Bangalore District Court
Motilal Oswal Financial Services ... vs Partik Singla on 15 March, 2023
IN THE COURT OF LXXXIX ADDL.CITY CIVIL & SESSIONS
JUDGE, BENGALURU. (CCH-90)
Present: Sri.S.J.Krishna, B.Sc., LL.B.,
LXXXIX Addl.City Civil &
Sessions Judge, Bengaluru.
Dated: 15th MARCH 2023
Com.A.P.No.91/2022
PETITIONER : Motilal Oswal Financial Services Limited,
Gokhale Road, Motilal Oswal Tower,
Prabhadevi, Mumbai
Maharashtra-400 025
Represented by its authorised personnel
Sri.Vinod Kumar. B.
(By Sri.Chandrashekhar.C.Chanaspur,
Advocate)
Vs.
RESPONDENT: Partik Singla,
No.6/2 Ranbir, Ranbir Marg,
Model Town, Patiala-147 001,
At present
A505, Keerthi Royal Palm Apartment
National Highway NH7, Beretena Agrahara,
Bangalore-560 100.
(By Partik Singla, party in person)
/2/
Com.A.P.No.91/2022
Date of Institution of suit : 12.09.2022
Nature of suit : U/sec.34 of the Arbitration &
(suit on pronote, suit for Conciliation Act, 1996.
declaration and
possession suit for
injunction, etc.,)
Date of commencement : -
of recording of evidence
Date of judgment : 15.03.2023
Total duration : Year/s Month/s Day/s
00 06 03
(S.J.KRISHNA)
LXXXIX ADDL.CITY CIVIL &
SESSIONS JUDGE, BENGALURU.
(CCH-90)
JUDGMENT
M/S. Motilal Oswal Financial Services Limited has filed this Arbitration suit U/Sec.34 of the Arbitration & Conciliation Act, 1996 praying the Court
a) to set aside the Award dated 11.02.2022 passed by the learned Arbitral Tribunal in No.NSEBEN/0003593/2021/ISC/ IGRP/ARB and Award dated 14.06.2022 passed by the Appellate Arbitral Tribunal in Appeal Arbitration Matter No.NSEBEN/0003593/21-22/ISC/IGRP/ARB/APPL.
b) Direct the National Stock Exchange of India Ltd., to release in favor of the petitioner, a sum of ₹.5,85,000/- or such other sum of money as kept blocked by the National Stock /3/ Com.A.P.No.91/2022 Exchange of India Ltd., from TM Funds pursuant to present case on hand.
e) The exemplary cost of Arbitration may be imposed upon the defendant with costs.
d) Such other relief as this Hon'ble Court deem fit, in the interest of justice and equity.
For the sake convenience the parties to the suit Com.A.P.No:91/2022 are referred to as 'Petitioner' and 'Respondent' respectively.
BRIEF FACTS OF THE CASE:
02. The Petitioner is a registered stock broker with National Stock Exchange of India Limited and Bombay Stock Exchange Limited and is carrying out their business as Stock broker in accordance with the provisions of the Rules, Regulations and Bye-laws of the Exchange having office as mentioned in the cause title.
03. The Petitioner is a Company incorporated under the provisions of the Companies Act, 1956 and having its registered office at Motilal Oswal Towers, Junction of Gokhale & Sayani Road, Prabhadevi, Mumbai - 400 025. The Petitioner is having several clients all across India and the respondent is also amongst them.
/4/ Com.A.P.No.91/2022
04. On or around 23-Mar-2007, the Respondent approached the Petitioner, being desirous of trading in stock market. As prescribed by the rules, regulations, bye-laws, etc., framed by SEBI and executed the physical account opening documents and also the Respondent executed documents, which sets out the rights and obligations of the stock broker/trading members as well as the client for trading on the respective exchanges. Furthermore, all mandated documents as prescribed by the exchanges; were duly executed/ provided to Respondent. Only after completing the formalities of registration, the Petitioner had allotted a unique Client Code:
E51797 to the Respondent for execution of transactions.
05. Prior to initiation of trades in the share market, the Respondent was provided with all the required documents/ guidelines which the Respondent has confirmed to have read, understood and to be adhered to while applying for trading in share market.
06. The Respondent at the time of opening his account with the Respondent had specifically instructed to receive all contract notes, bills, various statements and communications of Trading account in electronic form on the Email ID of the Respondent i.e. [email protected] and to receive all the trading SMSs on his mobile vide his mobile no.
/5/ Com.A.P.No.91/2022 9880015058.
07. The Respondent was provided with the online login access of his account. Accordingly the Respondent was regularly accessing his account and placing his orders by visiting Website/ App based online application of the Petitioner, through online login using USER-ID and secret PASSWORD.
08. The Respondent had initiated his Cash segment transactions on 12-April-2007. Later the Petitioner had started his Derivative and Commodity segment trades on 13-May- 2009 and on 02-April-2018, respectively. The Respondent placed orders for sale and purchase of securities & contracts and the Petitioner had executed all the transactions of the Respondent as per the direction of the Respondent in Cash and Derivative segment along with Commodity segment.
09. On 07-April-2021 the Respondent had raised his concern that he had placed online After Market Order (AMO) at 8.30 AM on the said trading day, to close the open position in OPTIDX NIFTY 2021-04-08 14800.00 PE-NSE, which he had created on 06-April-2021. But, said active order was not executed on the Exchange platform due to technical issue/ glitch at Petitioners trading application, leading to his loss of ₹.5,85,000/-.
/6/ Com.A.P.No.91/2022
10. The Respondent was not satisfied with the Petitioners response, so on 29-April-2021 the Respondent filed his complaint in SEBEN/0003593/21-22/ISC/IGRP before NSEIL, Bangalore alleging the same allegation and had claimed a loss amount of ₹. 5,85,000/-. In the said complaint, the Petitioner filed its Reply on 21-May-2021.
11. The Learned GRC Panel Member heard the matter and passed an order on 17-June-2021. In the said order, Ld. Panel Member held an Admissible Claim to the extent of ₹.5,85,000/-. In pursuance to the above the order dated 17- June-2021, the NSE has debited a sum of ₹. 5,85,000/- from the account of the Petitioner.
12. The Petitioner filed Form No.I before the Sole Arbitrator in Arbitration Matter No. NSEBEN/ 0003593/20- 21/ISC/IGRP/ARB before NSEIL, Bangalore, challenging the order of Ld. GRC Member passed vide its' minutes dated 17- June-2021. The petitioner has filed the claim petition before the Sole Arbitrator in Arbitration Matter No.NSEBEN/ 0003593/ 20-21 /ISC/IGRP/ARB before NSEIL. The petitioner in support of his case has also produced the Master Circular dated 01-06- 2018. The respondent appeared before the Sole Arbitrator and filed his statement of defense before him along with the documents.
/7/ Com.A.P.No.91/2022
13. After hearing both the parties the Ld. Sole Arbitrator has passed the Award dated 11-02-2022 by rejecting the claim of the Petitioner.
