Bombay High Court
Angel Capital & Debt Market Limited vs Mr. Sharad Munot on 31 August, 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. 972 OF 2009
Angel Capital & Debt Market Limited,
A Company incorporated under the
provisions of the Companies Act, 1956,
having its office at G-1, Akruti Trade Centre,
Road No.7, MIDC, Marol,
Andheri (East),
Mumbai-400 093. ......Petitioner.
Vs.
Mr. Sharad Munot,
Indian inhabitant, residing at
Satha Colony, Station Road,
Ahmednagar-414 001. ......Respondent.
Mr. Pesi Mody i/by Mr. Joby Mathew and Deepak Dhane for the
Petitioner.
Mr. S.U. Kamdar, Senior Counsel with Ms. Pooja Patil i/by M/s. Kanga
& Co. for the Respondent.
CORAM :- ANOOP V. MOHTA, J.
JUDGMENT RESERVED ON :- 17 JULY 2012.
JUDGMENT PRONOUNCED ON :- 31 AUGUST 2012.
JUDGMENT:-
The Petitioner-stock broker, has challenged award dated 16 May 2009, under Section 34 of the Arbitration and Conciliation Act, 1996 ::: Downloaded on - 09/06/2013 19:03:00 ::: 2 arbp972.09.sxw (Arbitration Act) passed by the Arbitral Tribunal, in the matter of Arbitration under the Bye-laws, Rules and Regulations of the National Stock Exchange of India Limited (for short, "NSEIL").
2 The operative part of the order is as under:-
"AWARD 1 The claim of the Applicant, Mr. Sharad Premraj Munot is accepted for Rs. 1,63,11,371/- being the losses incurred by him on account of squaring off position by the Respondent.
2 The additional claim of Rs.1,17,21,022/- for not selling the shares of pool account on 21st January 2008 stands rejected.
3 The claim of Rs. 37,88,787.50/- stands fulfilled as the Applicant has already received credit for Rs.47,01,570.96/- from the Respondent against this amount.
4 The claim of Rs.80,000/- towards losses on account of short sale of Hindustan Unilever shares also stands fulfilled as the Respondent has agreed to compensate for this and reduced their counter claim by this amount.
5 The counter claim of the Respondent, M/s. Angel Capital & Debt Market Ltd. is accepted for the reduced amount of Rs.93,07,384.04/-.
6 The Respondent, is, therefore, directed to pay an amount of Rs.70,03,986.96/- (Rupees seventy lakh ::: Downloaded on - 09/06/2013 19:03:00 :::
3 arbp972.09.sxw three thousand nine hundred eighty six and paise ninety six only) to the Applicant, being the difference between the amount of the Applicant's net claim and the Respondent's net counter claim.
7 The Respondent is further directed to pay interest @ 12% p.a. on the Award amount of Rs.70,03,986.96/- to the Applicant w.e.f. the date of Award till the date of payment.
8 The entire cost of arbitration should be borne equally by both the parties.
The Award is signed and issued in three stamped originals.
The NSEIL may retain one stamped original and forward one stamped original each to the Applicant and the Respondent."
3 The basic case is as under:-
The Petitioner in 2006 accepted the Respondent as a constituent after execution and submitting of the Client Registration Form, a Member-Client Agreement for the NSEIL (Derivatives), a Power of Attorney and Risk Disclosure Document as prescribed by SEBI and NSEIL. A trading account was opened and a unique Client ID Code was allotted to the Respondent also for online trading.
4 In January 2008, the stock market was on a downward trend, which in turn reduced the value of the available margin shares. This necessitated the Respondent to make available further margin ::: Downloaded on - 09/06/2013 19:03:00 ::: 4 arbp972.09.sxw money/shares and/or to avoid square off situation. The Respondent failed and neglected to do so. On 18 January 2008, the Respondent had a very substantial margin shortfall of about Rs.45 lacs and ledger debit balance of about Rs. 58 lacs, totaling to about Rs.1.03 Crores.
