Delhi District Court
Mrityunjay Kumar vs M/S Anand Rathi Shares And Stock Brokers ... on 14 May, 2025
DLND010054912021
IN THE COURT OF MRS VINEETA GOYAL,
DISTRICT JUDGE (COMMERCIAL-03),
PATIALA HOUSE, NEW DELHI
OMP (Comm) No.82 of 2021
CNR No. DLND01-005491-2021
In the matter of:
M/s. Anand Rathi Shares and StockBrokers Ltd.
Express Zone A Wing, 10th Floor,
Western Express Highway,
Diagonally Opp. Oberoi Mall,
Goregaon (East), Mumbai-400063.
Also At :
Unit-6, Plot No.11,
2nd Floor, Vardhman Trade Center,
Nehru Place, New Delhi-110019.
Through :
Mr. Jyoti Dodeja, Assist. Vice President,
(Operations-Legal & Compliance) ........ Petitioner
Versus
1 Sh. Mrityunjay Kumar
s/o Sh. Vasu Deva Sharma,
r/o House No.168/A, Pocket F,
MIG Flats, Opp. GTB Hospital,
GTB Enclave, Delhi-110093.
Email: [email protected] Digitally
signed by
VINEETA
VINEETA GOYAL
GOYAL Date:
2025.05.14
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+0530
OMP (COMM): 82/21 & 39/22 Page 1 of 29
Mobile: 9810329820. ....Respondent
2 Regional Arbitration Centre
National Stock Exchange of India Ltd.
4th Floor, Jeevan Vihar Building,
Parliament Street, New Delhi-110001.
Email: [email protected] ...... Proforma Respondent
Date of institution of suit : 28.08.2021
Date of Judgment : 14.05.2025
Appearance : Sh. Balaji Subramanian and Sh. Akash Kundu,
Ld. Counsels for petitioner.
Sh. S.K. Das, Ld. Counsel for respondent.
AND
DLND010018782022
OMP (Comm) No.39 of 2022
CNR No. DLND01-001878-2022
In the matter of:
Sh. Mrityunjay Kumar
s/o Sh. Vasu Deva Sharma,
r/o House No.168/A, Pocket F,
MIG Flats, Opp. GTB Hospital,
GTB Enclave, Delhi-110093.
Email: [email protected]
Mobile: 9810329820. ........ Petitioner
Versus
Digitally
signed by
VINEETA
VINEETA GOYAL
GOYAL Date:
2025.05.14
17:15:21
+0530
OMP (COMM): 82/21 & 39/22 Page 2 of 29
1 M/s. Anand Rathi Shares and StockBrokers Ltd.
Express Zone A Wing, 10th Floor,
Western Express Highway,
Diagonally Opp. Oberoi Mall,
Goregaon (East), Mumbai-400063.
Also At :
Unit-6, Plot No.11,
2nd Floor, Vardhman Trade Center,
Nehru Place, New Delhi-110019.
Through :
Mr. Jyoti Dodeja, Assist. Vice President,
(Operations-Legal & Compliance) ....Respondent
2 Regional Arbitration Centre
National Stock Exchange of India Ltd.
4th Floor, Jeevan Vihar Building,
Parliament Street, New Delhi-110001.
Email: [email protected] ...... Proforma Respondent
Date of institution of suit : 07.03.2022
Date of Judgment : 14.05.2025
Appearance : Sh. S.K. Das, Ld. Counsel for petitioner.
Sh. Balaji Subramanian and Sh. Akash Kundu,
Ld. Counsels for respondent.
JUDGMENT
1. This common judgment will dispose the aforesaid two Objection Petitions filed by the respective parties under Section 34 of the Arbitration and Conciliation Act, 1996 (as amended) (in short 'the Act') against the Arbitral Award dated 18.02.2021 which Digitally signed by VINEETA GOYAL VINEETA Date:
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was upheld by Appellate Arbitral Tribunal vide award dated 17.06.2021. For the sake of disposal of the petitions through this common judgment, the party M/s Anand Rathi Shares and Stockbrokers Limited would be referred to as the Broker and Sh. Mrityunjay Kumar would be referred to as the Trading Member.
2. M/s Anand Rathi Shares and StockBrokers Ltd. (the Broker) is a share and stock broking company duly registered with Securities and Exchange Board of India ( in short 'SEBI') and is also registered with the National Stock Exchnage (in short 'NSE') for dealing with shares and other securities as per the rules, regulations and bye-laws of SEBI and NSE. Sh. Mrityunjay Kumar (the Trading Member) in the year 2017 opened a Demand Account with the Broker for trading in shares and stocks. In both the petitions above, Respondent no.2 is the Regional Arbitration Centre of the NSE has been impleaded only for the purpose of placing on record the desired document in relation to the proceeding between the parties if at all the same is found relevant for the purpose of adjudication of the dispute thus it is a proforma respondent.