14. The Petitioner being aggrieved by the Original Arbitral Award, has filed the Form No.III along with memorandum of appeal, before the Appellate Arbitral Tribunal in Appeal Arbitration Matter No.NSEBEN/003593/21-22/ISC /IG RP/ARB/APPL. Thereafter the petitioner has also filed the additional submission along with two documents (Statements). The respondent herein has also filed his objections to the appeal memo filed by the petitioner.
15. The Appeal Arbitration Proceeding was heard and the Appellate Arbitrators i.e., Appellate Arbitral Tribunal passed the Impugned Award dated 14-06-2022, by rejecting the claim of the Petitioner.
16. The petitioner being aggrieved by the Impugned Arbitral Award dated:11.02.2022 and Appeal Arbitral Award dated:14.06.2022 has filed the present suit for the following among other grounds.
GROUNDS
1. The Ld. Sole Arbitrator should not have accepted the submission of the Respondent and should have allowed the claim of the Petitioner.
/8/ Com.A.P.No.91/2022
2. The Ld. Sole Arbitrator in answering the issue No. 5.2
(a) has committed error and held that the Petitioner has failed to explain the nature of system failure or technical error on 07- April-2021. The Ld. Sole Arbitrator should have held that the AMO order could not execute and gone into the process loop due to technical glitch and the said technical glitch was one of the instances observed during the day by the Petitioner. As there was no such issue observation later on during the day, hence same was not reported to Exchanges.
3. The Ld. Sole Arbitrator erred in not considering the clarification provided in SEBI "Master Circular for Stock Brokers" dated 01- June-2018 at Clause 9 and 10 of "INTERNET & WIRELESS TECHNOLOGY BASED TRADING FACILITY PROVIDED BY STOCK BROKERS TO CLIENT" of SEBI "Master circular for stock brokers" dated 01-June-2018, where in SEBI has given clarification relating to technical/system issues;
4. The client is aware that trading over the internet involves many uncertain factors and complex hardware, software, systems, communication lines, peripherals, etc. are susceptible to interruptions and dislocations. The Stock broker and the Exchange do not make any representation or warranty that the Stock broker's IBT Service will be available to the Client at all times without any interruption.
/9/ Com.A.P.No.91/2022
5. The Client shall not have any claim against the Exchange or the Stock- broker on account of any suspension, interruption, non-availability or malfunctioning of the Stock broker's IBT System or Service or the Exchange's service or systems or non-execution of his orders due to any link/system failure at the Client/Stock brokers/Exchange end for any reason beyond the control of the stock broker/Exchanges.
6. The Ld. Sole Arbitrator has erred in interpreting the Clause no.1.8 of "RISK DISCLOSURE DOCUMENT FOR CAPITAL MARKET AND DERIVATIVES SEGMENTS" of SEBI "Master circular for stock brokers" dated 01-June-2018, which is also previously notified by SEBI at Uniform Risk Disclosure documents laid down by SEBI through its circular dated 22- Aug-2011. The above mentioned SEBI clarification is reproduced as below:
1.8 System/Network Congestion:
Trading on exchanges is in electronic mode, based on satellite/leased line based communications, combination of technologies and computer system to place and route orders. Thus, there exists a possibility of communication failure or system problems or slow or delayed response from system or trading halt, or any such other problem/glitch whereby not being able to establish access to the trading system/network, which may be beyond control and may result in delay in /10/ Com.A.P.No.91/2022 processing or not processing buy or sell orders either in part or in full. You are cautioned to note that although these problems may be temporary in nature, but when you have outstanding open positions or unexecuted orders, these represent a risk because of your obligations to settle all executed transactions.
7. The investment in stock market is associated with various risk factors and the risk associated with System/ Network congestion. Hence, the Petitioner should not be held responsible for the losses suffered by the Respondent due to technical glitch which is beyond the control of the Petitioner.
8. The Ld.Sole Arbitrator in answering Issue No. 5.2 (b) has committed error in agreeing with the Respondents' submission that there was no help from the Petitioner to resolve the issue. The Ld.Sole Arbitrator should have accepted the fact that in live market scenario the Petitioner had tried to resolve the Respondents' issue with all possible means. Hence, the Ld.Sole Arbitrator had committed error in answering the issue against the Petitioner.
9. The Ld. Sole Arbitrator in answering the Issue No. 5.3
(c) had committed error in answering in favor of the Respondent. In fact the Ld.Sole Arbitrator should have answered the issue in favor of the Petitioner considering the /11/ Com.A.P.No.91/2022 fact that the said non-execution of Respondents' order was purely due to system glitch and not intentional. Hence, the Petitioner should not be held responsible for the loss suffered by the Respondent due to such technical glitch.
10. The Ld.Sole Arbitrator should have held that since the Respondent was aware of the technical glitch on the initial trading hour of 07-April-2021, leading to failure of order execution at Exchange platform, so the Respondent must have placed his fresh sell order by arranging the required margin.
11. Impugned Award reflects total non-application of mind by the sole Arbitral Tribunal. Impugned Award has been passed by the sole Arbitral Tribunal without considering facts of the case in its totality and in correct prospective.
12. The Appellate Arbitral Tribunal has failed to consider the specific contention of the petitioner that, there was a technical glitch and because of the same AMO placed by the respondent could not be executed, if at all the Appellate Arbitral Tribunal could have considered the same, the appeal filed by the petitioner would have allowed.
13. The Appellate Arbitral Tribunal has committed grave error stating that, from the submission of the appellate /12/ Com.A.P.No.91/2022 whether there was a technological disruption, or connectivity failure (either at the end of the appellant or the Exchange) or system failure or disruption in connectivity link of the Technical glitch. Whether the description occurred on the website of the appellant or because of connectivity issue of the Exchange or for what reason could also not be clearly explained by the petitioner. The Appellate Arbitral Tribunal mainly on this ground rejected the appeal. The said finding of the Appellate Arbitral Tribunal is frivolous and in fact when the respondent placed AMO it is found that there is a technical issued and hence it could not be placed and the said fact itself is sufficient to prove that, there is a technical glitch and for non explanation about the technical glitch by the petitioner the Hon'ble Appellate Arbitral Tribunal could not have ordered for payment of Amount of ₹.5,85,000/- to the respondent and the hence interference of this Hon'ble court is required.
14. The Ld.Original Arbitral Panel, failed to consider the evidence placed before it by the Petitioner and has committed error in rejecting the claim of the petitioner. That the Ld.Original Arbitral Panel and Hon'ble Appellate Arbitral Tribunal has failed to consider the clauses referred in the Master circular of the SEBI for the stock brokers dated 01-06- 2018 with respect to technical issue. The the Ld.Original Panel could have held that the evidence produced by the Petitioner /13/ Com.A.P.No.91/2022 and that the Respondent had sufficient knowledge of the transactions and was therefore being fully aware about the transaction in his account and could have contacted and could have followed the instructions of the petitioner and the same has not been done by the respondent.
