Bangalore District Court
Mukunda R.R vs Managing Director on 24 February, 2022
In the Court of the XXIV Additional City Civil
and Sessions Judge (CCH6) at Bengaluru
Dated this the 24th day of February, 2022.
Present:
Kum Sindhu Potadar, B.A.,LL.B., (Hons), LL.M,
XXIV Addl. City Civil & Sessions Judge (CCH6),
Bengaluru.
Arbitration Suit No. 79/ 2015
Plaintiff : Mukunda R.R,
S/o Ramakrishna,
Aged about 29 years, No.11,
Ambara, 1st main road, BSK 3rd
stage, Bangalore85,
Represented by GPA holder
Kiran Kumar.
(By Sri S.V.Shashikantha,
Advocate)
-Versus-
Defendant : Managing Director,
M/s. Dani Commodities Pvt Ltd.,
Member ID 28395,
Head Office : Floor No.7,
Satyanagarayan Prasad,
Commercial Center,
Dayaldas Road, Off Nehru
Road, Vileparle (E),
Mumbai 400057, Maharastra.
Branch Office:
M/s Dani Commodities Pvt Ltd.,
No.1535, 1st Floor, 39th Cross,
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4th 'T' Block, Jayanagar,
Bengaluru560 041.
(By Sri B.S.Satyanand, Advocate)
Judgment
This Arbitration Suit is filed by the plaintiff under
Section 34 of the Arbitration and Conciliation Act, 1996
seeking to set aside the Arbitration Award dated.
25.03.2015 passed by the Arbitral Tribunal in the
Arbitration case.
2. The brief facts of the plaintiff's case are as under: -
The defendant is a trading member of Multi
Commodities Exchange (MCX) having its head office at
Mumbai and branch office at Bangalore. The defendant
approached the plaintiff and convinced to open the account
and use the companies membership with the MCX
exchange as a platform for carrying out trading activities.
Initially, plaintiff showed lot of resistance as she has never
invested nor had knowledge in Secondary Market. The
defendant convinced the plaintiff that as per the bye laws
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of MCX , he will be taking consent on every trade that is
placed in the terminal by explaining risk and return
adequately, he also highlighted plaintiff about Clause13
pertaining to rights and obligation of Clients and Trading
members as prescribed by MCX Exchange and FMC
(Forward Market Commission) and reiterated that
potentiality of his company research tips has in generating
the profits and gave detailed statement of accounts would
be sent every month in physical form, which will enable
plaintiff to understand profit and loss status of the
account. The defendant would provide trading tips to the
plaintiff over phone, upon discussing the merit of the trade
tip in terms of risk reward associated with the trade tip,
plaintiff would provide permission to place the trade order
and defendant was suppose to provide post trade
confirmation over phone. Having agreed upon the
modalities of trade, the Trading Account No. B54099 was
activated and Margin/ Capital of Rs.5 lakhs was provided
in the account, account was activated on 02.05.2013. The
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plaintiff received welcome letter from defendant stating
that for all the transaction with the defendant they have
appointed Mr. Vinay S.R - Zonal Head, south as
representative of defendant company. After infusing the
capital suddenly a few SMS started appearing on plaintiff
mobile and also received electronic Contract note, it was
too technical to understand, hence terrified with this
plaintiff tried to reach representative of the defendant, but
representative could not be traced and later representative
of defendant called after a month to the plaintiff and
informed not to worry over SMS and ECN received, as
these are routine messages about the market and has no
accounting/ financial significance and account is doing
well and the payout received is the profit payout and also
mentioned that his account is being managed by MCX
Registered Authorized Person Directly i.e., Sub Broker.
3. The authorized person, representative of
defendant continued to trade in plaintiff account without
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confirmation and was not accessible on the phone as well
and as agreed in the KYC during account opening,
statement of accounts explaining status of profits and loss
was never given to the plaintiff. Aggrieved by inability to
contact Mr. Vinay, representative of the defendant and
MCX Registered Authorized person for non receipt of
statement of accounts, Finally plaintiff sent complaint
through mail to defendant and after sufficient follow up
with the defendant it was discovered that the capital in
plaintiff's account is eroded completely. The entire trading
activity that went on in the plaintiff's account from
02.05.2013 to 17.09.2013 was unauthorized trading
activity without consent of the plaintiff and entire margin/
capital infused in the trading account has eroded.
