TMI Blog2016 (7) TMI 1354X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction with a view to mitigate the loss, if any, which may be suffered by the trading member in case of any volatile market condition or otherwise. If the trading member has chosen not to demand margin money through it is mandatory in compliance with Regulation 3.10 and permits the constituent to carry out further transaction, the same would be at the risk and cost of the trading member and in such a situation, the trading member cannot be allowed to recover any alleged loss suffered by the trading member from the constituent or cannot make the constituent suffer any loss due to the non-compliance of such mandatory provisions by the trading member. In my view Mr.Purohit, learned counsel for the petitioner is right in his alternate submission that under Regulation 3.10(b), the respondent broker could not have closed out the transaction on 22nd January, 2008 in respect of the alleged shortfall of the margin money in the account of the petitioner on 22 nd January, 2008 without giving an opportunity to the constituent to make the payment on the next trading day on F&O segment of the Exchange for the concerned settlement period. It is not in dispute that the respondent broker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that the facts in all the aforesaid matters are identical, learned counsel appearing for the parties have agreed to make submissions in the Arbitration Petition No.47 of 2009 and state that the judgment in the said arbitration petition would conclude the issues raised in the other four petitions. By consent of parties, all the five petitions were heard together and are being disposed of by a common order. Since the learned counsel have made submissions in the Arbitration Petition No.47 of 2009, some of the relevant facts for the purpose of deciding the petitions based on the facts of the said petition setout are as under :- ( 2. ) The respondent herein is one of the broker registered with the National Stock Exchange of India Ltd. (hereinafter referred to as the Stock Exchange). It is the case of the petitioner that he was one of the high networth client of the respondent for last several years and had been carrying on trading in various transactions through the Chembur branch office of the respondent. The petitioner started effecting the transaction through the said Chembur office w.e.f. April 2007 on the F O segment. The petitioner had provided 6500 shares of Reliance Petro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proper reply. The petitioner was informed that the market had witnessed a drastic fall and they were in the process of obtaining shortfall in the accounts of all their clients. The petitioner was however informed that there is a margin shortfall of approximately ₹ 15,00,000/- in her account. The petitioner requested the office of the respondent not to square off the outstanding position in her account and assured that the petitioner would be forwarding a cheque of ₹ 15,00,000/- immediately and assured the respondent that whatever would be the shortfall in her account would be paid in the evening of 22 nd January, 2008 herself. The petitioner forwarded a cheque of ₹ 15,00,000/- immediately and the same had been received and encashed by the respondent. ( 7. ) It is the case of the petitioner that she was shocked and surprised when in the evening of 22nd January, 2008 she received a call from the office of the respondent and was informed that all the outstanding position in her account had been squared off directly by the head office of the respondent on the instructions of the Stock Exchange alleged to have been received in the noon on 22 nd January, 2008. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost. The said statement of claim was resisted by the petitioner by filing a written statement. The petitioner also made a counter claim against the respondent for a sum of ₹ 9,17,203.72 with interest thereon at the rate of 18% per annum from the date of filing of the counter claim till payment and/or realization togetherwith costs. ( 12. ) The learned arbitrator made an award on 24th September, 2008 and directed the petitioner herein to pay a sum of ₹ 35,19,225.42 to the respondent with interest at the rate of 12% per annum from 25 th April, 2008 till the date of payment. The arbitral tribunal rejected the counter claim made by the petitioner and directed that both the parties shall bear their cost of arbitration. Being aggrieved by the said arbitral award, the petitioner filed the Arbitration Petition No.47 of 2009. ( 13. ) The arbitral tribunal allowed the claims made by the respondent in other four arbitration proceedings and rejected the counter claims made by the petitioner. Those awards are subject matter of the Arbitration Petition No.46 of 2009, Arbitration Petition No.48 of 2009, Arbitration Petition No.57 of 2009 and Arbitration Petition No.1148 of 2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 and other companion appeals arising out of the judgment delivered by the learned Single Judge in these petitions. He submits that since the Division Bench has remanded the matter for deciding afresh, this court is empowered to decide the matter without being influenced by the observations made if any made by the Division Bench in the judgment dated 25 th June, 2013. ( 17. ) It is submitted by the learned counsel for the petitioner that the petitioner was a constituent of the respondent since 2007. There was no dispute between the parties that all margin money was paid by the petitioner from time to time whenever demanded by the respondent. He submits that on the basis of such demand made by the respondent, the petitioner had already a sum of ₹ 4,00,000/- on 18th January 2008, a sum of ₹ 5,00,000/- on 18th January 2008 and a sum of ₹ 15,00,000/- on 22nd January 2008. He submits