary objection has been taken that the plaintiff is no longer a member of the Delhi Stock Exchange. It is stated that the membership held by defendant No.1 of the Delhi Stock Exchange has since been sold to M/s BKJ Securities Limited and the said membership code of defendant No.1 D-239 stand transferred to M/s BKJ Securities Limited. 20. On merits, it is stated that the procedure adopted by the Delhi Stock Exchange is not a correct narration; rules, regulations and bye-laws of defendant No.2 be looked into for the said purpose. 21. It is denied that a transaction entered in the chopri alone constitutes a contract; for instance, one member has reported the transaction to defendant No.2 and has entered it in his chopri but the other member accidently, deliberately, bonafidely or malafidely or for any other ulterior purpose does not enter the transaction in his own chopri at the relevant date; last transaction between the two members would be duly recognized by the Delhi Stock CS(OS) No.1278/1995 Page 11 of 29 Exchange as a contractual transaction between those members provided that such a transaction has been matched by both the members to the said transaction before the settlement date relating to any particular period. 22. It is stated that if one member had not recorded the transaction in his chopri and correspondingly other member had recorded the same transaction in his own chopri then such type of transaction can be rectified by defendant No.2 through the error correction list, in case such a transaction is matched by both the members before the settlement date concerning the relevant close settlement period. Such a transaction which is rectified through the error correction list is not a fresh transaction. The final match list prepared and circulated by defendant No.2 is finalized only after the process of matching of transactions and the rectification of the errors is over. If after the final match list there are still some claims and counter claims among the members, the matter can be resolved through the process of arbitration of defendant No.2. 23. It is submitted that the transaction relating to the 3,000 shares of Bindal Agro, 35,000 shares of Oswal Agro and 9,00 shares of M/s J.P.Industries had taken place between the plaintiff and defendant No.1 on 6.5.1992 whereby the defendant No.1 had sold all these shares to the plaintiff. All these three transactions between the plaintiff and the defendant No.1 were reported by CS(OS) No.1278/1995 Page 12 of 29 defendant No.1 on the same day when the transaction took place by the submission of the leaf of his chopri completed on the same day on the floor of the house of defendant No.2. Plaintiff with a dishonest intention did not report these transactions in this manner in his chopri. The transaction pertaining to 3,000 shares of Bindal Agro, 9,00 shares of M/s J.P.Industries were matched by plaintiff in the error correction list on the very next date i.e. on 7.5.1992. The transaction of 35,000 shares of Oswal Agro was matched on the next working day i.e. on 07.5.1992; plaintiff on that day deliberately showed the purchase of 3,500 shares of Oswal Agro instead of indicating the number to be 35,000 shares of Oswal Agro; result was that even on the next working day i.e. on 8.5.1992 the said transaction was shown in the error list; on the next working day, plaintiff reported the correction of the said error from 3,500 to 35,000 shares of Oswal Agro to defendant No.2 and he got the said transaction matched through the regular error correction list in accordance with the regulations and bye-laws of defendant No.2 before the date of settlement of account i.e. for the settlement period 27.4.1992 to 08.5.1992. 24. It is stated that on 06.5.1992, plaintiff had conducted the transaction of the sale and purchase of 3000 shares of Bindal Agro @ Rs.75 per share, 35,000 shares of Oswal Agro @ Rs.126.40 per share and 9,00 shares of M/s J.P.Industries @ Rs.241.50 per share. All the aforestated transactions between the plaintiff and CS(OS) No.1278/1995 Page 13 of 29 defendant No.1 had been shown by defendant No.1 in his chopri of 06.5.1992. However, since the plaintiff had not reported all these transaction to defendant No.2 in his chopri, these transactions were shown in the error correction list issued by defendant No.2 on the next working day. The plaintiff came out with his error correction report to defendant No.2 and through the said error correction report the plaintiff reported to defendant No.2 about the correctness of the transaction which had taken place between the plaintiff and defendant No.1 with regard to 3,000 shares of Bindal Agro @ Rs.75 per share and the second transaction of 9,00 shares of M/s J.P.Industries @ Rs.241.50 per share. The error correction report regarding transaction of 35,000 shares of Oswal Agro were deliberately not recorded by the plaintiff and were in fact recorded as a transaction of 3,500 shares of @ Rs.126.40 per share. Net result was, out of these three transactions, the one transaction of Oswal Agro again appeared in the error correction list issued by defendant No.2; thereafter plaintiff came out with the correct reporting of the transaction to be of 35,000 of Oswal Agro shares @ 126.40 per share. 25. Ultimately all the three transactions between the plaintiff and the defendant No.1 had been duly matched before defendant No.2 relating to this aforestated settlement period of 27.4.1992 to 8.5.1992 before the settlement date of 15.5.1992. CS(OS) No.1278/1995 Page 14 of 29 26. It is stated that a transaction which is not reported by the members to defendant No.2 cannot be recorded by defendant No.2 in spite of the fact that the matching has been done by the corresponding members. The final statement of account with the final match list is drawn up by defendant No.2 and the final delivery payment statement is also prepared by defendant No.2 after the errors and corrections are rectified by the concerned members before the actual date of settlement of account from the previous settlement period. 