15. The Ld.Original Arbitral Panel and Appellate Arbitral Tribunal erred in complete ignorance of SEBI circular dated December 01-06-2018 took wrong inference in spite the fact being brought to the knowledge that the compliance of circular has been done by sending requisite confirmation on real time basis, thus passing of order in complete ignorance of SEBI guidelines/circular is illegal on face and thus needs to be set aside. That the Ld.Original Arbitral Panel erred in making wrongful assumptions on its own in the absence of any evidence on the record which can be seen from the wording used in the award that he must have done this or must have done that, this shows that a clear assumptions are been made by the Ld.Original Arbitral Panel, this confirms beyond every doubt that the Arbitration Hearing was been conducted with a bias mind, further the Ld.Original Arbitral Panel erred in completely ignoring the documents on record.
16. The Appellate Arbitral Tribunal not at all framed any points for consideration in the award. The same is very /14/ Com.A.P.No.91/2022 erroneous and hence the Appellate Arbitral award requires to be set aside by this Hon'ble Court.
17. It is submitted that, the Appellate Arbitral Tribunal and the Original Arbitral Penal have failed to rely upon the grounds raised by the Petitioner in the Arbitral Matter and also in the Appellate Tribunal and passed the award/s without verifying the records and the same is wholly illegal and not sustainable in law.
18. The decision of the original Arbitration panel is wholly illegal and contrary to law, evidence on record, was not properly appreciated and requires to be set aside in the facts and circumstances of the case.
19. The Appellate Arbitral Tribunal has come to conclusion that, the Petitioner is not acted in the best interest of the Constituent and this finding is erroneous and hence the award passed by both the Tribunals is erroneous and indulgence of this Hon'ble Court is necessary.
20. The learned Arbitrator have not looked in to the documents produced by the Petitioner before him and passed the order too mechanically and hence the said act of the arbitrator is wholly illegal and therefore the procedure adopted /15/ Com.A.P.No.91/2022 by him is exfacie illegal and not sustainable in law or on facts passed of the case.
21. Even otherwise, the awards passed by the learned Arbitrators are opposed to law, and probabilities of the case, and it is liable to be set aside.
22. After the service of notice by this Court, the Respondent Sri.Partik Singla appeared in person and has filed statement of defence along with a CD.
The case of the Respondent is as under:
23. The respondent has subscribed for Demat and trading account with the applicant, account is identified by a unique Client Code:E51797 and the respondent is using website provided by the applicant for placing orders and trade in the stock market.
24. On 7th April 2021 around 8:30 a.m., the respondent has placed an After Market Order (AMO) in NSE FNO segment with an intent to square off his open position in OPTIDX NIFTY 2021-04-08 14800.00 PE- NSE, taken by him on the previous day. The AMO was successfully placed on applicant's website and shown as pending in order status. Though the AMO was successfully placed on applicant's website, the order was not executed on exchange due the technical problem in applicant's /16/ Com.A.P.No.91/2022 website/software. There was additional problem in applicant's website/software, due to which the respondent was not able to cancel or modify the AMO order to cover its position on same day. The respondent was stuck, helpless and not able to square off his position by placing another order as the margin was blocked the said AMO order which didn't get executed and cannot be cancelled or modified. The respondent reached out to customer support and advisory teams of the applicant, but none of them were able to support and resolve the issue. Since expiry was due next day on 8th April 2021, these problems in applicant's website/software and poor support from the applicant's team led to the financial losses of ₹. 5,85,000/- for the respondent.
25. The respondent is not satisfied by the fact that services, the applicant deliberately denied taking responsibility of the losses incurred by although the issue has happened due to problem in the applicant's website/software and services, the petitioner deliberately denied taking responsibility of the losses incurred to the respondent citing reference to Clause 9 and 10 of SEBI "Master Circular for Stock Brokers" without providing any details, analysis report on order logs along with valid proofs on actual reason for non-execution of order. The Applicant is using these clauses as blanket statement to cover the multiple problems in their trading website.
/17/ Com.A.P.No.91/2022
26. The respondent duly acknowledges the guideline an regulation issued by SEBI as per the above-mentioned Clauses. However, the respondent believes that the terms of the clause are not be applicable for this case, due to the following facts:
i. There was no interruption in
communication lines, networks and no
abrupt/sudden failure in hardware and systems on the given day. There was no interruption observed in the Respondent network and no failure observed and reported by NSE Exchange, it is purely a fault in Petitioner's trading website/ software which was also not temporary in nature.
ii. On 7th April 2021, a sell AMO for OPTIDX NIFTY 2021-04-08 14800.00 PE, Qty-3750, Lim Price: 156, was placed by respondent on the applicant's website, successfully accepted shown as status pending. The applicant has not presented proof of any such system failures or intermittent interruption reported to exchange on the given trading day, Learned GRC Panel Members have already asked a copy of report to the applicant and details on other clients impacted due to this, to which there is no satisfactory response from petitioner. The petitioner is trying to misguide here with the /18/ Com.A.P.No.91/2022 statement that order could not be processed as it went in to process loop without submitting proof and without providing explanation on what is process loop and without any documentary evidence on the process loop statement.
iii. There is no such issue or anomaly reported by the petitioner to the trade exchange (NSE) when the respondent promptly reported the issue to the petitioner once its' happened (in the morning on 7th April 2021) and issue continued for the whole day during trading hours.
iv. The issue is not temporary, the applicant stated that non-execution of order was one of the instances, but it appears to be a persistent defect in the applicant's website/software, the respondent faced similar issue earlier for his AMO trades in September to October 2020, notified the issue to petitioner viz email and phone conversations, but no proper resolution provided from petitioner. The petitioner even compensated respondent for the losses during one such instance.
vi. The issue seemed continued even after /19/ Com.A.P.No.91/2022 7th April 2021, the respondent was able to replicate the issue that caused the non-execution of order multiple times even in future by placing similar orders and monitoring the behavior.
vi. The behavior observed is that any After Market Order placed on the applicant's website before the opening of stock markets is successfully accepted on the website, but from the applicant's website it get posted to the Exchange only between 9:20-9:21 a.m. with a delay of 5 to 6 minutes after the stock markets get opened at 9:15 a.m., it's a big undiscovered risk for any investors trading via the applicant's website in the similar circumstances, as one can miss targets set a limit price on order if the particular script/stock gets traded on that limit price only during this delayed interval. Respondent was to reproduce the issue on 15th Apr 2021 and multiple other days. Can also share the order logs of other days where he was able to replicate the same behavior. The respondent understand that the order logs and information provided is not for order for which issue happened on 7th Apr 2021, it's for similar order placed by respondent in future in the live stock /20/ Com.A.P.No.91/2022 market to observe the system behavior and try identify the nature of technical problem related to non execution of AMO in the petitioners' website on 7th April 2021 and it also highlights that the issue was not temporary, it's a defect in the applicant's website which persisted till 15th Apr 2021 and even later.
vii. The order didn't get executed although post market opening the option index (OPTIDX NIFTY 2021-04-08 14800.00 PE) price went much higher (up to ₹. 194) than the limit price (₹. 156) set on given AMO and remained higher than the limit price set on order till 9:18 a.m. The applicant stated that order cannot be executed as it went in loops but based on behavior observed in "EXHIBIT - 2", it can be interpreted why order didn't get executed as its posted on to exchange only after 9:20 a.m. when option index price came below limit price set on order. The petitioner should explain this behavior if regularly order is going in to loops.