3. It is averred in the petition of the Trading Member that in the year 2017, the official of the Broker approached him and persuaded him to open a Demat Account with the said Broker. Accordingly, he opened a Demat Account with the Broker for trading in shares and stocks. During the period, from 27.10.2017 to 01.06.2019 various trades were executed by the Broker mostly in Digitally signed by VINEETA VINEETA GOYAL Date:
GOYAL 2025.05.14 17:15:38 +0530 OMP (COMM): 82/21 & 39/22 Page 4 of 29 F&O Segment in the absence of any express consent and knowledge of the Trading Member resulting in huge losses to him. Thereafter, all the shares held by the Trading Member in his Demat Account were squared off due to this act of commissions and omissions which were completely unauthorized as the Trading Member had not given any pre-trading confirmation / instructions to the Broker for executing such transactions. Further, it is evident from the application form filled up by the Trading Member at the time of opening of the aforesaid Demat Account, he had never exercised his option under F&O Segment.
3.1. It has been further averred that all along a total of 1497 transactions were executed both in F&O and Cash Segments during the aforesaid period without adhering to the guidelines of NSE and SEBI on the subject. As a result of such unauthorized trading by the Broker, the petitioner/ Trading Member was subjected to total loss of Rs.34,41,494/-.
The IGRP Proceedings: -
3.2. It is further averred that the Trading Member lodged an online complaint on 27.12.2019 with the NSE complaining about the aforesaid unauthorized transactions executed by the Broker in the absence of any Pre-Trade confirmation resulting in a huge loss to the Trading Member as all the shares and stocks lying in his Demat Account were squared off without his knowledge. Taking cognizance of the complaint of the Trading Member, theDigitally IGRP, signed a by VINEETA VINEETA GOYAL Date:
GOYAL 2025.05.14 17:15:50 +0530 OMP (COMM): 82/21 & 39/22 Page 5 of 29 mechanism provided by NSE for resolution of dispute of the Investor called upon both the Broker and the Trading Member to participate in the proceedings. The Broker sent its reply to the NSE on 09.03.2020 denying the allegations of the Trading Member made in the aforesaid complaint. On 18.03.2020, the Trading Member filed his rejoinder bringing to the notice of the IGRP that at no point of time he had ever opted for F&O Segment and thus all such transactions executed in F&O Segment were unauthorized. In the proceedings conducted on 10.07.2020, the IGRP directed Broker to file the voice recording, call log and date-wise Sauda Summary for F&O Segment. Simultaneously, the Trading Member was also directed to identify the unauthorized transactions from the Sauda-Summary. Eventually, the IGRP passed order dated 16.07.2020 holding that the Broker failed to provide any evidence Pre-Trade or Post-Trade confirmation in respect of identified transactions. The IGRP on the basis of Voice Call recordings submitted by the Broker concluded that in many/ identified cases both Pre-Trade and Post-Trade confirmations were not there.
Accordingly, allowed the complaint of Trading Member vide the aforesaid order dated 16.07.2020 by awarding a total compensation of Rs.25,93,781/- while holding the acts of commissions and omissions of the Broker to be contrary to circular dated 22.03.2018 of SEBI.
Arbitration Tribunal 3.3. Thereafter, on 21.07.2020, the Broker informed NSE Digitally signed by VINEETA GOYAL VINEETA Date:
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that it will challenge the aforesaid order of IGRP before Arbitration Tribunal and accordingly on 09.11.2020 filed its Statement of Claim before the Arbitral Tribunal constituted by NSE. On 17.12.2020, the Trading Member filed its reply in the said arbitration proceedings contending that the amount awarded by IGRP needs upward revision. Thereafter, the Arbitral Tribunal by an award dated 18.02.2021, rejected both the Statement of Claim of the Broker and the counter-claim of the Trading Member and upheld the order of IGRP dated 16.07.2020.
Appellate Arbitration Tribunal 3.4. In accordance with the provisions of the Bye-laws of NSE, the Broker filed an appeal before the Appellate Arbitration Tribunal (hereinafter referred as AAT) against the award dated 18.07.2020 and the Trading Member also filed a cross-appeal. The AAT vide Appellate Award dated 17.06.2021, rejected both the appeals upholding the award of the Ld. Arbitrators and the order of IGRP dated 16.07.2020 and as well.
3.5. After dismissal of the appeals filed by both the parties to the dispute, the Trading Member noticed inadvertent errors in the calculation of amount in a couple of transactions due to over-sight although the same was evident from the Sauda-Summary filed by the Broker thus filed an application u/s. 33 of the Act seeking correction in the amount as awarded by the IGRP and upheld by the Arbitral Forums. However, the Ld. Arbitral Tribunal by the Digitally signed by VINEETA GOYAL VINEETA Date:
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impugned order dated 05.07.2021 rejected the application of the Trading Member on the ground being untenable both on facts and law.
