Bangalore District Court
Mrs. Ponna Shankar vs Way2Wealth Brokers Pvt. Ltd on 19 April, 2021
1 Com.A.S.No.263/2018
IN THE COURT OF THE LXXXVIII ADDL. CITY CIVIL &
SESSIONS JUDGE (EXCLUSIVE COMMERCIAL COURT):
BENGALURU CITY. (CCH-89)
Present: Sri. P.J. SOMASHEKARA, B.A.,LL.M,
LXXXVIII Addl.City Civil & Sessions Judge
Bengaluru City.
Dated this the 19th day of April 2021
Com.A.S.No.263/2018
Petitioner: Mrs. Ponna Shankar,
W/o late C.S. Shankar,
R/at Block E-503,
White House Apartments,
6th Main, 15th Cross, R.T. Nagar,
Bengaluru - 560 032.
(By Sri. K.M.G, Advocate)
-vs-
Respondents: 1. Way2wealth Brokers Pvt. Ltd.,
Represented by its Managing
Director, having registered office
at: #14, Frontline Grandeur,
Walton Road, Bengaluru -01.
2. Mr. R. Mohan, Father's name not
known to Petitioner, Major,
C/o National Stock Exchange of
India Ltd., Office No.217, 2nd Floor,
DBS House, 26, Cunningham Road,
Bengaluru - 52.
3. Mr. V. Sekar, Father's name not
known to Petitioner, Major,
C/o National Stock Exchange of
India Ltd., Office No.217, 2nd Floor,
DBS House, 26, Cunningham Road,
Bengaluru - 52.
2 Com.A.S.No.263/2018
4. Mr. A.V, Muralidharan,
Father's name not known to
petitioner, Major,
C/o National Stock Exchange of
India Ltd., Office No.217, 2nd Floor,
DBS House, 26, Cunningham Road,
Bengaluru - 52.
(By Sri. K.C.S., Advocate)
JUDGMENT
This is a petition under Sec.34 of Arbitration and Conciliation Act, 1996 filed by the petitioner and sought for to set aside the award dated 14.09.2018 in appeal (AM No.CM/B-0001/2018) passed by the Appellate Tribunal and uphold the award dated 04.05.2018 passed in arbitration matter (AM No.CM/B-0001/2018) by the Arbitration Tribunal consisting of retired justice N. Kumar, Mr. M.P. Kunju and Sri. N. Nityananda and direct the respondent No.1 to return 3,457 shares of HDFC, 2063 shares of HDFC bank and 300 shares of Deepak Fertilizer or alternatively to direct the respondent No.1 to pay a sum of Rs.92,47,906.80/- with interest @ 18% from 31.10.2007 till its realization.
2. Brief facts of the petition are as under:
The petitioner in her petition has alleged that the respondent No.1 is a brokerage firm registered with Securities and Exchange Board of India having SEBI registration No.INZ000178638. Herself and her husband jointly held a Demat Account with the respondent No.1. The respondent No.1 without her authorization nor consent siphoned off shares worth nearly Rs.1 Crore illegally 3 Com.A.S.No.263/2018 and she has filed the instant petition under Sec.34 of the Arbitration and Conciliation Act by challenging the second award passed by the Appellate Arbitral Tribunal consisting of Mr. R. Mohan, Mr. V Sekar and Mr. A.V. Muralidharan in appeal (A.M. No.CM/B-0001/2018) setting aside the original award passed by Arbitral Tribunal in Arbitration Matter (A.M. No.CM/B-0001/2018) headed by by retired Justice N. Kumar and members Mr. M.P. Kunju and Sri. N. Nityananda without going into the merits held that it requires detailed investigation and criminal proceedings are pending. The impugned order is an empty award as none of the issues involved have been dealt by the tribunal and it has referred the matter to the court of law and the Appellate Arbitral Tribunal arbitrarily and illegally set aside a well reason detailed award passed by the retired justice Sri. N. Kumar, Mr. M.P. Kunju and Sri. N. Nityananda. The respondent No.2 to 4 who are none other than the arbitrators. Herself and her husband namely C.S. Shankar held a demat account with Integrated Enterprises India Ltd, wherein 800 shares of HDFC FV Rs.10 and 413 shares of HDFC Bank were held. In the year 2009, the respondent No.1 approached her and her husband to open a demat account with them. Therefore, herself and her husband under the undue influence of the petitioner and his sub-broker Smt. Jayashree Ramapriyan opened a joint demat account on 27.08.2009 with Way2 Wealth Brokers Pvt. Ltd., under Client I.D.No.10203369 in 4 Com.A.S.No.263/2018 DPID No.KN303077. All the shares from Integrated Enterprises India Ltd were transferred into demat account of Way2 Wealth Brokers Pvt Ltd. Herself and her husband also held physical form shares i.e. Deepak Fertilizers 300 shares, Ponni Sugars 56 shares, Usha Martin Education and Solution Ltd. 23 shares, T.C.F.C. Finance 238 shares and the same were also added to the said demat account. Her husband C.S. Shankar was passed away in the month of 2009 and as on the date of death, he was holding the shares which stated below:
i. 800 shares HDFC FV Rs.10 (split into Rs.2=4,000 shares) ii. 413 shares HDFC Bank FV. Rs.10 (split into Rs.2X413X5=2065 shares) iii. Deepak Fertilizers - 300 shares iv. Ponni Sugars - 56 shares v. Usha Martin Education and Solution Ltd. - 23 shares vi. TCFC Finance - 238 shares.
