Bombay High Court
Sharekhan Limited vs Nita Thakkar on 7 March, 2012
Author: Anoop V. Mohta
Bench: Anoop V. Mohta
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 789 OF 2010
Sharekhan Limited,
Trading Member Clg. No. 748,
Bombay Stock Exchange Ltd.,
Having office at A-206, 2nd floor,
Phoenix House, Senapati Bapat Marg,
Lower Parel,
Mumbai-400 013. ......Petitioner.
Vs.
Nita Thakkar,
Residing at 43, Kailash Darshan,
Dr. Ambedkar Road,
Mulund (West),
Mumbai 400 080. ......Respondent.
Mr. Pesi Modi with Mr. R.R. Bhosale with Ms. Sabah Naik for the
Petitioner.
Mr. Rajesh Khandelwal for the Respondent.
CORAM :- ANOOP V. MOHTA, J.
JUDGMENT RESERVED ON :- 1 February 2012.
JUDGMENT PRONOUNCED ON :- 07 MARCH 2012.
JUDGMENT:-
The Petitioner trading member/broker of Bombay Stock Exchange Limited (for short, "BSE") has challenged under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, "the ::: Downloaded on - 09/06/2013 18:16:24 ::: 2 arbp789.10.sxw ssm Arbitration Act" ), Arbitral Award dated 26 February 2010 passed by the Appellate Bench comprising of 5 Arbitrators against award dated 8 July 2009 passed by the Tribunal consists of 3 Arbitrators. The Appellate Bench has rejected the Appeal filed by the Petitioner-
Appellant which was against the grant of claim in favour of the Respondent (Original-Applicant).
2 The Respondent has filed a statement of claim on 24.03.2009 under the BSE Rules basically claiming wrongful Delay of Paying Charges (DPC) by the Respondent. The same was resisted in every aspect by the Petitioner by its reply dated 1 June 2009. The Petitioner relied on Clause 9.2.5 of the Member Client Agreement and 1.7.5 read with Rule 252(2), 252(3) and 227(a) of the BSE bye-laws. Those are as under:-
Clause 9.2.5-
"The Client agrees, that without prejudice to an other remedy or right prescribed in the presents, the Stock Broker may charge daily interest at the rate 2% or such other rate may be communicated from time to time for any delay in the payment charges, margin or any other sum due to the Stockbroker as the case may be."
Clause 1.7.5.
Without prejudice to the Stockbroker's other rights ::: Downloaded on - 09/06/2013 18:16:24 ::: 3 arbp789.10.sxw ssm (including the right to refer a matter to arbitration), the stock broker shall be entitled to liquidate/close out all or any of the client's positions for non- payment of margins or other amounts, outstanding debts, etc. and adjust the proceeds of such liquidation/close out, if any, against the client's liabilities/ obligations. Any and all losses and financial charges on account of such liquidation/closing out shall be charged to and borne by the client."
Bye law 252(2) "The Arbitrators shall not take cognizance of any claim, complaint, difference or dispute unless the same has been received by the Exchange within six months from the date of the transaction or from the date on which the client claims to have given the instruction/ order to buy or sell a security or from the date on which the client claims to have paid money or given a security whichever is earlier. Any dispute as to whether a claim, complaint, differences or dispute falls within the ambit of this clause shall be decided by the Arbitrators.
Provided that the Governing Board or the Executive Director may, from time to time appoint a Committee to amicably settle all claims, complaints, differences and disputes that are referred to it.
Provided further that when such claims, complaints differences and disputes are referred to the aforesaid Committee, the time taken in amicable settlement of such claims, complaints, differences and disputes shall be excluded while computing the period of Limitation.
Provided further that this Byelaw shall be applicable in-respect of all Arbitration cases filed on or after the date when this Byelaw comes into effect. Provided ::: Downloaded on - 09/06/2013 18:16:24 ::: 4 arbp789.10.sxw ssm further that in respect of Arbitration cases arising out of the Transactions having been done prior to the date on which this Bye-law comes into effect, the limitation period of six months shall be computed from the date on which this Bye-law comes into effect."
Bye Law 252(3) Application of the Limitation Act, 1963.
(i) Subject to Clauses 1(a) to (c) 2 {and Clause (2)} above all the provisions of the Limitation Act, 1963 or other law relating to limitation as may be in force in India from time to time shall apply to arbitration under these Bye-laws as they apply to the proceedings in the Court.
(ii) For the purposes of Sub-clause (a) 3 {and Clause (2)} an arbitration is deemed to have commenced on the date on which the Application for arbitration is received by the Exchange.
(iii) Time taken on arbitration proceedings may be excluded. But in excluding such time the tests laid down in different cases must be applied and satisfied. The entire period during which the award remained in custody of court should be excluded under Section 15 of the Limitation Act for the purpose of registration of award.