viii. There was another issue in the applicant's website due to which the respondent was not able to cancel or modify the pending AMO from the trading website for the whole day /21/ Com.A.P.No.91/2022 on 7th Apr 2021 within the market hours (9:15 a.m. - 3:30 p.m.). Pending order was blocking the trading margin amount leaving respondent helpless for whole trading day to take any corrective action and not allowing respondent to square off the positions finally leading to total loss. The screenshot of the order rejected due to insufficient margin is attached herewith as "EXHIBIT - 3". Even the applicant's customer support and advisory team was not able to help to remove the order till the end of trading session. Email response from the applicant's customer support team is attached herewith as "EXHIBIT - 4", where team has mentioned order will be removed by end of EOD. Contrary to the applicant's claim the issue was one of the instances observed during the day by the petitioner. As there was no such issue observation later on during the day, hence same was not reported Exchanges. The issues were not temporary and one such issue, these issues impacted the trade for the whole day on 7th April 2021 till 3:30 p.m. ix. Once the respondent was aware of the issue during the initial trading hours, he /22/ Com.A.P.No.91/2022 immediately (starting 9:20 a.m.) tried reaching out to customer support and advisor teams of the applicant but didn't get the appropriate support and resolution on the issue. The respondent tried seeking help from multiple teams (customer support, relationship manager, advisory), using all possible channels (Phone, email) and continued his effort throughout the day to explain the issue and get required help. The applicant's customer support team did acknowledge on email that it's a technical error from their end but failed to provide timely resolution on the issue. The email conversations are attached herewith as "EXHIBIT - 4". This voids the fact petitioner provided in their appeal in grounds that respondent has not contacted the petitioner.
x. The petitioner's advisors team have followed the malpractices of misguiding the respondent on NSE guidelines on AMO orders, trying convincing respondent that it's a mistake from his end in placing the AMO, AMO cannot be placed for particular segment - OPTIDX and wasted time in many such false justifications to dodge the charges rather than helping out the /23/ Com.A.P.No.91/2022 respondent in resolving the issue. None of those justifications is valid and stand true. The applicant's team member also provide assurance on recorded line that MOFSL (applicant) will compensate all the losses to the respondent if it turns to be problem at applicant's end. Call recording of respondent conversation with team members can be made available to the Hon'ble Court.
27. The points stated above highlight the fact the technical issue observed during the day on 7th Apr 2021 were not related to communication or network failure, not temporary and intermittent in nature and not beyond the control of the Petitioner.
28. The Petitioner stated in the Ground 10 that the respondent should have placed the fresh sell order by arranging the required margin once respondent was aware of the issue. The respondent would like to bring to notice that it would have required a margin amount of ₹. 50 lacs to 1 crore to place a fresh sell order for 50 lots (Qty - 3750) of NIFTY OPTIDX, which was not feasible and was beyond the individual capacity of respondent to arrange such amount spontaneously. Also, the margin amount was blocked for whole day on 7 th April 2021 due to problem in the applicant's website. The Arbitral /24/ Com.A.P.No.91/2022 Tribunal has already pointed out that the fact that once the respondent raised the issue with the petitioner's team they should have acted diligently and arranged a temporary margin to help the respondent place the fresh order and resolve the Issue. Which was not done by the petitioners' team.
29. The petitioner was well apprised of the technical problem in their product/services since October 2020 (EXIHIBIT-7) and was promptly informed by respondent on 7 April 2021 when the issue occurred still they failed to resolve the issue and understand the gravity of situation to support and help customer. Though it's not intentional from petitioner it's a sheer negligence from their side and clearly highlights the deficiency in their product and services which led to regularly paying all charges for product and services provided by petitioner and have financial losses to respondent. Respondent is basic consumer rights.
30. The petitioner kept changing their stand on the issue, when the issue happened petitioner intentionally denied taking the responsibility and agreeing it's a problem in their system, denied support and affirmatively stated they will compensate if it's a problem at there end, later during IGRC panel meeting dated 17th June 2021 alleged respondent with cooking up of proof, later petitioner came up with a reasoning without any /25/ Com.A.P.No.91/2022 proof and devoid of any merit to take shelter under the SEBI Clause, which should not be applicable here.
31. The Loss was due to non-execution of order, a sell order was placed for OPTIDX NIFTY 2021-04-08 14800.00 PE - NSE, Qty-3750 (50 lots), limit Price - ₹.156.00, the loss amount is calculated as per the actual loss incurred to respondent.
Loss amount calculation: 3750 (Qty) X 156 (Limit Price) = ₹.585000.00.
32. Issue happened on 7th April 2021 which resulted in major losses as the option premium for the active position in FO- segment fell sharply on the same day as expiry was due next day, the respondent continuously followed through with the petitioner's support team and relationship manager within the initial trading hours on 8th April 2021 to find appropriate solution and assurance, but team did not provide any resolution and didn't agree order validity, eventually the active position's option premium went to zero and position was auto squared off by the end of day.
i) 8th April 2021 - "EXHIBIT-5, Refers to the auto square off positions for the given order.
ii) 6th April 2021 - "EXHIBIT - 6", Refers to the position /26/ Com.A.P.No.91/2022 taken by the respondent in the FO-segment for the given order on the previous day.
33. The respondent mostly respectfully seeks permission from Hon'ble Court to update its submissions if required and refer to any further supporting document at the hearing when produced.
34. The respondent humbly appeals to the Hon'ble Court to consider these submissions, review the matter based on the facts, evidence and observations marked by the Arbitral Appellate Tribunal in the award passed on 4-June- 2022 and Ld. Sole Arbitrator at NSE in the award passed on 11th Feb 2022 and reject the claim of the petitioner in toto as it's based on non-factual arguments without any proof.
35. The respondent therefore prays that the Hon'ble Court to reject the appeal claim by the petitioner and award a sum of ₹.5,85,000/- + interest to the respondent towards the compensation of the losses due to non-execution of order.
36. I have heard the arguments addressed by the learned Counsel for the Claimant and the Respondent in person. I have gone through the materials available on record.
37. The following Points arise for my determination:
/27/ Com.A.P.No.91/2022 (1) Whether the Plaintiff/Petitioner has made out any grounds as set out under Section 34 of Arbitration & Conciliation Act, 1996 so as to Set aside the Award dated 11.02.2022 passed by the learned Arbitral Tribunal in No.NSEBEN/0003593/2021/ISC/IGRP/ARB? (2) Whether the Plaintiff/Petitioner has made out any grounds as set out under Section 34 of Arbitration & Conciliation Act, 1996 so as to set aside the Award dated 14.06.2022 passed by the Appellate Arbitral Tribunal in AAA No.NSEBEN/0003593 /21-22/ISC/IGRP /ARB/APPL?
(3) What Order?