3. The petitioner in her petition has further alleged that after demise of her husband, the representatives of Way 2 Wealth Brokers Pvt Ltd approached her in the year 2011 to forego the joint demat account and open an individual demat account and to transfer the stock balance, since she had absolutely no knowledge of the stock market or the stock trade. She has trusted Way 2 Wealth Brokers Pvt Ltd. completely with the said stocks and she has simply inherited the stocks from her husband and had left in the demat account and survived on its dividends thereof and she has no proper formal education and currently she 5 Com.A.S.No.263/2018 is aged about 86 years as her marriage was taken place in the year 1947 and she had been a full time home maker. After the death of her husband she has totally lost track of the said demat account and one or two occasions had called Way 2 Wealth Brokers Pvt Ltd to confirm her existence of demat account and to ascertain whether any demat charges were payable, however way 2 Wealth Brokers Pvt. Ltd., neither sent the holding statements nor collected any demat charges from her. The Way 2 Wealth Brokers Pvt. Ltd. are ought to have been under well established KYC Rules and industry practices and well aware of all the facts, but in the year 2013 the Way 2 Wealth Brokers Pvt. Ltd. sent one Jayashree Ramapriyan Virgo Money Manager asking her to furnish KYC details, accordingly she has claiming to be sub- agent of Way 2 Wealth Brokers Pvt. Ltd. took her signatures on several partly filled forms stating that all the bank details etc of the demat holders have been to be obtained. As per the SEBI NSE norms to retain the demat account and she has obtained her signatures by means of undue influence and fraud and she has having complete faith and belief absolutely unaware of the particulars regarding the partly filled forms signed the same. Herself and her son Krishan Chittoor a Lawyer in the New York intimated her that the stocks is not worthless than Rs.75,00,000/- as on July 2016 advised her to close the demat account and to encash the shares, since she was not in a position to manage her 6 Com.A.S.No.263/2018 affairs due to her age. Therefore, she has approached Way 2 Wealth Brokers Pvt. Ltd. requesting to close the demat account and to return the shares and the Way 2 Wealth Brokers Pvt. Ltd sent Smt. Jayashree Ramapriyan to her house to effect transfer of the shares and she has gave instructions to transfer the shares in favour of her daughter Lalitha Murthy and Jayashree Ramapriyan obtained her signatures in the blank transfer form in good faith and trusting completely and she has signed the same not knowing the consequence thereof, then she was discovered both Way 2 Wealth Brokers Pvt. Ltd and Jayashree Ramapriyan in criminal conspiracy have misappropriated and swindled all her stocks and in its place have transferred some other shares in favour of her daughter Lalitha Murthy on 27.07.2016 which are stated below:
Sl.No. Security Name Quantity
i. Arvind Ltd 2 shares
ii. HDFC Bank 2shares
Iii. HDFC 443 shares
iv. Indian Overseas Bank 23 shares
v. McLoead Russel India 11 shares
vi. NTPC Ltd 1 share
Vii. Ponni Sugar 56 shares
Viii. PTC Ltd 1 share
ix. TCFC Kin 238 shares
x. Vijaya Bank 114 shares
4. The petitioner in her petition has alleged that she never traded or transferred a single share out of demat account from 7 Com.A.S.No.263/2018 November 2009 till this day, only 100 shares of HDFC were sold by her on 13.07.2012 and cheque of Rs.60,000/- has been handed over for the sale proceeds, but both Way 2 Wealth Brokers Pvt. Ltd and Jayashree Ramapriyan taking advantage of her ignorance and old age, have threw manipulation, defraud it her stock currently worth nearly Rs.97,75,662/- and duped her but none of the shares which stated above i.e. Sl. No.1,4,5,6,8,10 were not purchased or acquired at any point of time and she never pay in or pay out as per NSE/ SEBI norms in her favour and she has no knowledge of trading or buying or selling of shares, but they have canned her and guilty of misfeasance and cheating her for wrongful gain by playing fraud and forgery.
5. The petitioner in her petition has further alleged that she got issued legal notice to the respondent No.1 on 12.08.2016 and 23.11.2016 through her advocate and the respondent No.1 has sent untenable reply stating that they have power to sell unilaterally thereby she has lodged the complaint with the Securities Exchange Board of India (SEBI) on 28.01.2017. The respondent No.1 had no documents pay in, pay out details, dis market slips, communications, so SEBI forwarded her complaint to the National Stock Exchange of India Ltd. for redressal. Thus the National Stock Exchange of India Ltd., constituted a 3 member investor grievance resolution panel (IGRP) to investigate the complaint under the NSC Rules consisting of Mr. Basavaraju 8 Com.A.S.No.263/2018 M. Salimutt, Mr. Shankar Kuppa Poojary and Mr. D. Nagesh Babu. The respondent No.1 has furnished the statement of account for the 1st time before the IGRP in complaint No.17092111150200211 with regard to demat account No.10203369 from 01.04.2009 onwards. So it is evident from the said transaction cum holding statement which produced by the respondent No.1 before IGRP read with SMS logs that there were no SMS sent in the period 16.07.2011 to 11.04.2012 during which shares were sold which proved that the respondent No.1 has indulged in unauthorized and false trading during the period to make wrongful gains. So IGRP conducted a detailed enquiry and directed the respondent No.1 to produce authorization letter of having sold the shares, holding statement from November 2009 proof of updatation of mobile number and email I.D. and asked to disclose the owner of the mobile and for production of document to show payment which made to her dis slips, DP transfer statement etc. The respondent No.1 systematically made fraud of misappropriation of her shares. Therefore, it has been discovered that the phone number which stated by the respondent No.1 is belongs to his employee namely Arun Kumar and the email [email protected] was fraudulently created by the respondent No.1 to divert all emails and messages regarding transactions and misappropriate of shares, thereby IGRP held way 2 Wealth Brokers Pvt. Ltd and its sub-broker Smt. Jayashree 9 Com.A.S.No.263/2018 Ramapriyan are guilty of criminal breach of trust, fraud, forgery misappropriation and cheating, thereby the respondent No.1 has been directed to pay sum of Rs.92,47,906.80/-.