Aggrieved by the loss due to unauthorized trading carried
out in his trading account by the defendant, the plaintiff
has raised the dispute in Arbitration Matter No.MCX/
ARB/ 2213A/ 2014 with the Arbitration cell set up by MCX
Exchange for clients in South India situated at Chennai.
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Being aggrieved by the order dated. 25.03.2015, the
plaintiff filed this suit seeking to set aside the Award on the
following grounds:
4. The award passed by the learned Arbitrator is
arbitrary, biased, erroneous and opposed to settled law,
against morality and justice and suffers from non
application of mind. The arbitrator has failed to appreciate
the documents which are clearly shows that the defendant
has done Trading business by violating the Bye Laws of
MCX Exchange, FMC Directives and Circulars issued by
MCX has carried out an unauthorized transactions and
has eroded entire capital in the trading account. As per
Bye law 5.22 and Circular issued on 13.09.2009, the
exchange member should maintain relevant records the
order received from his client or modification thereof and
Trading member should place only the confirmed order
instructions from the client and should maintain proof of
this confirmed order with them. Further the Trading
Member is supposed to file Annual Compliance Report
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every year explicitly and member of the exchange is not
suppose to indulge in Portfolio Management Service,
Portfolio Advisory Service and such other services to its
clients for investment in commodities Future Contracts
and member should place the order only and only after
express recorded pre confirmation from the client, Trading
member cannot justify any transaction having placed
under implied or express authority from the client.
5. Further the plaintiff contends that Clause13
pertaining to Section Transaction and Trade Settlement
and Clause 30 of Page 18 in Section Additional Rights and
Obligations in the KYC, have been verified. The bye laws of
exchange only exchange can take punitive action against
the defendant, plaintiff (clients) cannot claim civil action
(Reinstatement of Capital) for the violation, Cardinal
Principal of Justice is that every loss that arises out of
violation of law provides right of recover of loss through
civil proceeding by the aggrieved person. In the present
case the capital erosion due to unauthorized transaction in
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the trading account is direct result of violation of
provisions of bye laws of the exchange, FMC Directive,
Circulars issued by MCX and Trading Member's own
internal policy expressly mentioned in his KYC, hence
plaintiff is entitled for recovery of loss by compelling the
defendant to reinstate the plaintiff's capital. Bye laws of
exchange/ FMC Directive / Internal regulations has not
prescribed SMS alert and Contract note as instruct of trade
confirmation, in fact bye law does not make mention about
SMS alert at all and bye laws of exchange mandates
recorded Pre trade Confirmation of Order to be present for
any trade / Order executed in the system to be valid and
since the contract note and SMS alert is sent after the
execution of trade and as per the fundamental principles of
Indian Contract Act, for contract to be enforceable there
needs to be genuineness of Assent from the plaintiff.
6. Further contended that as per the rules, it is
clearly established the necessity of recorded Pre
Confirmation as a condition for the trade to classified as
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authorized trade and also clearly explains that Contract
note and SMS alert which is sent after the execution of the
trade cannot be considered as a valid trade confirmation.
The arbitrator has wrongly come to the conclusion that
there was private arrangement between representative of
the company and the plaintiff, even though nothing has
existed. The arbitrator failed to observe that there was no
such private arrangement between Mr.Vinay.S.R and
plaintiff amount was deployed through account payee
cheque drawn in favour of defendant. The arbitrator is
totally ignorant to observe that MCX Exchange Bye Law
5.24 makes the trading member responsible and liable for
all the acts and omission pertaining to all the order placed
in ATS by his employee/ Authorized person or any other
approved user for non compliance of bye law 5.22. The
defendant is responsible for acts of unauthorized and
discretionary trades carried out by his authorized person.