38. My findings on the above Points are as under:
Point No:1 & 2 : IN THE NEGATIVE Point No:3 : As per final Order for the following REASONS
39. POINT No.1 & 2 : The Petitioner has filed this suit under section 34 of Arbitration & Conciliation Act, 1996 praying the Court to:-
a. set aside the Award dated 11-02-2022, passed by the Arbitral Tribunal in Arbitration Matter No.NSEBEN/0003593/20- /28/ Com.A.P.No.91/2022 21/ISC/IGRP/ARB, and also the Award dated 14-06-2022, passed by the Appellate Arbitral Tribunal in Appeal Arbitration Matter No.NSEBEN/0003593/21-22/ISC/ APPL, by allowing this suit.
b. Direct the National Stock Exchange of India Ltd., to release in favour of the Petitioner, a sum of ₹.5,85,000/- or such other sum of money as kept blocked by the National Stock Exchange of India Ltd from TM Funds pursuant to present case in hand.
c. The exemplary cost of Arbitration may be imposed upon the defendant with cost.
d. Such other relief as this Hon'ble court deem fit, in the interest o justice and equity.
40. In order to determine the suit it is useful to refer to Section 34 of Arbitration and Conciliation Act, 1996 which reads as under:
ARBITRATION AND CONCILIATION ACT, 1996 [Section : 34] Application for setting aside arbitral award (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if- (a) the party making the application establishes on the basis of the record of the arbitral tribunal that-
/29/ Com.A.P.No.91/2022
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or /30/ Com.A.P.No.91/2022
(ii) the arbitral award is in conflict with the public policy of India.
[Explanation 1.-For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.-For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award: Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33 , from the date on which that request had been disposed of by the arbitral Tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, /31/ Com.A.P.No.91/2022 but not thereafter.
(4) On receipt of an application under sub-
section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral Tribunal will eliminate the grounds for setting aside the arbitral award.
[(5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.
(6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.
41. It is useful to refer to the principles laid down by the Hon'ble Supreme Court of India in the following decision regarding the scope of Section 34 of Arbitration & Conciliation Act, 1996.
2021 SCC OnLine SC 1027 STATE OF CHHATTISGARH Vs. M/S. Sal Udyog Private Limited LAWS(SC) 2021 11 2 SUPREME COURT OF INDIA
14. In Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI) [2019] 15 SCC 131, speaking for the Bench, Justice R.F. Nariman has spelt out the contours of the limited scope of judicial interference in reviewing the Arbitral /32/ Com.A.P.No.91/2022 Awards under the 1996 Act and observed thus :
"34. What is clear, therefore, is that the expression "public policy of India ", whether contained in Section 34 or in Section 48, would now mean the "fundamental policy of Indian law " as explained in paras 18 and 27 of Associate Builders [Associate Builders v. DDA (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] i.e. the fundamental policy of Indian law would be relegated to "Renusagar "
understanding of this expression. This would necessarily mean that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 :
(2014) 5 SCC (Civ) 12] expansion has been done away with. In short, Western Geco [ONGC v. Western Geco International Ltd.,(2014) 9 SCC 263 :
(2014) 5 SCC (Civ) 12], as explained in paras 28 and 29 of Associate Builders [Associate Builders v.
DDA,(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2) (a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in para 30 of Associate Builders [Associate Builders v. DDA(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204].
35. It is important to notice that the ground for interference insofar as it concerns "interest of India " has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be under- stood as a conflict with the "most basic notions of morality or justice ". This again would be in line with paras 36 to 39 of /33/ Com.A.P.No.91/2022 Associate Builders [Associate Builders v. DDA (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], as it is only such Arbitral Awards that shock the conscience of the court that can be set aside on this ground.
36. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paras 18 and 27 of Associate Builders [Associate Builders v. DDA (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], or secondly, that such award is against basic notions of justice or morality as understood in paras 36 to 39 of Associate Builders [Associate Builders v. DDA (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204]. Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12], as understood in Associate Builders [Associate Builders v. DDA (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], and paras 28 and 29 in particular, is now done away with.
37. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within "the fundamental pol- icy of Indian law ", namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.
38. Secondly, it is also made clear that /34/ Com.A.P.No.91/2022 reappreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.
39. To elucidate, para 42.1 of Associate Builders [Associate Builders v DDA(2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204], namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an Arbitral Award. Para 42.2 of Associate Builders [Associate Builders v DDA (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
23. We are afraid, the plea of waiver taken against the appellant-State on the ground that it did not raise such an objection in the grounds spelt out in the Section 34 petition and is, therefore, estopped from taking the same in the appeal preferred under Section 37 or before this Court, would also not be available to the respondent- Company having regard to the language used in Section 34(2A) of the 1996 Act that empowers the Court to set aside an award if it finds that the same is vitiated by patent illegality appearing on the face of the same. Once the appellant-State had taken such a ground in the Section 37 petition and it was duly noted in the impugned judgment, the High Court ought to have interfered by resorting to Section 34(2A) of the 1996 Act, a provision which would be equally available for application to an appealable order under Section 37 as it is to a petition filed under Section 34 of the 1996 Act. In other words, the respondent-Company cannot be heard to state that the grounds available for setting aside an award under sub-section (2A) of Section /35/ Com.A.P.No.91/2022 34 of the 1996 Act could not have been invoked by the Court on its own, in exercise of the jurisdiction vested in it under Section 37 of the 1996 Act. Notably, the expression used in the sub-rule is "the Court finds that ". Therefore, it does not stand to reason that a provision that enables a Court acting on its own in deciding a petition under Section 34 for setting aside an Award, would not be available in an appeal preferred under Section 37 of the 1996 Act.
42. In view of the ratio of the above decision it is clear that this Court is precluded from re-appreciating the evidence under the ground of patent illegality. The Petitioner has to make out its case on the materials available before the Arbitral Tribunal, Arbitral Appellate Tribunal and establish its grounds to set aside the award/s.
43. It is settled law that the Court while dealing with an application under Section 34 of Arbitration & Conciliation Act, 1996 is required to exercise its jurisdiction within the frame work of Section 34 and Section 34 (2A) of the Act. Where two views are possible in respect of a dispute, the view taken by the Arbitrator cannot be found fault with by the Court. The Court is not empowered to set aside an award under the Public Policy ground unless the award shocks the conscience of the Court. The Court shall not interfere with the award on the assumption that the award is unjust on the facts of the case and substitute its view for that of the arbitrator to do what it /36/ Com.A.P.No.91/2022 considers to be just. The Court acting under section 34 of the Act does not sit in appeal and correct the consequential errors of facts as the arbitrator is the ultimate master of the quantity and quality of evidence. The mere erroneous application of the law is not a ground to interfere with the award under the head 'patent illegality', unless the patent illegality is apparent on the face of record/award and must go to the root of the case. The Court has to consider the grounds raised by the petitioner seeking interference with the award in the narrow corridors of the principles enunciated under Section 34 of the Act and the ratio of the precedents. The Court shall not interfere with the Award only on the ground that the reasoning and findings of the learned Arbitral Tribunal are not in consonance with the line of case/contentions raised by the aggrieved plaintiff.
44. From the materials available on record it is evident that on 07-April-2021 the Respondent had raised his concern that he had placed online After Market Order (AMO) at 8.30 AM on the said trading day, to close the open position in OPTIDX NIFTY 2021-04-08 14800.00 PE-NSE, which he had created on 06-April- 2021. The Respondent inquired with the petitioner regarding non execution of the AMO. The Petitioner has informed the Respondent that active order was not executed on the Exchange platform due to technical issue/ glitch at Petitioners trading application.