6. The petitioner in her petition has further alleged that the respondent No.1 has been created false KYC records by creating fictious, fake email I.D. in her name and planting a 3 rd party mobile number 9844701714 which belongs to the employee of the respondent No.1 namely Arun Kumar in KYC to divert emails and created fake email I.D. [email protected] alleged to be her email I.D. with a criminal intention to cheat her and to divert all transactions, alerts to the fake email I.D. The respondent No.1 employee without authorization updated his own mobile number to her as false KYC to commit the fraud. The alleged KYC produced by the respondent No.1 proves fabrication of KYC records, thereby she has approached the Cyber police station through her daughter and complaint has been registered of cheating and identity theft against Smt. Jayashree Ramapriyan, Mr. Arun Kumar Mishra, who is the employee of respondent No.1 and others under Sec.66(c), 66(d) of Information Technology Act r/w 419 and 420 of IPC.
7. The respondent No.1 feeling aggrieved by the IGRP order preferred an appeal in arbitration matter before the National Stock Exchange Arbitration Tribunal comprising of retired justice N. Kumar, Mr. M.P. Kunju and Mr. N. Nityananda. The respondent 10 Com.A.S.No.263/2018 No.1 had ample time to file the statement of defence with documents. During the hearing the respondent No.1 filed 471 pages additional submission and documents to mislead the tribunal. The arbitration tribunal like the IGRP directed the respondent No.1 to file necessary documents under law to show that the transaction duly authorized and if any payment was made or any authorization letter was available, but the respondent No.1 failed to do the same. Thereafter, award has been passed and directed the respondent No.1 to pay the amount of Rs.92,47,906.80/- within 30 days.
8. The petitioner in her petition has further alleged that the respondent No.1 preferred another appeal to the NSE Appellate Tribunal and requesting to set aside the award dated 04.05.2018 and the 1st respondent has chosen 5 arbitrations from the list and she has chosen arbitrators from the NSE panel of arbitrators and herself and the respondent No.1 chosen Mr. B.R. Sudhakar as arbitrator, but the NSEIL failed to appoint him as an arbitrator, in spite of conscience. The NSEIL in gross disregard to the agreement on the arbitrators appointed R. Mohan as Presiding Officer. One V. Shekar and A.V. Muralidharan as the arbitrators. The arbitrators are required to make a disclose under Sec.12 of Arbitration and Conciliation Act, but no disclosure was made by the arbitrators in gross violation of the Act and the arbitrators have chosen only hearing for adjudication on 27.07.2018, 11 Com.A.S.No.263/2018 thereafter reserved the case for award though her counsel vehemently objected that the arbitrators not only knew the respondent No.1, but were also close to its advocate and they had dealt with several cases of the respondent No.1 in the past. But during the hearing the respondent No.1 produced huge set of additional documents, though she has objected for accepting the additional documents, but the arbitrators reserved the case for award without any date and without further hearing and passed the impugned award by setting aside the award dated 04.05.2018 which passed by the Arbitral Tribunal and directing to move the matter before the court on the ground that a detailed investigation was needed on the dispute and the ledger books produced do not match with the transaction establishing that the ledger books were fudged thereby she has challenged the said award on the following grounds:
a. The impugned appellate award is a result of total failure of its jurisdiction without application of mind and without adjudicatory skill and the entire appeal was wrapped up in a great hurry in the single sitting without affording any opportunity and the entire approach was predetermined to allow the appeal and the procedure which adopted by the respondent No.2 to 4 with an ulterior motive to afford no opportunity to her and additional documents were entertained and relied upon resulted in casualty of justice and without appreciating the material fact that no 12 Com.A.S.No.263/2018 payments was made to her dismissed her claim on ridiculous grounds.
b. The award is a perverse arbitrary and unlawful product of whims and fancy and there is no review or re-adjudication of all of the original award dated 04.05.2018 which is contrary to the provisions of law and the award is illegal. c. The arbitrators on one hand have stated in the order that it required detailed investigation and on the other hand, erroneously set aside the award dated 04.05.2018 which passed by the arbitrators headed by retired Justice N Kumar unlawfully set aside the award and the award could not have been set aside on the grounds of requirement of the investigation and the arbitrators clearly lacked judicial knowledge, experience and understanding of procedure under the Arbitration Act. d. The arbitrators have failed to exercise the power and jurisdiction as envisaged under Sec.26 and 27 of the Arbitration and Conciliation Act and the arbitrators having power like court for taking of evidence, but the arbitrators have given a bogus excuse that it required detailed investigation and set aside the award.
e. The arbitrators act upon its own procedure to determine the issues without following the procedures laid down in the Arbitration and Conciliation Act and the arbitrators cannot direct the parties to approach the court.13 Com.A.S.No.263/2018
f. The arbitration system incorporated by the NSEIL is impermissible and against the principles of Arbitration and Conciliation Act, therefore, the 3rd round of internal appellate arbitration is void and the award is liable to be set aside. The arbitrators have not taken into consideration about the guilty of criminal breach of trust, fraud, forgery misappropriation and cheating which committed by the Way 2 Wealth Brokers Pvt. Ltd., and Smt. Jayashree Ramapriyan and prays for allow the petition.