About 77 clients has raised dispute of unauthorized
trading by the defendant and complaint also filed before
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Tilak Nagar police station. During investigation through a
account statement, the plaintiff found the crucial fact of
the case that the defendant has converted entire capital of
all the complainants into the brokerage, further almost all
the clients who have raised the dispute were mapped
under the defendants authorized person, the commission
received is over Rs.1.4 Cr, as per the industry practice
authorized person gets only 60% of the commission /
brokerage generated and hence the 100% brokerage
generated translated to Rs.2.33 Cr, further to this out of
total charges generated only 60% of the charges gets
realised as commission/ brokerage and other 40% is
realised towards various statutory charges, and hence the
gross charges (100%) generated through transaction
amounts to Rs.3.88 Cr and this charges is generated by
eroding capital of around about Rs.3.90 Cr by
unauthorized trading transaction carried out primarily
across 77 Trading account's currently under dispute. The
arbitrator failed to consider that the payouts happened
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voluntarily out of capital infused by the plaintiff by the
defendant without plaintiff requesting for the same, the
action of defendant paying out without plaintiffs
requisition is a violation of bye law of the MCX exchange.
On these grounds, the plaintiff prays to set aside the
Arbitral Award dated. 25.03.2014.
7. After service of notice, defendant has appeared
through his counsel and filed the written statement by
denying the averments made in the plaint is false, frivolous.
The defendant contended that the suit has been filed by the
plaintiff only with an intention to harass them and this
defendant reserve its liberty to initiate appropriate
proceedings against the plaintiff for causing unnecessary
and uncalled for mental tension, hardship and harassment.
The suit is not properly valued as per Karnataka Court
Fees and Suit Valuation Act, 1957. The suit is framed by
the plaintiff is not in accordance with the provisions of the
Karnataka High Court Arbitration (Proceedings before the
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Court) Rules, 2001, as such the entire suit filed by the
plaintiff is not maintainable and requires to be dismissed
by this court. This court has no jurisdiction to entertain the
suit.
8. The defendant further contended that, as per
the ByeLaws of the MCX all disputes arising out of or in
connection with or in relation to such disputes are always
subject to the jurisdiction of the Courts in Mumbai. This
exclusive jurisdiction clause is irrespective of the place of
business/ residence of the client or the member of the
exchange or participant or the place of transaction.
Further, all transactions that have taken place at any place
shall be deemed to have taken place in Mumbai. As the
present dispute that has arisen between the parties
pertains to the trading, clearing and settlement of
transactions and further the same being settled in favour of
this defendant in accordance with the said ByeLaws by the
Arbitrator, any further Suit/ Proceedings arising there from
shall be initiated before the Courts at Mumbai only and not
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before this court. All parties to a reference to arbitration
under the ByeLaws, Rules and Regulations and the
persons, if any, submitting claims under them, shall be
deemed to have submitted to the exclusive jurisdiction of
the Courts in Mumbai for the purposes of giving effect to
the provisions of the Act, ByeLaws, Rules and Regulations
in force. Merely because the parties are residing in
Bangalore, this Court will not get any jurisdiction to decide
the present dispute. The suit is not maintainable for the
reasons that challenge to the Award by the plaintiff who is
the claimant before the Arbitrator does not attract as
contemplated under Section 34 of the Arbitration and
Conciliation Act. There is no patent illegality appearing on
the face of the award. The award passed by the Arbitrator is
just and proper and does not warrant any interference by
this Court. The private understandings / arrangements are
completely barred under the Byelaws and Rules of the
Exchange and that the plaintiff though being aware of the
same, has entered into such types of understandings with
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the defendant company's employees. It was not within the
scope of employment of the defendant company's
employees to enter into such type of private understandings
and that this defendant cannot be held vicariously liable
also for the acts done by its employees which are beyond
the scope of their employment. This defendant as per
directions of the learned Arbitrator has deposited the said
amount along with interest to the Bank Account of the
plaintiff as available with the defendant, which he has duly
accepted the same. Hence, prays to dismiss the suit.
9. Along with the suit, defendant has filed
Interlocutory Application No.I under order 7 Rule 10 and
Section 151 of C.P.C, seeking to return the plaint.