/37/ Com.A.P.No.91/2022
45. The Respondent was not satisfied with the Petitioners' response, hence on 29-April-2021 the Respondent filed his complaint in SEBEN/0003593/21-22/ISC/IGRP before NSEIL, Bangalore claiming compensation for the loss suffered by him on account of deficiency in service rendered by the Petitioner and estimated the loss at ₹.5,85,000/-.
46. The Petitioner has contested the claim proceedings initiated by the Respondent.
47. After hearing both the parties the GRC Panel Member has passed an order on 17-June-2021 and admitted the claim of the respondent to a tune of of ₹. 5,85,000/-. In pursuance to the above the order dated 17- June-2021, the NSE has debited a sum of ₹. 5,85,000/- from the account of the Petitioner.
48. The Petitioner being aggrieved by the order dated:17.06.2021 passed by the GRC Member, in Arbitration Matter No. NSEBEN/ 0003593/20-21/ISC/IGRP/ARB the Petitioner filed Form No.I in Arbitration Matter No.NSEBEN/ 0003593/20-21 /ISC/IGRP/ARB before NSEIL. The respondent appeared before the Sole Arbitrator and filed his statement of defense before him along with the documents.
/38/ Com.A.P.No.91/2022
49. After hearing both the parties the Ld. Sole Arbitrator has passed the Award dated 11-02-2022 by rejecting the claim of the Petitioner as under:
AWARD In view of the findings and conclusions as above (a, b, and c) the application filed by the applicant/Trading Member is hereby rejected. The claim of the respondent (Constituent) is admitted. The applicant is, therefore directed to pay to the respondent an amount of ₹.5,85,000/- (Rupees Five Lakhs Eighty-Five Thousand Only) within thirty days from the date of receipt of this Award failing which interest @ 6% would be applicable on the outstanding amount ill the date of actual payment.
There is no order to cost.
This arbitral award is made in three originals duly stamped, dated and signed and the same are filed with the Exchange. The Exchange shall arrange to send one original each to the parties in dispute and one original shall be retained by the Exchange.
50. The Petitioner being aggrieved by the Original Arbitral Award, has filed the Form No.III along with /39/ Com.A.P.No.91/2022 memorandum of appeal, before the Appellate Arbitral Tribunal in Appeal Arbitration Matter No.NSEBEN/003593/21-22/ ISC/ IGRP/ARB/APPL. Thereafter the petitioner has also filed the additional submission along with two documents (Statements). The respondent herein has also filed his objections to the appeal memo filed by the petitioner.
51. The Appeal Arbitration Proceeding was heard and the Appellate Arbitrators i.e., Appellate Arbitral Tribunal passed the Impugned Award dated 14-06-2022, by rejecting the claim of the Petitioner as under:
AWARD The Appeal dt.March 15, 2022 challenging the award of the Ld.Sole Arbitrator dt.February 11, 2022 is dismissed and the Award dt.February 11, 2022, passed by the Ld.Sole Arbitrator is upheld.
No other order as to Costs.
52. The Impugned Awards passed by the Ld.Arbitrator and Learned Appellate Arbitral Tribunal are examined with reference to the grounds urged by the Petitioner herein. In order to know whether the Petitioner has made out any grounds to interfere with the impugned Award/s the reasoning adopted by the Learned Arbitrator and the Learned Appellate Arbitral Tribunal are culled out as under:
/40/ Com.A.P.No.91/2022 Arbitration Matter No.NSEBEN/ 003593/21-22/ISC/IGRP/ ARB/.
FINDINGS, ANALYSIS WITH REASON 5.1 I have gone through the written statements/reply carefully and heard the parties at length. Having examined the matter in depth, my findings are as follows:
5.2 ISSUES EXAMINED:
(a) Whether the Applicant has been able to establish (beyond doubt) that the technical glitch on the day of trading was completely beyond their control and deserved exemption light of clause 9 &10 of the SEBI circular from liability in the SEBI/HO/MIRSD/DOPIVCIR/P2018/87 dated June 01, 2018 as claimed?
The relevant extracts of clause 9 and 10 of the SEBI Master Circular for Stockbrokers and the clause 1.8 of "Risk Disclosure Document For Capital Market and derivatives Segments" of SEBI Master Circular tor stockbrokers" referred to by the Applicant are reproduced below:
...'The client is aware that trading over the internet involves many uncertain factors and complex hardware, software, systems, communication lines, peripherals, etc are susceptible to interruptions and dislocations. The Stockbroker and the Exchange do not make any representation or warranty that the Stockbroker's IBT service will be available to /41/ Com.A.P.No.91/2022 the client at all times without any interruption'.. (Clause 9) ... "The Client shall not have any claim against the Exchange or the Stock broker on account of any suspension, interruption, non-availability or malfunctioning of the Stock broker's IBT system or Service or the Exchange's service or systems or non-execution of his orders due to any link/system failure at the Client/Stock broker/Exchange end for any reason beyond the control of the Stock broker /Exchange...(Clause
10).
..'Trading on exchanges is in electronic mode, based communications. Combination or technologies and computer systems to place and route orders. Thus, there exists a possibility of communication failure or system problem or slow or delayed response from system or trading halt, or any such other problem /glitch whereby not being able to establish access to the trading system /network, which may be beyond control and may result in delay in processing or not processing buy or sell orders either in part or full. You are cautioned to note that although these problems may be temporary in nature, but when you have outstanding open positions or unexecuted orders of represent a risk because of your obligations to settle all the executed transactions...."(Clause 1.8) 5.3. The issue of the Applicant seeking exemption from their liability for the loss of Rs 5,85,000/- incurred by the /42/ Com.A.P.No.91/2022 Respondent (due to alleged 'technical glitch') has been depth in the light of the clauses of the above SEBI circular along with their applicability in the instant case. The findings/conclusions are as below:
5.4. The Respondent has been dealing with the Applicant since 2007. He has been using website/trading platform (provided for trading in F and O /Derivatives for more than 10 years without having faced any major problem as stated by him. It is an admitted fact (by both the parties) that the After Market Order (sell) for OPTIDX NIFTY 2021-04-08 14800.00 PE.
QTY 3750 (50 lots), with limit price at ₹. 156/- placed by the Respondent on the Applicant's web was successfully accepted on April 07, 2021 but could not be executed due to some 'technical glitch' at applicant's website/trading platform. It is also a fact that the so called 'technical glitch ' has caused financial loss of ₹.5,85,000/- to the respondent which has not been disputed by the Applicant.