5 On 21 January 2008, the market opened weak and as a result there were even further margin payments due and payable by the Respondent. At the end of the day on 21 January 2008, the Respondent's ledger debit & MTM (Market to Market) loss had Rs.2.27 crores and the margin shortfall Rs.1.10 crores, totaling to about Rs.3.37 crores. The Respondent as alleged failed and neglected to make any further payment to the Petitioner.
6 On 22 January 2008, the stock market crashed further and as a result, the trading was even halted for an hour by the NSEIL. The margins fell drastically below the requirement, as the value of the collateral margin shares/securities available diminished and NSEIL had also substantially increased the Margin required to be collected in view of the volatility in the market.
7 At about, 10 am to 11 am on 22 January 2008, as alleged the ::: Downloaded on - 09/06/2013 19:03:00 ::: 5 arbp972.09.sxw Petitioner `squared off position' in the F & O Segment. At the end of 22 January 2008, the Respondent's account had free margin, being collateral securities, available of Rs.80 lacs. The ledger debit of about Rs.3.72 crores aggregating to a net debit balance of Rs.2.92 crores.
The Petitioner sold off part of the margin collaterals of the Respondent to the extent of about Rs.96.87 lacs on NSEIL Capital Segment and after adjusting thereabout Rs.13.24 lacs debit balance in that segment, Rs.83.62 lacs was transferred to Respondent's Account in F & O Segment, on 7 February 2008.
8 On 11 July 2008, despite repeated requests the Respondent failed and neglected to pay and clear the outstanding debit balance, a due written notice was given to the Respondent on, demanding a sum of Rs.1,41,10,471.25/-. Both the Petitioner and the Respondent, thereafter invoked arbitration proceedings against each other as per the provisions of the NSEIL's Rules and Regulations. The NSEIL treated the present Respondent as the Claimant therein as he had filed his claim just prior in time. The Petitioner filed counter-claims.
The Respondent thereafter, filed his reply to the Petitioners counter-
claim.
The Respondent filed an amendment Application to enhance his ::: Downloaded on - 09/06/2013 19:03:00 ::: 6 arbp972.09.sxw claims. By the Application, the Respondent once again alleged that some collateral shares which were still lying with the Petitioners ought to have also been sold off by the Petitioners on 18 January 2008, in which case the sale value thereof would have been almost Rs.38 lacs, and thereby enhanced his claim by Rs.38 lacs.
9 On 16 May 2009, the learned Arbitral Tribunal passed the award. On 19 June 2009, the Petitioners received a copy of the impugned award. On 20 August 2009, the Respondent filed an Application under Section 33 of the Arbitration Act was disposed of by the Arbitral Tribunal. Hence the present Petition.
10 Admittedly the Respondent being a professional and high net worth client and expert in dealing with such type of transactions, had inter-net trading facility. In a given case, he could have directly trade on internet. The Respondent had dealt with the Petitioner, as well as, with an associate Companies of the Petitioner Angel Broking Limited (ABL). On 18 January 2008 there was shortfall of Rs.1.3 crore. The market crashed on 21 January 2008. The Petitioner made demand of Rs.1 crore. The Respondent instructed ABL to sell the shares on 21 January 2008. The sale proceeds were with ABL to the extent of ::: Downloaded on - 09/06/2013 19:03:00 ::: 7 arbp972.09.sxw Rs.1.65 crores on that date itself. Considering the nature of transaction and even considering the formula (T+2 i.e. two days), the amount would have been available by 23 January, 2008.
11 The Petitioner squared off, in panic, the F & O Contracts on 22 January 2008, as market crashed. On 23 January 2008, the collateral securities worth of Rs.97 lacs was sold in part The balance was sold on 31 March 2009. The Tribunal no-where specifically considered the aspect of availability of Rs.1.65 crore. The Respondent, as demanded by the Petitioner, Rs. 1 crore, and got Rs.1.65 in ABL account. The amount, in my view, could have been transferred at least by 23 January 2008, the day on which admittedly the collateral of the Respondent was sold.