10. In support of the said Interlocutory Application,
defendant's representative has sworn to an affidavit
contending that the plaintiff has filed the Arbitration Suit
under Section 34 of the Arbitration and Conciliation Act,
1996 challenging the dismissal orders by the Arbitral
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Tribunal. The admitted fact that the transactions that were
entered into by the plaintiff with the defendant pertained to
Commodity Exchange and that the entire transaction is
governed by the Rules and Regulations of the Multi
Commodity Exchange Ltd., Mumbai. When the dispute
regarding the alleged irregularity was raised by the plaintiff
before the Exchange, the same was duly referred to
Arbitration under the Arbitration Regulations as per the
Byelaws, as such the parties are bound by the rules,
regulations and byelaws of the Multi Commodity
Exchange. Under the said Byelaws, it is one of the
conditions that the Courts at Mumbai alone that get the
jurisdiction to deal with any proceedings in the event of any
dispute which includes the dispute that is raised by the
plaintiff and dealt with by the learned Arbitrator. The
plaintiff ought to have filed this suit before the Mumbai
Courts in accordance with the said ByeLaws, however the
same has been filed before this court, as such this court
lacks territorial jurisdiction to decide this case, though the
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transactions between the plaintiff and defendant has taken
place in Bengaluru. That a plea has also been taken by the
defendant in this regard in its written statement, as such
before deciding the case on its own merits, this court has to
decide the point of Territorial Jurisdiction of this court in
deciding the dispute. Hence, prays to allow the application.
11. In spite of affording sufficient opportunities, no
objection were filed by the plaintiff.
12. Heard the learned counsel for the defendant,
since there was no representative on behalf of plaintiff and
it was taken as heard and matter was posted for Judgment.
13. The Points that arise for my consideration are -
1. Whether the court has jurisdiction
to entertain the suit?
2. What Order?
14. My findings on the above Points are as
under -
POINT No.1 Negative;
POINT No.2 As per final order,
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for the following -
REASONS
15. POINT No.1 : Admittedly, the suit is filed by the
plaintiff for set aside the arbitral Award dated. 25.03.2015
passed by the learned Arbitral Tribunal in the Arbitration
case. The defendant contends that, in the byelaws one of
the contention that, it is only the Mumbai Court which has
jurisdiction. The applicant ought to have filed a suit before
Mumbai Court, but the same filed in Bengaluru only on the
ground that, transactions took place in Bengaluru.
16. Perusal of the documents disclose that, both the
parties are governed by MCX Agreement and Bye laws. The
Clause 3.3 are deals with jurisdiction. Clause 3.3 as
hereunder:
3.3 JURISDICTION: These ByeLaws shall be
applicable on all the members and participants of the
exchange, authorized persons, approved users,
clients and all entities involved in trading, clearing
and settlement of transactions, to the extent specified
herein. These shall be subject to the jurisdiction of
the Courts in Mumbai, where the Exchange is
situated, irrespective of the place of business of the
members of the Exchange in India or abroad. All
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transactions entered into or executed through the ATS
or any other trading system of the Exchange located
at the premises of the Exchange at any place shall be
deemed to have taken place in the City of Mumbai
only and the place of contracting as between the
members of the Exchange shall be at Mumbai,
irrespective of the locations of the Trader work
stations of the members connected thereto. All
disputes under these ByeLaws shall be subject to
the exclusive jurisdiction of the Courts in Mumbai,
irrespective of the location of the place of business of
the members of the Exchange and of their clients or
the place where the concerned transaction may have
taken place. The ByeLaws, Rules and Regulations of
the Exchange shall be governed by and co construed
in accordance with the laws in force in India. Every
exchange member shall expressly provide in the
contract notes to be issued by him that only the
Courts at Mumbai shall have the exclusive
jurisdiction for claims in relation to any dispute
arising out of or in connection with or in relation to
such contract notes.
17. The contention of the plaintiff is that Arbitrator
has not considered violation of ByeLaws of MCX Exchange,
FMC Directives and Circulars issued by MCX has carried
out an unauthorized transactions and has eroded entire
capital in the trading account. The KYC internal policies are
violated, the note of which is not taken by the Arbitrator
and has wrongly arrived at conclusion that there was
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private arrangement between the representative of the
Company of the plaintiff and such arrangement does not
bind the defendant.