3.6. Aggrieved by the impugned award dated 05.07.2021, the Trading Member preferred the instant petition being OMP (Comm) No.39 of 2022 to challenge the legality of the same on the following grounds:
a. The impugned order passed by the Ld. Appellate Tribunal is wholly perverse being contrary to the facts and figures on records of the proceeding, thereby constituting patent illegality and thus unsustainable both on facts and law. b. The Ld. Appellate Tribunal rejected the application of the petitioner only on the sole ground of lack of evidence even though documents were filed by the petitioner evidencing clear error in calculating the amount of the share prices in case of 3 transactions as on the relevant date, by the IGRP and also due to oversight which is wholly unsustainable. c. Ld. Appellate Tribunal failed to appreciate the fact that the admitted omissions of error in calculation occurred not only on the part of the petitioner but also on the part of both IGRP and the Ld. Arbitrators due to inadvertence and oversight, the solitary ground on which the application of the petitioner has been rejected constitutes a clear patent illegality. d. There appears to be a clear non-application of mind on the part of the Ld. Appellate Tribunal showing arithmetical errors in the calculation of the compensation amount awarded to the petitioner and under such circumstances, rejection of the claim of the petitioner for enhancement of the claim amount is a Digitally signed by VINEETA VINEETA GOYAL GOYAL Date:
2025.05.14 17:16:21 +0530 OMP (COMM): 82/21 & 39/22 Page 8 of 29 clear perversity constituting patent illegality in the matter. e. The Ld. Appellate Tribunal failed to appreciate the fact that there is a clear finding recorded by the IGRP in its order dated 16.07.2020 to the effect that there were no evidence with regard to the Pre-Trade and Post-Trade Confirmation in most of the transactions executed by respondent no.1 and under such circumstances, there was no occasion for the Ld. Arbitration Tribunal or for that matter the Ld. Appellate Arbitration Tribunal to reject the claim of the petitioner in view of the categorical findings of the IGRP rendered in the light of the circular dated 22.03.2018 of the SEBI and hence the award and the order of the Ld. Appellate Tribunal is unsustainable on law.
f. The Ld. Appellate Tribunal failed to take judicial notice of the fact that once it is held that most of the transactions executed by respondent no.1 were contrary to the circular of SEBI dated 22.03.2018, the same were unauthorized is the irresistible conclusion and thus, the award is unsustainable both on facts and law.
g. The Ld. Appellate Tribunal failed to differentiate between enhancement of claim by way of an appeal and enhancement of claim by way of seeking correction of arithmetical errors in computation / calculation of the price of the shares as on the relevant date and ought not to have rejected the application of the petitioner made u/s. 33 of the Act, of 1996 and thus, the impugned order dated 05.07.2021 suffers from patent illegality and is liable to be interfered with.
h. Even otherwise, the Ld.Appellate Tribunal committed error in law by not appreciating the fact that grounds of challenge to the award by way of an appeal stood on a different footing Digitally signed by VINEETA GOYAL VINEETA Date:
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than the application filed seeking correction of arithmetical errors.
4. Aggrieved by the Arbitral award and Appellate Arbitral award, the Broker also filed the petition bearing OMP (Comm) No.82 of 2021 inter-alia raising the following grounds: -
a. The impugned awards are vitiated by patent illegality insofar as they totally ignored the SEBI Circular dated 22.03.2018. The relevant portion of the Circular is reproduced below:
"III. To further strengthen regulatory provisions against un-authorized trades and also to harmonise the requirements across markets, it has now been decided that all Brokers shall execute trades of clients only after keeping evidence of the client placing such order, which could be, inter alia, in the form of: a. Physical record written & signed by client, b. Telephone recording, c. Email from authorized email id, d. Log for internet transactions, e. Record of messages through mobile phones, f. Any other legally verifiable record.
When a dispute arises, the Broker shall produce the above mentioned records for the disputed trades. However for exceptional cases such as technical failure etc. where Broker fails to produce order placing evidences, the Broker shall justify with reasons for the same and depending upon merit of the same, other appropriate evidences like post trade confirmation by client, receipt/payment of funds/securities by client in respect of disputed trade, etc. shall also be considered.
IV. Further, wherever the order instructions are received from clients through the telephone, the stock Broker shall mandatorily use telephone recording system to record the instructions and maintain telephone recordings as part of its records.Digitally signed by VINEETA GOYAL
VINEETA Date:
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b. It is evident from a plain reading of the above circular that absence of telephone recording does not by itself mean that the transaction is deemed to be unauthorised. The Broker must be given an opportunity to demonstrate through other means that the transactions were authorised. The Circular expressly states that "other appropriate evidences like post trade confirmation by client, receipt/payment of funds/securities by client in respect of disputed trade, etc. shall also be considered"; whereas the Arbitral Award holds that "the post-trade confirmations and payments heavily relied on behalf of the applicant cannot be considered" ", which are in direct contradiction to each other.
c. The impugned Awards have completely inverted the process of reasoning. The correct procedure would be that first, the client (Respondent herein) would have to state which transactions according to him were unauthorised; second, the Broker is asked for voice recording/ other evidence of those transactions; and finally, a decision is taken whether the transactions are authorised or not. What has happened here is the exact opposite - first, the Broker has been asked to submit all the call recordings and sauda summary, and then the client has simply marked every transaction as unauthorised where he could not find the voice recording. This is not the process envisaged by law and is a patent illegality that vitiates the impugned Awards.