The Applicant has quoted the above clauses in the SEBI Circular in support of their seeking exemption (from liability). However, they have failed to identify or explain the nature of the system failure or 'technical error' on April 07, 2021. It is only normal for the user/client to expect (from any service provider) to have a place minimum proof by way of the nature of error and its analysis report (on order logs) or system generated error report for any kind of system-wide failure or /43/ Com.A.P.No.91/2022 disruption in the Trading System or any kind of technical glitch The complete absence of any record or (documented) proof in this regard is beyond comprehension. On the one hand, the Applicant has claimed that it is a "one off" case (of temporary nature not requiring any reporting and that no other user/client had been impacted due to the error the other hand, they have also, simultaneously, claimed exemption under the above clauses without producing any proof that of actual suspension, interruption, link-system failure non-availability or malfunctioning of the Stockbroker's IBT system etc( beyond their control on that day/time of trading. The Respondent, on the contrary, has produced documents e.g.screenshots, emails etc, which give sufficient indication that non-execution of the AMO 2 was not temporary but had persisted for the whole day (within trading hours) which couldnt resolved either by the Respondent or the Applicant/Support Team, a fact which has been acknowledged by the Applicant's Representative during the hearing. It is pertinent to noter in this regard that the Respondent had made some analysis (of his own) subsequent to the day of trading, on April 15, 2021) 'through sample orders' to explain that the trading website Applicant suffered from multiple deficiencies of persisting nature due to which order could not be executed, modified or cancelled (Para 3(vi)
(vii) and Para 4.3 of the Award).
/44/ Com.A.P.No.91/2022 5.5 In view of above, it is concluded that the Applicant's claims/submissions are self contradictory, without any supporting proof and are devoid of any merit. Therefore, the Applicant does not deserve any exemption from liability claimed under the above clauses.
(b) Whether the on-line service and support provided by the Applicant/Customer Advisory Team was deficient as claimed by the Respondent?
From the sequence of events unfolding on the day of trading i.e., April 07, 2021, and perusal of the relevant documents, emails, screen shots etc (submitted by the Respondent) in this regard, it is revealed that the online service and support provided by the Applicant's Advisory & Support Team left much to be desired. A few email replies (one liners) received from the Team (enclosed by the Respondent) exhibit no signs of proactive and timely support extended by the Applicant/Advisory Team to the Respondent on the day of trading. The Applicant/Representative's averment during hearing that in a live market scenario, the Advisory Team was not left with much choice can hardly be an excuse for their inaction. The Advisory Team's advice to the Respondent to bring in immediate fresh margin, instead of providing him with alternate back up mode or resolving the technical issue, is also questionable. Therefore, the online service provided by the /45/ Com.A.P.No.91/2022 Applicant both on the day of trading and after that suffered from inadequacies as stated by the Respondent in his submissions.
(c) Whether the Respondent is justified in his claim amount?
The Respondent, being a retail investor, had placed a genuine Sell order to square off his Buy position taken on the previous day i.e.. April 06, 2021. The authenticity of the AMO placed and accepted by the System has not been disputed by the Applicant. That the order could not be executed, modified, or cancelled by the Respondent or the Applicant/Support Team is also an accepted fact. The Respondent had brought the issue of non-execution of the AMO to the concerned authority without much loss of time. He also tried his best to get the order executed. modified, or cancelled but was not successful. Then he approached the Customer Service Team for redressal. His margin had been blocked by the system due to which he was left with no alternative or choice. Regarding the loss amounting to ₹. 5,85,000/- incurred by the Respondent, he has submitted that the loss was due to non-execution of a sell order OPTIDX NIFTY 2021-04-08 14800.00 PE -NSE QTY- 3750(50 lots) limit price -₹. 156.00. The loss has been calculated as per the actual loss incurred by the Respondent. He has arrived at the loss amount as below:
/46/ Com.A.P.No.91/2022 3750(Qty)* 156(limit price = ₹. 5,85,000.00 The Respondent has attached relevant contract notes for April 06, 2021(Position taken in FO- segment) and for April 08, 2021(Auto square off position) The Respondent has submitted that eventually the active position's option premium went to zero and position was auto squared off by the end of the day due to no fault of his. I am. therefore, of considered opinion that based on the facts and the supporting documents the Submitted by the Respondent, he is justified in claiming the above amount.
Arbitration Matter No.NSEBEN/003593/21-22/ISC/IGRP/ ARB/ APPL.
We have examined all the written submissions, heard the oral submissions of both the parties and the call recordings furnished.
The respondent has been associated as a client of the appellant since March 23, 2007 and has online trading facility.
This is an appeal against the award dt.February 11, 2022, passed by the Ld.Sole Arbitrator, by which the Application filed by the Applicant/Trading Member was rejected and the claim of the respondent was admitted, and the applicant was directed to pay the respondent ₹.5,85,000/- with interest @ 6% on the outstanding amount till the date of actual payment. Prior to this, the Ld. GRC Panel Member passed an order on June 17. 2021, held an admissible claim of ₹. 5,85,000/- in favor of the /47/ Com.A.P.No.91/2022 Respondent.
The crux of this case is that the Respondent placed online After Market Order (AMO) around 8.30 a.m. of April 7, 2021, in NSE FNO segment with an intent to square off his open position in OPTIDX NIFTY 2021-04-08 14800.00 PE-NSE taken by him on the previous day. Though the order was placed successfully, it was not executed on exchange due to technical problems in appellant's website/software. Further, the Respondent could not cancel or modify the pending AMO to cover his position for the whole day during trading hours. In spite of his reaching out to the Appellant, the issue was not resolved, resulting in a loss of ₹.5,85,000/- to the Respondent.
The Appellant has contended that the Sole Arbitrator should have held that the AMO order could not be executed and had gone into the process loop due to technical glitch and the said technical glitch was one of the instances observed during the day by the Appellant. They further contended that there was no such issue observation later on during the day and hence the same was not reported to Exchanges.
The Appellant disclaims responsibility by relying on Clauses 9 and 10 of SEBI "Master Circular for Stockbrokers" dt. June 01, 2018. Under the heading "Internet and Wireless technology-based Trading Facility provided by stockbrokers to Clients" appearing under Annexure 4 of the said Circular. These clauses are reproduced below:
Clause 9:
The client is aware that trading over the internet involves many uncertain factors and complex hardware, software, systems, communication lines, peripherals, etc. are /48/ Com.A.P.No.91/2022 susceptible to interruptions and dislocations. The Stockbroker and the Exchange do not make any representation or warranty that the Stockbroker's IBT Service will be available to the Client at all times without any interruption.
Clause 10:
The Client shall not have any claim against the Exchange or the Stockbroker on account of any suspension, interruption, non-availability or malfunctioning of the Stockbroker's IBT System or Service or the Exchange's service or systems or non-execution of his orders due to any link/system failure at the Client/Stock brokers/Exchange end for any reason beyond the control of the stock broker/Exchanges.
We have carefully considered the submissions of the Appellant. It must be noted that the Respondent acted swiftly as seen from the summary of the exchange of emails below: (Exhibit 4 of the Respondent containing email conversation thread with Appellant's customer support) April 7, 2021: 9.48 a.m. Respondent sends email to the Appellant, explaining that he had placed the AMO order before market opening (around 8.30 a.m.) 12.22 p.m. Office of Appellant replied that the order was not placed and asked him to place fresh order.
12.30 p.m. Respondent replied that the order was reflecting in the orders screen in the website of MOSL, attaching screen shot of the same.