that the petitioner had sufficient balance in her bank account to meet the alleged shortfall in margin money if any. He submits that since the demand for margin money made by the respondent on 22nd January, 2008 was only in the sum of ₹ 15,00,000/-, the petitioner had deposited t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovide margin deposit and/or furnish additional margin as required under the Rules and Regulations in respect of the business done for the constituent by and /or as agreed upon by the constituent with the trading member as and when called upon to do so by the trading member. ( 20. ) It is submitted by the learned counsel for the petitioner that it is mandatory obligation on the part of the trading member to demand from its constituent the amounts arising in respect of daily settlement in accordance with the Clearing Corporation Regulations for business done by the member on behalf of such constituent or such higher amounts as the trading member deems fit. It is submitted by the learned counsel for the petitioner that under Regulation 3.10(b), the respondent trading member could have closed out the transactions of selling or buying derivatives contracts only if the constituent would not have made payment of daily settlement within the next trading day. ( 21. ) It is submitted that even if according to the respondent any demand was made for the amount over and above the amount of ₹ 15.00 lacs from the petitioner on 22nd January, 2008 and such balance amount was not paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged by the respondent that the petitioner used to take position of more than pledged amount which was allowed by the respondent due to his requests and promises by making payment of MTM and market money in time. ( 25. ) Learned counsel for the petitioner submits that it was the case of the respondent in the statement of claim that the market had witnessed a very heavy downfall and resulted crash on 18th January, 2008, 21st January, 2008 and 22nd January, 2008 and the respondent had to take necessary steps to withstand volatility in market and therefore, the respondent was forced to apply stringent margin rules. He submits that it was the case of the respondent that while squaring off open position in F O in trading account of the petitioner and shares pledged against the margin requirement, the account of the petitioner was having margin violation and there was huge margin requirement and MTM debit in the account. The respondent thus had alleged to have insisted all the clients of all branches to ensure sufficient margin in their trading account to hold positions in F O. ( 26. ) According to the respondent, on 18th January, 2008 opening balance in the account of the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner had admitted the payment to the respondent. It was further alleged that the Branch Manager of the respondent had informed the petitioner about volatility in market and also informed that it would be impossible to hold the position unless arrangement of funds was immediately made for total outstanding debit, margin and MTM requirement. It is submitted by the learned counsel for the petitioner that the respondent however, made inconsistent submissions before the arbitral tribunal at the time of hearing and took various stands which were not pleaded by the respondent in the statement of claim or in the re-joinder. The arbitral tribunal however, allowed the respondent herein to take steps inconsistent and contradictory pleas and accepted such pleas which show perversity in the impugned award. ( 30. ) It is submitted by the learned counsel for the petitioner that if the respondent would have demanded any margin amount of ₹ 15.00 lacs on 22 nd January, 2008, the petitioner would have paid such margin money and in support of this plea the petitioner had produced the bank account statement of the petitioner showing sufficient credit balance in the account of the petitioner. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel appearing for the petitioner placed reliance on the judgment of this court delivered on 29th July, 2011 in case of Idea International Pvt.Ltd. vs. Motilal Oswal Securities Pvt. Ltd. in Arbitration Petition No.144 of 2007 and other connected matters in support of the submission that even if under the agreement entered into between the parties, the respondent broker is given an authority to sell all or any of the security held by it on behalf of the petitioner, such discretion has to be exercised by the broker in a reasonable way or for the benefit of its client. He submits that in this case, the respondent broker did not wait till closing of trading hours on 22nd January, 2008 but squared off the transaction in the morning hours of 22nd January, 2008 itself. ( 34. ) It is submitted by the learned counsel for the petitioner that though the arbitral tribunal on one hand has rendered a finding that till 21st January, 2008 there was no dispute raised by the respondent in respect of the margin money though there was a debit balance according to the respondent in the account of the petitioner till 21st January, 2008, on the other hand the arbitral tribunal has dis- believed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned award and would submit that even according to the petitioner, the fact that the respondent had made a demand for margin money to the petitioner was not disputed. He submits that the only dispute raised by the petitioner was that the demand was made for margin money only for the sum of ₹ 15 lacs and not above the said amount. He submits that the statement of account of the petitioner reflected shortfall of much higher amount upto 21st January, 2008 and thus there was no question of the respondent demanding the margin money only to the extent of ₹ 15 lacs. ( 38. ) Learned senior counsel placed reliance on clause 29 