27. The contention of the plaintiff that executive director of defendant No.2 did not listen to the plaintiff is incorrect; plaintiff even as per his own showing had knowledge about the matching of the transaction in question and the amount paid to defendant No.1 by middle of May 1992, yet he slept over the matter of so called fraud for a period of about seven months when all of a sudden, through his alleged claim for Rs.27,70,000/- against defendant No.1 he made a representation to Delhi Stock Exchange through his communication dated 12.1.1993. This was a calculated move to cause harm and wrongful loss to defendant No.1; this claim is even otherwise barred by estoppel. 28. It is submitted that at the relevant time the plaintiff had an obligation to make payment of Rs.14,66,350/- which was due from the plaintiff to defendant No.1 for the settlement period ending on 8.5.1992. Defendant was bound to discharge this liability. It is CS(OS) No.1278/1995 Page 15 of 29 stated that although the rates of opening and closing of transaction at the floor of defendant No.2 may be different the rates at which the transaction had actually taken place between the members during the course of the day; no hard and fast rules of calculation of difference of the value of a particular day is applicable; this is because of the fluctuating situation of the rates between the settlement period and settlement dates as fixed by defendant No.2. There is no question of any fraud having been played by the defendants upon the plaintiff. It is stated that the plaintiff is a chronic litigant and has filed several cases against the defendant No.2; the imaginary loss set up by the plaintiff as per his own calculation is wrong and denied. 29. So far as the raising of difference bills by defendant No.1 on the plaintiff, payment of one bill for Rs.1,72,450/- had been made but payment in respect of difference bills for Rs.1,75,950/- has not been made by the plaintiff to defendant No.1. Plaintiff has sold his membership ticket to some other person without settling the claim of defendant No.1 which claim is alive and subsisting against the plaintiff. The plaintiff has no legal right to ask for a refund of payment of Rs.1,72,450/- made by him to defendant No.1. 30. In the counter claim, it has been submitted that there are three payments due from the plaintiff i.e. a sum of Rs.2,72,250/-, Rs.1,75,950/- and an amount of Rs.15,122.50 as also interest accruing thereon. CS(OS) No.1278/1995 Page 16 of 29 31. A sum of Rs.2,72,250/- was collected by the plaintiff from the defendant No.2 and is duly reflected in the payment of adjustment list issued by defendant No.2 on 06.4.1992. Thereafter the plaintiff took the same payment from defendant by means of cheque No.371123, cleared by the bankers of M/s B.K.Jalan & Co. on 20.9.1992 for which a claim has been lodged against the plaintiff by defendant no.1 with defendant No.2. 32. The difference bill in the sum of Rs.1,75,950/- dated 27.4.1992 had been lodged by defendant no.1 with defendant No.2 against the plaintiff which matter is also pending. 33. The third amount of Rs.15,122,50/- is payable by the plaintiff on account of the return of the 50 shares of SIE Ltd. which was returned to the plaintiff as bad delivery through defendant‟s bill no.5839 dated 29.10.1992. A total sum of Rs.4,63,322.50 is payable by the plaintiff to the defendant besides interest @ 18% per annum calculated at Rs.5,31,000/- is also payable totaling a sum of Rs.9,94,322.50. 34. Replication to the written statement and written statement to the said counter claim has been filed by the plaintiff reiterating and averments made in his plaint while refuting the submission made by the defendant in the counter claim. 35. On 31.7.1998, the application filed by defendant No.1 under Section 34 of the Arbitration Act 1940 seeking a stay of the present suit proceedings was dismissed. Stand of the plaintiff was that CS(OS) No.1278/1995 Page 17 of 29 since both the plaintiff and defendant No. 1 have ceased to be members of Defendant No. 2, no recourse can be taken to arbitration. 36. On 29.7.2002, the following issues were framed :- 1. Whether the suit is barred by limitation? OPD 2. Whether the plaintiff is entitled to interest, if so, at what rate and what amount ?OPP 3. Whether the plaintiff is entitled to a decree of mandatory injunctions against defendant No.2.? OPP 4. Whether the counter claim of defendant No.1 is within limitation? OPD 5. If the Issue No.4 is answered in affirmative, whether the defendant No.1 is entitled to recover the amount of counter claim from the plaintiff? OPD 6. Whether the defendant No.1 is entitled to any interest, if so, at what rate and what amount ? OPD 7. Relief. 37. On 5.2.2003, on the application filed by the plaintiff under Order 39 Rule 1 & 2 CPC and Order 38 Rule 5 CPC seeking attachment before judgment against defendant No.1 and the alternate prayer against defendant No.2 not to allow any change in the constitution of its membership was dismissed. In view thereof counsel for the plaintiff has conceded that issue No.3 no longer CS(OS) No.1278/1995 Page 18 of 29 survives and he is not pressing his prayer for a decree of mandatory injunction against the defendant No.2. 38. Matter was listed for evidence, the plaintiff has examined two witnesses namely the plaintiff Hari Om Maheshwari as PW-1 and