d. The impugned Awards failed to see that the Respondent set up an entirely false case that the total trading in F&0 segment was unauthorised. Once this was proved to be false, his entire version should be viewed with suspicion. Instead, the Tribunals permitted him to wait till all the voice recordings were submitted and to pick the transactions where he could not find the voice recording and labelled them as unauthorised.
e. The impugned Awards have failed to see that out of 1497 transactions taking place over two years, voice recordings could not be retrieved only in 25 instances, which is less than 1.7% of transactions. In other words, voice recording was present in more than 98.3% of the transactions. Moreover, most of the cases where the Digitally signed by VINEETA VINEETA GOYAL GOYAL Date:
2025.05.14 17:17:30 +0530 OMP (COMM): 82/21 & 39/22 Page 11 of 29 voice recording is missing have happened on certain clusters of dates spread over two years and is not a regular or common occurrence. These two factors itself show that it was an exceptional circumstance for recordings to be unavailable and the other evidence produced by the Petitioner ought to have been considered.
f. The impugned Awards suffer from patent illegality as they have ignored other arbitral awards which have dealt with the identical issue of voice recording not being there, and taken the uniform view that the Broker is entitled to show other evidence to prove that the transactions were authorised.
g. The Petitioner had filed the ECN log and SMS log, which shows that the Respondent was informed of the transactions on the same day and none of them was ever disputed (Ex. D and E before the Appellate Arbitral Tribunal). Moreover, the Exchange would also independently send trade confirmation by email to the client.
h. Further, the ledger account statement of the client was also duly maintained by the Petitioner and sent to him on quarterly basis (Ex. F and G before the Appellate Arbitral Tribunal). This would again have alerted the client if really any transactions were unauthorised; yet he raised no dispute.
i. Trading in the F&O segment requires maintaining margins with the Broker. Whenever there is a margin shortfall, either the client has to deposit margin money or square off some positions. In the instant case also, the Petitioner periodically made margin calls on the Respondent through email and the Respondent also deposited margin money in response to these calls. Several emails were placed on record before the Appellate Arbitral Tribunal (Ex. H) along with proof of payment but have been totally ignored.
j. The impugned Awards suffer from patent illegality insofar as there is no clarity till date on which transactions were unauthorised. The client (Respondent) claimed 52 transactions were Digitally signed by VINEETA VINEETA GOYAL GOYAL Date:
2025.05.14 17:17:38 +0530 OMP (COMM): 82/21 & 39/22 Page 12 of 29 unauthorised. The IGRP initially gave an Order without identifying which transactions were unauthorised and later gave a document showing 37 transactions were unauthorised. The Petitioner pleaded before the Arbitral Tribunal that voice recording was absent only in 25 instances, and the Arbitral Tribunal wrongly holds that "order dated 16.07.2020 is relatable to those voice call recordings" when in fact it is not so relatable. The Appellate Arbitral Tribunal has not applied its mind to this aspect at all. On this ground alone the impugned Awards are required to be set aside.
k. The facts and grounds stated in the Statement of Case before the Appellate Arbitral Tribunal are hereby reiterated and may kindly be read as part and parcel of this petition. They are not being repeated in the interest of brevity.
l. The impugned Awards have ignored the contract between the parties, SEBI and NSE regulations and bye-laws, and are contrary to public policy of India and suffer from patent illegality and are liable to be set aside.
5. Both the parties were heard at length. In this case, as there were cross objection petitions, therefore the arguments by each party were two folds i.e once as the petitioner supporting the averments and second time as respondent refuting the arguments of the other party. For the sake of convenience, the arguments have been noted in totality in the succeeding paragraphs.
6. On behalf of Sh. Mrityunjay Kumar, the Trading Member, ld. Counsel argued that the petition filed by the Broker does not satisfy any of the ingredients of Section 34 of the Act and as such the same is liable to be rejected as the scope of challenge Digitally to signed by VINEETA VINEETA GOYAL GOYAL Date:
2025.05.14 17:17:46 +0530 OMP (COMM): 82/21 & 39/22 Page 13 of 29 an award u/s. 34 of the Act is extremely limited and the same can be challenged on the grounds provided under the said section. In the instant case, Broker has assailed the Awards dated 17.06.2021 and 18.02.2021 on the grounds that the Awards are contrary to SEBI circular dated 22.03.2018 as the Ld. Arbitrators have ignored all other methods of authentication of 25 transaction, thereby constituting patent illegality and has accordingly sought setting aside of the impugned Awards. The Broker had not brought on record any evidence either before the IGRP or the Arbitral Tribunal to substantiate the alleged technical error in voice recording the 25 transactions which have been found concurrently to be unauthorized. Ld. counsel has relied upon judgment in case of Megha Enterprises & Ors. vs. M/s. Haldiram Snacks pvt. Ltd., OMP (COMM) No.79/2021 as well as Associate Builders vs. Delhi Development Authority, reported in (2015) 3 SCC 49, on the issue of patent illegality. He has further relied upon judgment of Hon'ble Supreme Court of India in case of Ssangyong Engineering and Construction Company Ltd. vs. National Highway Authority of India, (2019) 15 SCC 131.