9. In response of the notice, the respondent No.1 has been appeared through its counsel, though notice has been served on the respondent No.2 to 4, they did not appear nor filed their objection statement as they were absent. Though the respondent No.1 has been appeared through its counsel, but he did not chosen to file objection statement that is the reason why my predecessor, objection statement of the respondent No.1 taken as not filed on 29.06.2019.
10. Heard the arguments on both sides.
11. The points that arise for consideration of this court are as under:
1) Whether the petitioner has made out any of the grounds as enumerated under Sec.34 of the Arbitration and Conciliation Act, 1996 to set aside the impugned award and to upheld the award dated 14 Com.A.S.No.263/2018 04.05.2018 passed in appeal (AM No.CM/B-0001/2018)?
2) What order?
12. My answer to the above points are as under:
Point No.1: In the Affirmative;
Point No.2: As per final order, on the following;
REASONS
13. POINT NO.1: The petitioner has approached the court on the ground that the award passed by the arbitration tribunal dated 14.09.2018 is illegal, not taken into consideration of the award passed by the arbitrators dated 04.05.2018 nor appreciating the material facts that non-payment was made by the respondent No.1 to the applicant nor considered criminal breach of trust which played by the respondent No.1 to the appellant and failed to record a concrete finding of the claim which made, but wrongly come to the conclusion that the parties have not come out with full facts of the case and or holding back some vital information which only a detailed investigation can bring out and directed to approach the court of law, thereby the petitioner has filed the instant petition.
14. The learned counsel for the petitioner in his arguments has submitted that the petitioner and her husband are jointly held a demat account with the respondent No.1 and her husband was 15 Com.A.S.No.263/2018 passed away in the month of November 2009 and as on the date of death, he was holding the shares in the respondent No.1. After the demise of her husband, the petitioner is inherited the stocks from her husband and the petitioner has no proper formal education and she is a senior citizen and after the death of her husband, she has totally lost track of the said demat account and one or two occasions called the 1st respondent to confirm about the existence of demat account and to ascertain whether any demat charges were payable, but the 1st respondent sent the holding statement nor collected any demat charges, but in the year 2013 the respondent No.1 has sent Jayashree Ramapriyan and she obtained signatures of the petitioner on several partly filled forms stating that all the bank details etc. of the demat details have to be obtained as per SEBI/NSE norms to retain the demat account. The said Jayashree Ramapriyan had obtained the signature of the petitioner under undue influence and committed fraud and the petitioner has completely on the faith being unaware of the regarding the partly filled blank form. The petitioner's son has been advised to the petitioner to return the shares that worth of the shares which is less than Rs.75,00,000/- and when the petitioner has asked the respondent No.1 for return of the shares, the 1st respondent has sent Jayashree Ramapriyan and the petitioner has given instructions to transfer the shares in favour of her daughter, at that time she has obtained the 16 Com.A.S.No.263/2018 signatures in the bank transfer form on good faith and trusting she has signed on the blank transfer form and she do not know the consequence of the same and later on the petitioner discovered that the respondent No.1 and the said Jayashree Ramapriyan were misappropriated and swindled all stocks of the petitioner in its place have transferred some other shares in favour of Lalitha Murthy on 27.07.2017 who is none other than the daughter of the petitioner and the respondent No.1 has committed fraud stolen the stocks worth of Rs.75,00,000/- though the transferred shares were not purchased by the petitioner or acquired at any point of time and there was no pay in or pay out as per the NSE/SEBI norms in favour of the petitioner, thereby the petitioner has filed the complaint to the Securities and Exchange Board of India, in turn proceedings has been initiated by the IGRP and directed the respondent No.1 to pay an amount of Rs.92,47,906.80/- and it has been challenged by the respondent No.1 and the arbitration proceedings has been initiated and the arbitrators were upheld IGRP award. So feeling aggrieved by the said award has filed the appeal before the appellate arbitral tribunal and the appellate arbitral tribunal set aside the award passed dated 04.05.2018 on the ground the parties have not come out with full facts of the case and are holding back some vital information without considering the materials on record. If at all the respondent No.1 had paid any amount in respect of the 17 Com.A.S.No.263/2018 shares not only belongs to the petitioner and also her husband the respondent No.1 would have placed the materials. That is the reason why the appellate arbitral tribunal come to the conclusion that the respondent No.1 has not placed materials. When the tribunal come to that conclusion the order for set asiding the arbitral award dated 04.05.2018 is illegal and prays for allow the petition and set aside the appellate arbitral tribunal award dated 14.09.2018 and uphold award dated 04.05.2018.
15. Per contra, the learned counsel for the respondent No.1 in his arguments has submitted that though IGRP passed the orders in favour of the petitioner and it was upheld by the arbitral award dated 04.05.2018, but the appellate arbitral tribunal after considering the materials on record has rightly held that the respondent No.1 has not committed any irregularity and did transaction as per authorization and KYC slip which placed before the court and the xerox visa which produced clearly reflects that the petitioner has made unnecessary allegation against the respondent No.1 as the document No.69 is very much clear though the petitioner was in Bangalore unnecessarily made allegations she was in the abroad not in Bangalore and the document No.60 will not help the petitioner to prove her case and no charge sheet has been filed till this day against the respondent No.1. The petitioner has not made out any grounds under Sec.34 18 Com.A.S.No.263/2018 of the Arbitration and Conciliation Act to set aside the award and prays for dismiss the petition.