Bye Law 227(a)
227.(a) Whenever and so often as a constituent is indebted to a member all securities and other assets from time to time lodged with the members by such constituent or held by the member for and on behalf of such constituent and any cash lying to the credit of such constituent with the member shall be subject to the lien of such member for any general balance of account or margin or other monies that may be due at any time by such constituent singly or jointly with ::: Downloaded on - 09/06/2013 18:16:24 ::: 5 arbp789.10.sxw ssm another or others to such member in respect of any business done subject to the Rules, Bye-laws and Regulations of the Exchange and shall be deemed a general security for payment to such member of all such monies (including interest, commission, brokerage and other expenses) as may be due by such constituent in such manner."
3 Bye-law 227(a) provides authorization and adjustment between joint accounts. In this case, admittedly there was no sale in this Account. But in view of adjustment letter, all accounts became joint for all the purposes. Admittedly, the parties executed the adjustment letter along with the three relatives namely Arvind Berai, Manjula Thakkar and Dipak Thakkar which authorized the Petitioner to treat the four accounts, as one. It is observed between the same parties, based upon the similar adjustment letter, though it was arising out of National Stock Exchange of India Limited (for short, "NSE") arbitration matter, that it was one account and the stock broker is entitled to adjust the accounts even selling the security. The principle so accepted by this Court have binding effect to the parties considering the similarity in the nature of adjustment letters and transactions. (Arbitration Petition No.1035/10-Manjula Arvind Thakkar v. Sharekhan Limited and Arbitration Petition No.522/10- Sharekhan Limited v. Manjula Arvind Thakkar). I have also noted ::: Downloaded on - 09/06/2013 18:16:24 ::: 6 arbp789.10.sxw ssm that the tenure and the contents of the authorization letter are quite similar and as the bye-laws permit the parties to sign such letters, it binds the parties and therefore, the learned Arbitral decision by overlooking the same, is incorrect.
4 The Tribunal held that the claim was within 3 years by extending the period by holding that the Bye-laws 252(2) of BSE is not applicable. They invoked Bye-law 252(3) and decided the claim in para 19, within limitation. The reference was filed on 23 March 2009 covering the period 5 May 2008 to January 2009. The DPC dispute is not covered by Bye-law 252(2), therefore, the limitation period of DPC is rightly covered by 252(3) as reproduced.
5 In my view it also take care of BSE and NSE segment account as are co-extensive account with the constituent. There is no dispute that the Petitioner being a member, entered into an agreement for doing the business/ for transaction on stock exchanges. The transactions were, on instructions, on both the exchanges.
Considering the scope of adjustment letter read with Rules and as there is nothing to debar the Petitioner from adjusting the amount as agreed, the action so taken by the Petitioner, cannot be stated to be ::: Downloaded on - 09/06/2013 18:16:24 ::: 7 arbp789.10.sxw ssm illegal. The Tribunal's conclusion by overlooking the agreements and the nature of transactions and by holding that BSE and NSE segment accounts are not co-extensive accounts, is not correct.
6 The DPC are governed by the agreement and the Bye-laws.
Therefore, considering the adjustment letter and its effect, apart from the purpose and object and as declared by the Court as above, the DPC so claimed as there was delay in payment, cannot be stated to be impermissible. The constituent is always under obligation to make the payment from time to time as demanded. If there is delay in payment and the broker if adjust the same from other accounts, after waiting for certain time is therefore, entitled for the DPC. There is no serious challenge to the receipt of contract notes and the bills. The Respondent was in arrears and had made delayed payment, therefore, invocation of Clause 9.2.5 by restricting charges to 12% p.a instead of 2% per day cannot be said to be exorbitant, unreasonable or illegal.
All these documents and transactions being commercial in nature and the parties were fully aware of the effect of such transactions and its nature.
7 It is relevant to note that the lower Tribunal had not given ::: Downloaded on - 09/06/2013 18:16:24 ::: 8 arbp789.10.sxw ssm sufficient reasons referring to Clauses 1.7.5 and Clause 9.2.5 and adjustment letter, except observing "practice wrongly adopted" and "such levy does not impress us".
8 One Arbitrator of the Appellate forum also adopted the same mode. However, other Arbitrators in supporting judgment, elaborated the reasons by referring to the Rules and Clauses as reproduced above for the first time. The Appellate Tribunal thereby supported the Award by giving the reasons in detail, knowing fully the scope and object of Appellate authority which is quite limited.
9 Therefore, taking over all view of the matter, as all account holders who are signatories to the authorization letter, if failed to make the payment though demanded, the deduction of the charges by the Petitioner, cannot be stated to be unauthorised. Such charges if permissible and within the purview of the law and the record, in my view, cannot be stated to be bad or impermissible.
10 So far as the interest @ 18% p.a. as seen from the record, is no where agreed. The Petitioner has also charged 12% and not 2% per day as per Clause 9.2.5. Therefore, the charges so raised/ deducted ::: Downloaded on - 09/06/2013 18:16:24 ::: 9 arbp789.10.sxw ssm cannot be stated to be exorbitant, unreasonable and without authority.