7. On behalf of the Trading Member, it is further submitted by ld. Counsel that Broker is challenging the impugned award dated 17.06.2021 on the ground that the award is vitiated in law as the Ld. Arbitrators have failed to take into consideration that the 25 transactions for which the compensation by way of an award has been made, are authorized transactions which ought to have been Digitally signed by VINEETA VINEETA GOYAL GOYAL Date:
2025.05.14 17:17:54 +0530 OMP (COMM): 82/21 & 39/22 Page 14 of 29 considered by the Ld. Arbitrator because of alleged technical glitches in recording the alleged post transaction confirmation are covered under SEBI Circular dated 22.03.2018. In the light of principle of law (supra), it is submitted that the said ground of the Broker does not constitute a patent illegality u/s. 34 of the Act.
7.1. On merits, on behalf of the Trading Member, it is submitted that under Section 34 of the Act, the Broker cannot challenge the order dated 16.07.2020 passed by IGRP since the same is not an award under the Act and further, the Broker cannot question the award dated 18.02.2021 separately because of the fact that the same has merged with the Appellate impugned award dated 17.06.2021. It is further submitted that around 1497 transactions were made during the period 27.10.2017 to 06.06.2019 (not 01.06.2019 as wrongly mentioned by the Broker), however, it is denied that the Trading Member had ever exercised his option for transaction under F&O segment as alleged by the Broker. It is further submitted that the Trading Member provided comparative analysis of the transactions vis-a-vis the voice recordings supplied by the Broker, which was adequate compliance of the direction issued by the IGRP on 10.07.2020. It is further stated that taking into consideration the summary of sauda filed by the Broker and evidences on record, the IGRP came to a conclusion that out of 52 transactions which were termed as unauthorized by the Trading Member, 25 transactions were taken to be unauthorized being contrary to the circular dated 22.03.2018. It is further stated that Digitally signed by VINEETA GOYAL VINEETA Date:
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the Broker is trying to misrepresent and misinterpret the order of the IGRP dated 16.07.2020 in as much as the IGRP on the basis of the evidences provided by both the parties and after taking into consideration the voice recordings / call recordings, segregated 25 transactions as authorized from and out of 52 transactions identified by the respondent as unauthorized. However, no evidence was ever brought on record by the Broker to prove the alleged technical error which prevented the Broker from keeping evidence of the record of transactions.
7.2. Further the allegation of the Broker that the Ld. Arbitrators have overlooked the circular dated 22.03.2018 is completely misconceived as the overlooking the circular cannot be a ground constituting patent illegality as per the principle of law.
However, Ld. arbitrators including the members of the IGRP have taken complete consideration of the circular dated 22.03.2018 to arrive at a conclusion awarding compensation to the Trading Member which being in accordance with the provisions of law is not open to challenge u/s. 34 of the Act. From the entire grounds taken by the Broker, it is crystal clear that it wants to highlight the fact that rejection of its contentions with regard to 25 transactions voice recording of which could not be retrieved due to technical error and holding the same to be unauthorized, is a patent illegality. The said submissions of the Broker is wholly misconceived and untenable in law for its outright rejection. However, it is submitted that no shred of any evidence was brought on record by the Broker Digitally signed by VINEETA GOYAL VINEETA Date:
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to substantiate its contentions of technical error. Since it failed to substantiate the said technical error on the basis of cogent and plausible evidences, no illegality whatsoever has been committed either by the IGRP or by the ld. Arbitrators in passing the impugned award which is just and lawful in the fact and circumstances of the case.
7.3. It is further contended that Broker has assailed the award of the Ld. Arbitrator u/s. 34(2A) of the Act. The only illegality as alleged by the Broker in course of challenge to the award is that the evidence adduced by it, has not been considered by the Ld. Arbitrators while passing the award in favour of the Trading Member and the said contention of the Broker is not only contrary to the record but also runs counter to the findings recorded by the Ld. Arbitrators.
7.4. It is further submitted on behalf of the Trading Member that during the proceedings before IGRP on 14.07.2020, recordings pertaining to entire transactions done during the period from 01.01.2018 to 05.06.2019 were scrutinized in the presence of both the parties and the Trading Member after reconciling those transactions with the records produced by the Broker, identified 52 transactions as unauthorized. On a further scrutiny of the 52 transactions so identified, the IGRP held 37 transactions including 25 transactions admitted by the Broker to be unauthorized as the Broker failed to produce any evidence in the form of records as per Digitally signed by VINEETA GOYAL VINEETA Date:
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the SEBI circular (both Pre and Post transactions). Accordingly, the IGRP quantified the compensation in respect of said 37 unauthorized transactions to Rs.29.16 lacs. So far as the balance 15 transactions (52-37) are concerned, the IGRP held the same to be authorized on the ground of availability of post trade confirmation records and accordingly, did not award any compensation against the same. On the contrary, the IGRP has deducted a further sum of Rs.3,22,566/- towards the profit accrued to the Trading Member from the total claim of Rs.29,16,347/- thereby reducing the compensation amount otherwise awardable to him.