of the Stock Broker- Client Agreement dated 3rd April, 2007 entered into between the parties and would submit that under the said clause, it was at the discretion of the respondent broker to make demand for margin money as per the requirement from time to time. He submits that in case of mark to market loss , payment was not required to be made by the constituent next day of the settlement. He submits that the petitioner was required to pay margin money on the basis of the day to day transaction. It is submitted that in any event the said clause 29 gav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned arbitrator. ( 43. ) Learned senior counsel placed reliance on the judgment of Supreme Court in case of P.R.Shah, Shares and Stock Brokers Private Limited vs. B.H.H.Securities Private Limited and others, (2012) 1 SCC 594 and in particular paragraph 21 and would submit that this court cannot sit in appeal over the award by reassessing or re-appreciating evidence to find out whether different decision could be arrived at against the findings of arbitral tribunal in absence of grounds under section 34. ( 44. ) MR .Purohit, learned counsel appearing for the petitioner in rejoinder submits that the respondent could not have placed reliance upon clause 29 of the Member Constituent Agreement which was ex-facie contrary to and inconsistent with the Regulation 3.10 framed by the Stock Exchange. He submits that the only the relation manager of the respondent could make a demand for margin money which was admittedly not made by him. He submits that the squaring off of the transaction was made by the head office and not by the Chembur Office. He submits that INSOFAR as F O transactions are concerned, every day the settlement of account takes place. He submits that the actual market t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the volatility in market and therefore was forced to apply stringent margin rules. At that time the respondent had given instructions to all its office branches to comply with the margin rules thoroughly. Only those clients were allowed buying where there were sufficient credit balance in their accounts and were not allowed to set limits on the basis of fresh pledge. Trading was allowed only after collecting sufficient margins from clients. It was alleged in the statement of claim that in view of situation of huge market volatility and resultant market crash, the respondent had insisted all clients at all branches to ensure sufficient margin in their trading account to hold the position in F O. ( 48. ) A perusal of the record indicates that even according to the respondent herein, there was huge debit balance and the shortfall in margin amount in the account of the petitioner since 16th January 2008 onwards till 22nd January 2008. It was not the case of the respondent that the petitioner had made the payment of ₹ 4,00,000/- on 17th January, 2008 and a sum of ₹ 5,00,000/- on 18 th January, 2008 to meet the exact amount of shortfall in the account of the petitioner. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time provide a Margin Deposit and/or furnish additional Margin as required under these Rules and Regulations in respect of the business done for the constituent by and/or as agreed upon by constituent with the Trading Member concerned. The Trading Member shall demand from his constituents the amounts arising in respect of daily settlement in accordance with the Clearing Corporation Regulations for business done by the Members on behalf of such constituents or such higher amounts, as the Trading Member deems fit. The Trading Member may, if so desire, for administrative convenience maintain the daily settlement margin balance upto a pre-agreed balance level to avoid collecting and paying daily settlement amount on a daily basis, which may be referred to as maintenance margin. The trading member may keep the unutilised margin deposits of its Constituents in bank deposits and pay interest accrued thereon to its Constituents or utilise the same as per the instructions of such Constituents. (b) Constituent(s) in default In case of non-payment of daily settlement bythe constituents within the next trading day, the Trading Member shall be at liberty to close out transactions by selling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o enable restoration of sufficient margin in the CLIENT's account all or some of the position of Client as as well as the securities placed as margin may be liquidated by GEOJIT at its sole discretion, without any reference or prior notice to the CLIENT. The resultant or associated losses that may occur due to such squaring off or sale of securities shall be borne by the CLIENT and GEOJIT is hereby fully indemnified and held harmless by the CLIENT in this behalf. Such liquidation or close out of positions shall apply to any segment in which the CLIENT does business with GEOJIT. ( 52. ) The arbitral tribunal has placed reliance on clause 29 of the agreement entered into between the parties and has held that as per clause 29 of the said agreement, the trading member was at its sole discretion to exercise his right to liquidate position/ security on occurrence of shortfall in margin. It is held that the trading member usually makes a margin call which his client is required to fulfill. It is held that in the instance case it is on record that the respondent herein had made margin call and the petitioner had made a request not to square off her outstanding position and had assur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions by effecting purchases of derivatives contracts if the constituent fails to meet the obligation in respect of the open position within next trading day of the transaction having been executed on the F O segment of the Exchange for the concerned settlement period. It is thus clear that the demand of margin deposit from the