12 The purpose of asking for margin amount is always to secure the amount and/or would be liability. The amount, in the present case, though with ABL, was available, which was more than the amount demanded. There is nothing on record to show that there was any further demand made. The Petitioner having demanded Rs. 1 crore cannot, later on, be permitted to say that the Respondent ought to have been sold the shares, through the web trading directly to cover ::: Downloaded on - 09/06/2013 19:03:00 ::: 8 arbp972.09.sxw the loss and/or to gain the profit. The nature of relationship with such client with regular and professional client is always relevant factor.
13 The market collapsed on 21 January, 2008. There was no reason for the Petitioner to wait till 22 January 2008. The amount, as recorded above, though with the Associate company was available, the effect of such availability ought to have been taken care of in the facts and circumstances of each case, based upon their long standing relationship. It is not case that ABL was foreign company. The case was that in any case, the amount could not have been available till 23 January 2008. There is no denial to the effect that the Petitioner was fully aware of the availability of the amount to the extent of Rs.1.65 crores, in the account of Respondent. Immediately after the demand made by the Petitioner of Rs. 1 crore, the instructions were forwarded to sell some shares and accordingly the amount was admittedly available in the account of Respondent on 21 January 2008 itself.
14 Admittedly, the Petitioner's short-fall of Rs.1.3 crores. The demand, therefore, was only of Rs. 1 crore. The Tribunal recorded that on 21 January 2008 the shortfall was of Rs.3.37 crores. However, ::: Downloaded on - 09/06/2013 19:03:00 ::: 9 arbp972.09.sxw there is nothing on record to show that any demand was raised, by the Petitioner except Rs. 1 crore so recorded above.
15 After going through the reasoning as well as material placed on record, apart from rival contentions so raised by the parties, I see there is no justification why the amount/account was squared off on 22 January 2008 instead of 21 January 2008 and/or 23 January 2008 and/or 24 January 2008. The Petitioner, for whatever may be the reason, squared off the account in this background on 22 January 2008.
16 Now to say and put the burden upon the Respondent that he ought to have entered into the transaction of its own, directly on NSE, through web trading without due and prior notice of demand in such fashion, in my view, definitely creates complications and confusion. It breaches the regular trade, practice and usage apart from commercial understanding between the parties. This was just to hold Respondent defaulter. The practice adopted by the parties, within the purview of rules and regulations, trade and/or practice, if breached and/or overlooked, the situation gets disturbed and remains un-controlled, basically when, the constituent suffered because of no timely action ::: Downloaded on - 09/06/2013 19:03:00 ::: 10 arbp972.09.sxw and/or inaction on the part of share broker. The Petitioner was fully aware of the market position even on 18 January utpo 21 January 2008. According to them, the shortfall was to the extent of Rs.3.37 crores on 21 January 2008 itself. There was no reason for them to wait till 22 January 2008 to take such action of squaring off. No justification whatsoever is on record. If it is a case of giving leverage and/or time and opportunity to the Respondent, then it should have been subjected to additional demand and notice. There was no question of waiting for the Respondent to cover up the margin of their own, in the facts and circumstances of the case, specifically when the Respondent's amount of Rs.1.65 crores on 21 January 2008 was admittedly available with ABL. It appears that the Respondent relied upon the first demand and waited for the next call. It is not the case that the Petitioner had no other collateral securities. Having once chosen not to take action on 21 January 2008, the action of squaring off would have been taken on 22 January 2008 after due notice and demand. It is necessary to note that the demand is normally made by the trading members. It is not that in every time the full amount is demanded. The discretion is always with the trading member to demand full or balance or reasonable amount, considering their relations.