7.5. It is further submitted on behalf of Trading Member by ld. Counsel that Broker assigned Technical Glitch to justify its failure to preserve the records in relation to its admitted 25 transactions for a period of 3 years as mandated under circular dated 22.03.2018 but has miserable failed to produce any cogent and convincing evidence to substantiate its plea of technical glitch. Thus, the Broker's efforts to bring it within the fold of exceptional circumstances as provided under the circular has been rightly and justifiably rejected by the Ld. Arbitrators vide award dated 18.02.2021 thereby leaving any scope of interference under Section 34 of the Act.
7.6. It is further contended that Broker taking undue advantage of the rider provided in the Circular tried to make out a case of exceptional circumstances for its failure to produce the Digitally signed by VINEETA GOYAL VINEETA Date:
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records with regard to 25 transactions admitted by it on the plea of Technical Glitch without providing any records in support of the same. Ld. Arbitral Tribunal vide its award dated 18.02.2021 rejected the said plea of the Broker assigning cogent and valid reasons for the same.
8. On the other hand, ld. Counsel appearing for the Broker has strongly submitted that the SEBI circular dated 22.03.2018 provides that where voice recordings are not available, other evidence such as emails, mobile phone messages, and other legally verifiable evidence shall be considered. Admittedly, there were 1497 transactions between the parties in the F&O segment over a period of twenty months (27.10.2017 to 01.06.2019) and when the records were sought nearly one year later (10.07.2020), voice recordings of 25 transactions were missing. This is less than 2% of the transactions and ex facie falls within the scope of 'exceptional circumstances'. It is further submitted that the Trading Member's entire case was based on the false ground that he never consented to trading in F&O segment at all. The Trading Member has further argued that the calls did not originate from him and this is wholly irrelevant and there is no mandate in the SEBI circular as to who should be the originator of the calls. Ld. Counsel appearing for the Broker substantiating this argument gave Trail of electronic evidence in respect of two sample transactions as under :-
Transaction A - undisputed transaction - purchase of 1200 futures of Axis Bank on 18.01.2018 @ Rs.6.35 Digitally signed by VINEETA VINEETA GOYAL Date:
GOYAL 2025.05.14 17:18:43 +0530 OMP (COMM): 82/21 & 39/22 Page 19 of 29 Flag Exh Particulars Page A1 G Sauda Summary 206 A2 D SMS 83 items 1 & 2 A3 C ECN 53 item 13 A4 E Ledger 173 second last item A5 H List of trades 261 first item Transaction B - Disputed Transaction - purchase of 500 futures of Siemens on 03.05.2018 @ 1147.13 Flag Exh Particulars Page B1 G Sauda Summary 207 B2 D SMS 139 last item B3 C ECN 54 7th item B4 E Ledger 184 7th Item B5 H List of trades 261 8.1. Referring to above, ld. Counsel submitted that the trail of transactions in both cases is identical. There is no reason to disbelieve Transaction B on the sole ground that voice recording is not there.
8.2. On behalf of the Broker, it was argued that according to the Trading Member, there were 52 such transactions and according to IGRP, there were only 37 such transactions, whose value has been determined as Rs.29,16,347/-. However, according to Arbitral Tribunal, there were only 25 transactions, whose value has not been determined and IGRP order has been mechanically upheld without raising that there is a difference in the number of transactions.Digitally signed by VINEETA GOYAL
VINEETA Date:
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8.3. Ld. counsel appearing for Broker while reiterating the grounds as detailed in the petition preferred by the Broker submitted that the impugned award suffers from patent illegality as the Ld. Arbitrator failed to consider other documents in the form of ECN log and SMS log, Ledger Account Statement and other documents filed by the Broker.
9. I have given careful consideration to the facts and the arguments presented by the respective parties. I feel that in the cacophony the factual matrix of the dispute appears to be complicated but by unbundling it can be summarized as:-
a) The Trading Member and the Broker had a dispute about the unauthorized trade executed between the disputed period of twenty months (27.10.2017 to 06.06.2019) during which the Trading Member allegedly suffered loss.
b) This dispute was taken up before IGRP on filing of a complaint by the Trading Member raising claim of Rs.