11 It is the Arbitration mechanism in stock exchanges, basically governed by the provisions of the Securities Contracts (Regulation) Act, 1956 (for short, the Securities Act) and the Rules and Regulations and Bye-laws framed thereunder, including the circular issued by the Government and the Securities and Exchange Board of India (for short, "SEBI") from time to time. The circulars are issued principally under Section 11 (1) of the Securities and Exchange Board of India, Act 1992 (for short, "the SEBI Act") read with Section 10 of the Securities Act. The Arbitration proceedings are governed by the Arbitration Act, 1996 read with above Acts, Bye-laws and circulars apart from the provisions of general laws. I have already elaborated the issue in the following words Sahyadri Earthmovers vs. L & T Finance Limited & anr., 1 :
"Equal and fair treatment (xvii) The Arbitrator must give equal opportunity to both the parties and, therefore, bound to follow the principles of natural justice, fair play and equity.
1 2011 (4) Mh. L.J. 200 ::: Downloaded on - 09/06/2013 18:16:24 ::: 10 arbp789.10.sxw ssm CPC & Evidence Act (xviii) Though Code of Civil Procedure and the Evidence Act are not applicable strictly, (Section 19), but the settled principles do apply. The power of Arbitral Tribunal to determine the admissibility, relevance, materiality and weight of any evidence just cannot be overlooked.
To decide jurisdiction :
(xix)The Arbitrator is empowered to decide his own jurisdiction if objected and even the issue of existence of arbitration agreement (S/16). It should be decided as early as possible by passing reasoned order, as this could be additional ground of challenge u/Section 34 of the Arbitration Act.
Substantial laws- customs-commercial usages and practice (xx)The Arbitrator is bound by the substantive laws of the land as well as procedural laws and practice and principle apart from the custom and usage of the trade referring the business and commerce between the parties, in all respects.
::: Downloaded on - 09/06/2013 18:16:24 :::11 arbp789.10.sxw ssm To Analyse the evidence and the record (xxi)The Arbitrator is required to consider all the material and evidence/documents placed by the parties on record read with the evidence led by the parties. The Arbitrator is, therefore, bound to analyse and appreciate the same by giving proper and correct interpretation of terms of the contract subject to provisions of law, before passing reasoned interim or final award. The Arbitrator to pass reasoned interim and/or final award, unless agreed otherwise.
To award interest-pre-post-future interest- as agreed if not as per the law (xxii) The Arbitrator is required to consider/grant pre/post, pending and future interest as contemplated under Section 31 of the Arbitration Act.
The Doctrines to be followed The Arbitrator cannot disregard the substantive and procedural law. The Arbitrator is therefore bound to take note of law; of interpretation, precedent, obiter dicta, ratio decidendi, Estoppel, acquiescence, waiver and res judicata, ::: Downloaded on - 09/06/2013 18:16:25 ::: 12 arbp789.10.sxw ssm public policy, natural justice, fair-play and equity."
12 The constituent/ investor appoint the broker for doing business/transaction on all exchanges. Every exchanges is governed and administered by its Bye-laws and Regulations and various circulars. In case of dispute pertaining to the transactions, the respective exchanges will be governed by its Bye-laws as declared separately. The Arbitral Tribunal so appointed being institutional Tribunal, will take its own decision as per their laws and trade and practice. There is nothing to show that the decision of Tribunal of one exchange is binding to other institutional Tribunal, though the basic subject and object of such transactions are same and similarly placed.
13 The Appellate Tribunal's decision is binding on the lower Tribunal, but the Appellate Tribunal of one exchange whether binds the lower Tribunal of other exchanges, is again a matter which one has to consider from the point of view of avoiding conflicting views and decisions apart from the judicial discipline. I am of the view that all these are situations where SEBI and/or Competent Authority must take note of and issue necessary circulars or guidelines to avoid ::: Downloaded on - 09/06/2013 18:16:25 ::: 13 arbp789.10.sxw ssm further complications and delay in taking early decisions in the Arbitration proceedings. The investors, shareholders and financial institutions and public at large are involved in all these financial transactions.
14 The conflicting views, difference of opinion, is permissible but while taking final decisions, the Tribunal also needs to consider the settled principle of law, as well as, the binding decisions of the Supreme Court or High Court etc. These Arbitral Tribunals, as everyone knows, decide the right of the parties by such Arbitration mechanism. Therefore, basic laws and principles just cannot be overlooked even by the Arbitral Tribunal so that the Arbitration mechanism is not termed as costly, tardy, adjudication procedure in contesting matters. We have to make it more effective and less expensive. The Arbitrator can use his expertized in the field read with the commercial trade usage and practices if any, but at the same stroke, he must take into consideration the basic laws of the land, apart from the principle of fair-play, equity and natural justice.
15 Taking overall view of the matter, I am inclined to set aside the Award dated 8 July 2009 and the confirmation Award dated ::: Downloaded on - 09/06/2013 18:16:25 ::: 14 arbp789.10.sxw ssm 26.02.2010.
16 Resultantly, the Petition is allowed. The Award dated 8 July 2009 and the Award dated 26 February 2010 are quashed and set aside. There shall be no order as to costs.
(ANOOP V. MOHTA, J.) ::: Downloaded on - 09/06/2013 18:16:25 :::