16. It is an admitted fact that the petitioner has filed the instant petition against the award passed by the appellate arbitral tribunal dated 14.09.2018 and sought for uphold the award dated 04.05.2018 passed by the arbitral tribunal. So before considering the materials on record as well as the arguments which advanced by both the counsels, let me know first the legal aspects for the proper appreciation of the materials on record as well as the award which passed by the arbitrator. So this court has to decide the following facts first for the appreciation of materials on record:
1. What is arbitration?
2. When court can interfere with arbitral award?
3. What is the scope of Court's power to interfere with the arbitral award?
4. What are the grounds are required to set aside the award?
5. Setting aside of arbitral award when permissible?
Let me decide one by one for proper appreciation of the materials on record. Thus this court drawn its attention on Sec.2(1)(a) of the Arbitration and Conciliation Act, 1996 which reads like this:
2(1)(a). The definition arbitration means any arbitration whether or not administered by permanent arbitral institution.
Arbitration is a private dispute resolution mechanism agreed upon by the parties. 19 Com.A.S.No.263/2018 Arbitration is a binding voluntary alternative dispute resolution process by a private forum chosen by the parties.
Arbitration is a process of settlement extra curses curiae and the parties are at liberty to choose their judge. "The esse visa nce of arbitration without assistance or intervention of the court is settlement of dispute by a tribunal of the own choosing of the parties." Law of arbitration aids in implementation of arbitration agreement contract between the parties which remains a private adjudication by a forum consequently chosen by the parties and made on consequential reference. Now let me know when court can interfere with the arbitral award. Thus this court drawn its attention on Sec.34(43) of the Arbitration and Conciliation Act, 1996 which reads like this:
43. Principles of interference with arbitral award:-
The principles of interference with an arbitral award under Sec.34(2) of the Act are as follows:
(1) An award, which is -
(i) contrary to substantive provisions of law; or
(ii) The provisions of Arbitration and Conciliation Act, 1996, or
(ii) against the terms of the respective contract; or
(iv) Patently illegal or
(v) Prejudicial to the rights of the parties; is open to interference by the court under Sec.34(2) of the Act.
(2) The award could be set aside if it is contrary to:
(a) fundamental policy of Indian Law; or
(b) the interest of India; or
(c) justice or morality.20 Com.A.S.No.263/2018
(3) The award could also be set aside, if it is so unfair and unreasonable that it shocks the conscience of the court.
(4) It is open to the court to consider whether the award is against the speci visa fic terms of the contract and if so interfere with it on the ground that it is patently illegal and opposed to the public policy of India.
So by virtue of the provision which stated above, the court can interfere with the arbitral award in the grounds which mentioned above.
Now let me know what is the scope of Court's power to interfere with the arbitral award? Thus this court drawn its attention on Sec.34(34) of the Arbitration and Conciliation Act which reads like this;
Scope of Court's power to interfere with the arbitral award:
The scope of the interference by the court's in regard to arbitral award is limited. Courts do not sit in appeal over the findings and decision of the arbitrator, nor can it reassess or re- appreciate evidence or examine the sufficiency or otherwise of the evidence.
So by virtue of the provision which stated supra, the scope of interference by the court in regard to the arbitral award is limited scope. The scope of interference under Sec.34 of the Act is limited in view of the judgment of the Hon'ble Supreme Court of India which reported in AIR 2003 SC 2629 in between Oil and Natural 21 Com.A.S.No.263/2018 Gas Corporation Ltd., V/s Shah Pipes Ltd. , and in the said judgment, their Lordship held that;
'an award can be set aside if it is contrary to fundamental policy of Indian Law, the interest of India, justice or morality, if it is patently illegal and unfair and unreasonable it shocks the conscience of the court'.
Now let me know what are the grounds are required to set aside the award which passed. Thus this court drawn its attention on Sec.34(18) of the Arbitration and Conciliation Act which reads like this:
18. Grounds to set aside award:- Under the new Act, 1996 misconduct of arbitrator is no ground to set aside an award but court may set aside an award in the following grounds:
(1) if the composition of the arbitral tribunal was not in accordance with the agreement of the parties.
(2) falling such agreement, the composition of arbitral tribunal was not in accordance with the part I of the Act.
(3) if the arbitral proceeding was not in accordance with -
(a) the agreement of the parties.
(b) failing such agreement - the arbitral procedure was not in accordance with part I of the Act. However exception for setting aside the award on the ground of composition of arbitral tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of part I of the Act from which parties cannot derogate; 22 Com.A.S.No.263/2018
(c) if the award passed by the arbitral tribunal is in contravention of the provisions of the Act or any other substantive law governing the parties or is against the terms of the contract.
An award can be set aside, if it is against the public policy of India that is to so it is contrary to:
(1) fundamental policy of Indian law, (2) the interest of India, or (3) justice or morality , or (4) if it is patently illegal.
It could be challenged -
(a) as provided under Sec.13(5); and
(b) Sec. 16(6) of the Arbitration and conciliation Act. So the court can set aside the award, if the grounds found which stated supra.
So if the petitioner is made out the grounds which stated supra, court can set aside the award. Now let me know about the setting aside of arbitral award when permissible. Thus this court drawn its attention on Sec.34(4) of the Arbitration and Conciliation Act, 1996
4. Setting aside of arbitral award when permissible:-
That the court can set aside the arbitral award under Sec.34(2) of the Arbitration and Conciliation Act if the party making the application furnishes the proof that:
(i) a party was under some incapacity
(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 time being in force.23 Com.A.S.No.263/2018
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or otherwise unable to present his case.
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitrator or it contains visa decisions on matters behind the scope of the submission to arbitration.
(2) The court may set aside the award: (I) (a) if the composition of the arbitral tribunal was not in accordance with the agreement of the parties.
(b) falling such agreement, the composition of the arbitral tribunal was not in accordance with part-1 of the Act.