39,27,830/-. During the proceedings before IGRP, the complainant/ Trading Member revised this claim to Rs. 40,38,842/-. Thereafter, IGRP on 13.07.2020 had asked the Broker to provide the entire set of transaction (Sauda Summary) of the aforesaid period to the Trading Member. It was also directed that Trading Member would mark the unauthorized trades as per his allegation.
c) The Trading Member vide e-mail dated 14.07.2020 Digitally signed by VINEETA GOYAL VINEETA Date:
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identified 52 transactions in total as unauthorized. In subsequent proceedings, the Broker submitted evidence of authorization/ confirmation of trade in its possession. Thereafter IGRP arrived at findings that 37 transactions are unauthorized for which no confirmation has been filed by the Trading Member whereas for the remaining 15 transactions it was said to have post trade confirmation.
d) The IGRP in its order dated 16.07.2020 arrived at loss of Rs. 29,16,347/- in respect of aforesaid 37 transactions and out of which profit earned has been deducted at Rs. 3,22,566/- and thus allowed claim of Rs. 25,93,781/- to the Trading Member.
e) IGRP findings were challenged before the Arbitration Tribunal both by the Trading Member and the Broker. The Broker has mentioned his grievance/ objections before the Arbitration Tribunal in the form of Statement of claim inter alia raising objection that all the trades were authorized, these were sent on e-mail/ registered mobile number, Exchange also sent e-mail/ sms for which ECN report and sms log was produced, in the disputed perion the Trading Member made payments, misguided IGRP that he did not opt for FNO segment, there were only 25 transactions for which call recording was not available thus IGRP committed factual error and last but not the lease the case of the Broker is covered under exceptional case of technical glitch as envisaged in SEBI circular dated 20.03.2018. The Digitally signed by VINEETA VINEETA GOYAL Date:
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f) The Trading Member was also aggrieved and thus while filing reply before the Arbitrator asked that under the facts of the case the claim be revised to Rs. 34,41,497/- because IGRP committed error in calculating claim at Rs. 25,93,781/-.
g) In the Award, the contentions of the Broker were rejected primarily by mentioning that it is not a case of exceptional circumstances. The contentions of the Trading Member for enhancement of the claim were also rejected by giving reasoning that the details of loss have not been disclosed in the reply nor respondent has filed any evidence in support thereof either in these proceedings or before IGRP.
h) Both the parties went before Appellate Arbitral Tribunal (AAT) in cross appeals impugning the award above.
However, impugned award dated 17.06.2021, the contention of the Trading Member was rejected for want of evidence and the contention of the Broker was rejected holding that the requirement to keep record 'order placing evidence' is a mandatory directive and must be strictly interpreted to protect the interest of investors.
i) The Trading Member made another attempt before the Arbitration panel by allegedly filing application u/s 33 of the Act, requesting enhancement of compensation from Rs 25,93,781/-. The Arbitration Tribunal vide order dated 05.07.2021 rejected the application.
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10. At the outset, it is mentioned that the scope of interference with the Arbitration award is very limited. In the case of National Highway Authority of India v. M. Hakim, (2021) 9 SCC 1, it had been observed by the Hon'ble Apex Court that interference with the conclusions of fact and law is not permissible in either under Section 34 or Section 37 of the Act, 1996. Only when the determination is ex-facie, perverse or in conflict with the provisions of the Contract, can the Court's interference be justified. Likewise, Hon'ble Supreme Court in Anglo-American Metallurgical Coal v. MMTC Limited, (2021) 3 SCC 308, had observed that the Court is not permitted either under Section 34 or 37 of the Act to independently evaluate the merits of the Award, but must confine its authority to the parameters permitted under the Statute. Extreme caution must be observed by the Court and it should be hesitant to disrupt the concurrent conclusions arrived at in the Arbitral Award which is validated by the Court under Section 34 of the Act. In Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1, the Hon'ble Apex court had observed that Section 34 has a different methodology and it cannot be considered as a typical Appellate jurisdiction. Section 34 demands respect to the finality of the arbitral ruling and the party autonomy in having chosen to get their issues resolved through alternate forum of arbitration which would be thwarted if the courts were to accept the challenge to the arbitral rulings on factual issues in a regular manner. The claim being supported by reasons, does not call for Digitally signed by VINEETA VINEETA GOYAL Date: GOYAL 2025.05.14 17:19:34 +0530 OMP (COMM): 82/21 & 39/22 Page 24 of 29 any interference.
11. Considering the contours of the jurisdiction under Section 34 of the Act, this court cannot re-assess the evidence and weigh it afresh. At the same time court can just peep into the record solely to see if the view taken in the Impugned Award is so manifestly arbitrary or implausible that it would meet the threshold of being perverse enabling court to interfere with it.