18. It is the specific defence of the defendant in
respect of which Interlocutory application is filed for return
of plaint that under the Bye laws, it is only the courts of
Mumbai which has jurisdiction. Hence filing of the suit is
not maintainable. Though the transaction between plaintiff
and the defendant has taken place in Bangalore, the
plaintiff has specifically argued to vest the jurisdiction in
the event of any dispute raised by either of the parties
before Mumbai Court exclusively all the disputes so raised
by either of the parties must be decided only by the courts
of Mumbai. This court not having jurisdiction if decided
would be without jurisdiction and voidabinitio. Only
because transaction has taken place in Bangalore, this
court does not get the jurisdiction in view of existence of
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clause as to jurisdiction in the Byelaws, which the parties
are subjected to. Hence, prays to return the plaint.
19. Perusal of the Byelaws discloses that as per
15.4 of the Byelaw, the matter which can be referred to
Arbitration is stated that, "
15.4 Reference to Arbitration: All claims,
differences or disputes between the members inter
se or between a member and a constituent member
or between a member and a registered nonmember
client or arising out of or in relation to trades,
contracts and transactions executed on the
Exchange and made subject to the ByeLaws, Rules
and Regulations of the Exchange or with reference
to anything incidental thereto or in pursuance
thereof or relating to their validity, construction,
interpretation or fulfillment and/or the rights,
obligations and liabilities of the parties thereto and
including any question of whether such trades,
contracts and transactions have been entered into
or not shall be submitted to arbitration in
accordance with the provisions of these Byelaws
and Regulations that may be in force from time to
time.
Provided these ByeLaws shall not in any way
affect the jurisdiction of the Exchange on the
clearing member through whom such a member has
dealt with or traded in regard thereto and such
clearing member shall continue to remain
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responsible, accountable and liable to the Exchange
in this behalf.
20. In the present case on hand, the plaintiff and
defendant being the member of MCX and governed by the
byelaws, plaintiff is client of defendant. Hence, dispute
has to be referred to Arbitration which is not denied and in
Clause 15.6 of which refers to jurisdiction of the parties to
reference to arbitration are deem to have submitted to the
exclusively jurisdiction of the court in Mumbai Courts for
the purpose of giving effect to the provision of the act Bye
laws, rules and regulations in force.
21. It is the seat of the Arbitration which is a
deciding factor for jurisdiction of the courts. Even though
no part of the cause of action arises in the seat of
Arbitration, but as per the agreement the courts in the seal
of arbitration have jurisdiction to decide the matter as held
by Hon'ble Supreme Court of India in Indus Mobile
Distribution Pvt V/s. Data wind Innovations Private Limited
reported in 2017(7) SCC 678, the Hon'ble Apex Court has
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held that, "the designation of seat by the parties to an
arbitration has been held to be akin to an exclusive
jurisdiction clause. The movement the seat is determined
exclusive jurisdiction for the purpose of regulating arbitral
proceedings would vest in courts of that seat or place".
22. Hence, application under Section 34 of
Arbitration Act must be filed in the court which has
territorial jurisdiction i.e., the courts in the jurisdiction of
seat of arbitration. The same principles were enunciated in
the recent decision in the case of M/s Inox Renewable
Limited V/s. Jayesh Electrical Pvt Ltd in Civil Appeal No.
1556 of 2021, dt. 13.04.2021
23. Thus, from the perusal of the referred clauses, it
is only the Mumbai Courts which have jurisdiction as
rightly pointed out by the counsel on behalf of defendant.
Hence the application is hereby allowed and accordingly,
point No.1 is answered in the Negative.
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24. POINT No.2 : For aforesaid reasons and
discussion on the above Point, I proceed to pass the
following -
ORDER
Interlocutory Application No.I under order 7 Rule 10 and Section 151 of C.P.C filed by the defendant is allowed.
In view of the same, Arbitration Suit filed under Section 34 of Arbitration and Conciliation Act, 1996 is hereby disposed off as not maintainable and plaint be returned to the petitioner.
No order as to costs.
(Dictated to Judgment Writer directly on Computer, after corrections, pronounced in open Court on this the 24 th day of February, 2022.) (Sindhu Potadar) XXIV Additional City Civil and Sessions Judge, Bengaluru 24 A.S.79/ 2015