(ii) if the arbitral procedure was not in accordance with:
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was not in accordance with part-1 of the Act.
However exception for setting aside the award on the ground of composition of arbitral tribunal or illegality of arbitral procedure is that the agreement should not be in conflict within the provisions of part-1 of the Act from which the parties cannot derogate.
(c) If the award passed by the arbitral tribunal is in contravention of provisions of the Act or any other substantive law governing the parties or is against the terms of the contract. (3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:
24 Com.A.S.No.263/2018
(a) fundamental policy of Indian Law;
(b) the interest of India; or
(c) justice or morality; or
(d) if it is patently illegal.
(4) It could be challenged-
(a) as provided under Sec.13(5); and
(b) Section 16(6) of the Act."
"B. Further held as follows in this case: (1) The impugned award requires to be set aside mainly on the grounds:
(I) There is specific stipulation in the agreement that the time and date of delivery of the goods was the essence of the contract;
(ii) in case of failure to deliver the goods within the period fixed for such delivery in the schedule, ONGC was entitled to recover from the contractor liquidated damages as agreed;
(iii) it was also explicitly understood that the agreed liquidated damages were genuine pre- estimate of damages;
(iv) on the request of the respondent to extend the time limit for supply of goods, ONGC informed specifically that time was extended but stipulated liquidated damages as agreed would be recovered;
(v) liquidated damages for delay in supply of goods were to be recovered by paying authorities from the bills for payment of cost of material supplied by the contractor;
(vii) there is nothing on record to suggest that stipulation for recovering liquidated damages was by way of penalty or that the said sum was in any way unreasonable.
(viii) in certain contracts, it is impossible to asses the damages or prove the same. Such situation is taken care by section 73 and 74 of the Contract Act and in the present case by specific terms of the contract" - Oil and Natural Gas Corporation V Shah Pipes Ltd. (2003)5 SCC 705 : AIR 2003 SC 2629; see also Moona 25 Com.A.S.No.263/2018 Abousher V M/s. Cholamandalam DBS Finance Ltd. AIR 2019 Mad 233.
The above provisions which referred above are very much clear when court can interfere with the arbitral award and what is the scope of court's power to interfere with the arbitral award and what are the grounds are required to be set aside the award as well as setting aside of arbitral award when permissible.
17. Apart from the above provisions of Arbitration and Conciliation Act which referred above, it is also necessary to consider the provisions of Indian Contract Act as the petitioner not only in the legal notice, but also in the petition has alleged that the respondent No.1 and one Jayashree Ramapriyan were obtained the signatures of the petitioner on the partly filled blank form by means of undue influence, playing fraud and by misrepresentation. Thus this court drawn its attention on Sec.16 of the Indian Contract Act, which reads like this:
[16. 'Undue influence' defined.--
(1) A contract is said to be induced by 'undue influence' where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. 1[16.
'Undue influence' defined.--(1) A contract is said to be induced by 'undue influence' where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other."
(2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of 26 Com.A.S.No.263/2018 another--
(a) where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other; or
(b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress. (3) Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall be upon the person in a position to dominate the will of the other.
The above provision is very much clear a contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. Thus this court drawn its attention on Sec.17 of the Indian Contract Act, which reads like this:
17. 'Fraud' defined.--'Fraud' means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent1, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:-- --'Fraud' means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent1, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract\:--"
(1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true; (2) the active concealment of a fact by one having knowledge or belief of the fact;
(3) a promise made without any intention of 27 Com.A.S.No.263/2018 performing it;
(4) any other act fitted to deceive; (5) any such act or omission as the law specially declares to be fraudulent. Explanation.--Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak2, or unless his silence, is, in itself, equivalent to speech.
The above provision is very much clear fraud means any of the party by his connivance, or by his agent to deceive another party thereto of his agent, or to induce him to enter into the contract. Thus this court drawn the court attention on Sec.18 of the Indian Contract Act which reads like this:
18. "Misrepresentation" defined.
--"Misrepresentation" means and includes-- --"Misrepresentation" means and includes--"
(1) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;(2) any breach of duty which, without an intent to deceive, gains an advantage of the person committing it, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him;(3) causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement.
The above provision is very much clear the misrepresentation is to positive assertion in a manner nor warranted by the information of the person making it, of that which is not true. So keeping the legal aspects in mind which referred above, now let me know the admitted facts which admitted by the parties for the proper appreciation, that the petitioner got issued legal notice not 28 Com.A.S.No.263/2018 only to the respondent No.1 but also one Jayashree Ramapriyan on 12.09.2016, 05.09.2016 and also got issued legal notice on 23.11.2016 to the respondent No.1, and the respondent No.1 has replied the first legal notice which issued by the petitioner on 12.09.2016 stating that with reference to point No.1, the holding of shares as on November 2009 is partly agreed. So if the admission of the respondent No.1 in its reply dated 13.10.2016 is taken into consideration, the respondent No.1 has not disputed the shares of the petitioner which mentioned in the legal notice dated 12.09.2016 for the proper appreciation, it is just and necessary for reproduce not only the point No.1 which stated in the legal notice dated 12.09.2016, but also reply of the respondent No.1 dated 13.10.2016 which reads like this:
"That our client's husband Mr. C.S. Shankar and out client jointly held a Demat account with the first one of you under client ID No.10440995 in DP-ID No.IN303077. That Mr. C.S. Shankar passed away in November 2009 and as on that date had held the following shares as detailed below:
i. 800 shares HDFC FV. Rs.10 (split into Rs.2=4,000 shares) ii. 413 shares HDFC Bank FV Rs.10 (split into Rs.2X413X5=2065 shares) iii. Deepak Fertilizers - 300 shares. iv. Ponni Sugars - 56 shares v. Usha Martin Education and Solution Ltd. - 23 shares 29 Com.A.S.No.263/2018 vi. TCFC Finance - 238 shares.