12. In the present case, on behalf of the Broker one of the important grounds agitated for the challenge is that though there was admitted absence of prior written or recorded instructions for identified transactions (either 37 or 25 in number) yet it is not fatal to the legitimacy of the trades. This interpretation of situation would mean that wherever there is finding of admitted absence of prior authorization it would wash away all the evidence of participation with knowledge in the trades executed on behalf of the Trading Member by the Broker. The absence of evidence of pre- authorization should not be conclusive proof to arrive at a conclusion that such trades are unauthorized. The important question emerges is that whether the Trading Member has actively participated in the trades and this question must be answered by the jurisdictional arbitral tribunal upon assessment of the evidence at hand in each case. In a given case, there may be other evidences strong enough to stack up and lead a pointer of active knowledge and participation in the trades by the Trading Member. IfDigitally that signed is the by VINEETA VINEETA GOYAL Date:
GOYAL 2025.05.14 17:19:42 +0530 OMP (COMM): 82/21 & 39/22 Page 25 of 29 case, then the exceptional clause as mentioned in the SEBI circular dated 22.03.2018 can be triggered in where the Broker claims that there was a technical glitch. The gamut of the circular is discussed below.
13. It is pertinent to mention that Securities and Exchange Board of India (SEBI ) has issued a circular dated 22.03.2018 with subject Circular on Prevention of Unauthorised Trading by Stock Brokers. The said circular outlines the required evidentiary standard for determining whether or not a client had traded. The relevant Paragraph III of the SEBI Circular is extracted below:
"To further strengthen regulatory provisions against un-authorized trades and also to harmonise the requirements across markets, it has now been decided that all Brokers shall execute trades of clients only after keeping evidence of the client placing such order, which could be, inter alia, in the form of:
a. Physical record written & signed by client, b. Telephone recording, c. Email from authorized email id, d. Log for internet transactions, e. Record of messages through mobile phones, f. Any other legally verifiable record. When a dispute arises, the Broker shall produce the above mentioned records for the disputed trades. However for exceptional cases such as technical failure etc. where Broker fails to produce order placing evidences, the Broker shall justify with reasons for the same and depending upon Digitally signed by VINEETA GOYAL VINEETA Date:
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merit of the same, other appropriate evidences like post trade confirmation by client, receipt/payment of funds/ securities by client in respect of disputed trade, etc. shall also be considered."
14 A plain reading of the foregoing would show that when a dispute arises, the Broker is expected to produce the record of authorisation for the disputed trades. However, for exceptional cases where the Broker fails to produce evidence of placement of order, the SEBI Circular envisages that "other appropriate"
evidence such as post-trade confirmations, receipt and payment of funds and securities shall also be considered. The very enabling framework of alluding to other appropriate evidence points to an inexorable position in law laying down that there can be other evidence to establish the authenticity of the disputed trades.
15 Hon'ble Bombay High Court has recently in judgement dated 27.03.2025 in the case of Ulhas Dandekar Vs. Sushil Financial Services Pvt. Ltd. Com. Arb. Pet 1175/2019 with Arb. Pet. No. 1216/2019 (Neutral Citation 2025:BHC-OS :4950) examined the aforesaid circular of SEBI and has held that the circular provides for opportunity to lead other evidences in absence of prior authorisation/ telephone recording.
16 In the present case, OMP (Comm) No.82 of 2021, the Broker has taken a ground that the other evidences produced Digitally by signed by VINEETA VINEETA GOYAL GOYAL Date:
2025.05.14 17:20:01 +0530 OMP (COMM): 82/21 & 39/22 Page 27 of 29 it has been ignored by the Arbitration Tribunal. The SEBI circular specifically provides that for exceptional cases such as technical failure etc. where Broker fails to produce order placing evidences, the Broker shall justify with reasons for the same and depending upon merit of the same, other appropriate evidences like post trade confirmation by client, receipt/payment of funds/ securities by client in respect of disputed trade, etc. shall also be considered. In the present case, the Arbitrator has failed to provide detailed justification of shutting the evidence adduced by the Broker. This court cannot interfere into the conclusion arrived by the Ld. Arbitrators but if the impugned Arbitral award does not mention the reasons thereof, then because such decision goes to the root of controversy would become patently illegal. Such award which has foreclosed the appreciation of evidence otherwise permitted under law would be against the public policy and patently illegal thus liable to be set aside.
17 In the other petition, OMP (Comm) No.39 of 2022, the Trading Member is aggrieved because the upward revision of the compensation has been denied. On examination of the impugned Arbitration Award dated 18.02.2021, the reason ascribed is lack of evidence. Similarly AAT and again Arbitral Tribunal while disposing application u/s 33 have restated the same reasoning, therefore no infirmity is found in the impugned awards/ other orders. However, since the arbitration award is being set aside as discussed above in the OMP (Comm) No.82 of 2021,Digitally therefore signed by VINEETA VINEETA GOYAL Date:
GOYAL 2025.05.14 17:20:12 +0530 OMP (COMM): 82/21 & 39/22 Page 28 of 29 the Trading Member would get another opportunity to lead evidence for his claim of higher compensation.
18 In view of the above discussion, both the petitions stand disposed off with no order as to costs.
19 File be consigned to record room.
Digitally signedVINEETA by VINEETA GOYAL GOYAL Date: 2025.05.14 17:20:21 +0530 Pronounced in the open Court (VINEETA GOYAL) on 14th May, 2025 District Judge (Commercial-03) Patiala House, New Delhi OMP (COMM): 82/21 & 39/22 Page 29 of 29