::: Downloaded on - 09/06/2013 19:03:00 :::11 arbp972.09.sxw 17 The Respondent's claim was of Rs.2.14 crores, based upon the alleged profit, had the contract been squared off on 24 January 2008, instead of 22 January 2008. The Petitioner's counter claim of Rs.1.4 crores being the amount due at the foot of the account. The Respondent enhanced the claim in reply to counter claim. The enhanced claim amount was never granted and/or amended specifically. The Petitioner, however, in reply, to the enhanced claim, resisted the same also on the ground of limitation. The Respondent claimed market value of 23 January 2008.
18 The balance collateral shares were sold on 31 March, 2009 of about Rs. 47 lacs, pending the arbitration. It is not clear under which provision and with or without permission of the Tribunal and/or by consent, such transaction can take place. Once the matter is pending, before the Tribunal, there is nothing in the bye-laws to show that still the party can entered into transaction and/or sell and/or purchase the shares to adjudicate and/or adjust their respective claims. If that is so, then in every matter, the pending arbitration before the Tribunal, the parties can enter into various other transactions. They can continue with those transaction and till the conclusion of arbitration ::: Downloaded on - 09/06/2013 19:03:00 ::: 12 arbp972.09.sxw proceedings, they may adjust and/or settle their account by dealing with separately in different account and settle their claim. There is nothing on record to show that on what basis such transaction could have taken place pending the arbitration proceedings. The so-called claim and/or counter claim can be awarded and/or restricted as done in the present case is also an issue. Once the claim is filed based upon the particular cause of action, that need to be adjudicated by the Tribunal being a point and/or issue of reference. In my view, the jurisdiction is restricted and limited and the Tribunal need to consider the proceedings accordingly, unless the parties agreed in writing accordingly, subject to law.
19 Another aspect is why 31 March 2009 was the date selected to sell the remaining collateral shares. It should have been earlier and/or later point of time and/or on 24 January 2008, which, according to the Respondent, the date he would have earned the profit of Rs.2.14 crores, had the contract been squared off instead of 22 January 2008. Nothing was certain and also the proceedings so continued, based upon even the subsequent transactions. As noted, the counter claim was reduced to Rs.93.7 in view of the above adjustment.
::: Downloaded on - 09/06/2013 19:03:00 :::13 arbp972.09.sxw 20 Furthermore, the amendment sought for, and the claim was enhanced. Though objected by the Petitioner on various grounds and also on the ground of limitation, yet no specific order was passed on such amendment. The Statement of Claim was never amended accordingly. It is also recorded that the Respondent, for the first time, restricted their claim, based upon the market value as of 23 January 2008 pending the arbitration proceedings.
21 This is a case where, for various reasons,though amount was available with ABL, on 21 January 2008, it was treated as there is a clear default on the part of the Respondent to fulfill the margin amount. But the situation changed immediately because the Petitioner squared off on 22 January 2008 and that created the complication. The question is not of credit entry, but the availability;
the intention and the capacity of a particular person to fulfill the margin as demanded apart from additional collateral security with the Petitioner, specifically when the Petitioner, for whatever may be the reason, could not take steps or failed to take steps on 21 January 2008 itself. I am inclined to observe that the opportunity ought to have been given to the Respondent to cover the margin having not taken ::: Downloaded on - 09/06/2013 19:03:01 ::: 14 arbp972.09.sxw the steps of squaring off on 21 January 2008. The Petitioner cannot be permitted to take benefit of its own wrong or inaction, when knowing fully the capacity of the Respondent and their long standing relationship.
22 Another aspect in the matter is grant of difference, based upon the closing rate and not opening rate of 23 January 2008, while arriving at the figure of Rs.1.63 crores in favour of the Respondent. It is not clear, the basis and detailed of such amount so arrived at. The specific date, time, rate and reasons are missing, even the calculation and the required details. The expertised Tribunal is empowered and if material and the documents are on record, to exercise their expertise to grant amount and/or award such amount, but in my view, it should be always on the foundation of details and the calculations. The amount cannot be arrived at in such vague and unclear manner. After going through the reasons, I am inclined to observe that there is no material, at least in support of those reasons for arriving at figure at Rs.1.63 crores in favour of the Respondent.