3.46 p.m. Respondent understands that it is a technical issue but who bears the losses. Wants confirmation so that I know steps to taken tomorrow to square-off the position. Its due for expiry tomorrow.
/49/ Com.A.P.No.91/2022 7.39 p.m. Appellant asks Respondent to place new order as this order is not executed in system due to technical issue and same will remove by today EOD.
08-04-2021: 10.05 p.m. The details of the email from the Respondent to the Applicant are on record. Broadly, he contends that AMO order can definitely be placed for Equity FNO position b/w 8.30-9.10 a.m. He had also raised, inter alia, his inability to cancel an AMO Order once placed, causing higher losses. Looking at the chain of conversation, the Respondent has done all that was possible to raise his concern. However, the Appellant has not resolved his issue by EOD of 7th April 2021 as committed in their email.
The Call Recordings (in CD) furnished by the Respondent indicate that both on 7th April and 8th April 2021, the Respondent has reached out to officials in the office of the Appellant to get his issue settled; however, the Appellant's issue remained unresolved. In one of the recordings, the representative of the Appellant concedes that if there are any error from their side, they would compensate the Respondent for the loss. During the hearing held on 4th May 2022, the representative of the Appellant stated that there was a technical glitch due to which the AMO placed by the Respondent could not be executed. However, he was not able to clearly explain as to what was the technical glitch. In this respect we concur with the findings of the Ld. Sole Arbitrator as recorded in Para 5.4 of his Award dt. February 11, 2022.
The submission of the Appellant that this was a one- off instance which did not require reporting to the Exchange does not address the issue on hand.
Since FNO transactions are technology driven. it is not clear from the submission of the Appellant whether there was a technological disruption, or /50/ Com.A.P.No.91/2022 connectivity failure (either at the end of the Appellant or the Exchange) or system failure or disruption in connectivity link or the technical glitch." Whether the disruption occurred on the website of the Appellant or because of connectivity issue with the Exchange or for what reason could also not be clearly explained by the Appellant. Summarising, there is no clarity on the nature of disruption.
As recorded by the Ld. IGRP member, it is clear that there was no disruption of the trading system.
However, given that the Respondent had reached out early morning of 7th April 2021 itself. and this was an FNO transaction where time is of the essence, the Appellant should have realised the gravity of the situation and acted with speed to address the problem faced by the Respondent, either by directly calling the Appellant for resolving the issue, or provided alternative means of communication for placing order or by other methods. We also fail to understand why the Respondent could not use other modes of communication to reach the Appellant speedily to close his Open position.
52. By merely sending email replies to the Respondent without any positive action directed at resolving the issue raised by the Respondent, we are of the view that the Appellant has not acted in the best interest of their client.
53. We have gone through Clauses 9 and 10 of the SEBI Circular referred to above. We note that Clause 9 is more in the nature of a disclaimer clause.
/51/ Com.A.P.No.91/2022 Clause 10 reads as under:
The Client shall not have any claim against the Exchange or the Stockbroker on account of any suspension, interruption, non-availability or malfunctioning of the Stockbroker's IBT System or Service or the Exchange's service or systems or non-execution of his orders due to any link/system failure at the Client/Stockbrokers/Exchange end for any reason beyond the control of the stockbroker/Exchanges."
54. Alternative positive efforts could have been made by the Appellant to resolve the issue (which were not done by the Appellant in the instant case). We do not see how the present case is something beyond the control of the stockbroker qualifying for exemption under Clause 10.
55. Further, given the evidence furnished by the Respondent and the Appellant's inability to explain the exact nature of disruption/technical glitch, reliance on such clauses by the Appellant in the instant case leads to injustice to the Respondent too.
56. We have seen the said Exhibits-3 and 4 furnished by the Appellant. Exhibit-3 shows that on 7th April 2021, 4(four) AMO of different investors were received and trade execution /52/ Com.A.P.No.91/2022 took place on the same date.
57. In the additional submission dt. 11 May 2022, the Appellant states that the total loss in Respondent's ledger is ₹.5,64,952.53/-. They rely on the debit entries posted on 6th April 2021 and 8th April 2021. However, both in the IGRP proceedings and before the Sole Arbitrator (both hearings held after 8th April, 2021), the claim of ₹. 5.85,000/- made by the Respondent was never disputed or questioned by the Appellant and hence, we cannot take cognizance of different claim amount at this stage.'
58. The learned Arbitral Tribunal and the learned Appellate Arbitral Tribunal have examined the order passed by the learned Panel Member and assessed the turn of events with reference to Clause 9 and 10 of SEBI Circular. They have examined the rival contentions putforth by the petitioner and the respondent and have come to a positive conclusion that the petitioner has failed to explain the exact nature of disruption/technical glitch. They have also taken cognizance of the lukewarm response of the supporting team of the petitioner to the concern raised by the respondent. They have not committed any error either in appreciation of facts or application of law.
59. A close scrutiny of the impugned Award/s show that the Learned Arbitrator as also the learned Appellate Arbitral /53/ Com.A.P.No.91/2022 Tribunal have meticulously examined the facts and applied the law as applicable to facts of the case. They have answered each of the objections raised by the petitioner herein. They have not erred in appreciating the materials available before them in a proper perspective and application of relevant law. The petitioner herein has not made out any grounds to interfere with the well reasoned award passed by the Learned Arbitrator and the Learned Appellate Arbitral Tribunal. An award passed by the Arbitral Tribunal cannot be lightly interfered just because it is not palatable to the aggrieved party. There are no materials available on record or grounds to interfere and set aside the impugned Award/s. Accordingly I answer Point No:1 and 2 in the NEGATIVE.
60. POINT No.3 : In view of the discussion made above and findings on Point No:1 and 2 I pass the following ORDER The Arbitral suit filed by the Plaintiff/ Petitioner under section 34 of Arbitration & Conciliation Act, 1996 to set aside the Award dated 11.02.2022 passed by the learned Arbitral Tribunal in No.NSEBEN/0003593/ 2021/ISC/IGRP/ ARB and Award dated 14.06.2022 passed by the Appellate Arbitral Tribunal in AAA No.NSEBEN/ 0003593/21-22/ISC/IGRP/ARB/APPL is hereby /54/ Com.A.P.No.91/2022 dismissed with costs.
The Award dated 11.02.2022 passed by the learned Arbitral Tribunal in No.NSEBEN /0003593/2021/ISC/IGRP/ARB and Award dated 14.06.2022 passed by the Appellate Arbitral Tribunal in AAA No.NSEBEN/0003593 /21-22/ISC/IGRP/ARB/APPL are hereby confirmed.
The Respondent herein i.e. Sri.PRATIK SINGLA is entitled for payment of ₹.5,85,000/- (Rupees Five Lakhs Eighty Five Thousand) debited by the National Stock Exchange of India Ltd., debited from funds of Motilal Oswal Financial Services Limited/Trading Member (Petitioner herein) (Dictated to the Stenographer, transcribed and typed by her, then corrected and pronounced by me in the Open Court on this 15th day of March, 2023) (S.J.KRISHNA) LXXXIX ADDL.CITY CIVIL & SESSIONS JUDGE, BENGALURU.
(CCH-90) ****