constituent by the trading member is mandatory in respect of the business done by the members for such constituents at such percentage as the relevant authority may decide from time to time unless the constituent has equivalent credit with the trading member. ( 55. ) It is note the case of the respondent that during the period between 16th January, 2008 and 22nd January 2008, the petitioner had already an equivalent credit of the margin deposit or had pre-agreed balance with the respondent and thus the respondent was not required to demand from the petitioner further margin deposit. In my view, the obligation on the part of the respondent trading member to demand margin from the constituent was mandatory and not discretionary. Since according to the respondent themselves there was a substantial amount of debit balance in the account of the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 15,00,000/- from the petitioner. The arbitral tribunal in such circumstances could not have drawn any adverse inference against the petitioner. ( 58. ) In my view, the onus was on the respondent to prove that the demand for amount of margin money as required under Regulation 3.10(a) was actually made by the respondent from the constituent and was not paid by the petitioner. Admittedly, the respondent had the e-mail ID of the petitioner. Not a single document was produced by the respondent before the arbitral tribunal to show that any demand for the margin money was made by the respondent member upon the petitioner of the amount which was demanded but not paid by the petitioner. In my view, the impugned award is without any evidence and thus deserves to be set aside. ( 59. ) The conjoint reading of Regulation 3.10 which is statutory regulation with clause 29 of the agreement entered into between the parties clearly indicates that there is inconsistency between the said Regulation 3.10 and clause 29 of the agreement INSOFAR as duties and obligation of trading member to demand margin money and to close out the transaction upon the constituent committing the default is con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction with a view to mitigate the loss, if any, which may be suffered by the trading member in case of any volatile market condition or otherwise. If the trading member has chosen not to demand margin money through it is mandatory in compliance with Regulation 3.10 and permits the constituent to carry out further transaction, the same would be at the risk and cost of the trading member and in such a situation, the trading member cannot be allowed to recover any alleged loss suffered by the trading member from the constituent or cannot make the constituent suffer any loss due to the non-compliance of such mandatory provisions by the trading member. ( 62. ) In my view Mr.Purohit, learned counsel for the petitioner is right in his alternate submission that under Regulation 3.10(b), the respondent broker could not have closed out the transaction on 22nd January, 2008 in respect of the alleged shortfall of the margin money in the account of the petitioner on 22 nd January, 2008 without giving an opportunity to the constituent to make the payment on the next trading day on F O segment of the Exchange for the concerned settlement period. It is not in dispute that the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange were produced on record by the respondent before the arbitral tribunal. In my view the judgment of this court in case of Idea International Pvt.Ltd. (supra) applies to the facts of this case. I am respectfully bound by the same. ( 66. ) Insofar as submission of the learned senior counsel for the respondent that this court cannot interfere with the findings of fact rendered by the arbitral tribunal in these petitions filed under section 34 of the Arbitration Act is concerned, in my view since the arbitral tribunal has rendered various findings which are perverse and are based on no evidence and since the award rendered by the arbitral tribunal is in violation of and overlooking the mandatory regulation framed by the Stock Exchange and is based on presumption and surmises, this court has power to set aside such arbitral award under section 34 of the Arbitration and Conciliation Act, 1996. ( 67. ) There is no dispute about the proposition of law laid down by the Supreme Court in case of Ravindra Kumar Gupta and Company (supra) and in case of P.R.Shah, Shares and Stock Brokers Private Limited (supra) holding that this court cannot sit in appeal over an award by reassessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on end of the day on 21st January, 2008. In my view this part of the award also shows patent illegality. Since the arbitral tribunal has committed patent illegality in allowing the claims made by the respondent broker for the reasons recorded aforesaid, the rejection of counter claim made by the petitioner by the arbitral tribunal on the same basis also shows patent illegality and deserves to be set aside. ( 71. ) Insofar as other four petitions are concerned, since the parties have agreed that the reasons and conclusions drawn by this court in Arbitration Petition No.47 of 2009 would apply to those four petitions and have not addressed this court separately in respect of other four arbitration petitions, this court has not dealt with the facts in each of these four petitions separately. This court has proceeded on the basis of the statement made by the learned counsel appearing for the parties and have rendered a common judgment. ( 72. ) I , therefore, pass the following order :- (a) Arbitration Petition No. 47 of 2009, Arbitration Petition No. 56 of 2009,Arbitration Petition No. 48 of 2009, Arbitration Petition No. 57 of 2009 and Arbitration Petition No. 1148 of 2012 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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