23 The learned counsel appearing for the parties have referred various judgments in support of their case. In view of the fact so ::: Downloaded on - 09/06/2013 19:03:01 ::: 15 arbp972.09.sxw recorded in the present case and as those facts are totally distinct and distinguishable, those judgments in no way assist the respective parties, to support their case.
24 In the present case, there is a rejection of additional claim of Respondent of Rs.1.17 for not selling shares on 21 January 2008.
Such huge amount of claim, if rejected, also on the ground of limitation specifically in view of the change in aspect of limitation as declared for various circulars by SEBI, making it three years instead of six months, would also an additional factor, which would change and affect the final claim, as well as, the counter claim. The supporting pleading, documents and/or necessary amendment, if any and the order thereon, if taken care of and if opportunity is given, the claim and/or counter claim so granted for or rejected and need to be re-
adjudicated from every angle. The Respondent, in his reply, though not specifically raised, but objected and made reference about the same. While considering the totality of the matter, the Tribunal, therefore, if rejected the additional claim of Rs.1.17 cores and others and adjusted the counter claim of the Petitioner by granting Rs.1.63 cores in favor of the Respondent in totality, need to be reconsidered from all the aspects and the reason so recorded above. In my view, it ::: Downloaded on - 09/06/2013 19:03:01 ::: 16 arbp972.09.sxw is necessary for the Tribunal to reconsider these points by giving opportunity to the parties.
25 The counter claim of the Petitioner was allowed of Rs.93.7 lacs, but if we consider overall situation and the amount was awarded and which required reconsideration, there is no question of retaining the amount so awarded in either of the parties favor. After reconsideration, including the reason for squaring off the account on 22 January 2008 instead of 21 and/or 23 and/or 24 January 2008, and so called adjustment of the claim as well as counter claim, pending the arbitration proceedings, The whole aspect of claim as well as counter claim will definitely change. I am inclined, therefore, to observe that taking overall view of the matter, for ant of various reasons as recorded above, the Award so passed, need interference.
The scope of Section 34 of the Arbitration Act is quite limited, but when it deals with the decision given by expertise Arbitrary Tribunal, it is difficult to overlook the nature of transaction, trade, practice apart from bylaws and contract between the parties. All these issues, in my view, are inter-connected and interlinked. It is difficult to dissect only for particular claim and/or counter claim. Any one facet is decided for and against, in the present facts, it will definitely ::: Downloaded on - 09/06/2013 19:03:01 ::: 17 arbp972.09.sxw disturb the claim as well s counter claim amount. The grant of claim and/or counter claim and/or rejection of claim and/or counter claim, in such fashion, need interference. The Award if not based upon the referred trade, practice and bye-laws and rules and regulations and if it is only upon the discretion exercised by the trading members by overlooking practice, as well as, understanding between the same and if it affects the rights and the respective claims, a case is made to interfere with the same, with a view that all the parties should get full opportunity again to put their respective case. The Tribunal to reconsider the same and pass appropriate order accordingly. It is not the question of accepting or rejecting the discretionary order or judicial order passed by the Arbitral Tribunal, but the issue is confirmation of wrong exercise of discretion by the trading member.
The Court under Section 34 need to test if case is made out, the action and inaction of the trading member, as the discretionary power is provided by the bye-laws to stock broker.
26 The concept and power of remand by the Court is well-known and also recognized mode of adjudicating the issue on a particular point and/or on all issues again. The Arbitration system is one of the way of settling the dispute through the alternative dispute resolution ::: Downloaded on - 09/06/2013 19:03:01 ::: 18 arbp972.09.sxw mechanism. It provides mechanism to settle the disputes/conflicts by the recognized Arbitration modes. The principle of remand, as well recognized, are also, in a given case, required to be used and utilized in the Arbitration matters.