With reference to point No.1 the holding of shares as on November 2009 is partially correct.
18. So if the averments of the notice dated 12.09.2016 and the reply notice dated 13.10.2016 are taken into consideration which referred above, though the respondent No.1 has stated the point No.1 which referred in the legal notice partially correct, but he has admitted about the shares, but he has not specifically stated how many shares are not in existence in the month of November 2009, however he has admitted about the shares which mentioned in the legal notice in the month of November 2009. Therefore, admitted facts need not be proved in view of Sec.58 of Indian Evidence Act.
19. The learned counsel for the petitioner has rightly submitted that the petitioner has filed the complaint to the Securities and Exchange Board of India against the respondent No.1 and one Jayashree Ramapriyan. So as per the complaint which filed by the petitioner regarding of cheating and misappropriation. The proceedings has been initiated before the IGRP and the IGRP held that the shares in the demat account of the petitioner were sold by the respondent No.1 without her authority. So the respondent No.1 should reinstate the 3,250 shares of HDFC, after deducting 100 shares which were sold with the consent and 100 additional shares transferred by the 30 Com.A.S.No.263/2018 petitioner as against her claim of 3,457, 1,960 shares of HDFC bank and 300 shares of Deepak Fertilizers. In the alternative the value of these shares as on 31.10.2017 of Rs.92,47,906.80/-
should be paid to the petitioner within 7 days after the receipt of the order. So the IGRP after considering the materials which placed by both the parties held that the respondent No.1 unauthorizedly sold the shares of the petitioner, thereby has been directed to pay the amount which stated above.
31 Com.A.S.No.263/2018
20. The FIR which placed on record is also reflects the case has been registered not only against the respondent No.1, but also against one Jayashree Ramapriyan under Sec.66(c), 66(d) of I.T. Act r/w Sec.419 and 420 of IPC on the ground that the respondent No.1 after the death of complainant's father the respondent No.1 and one Jayashree Ramapriyan were approached the petitioner to forego the joint demat account and open a individual demat account and to transfer the stock balance and because of the petitioner not having much knowledge took the advantage and asked to furnish the KYC details and obtained the signatures by means of undue influence and fraud in criminal conspiracy. So at this stage, the FIR reflects the case has been registered against the respondent No.1 about unauthorizedly used the shares of the petitioner and got obtained the signatures of the petitioner by playing fraud and undue influence as per the provisions of the Indian Contract Act which referred above. Though the respondent No.1 has challenged the IGRP award before the arbitrators which was came to be dismissed and upheld the order which passed by the IGRP and in the said award the arbitrators were held that the respondent No.1 has unauthorizedly sold the shares and transferred the shares which are not relating to the petitioner and not paid a pie of consideration received by the respondent No.1 for sale of those shares and in spite of the direction to furnish the requisite 32 Com.A.S.No.263/2018 particulars but did not do so, thereby the arbitrators upheld the award of IGRP.
33 Com.A.S.No.263/2018
21. So feeling aggrieved by the said award challenged before the appellate arbitral tribunal which constitute by the National Stock Exchange of India, who are the appellate penal of the arbitrators in the appeal and they held that during the period of August 2009 to September 2017 though many traders were carried out in the petitioner account there were no pay in and no pay out in the entire 7 years period, except an settlement of Rs.60,000/- in July 2012 on account of sale of 100 shares of HDFC bank. When the respondent No.1 has been questioned reason for solitary settlement could not given in reply thereby they were held that the parties have not come out with full facts of the case and are holding back some vital information, however they have set aside the award dated 04.05.2018. So one thing is clear that the appellate arbitral tribunal held that the respondent No.1 has unauthorizedly sold the shares which belongs to the petitioner and did not pay anything to the petitioner regarding the shares which sold but the reasons best known to the respondent No.1 has not challenged the finding which recorded by the appellate arbitral tribunal in the award dated 14.09.2018 which is remained unchallenged and moreover, the very appellate arbitral tribunal held that the parties have not come out with full facts of the case and are holding back some vital information, but whereas the arbitral award dated 04.05.2018 which passed by the arbitrators are taken into consideration not only materials which placed by 34 Com.A.S.No.263/2018 the parties, but also the facts of both parties and after considering the entire materials found that the respondent No.1 sold the share which belongs to the petitioner unauthorizedly by obtaining the signatures of the petitioner by playing fraud undue influence and misappropriation. So, if the award passed dated 04.05.2018 is taken into consideration, it is clear that the arbitrators after considering not only the materials on record, but also the facts which pleaded by both the parties have held that the respondent No.1 is liable to pay an amount of Rs.92,47,906.80/- since he has not placed any materials on record that the petitioner has received the entire share amount and the respondent No.1 has not placed any materials to substantiate the same.
35 Com.A.S.No.263/2018
22. So one thing is clear from the materials on record as well as the admission of the respondent No.1 in the reply notice that the petitioner and her husband were holding the shares as mentioned in the petition and the respondent No.1 without holding any authority has sold those shares and not paid the share amount to the petitioner. So the finding which given by the appellate arbitral tribunal comes within the purview of Sec.34 of the Arbitration and Conciliation Act, since the appellate arbitral tribunal in one breath held that the parties have not come out with full facts of the case and also holding back some vital information, but in another breath has set aside the award which passed by the arbitrators dated 04.05.2018, when the appellate arbitral tribunal set aside the award of arbitrators shall record the reasons which are the vital information are required and which are the facts was not disclosed by the parties, which are not taken into consideration by the arbitration tribunal, but without recording any reasons simply set aside the arbitration tribunal award which is not in accordance with law. Therefore, the award which passed by the appellate arbitral tribunal is deserved for set aside, since the appellate arbitral tribunal has not taken into consideration about the finding of the arbitrators in accordance with law. Without considering not only the materials but also the pleadings of the parties passed the award which comes under Sec.34 of the Arbitration and Conciliation Act. So the petitioner 36 Com.A.S.No.263/2018 has made out the grounds that the order which passed by the appellate arbitral tribunal comes under Sec.34 of the Arbitration and Conciliation Act which is liable for set aside. 37 Com.A.S.No.263/2018
23. The learned counsel for the respondent while canvassing his arguments has submitted that this court has to consider the concurrent findings of courts below and this court having only limited power to interfere with the award passed by the appellate arbitral tribunal and drawn the court attention on the judgment of Hon'ble Supreme Court of India reported in (2019) 4 SCC 163 in between MMTC Ltd Vs Vedant Ltd. On careful perusal of the said judgment, in the said judgment their Lordship held that in exercise of the jurisdiction under Sec.34 of Arbitration and Conciliation Act does not sit in appeal over the arbitral award and may interfere on merits only on the well settled limited grounds, interference under Sec.37 cannot travel behind the restrictions laid down under Sec.34 and in case arbitral award has been confirmed by the court under Sec.34 and by the court in the appeal under Sec.37 must be extremely cautious and slow to disturb such concurrent findings and in the said judgment the majority of the arbitral tribunal found in favour of the respondent and vide its award dated 27.06.2001 inter alia directed the appellant to pay to the respondent a sum of Rs.15,76,77,296/- with interest at 14% p.a. though the appellant has challenged the same before the Hon'ble Supreme Court of India which was came to be dismissed and in the instant case, it is not the case of the respondent No.1 that the majority of the award in favour of the respondent No.1, admittedly IGRP proceedings is against the 38 Com.A.S.No.263/2018 respondent No.1, though he has challenged the said order before the arbitrators which was confirmed by the arbitrators, and he has challenged the same before the appellate arbitral tribunal, but the appellate arbitral tribunal has not passed any award in favour of the respondent No.1 instead set aside the award and held that the parties are free to move the matter before the court. So I do respect to the decision which relied, but the facts and circumstances of the case on hand and the decision which relied are different.
39 Com.A.S.No.263/2018
24. The learned counsel for the petitioner has rightly submitted that the appellate arbitral tribunal has not taken into consideration about finding given by the arbitrators and the documents which taken into consideration by the arbitrators while passing the award. Without considering the legal aspects passed the award by the appellate arbitral tribunal which is not in accordance with law which is against to the public policy as it is in conflict with the public policy of India and drawn the court attention on the judgment of Hon'ble Supreme Court of India which reported in AIR 2015 SC 363 in between Oil and Natural Gas Corporation Ltd. Vs Western Zico International Ltd. On careful perusal of the said judgment, in the said judgment their Lordship held that the expression fundamental policy of Indian Law must include all such fundamental principles as providing a basis for administration of justice and enforcement of law in the country without meaning to exhaustively enumerate the purport of the expression fundamental policy of Indian Law and 3 distinct and fundamental justice principles referred that must be understood as part and parcel of fundamental policy of Indian law. The 1 st and foremost is the weather it effects the rights of the citizen or leads to any civil consequences bound to adopt what is in legal parallence called a judicial approach in the matter and to consider about effecting of the rights of the parties or obligation of the parties and judicial approach is to check against the laws 40 Com.A.S.No.263/2018 and faults that be rendered the decision of the court. So in the instant case, the appellate arbitral tribunal has not taken into consideration about the right of the parties and their obligation which amount to not only violation of natural justice, but also against fundamental policy of Indian Law. Therefore, the decision which relied is directly applicable to the case on hand. The learned counsel for the petitioner has drawn the court attention on the following judgments:
1. 2020 (1) KCCR SN 22 (SC) in between Dyna Technologies Vs M/s Crompton Greaves.
2. 2015 (3) SCC 49 in between Associate Builders Vs Delhi Development Authority
3. 1999 (9) SCC 283 in between Rajasthan State Mines & Minerals Ltd. Vs Eastern Engineering Enterprises and another.
4. AIR 1995 SC 947 in between M/s Subhash Aggarwal Agencies Vs M/s Bhilwara Synthetics Ltd., and others.
On careful perusal of the said decisions which relied by the learned counsel for the petitioner are applicable to the case on hand. The petitioner has made out the grounds which are fallen under Sec.34 of the Arbitration and Conciliation Act and the award which passed by the appellate arbitral tribunal is deserved for set aside by upholding the award which passed by the 41 Com.A.S.No.263/2018 arbitrators dated 04.05.2018. Hence, I am of the opinion that the point No.1 is answered as Affirmative.
25. POINT NO.2: In view of my answer to point No.1 as stated above, I proceed to pass the following;
ORDER The petition under Sec.34 of Arbitration and Conciliation Act filed by the petitioner is hereby allowed and set aside the award dated 14.09.2018 passed by the Appellate Arbitral Tribunal in Appeal (A.M. No.CM/B-0001/2018) and upheld the award dated 04.05.2018 passed by the arbitrators in AM No.CM-B0001/2018.
No order as to costs.
(P.J. Somashekara) LXXXVIII Addl. City Civil & Sessions Judge, (Exclusive Commercial Court), Bengaluru City