27 Principally, the effect of order of remand is that the lower Court and/or the Tribunal, subject to order/direction of remand, need to re-
consider, re-open the whole case for re-trial. The Court, may restrict the issue and/or issues for re-trial and/or re-hearing. The Court may pass the order of remand for the whole case. There is no power and/or any kind of restriction to remand the matter as a whole and/or on an issue and/or issues, as permissible, even the order of remand, can be challenged by the aggrieved parties. The order of remand in no way restrict and/or control the power of the lower Court and/or Tribunal to determine the points, not conclusively decided, which are inter-connected and relevant for passing the final order/award after remand. The jurisdiction and power, therefore, of the lower Court and/or the Tribunal depends upon the order of the remand. The procedure after remand, the Court and/or the Tribunal need to follow, is always depend upon the order of remand so passed. It may be to proceed de-novo and take additional evidence again if directed or ::: Downloaded on - 09/06/2013 19:03:01 ::: 19 arbp972.09.sxw necessary and/or pass fresh order based upon the material already available. If all points are kept open, the lower Court and/or the Arbitral Tribunal, need to re-consider everything by giving opportunity to all the parties.
28 The mechanism of remand was specifically available under Section 34 (4) :-
"Section 34 (4):-
On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award."
29 This provides/permits, the Court under Section 34 of the Arbitration Act, to issue appropriate direction/order, by keeping the matter pending, to re-adjudicate and/or determine particular issue/point so that the grounds so raised for setting aside the award would be eliminated. It means, instead of remanding the matter whole and/or all issues, the Court permits and directs the Arbitral Tribunal to resume the proceedings and take such action to pass additional award and/or modify the award and/or make appropriate ::: Downloaded on - 09/06/2013 19:03:01 ::: 20 arbp972.09.sxw correction in the award. Section 33 of the Arbitration Act, also provides and permits, as per the prescribed procedure, to pass additional award and/or correct errors as contemplated under the provisions. I have already, based upon various Supreme Court Judgments and Full Bench Judgments of this Court, reiterated the issue that the Court under Section 34, can modify the award. The Arbitral Tribunal, itself, in a given case, restrict and/or award some claims and/or reject and disallow the other claims. The Court also, therefore, as settled, under Section 34 can modify the award and pass appropriate order accordingly. The Court, however, in a given facts and circumstances, if all the issues inter-linked and inter-connected including all the claims, and when it is difficult and/or not possible to remand the matter on a particular point and/or claim, and the Claims and/or counter-claims are inter-linked and/or inter-connected, instead of remanding the matter under Section 34 (4) of the Arbitration Act on a particular issue and/or issues, needs to remand the whole matter for re-consideration, and/or re-trial and/or re-hearing on all issues.
The Court, under Section 34, if keeps all points open and gives an opportunity to both the parties to put their case, if necessary, even by leading additional evidence, and direct the Arbitral Tribunal to dispose of the matter within a reasonable time, this in my view, is permissible ::: Downloaded on - 09/06/2013 19:03:01 ::: 21 arbp972.09.sxw mode and mechanism under the Arbitration Act. Mere setting aside the award on this ground, would delay the proceedings further in all respects. But, if matter is remanded, the special direction to dispose of the matter, that will save the time and money of both the parties.
As already recorded, the Court may issue various directions, with intention to expedite the matter, depends upon the facts and circumstances of the case, so that the Arbitral Tribunal after resuming and/or in a given case after re-constitution, may proceed with the matter accordingly. This mechanism of remand is permissible mode.
It is well within the scope and power of the provisions of the Arbitration Act.
30 Therefore, taking overall view of the matter, I am inclined to pass the following order :
ORDER (1) The impugned Award is set aside. The matter is remanded for reconsideration on all issues.
(2) All points are kept open, including of the limitation.
(3) The Tribunal to reconsider the case after giving opportunity to all the parties expeditiously.
(4) The parties to take steps accordingly. ::: Downloaded on - 09/06/2013 19:03:01 ::: 22 arbp972.09.sxw (5) The Petition is accordingly disposed of. (6) There shall be no order as to costs. (ANOOP V. MOHTA, J.) ::: Downloaded on - 09/06/2013 19:03:01 :::