Delhi District Court
M/S Religare Securities Ltd. vs Ram Sewak Prasad & Anr. on 5 January, 2012
M/s Religare Securities Ltd. vs Ram Sewak Prasad & Anr.
IN THE COURT OF SHRI INDER JEET SINGH, ADDL. DISTRICT JUDGE03,
SOUTH DISTRICT, SAKET COURTS, NEW DELHI
In the matter of
ARB No. 06/2011
M/s Religare Securities Ltd.
19, Nehru Place
New Delhi 110019
.....Applicant/Petitioner
Versus
1. Ram Sewak Prasad
Flat No. C7, Plot M 27/1
Anisha Vihar Apartments
New Delhi .....Respondent No. 1
2. Mr. R.K. Ahooja, Sole Arbitrator,
NSEIL, 4th Floor, Jeevan Vihar Building
Parliament Street, New Delhi
(Respondent No. 2, not summoned)
Petition Presented on : 15.05.2009
Date of Institution : 19.01.2011
Decision Reserved on : 02.12.2011
Date of Decision : 05.01.2012
Arb. No. 06/2011 Page 1 of 13
M/s Religare Securities Ltd. vs Ram Sewak Prasad & Anr.
JUDGMENT
(on application under section 34 of the Arbitration and Conciliation Act, 1996) In order to decide the application under section 34 of the Arbitration and Conciliation Act, 1996, the matrix of the case, as set out by the parties, is given in paragraph 1.1 and 1.2 below :
1.1 (Respondent No. 1's Case) : Respondent No. 1 Ram Sewak Prasad lodged his claim before Ld. Sole Arbitrator claiming Rs. 10,00,000/ (i.e., shifting of Rs. 6,00,000/ from his account, noncredit of Rs. 1,30,000/ in his account, losses on stock of Rs. 2,50,000/, besides other claim of Rs.
20,000/). The applicant, Stock Broker Company, is a member of Stock Exchange at Mumbai (i.e. National Stock Exchange and Bombay Stock Exchange) and it is registered with the Securities and Exchange Board of India (SEBI). On 06.08.2007, the respondent No. 1 opened an account with the applicant by name "Inter net Trading through Order Rooting System" (ITORS). On 07.03.2008, the respondent received advanced financial statement for the period 01.04.2007 to 31.03.2007 from the applicant, which shocked the respondent No. 1 to see debit entry of Rs. 6,00,000/ being amount shifted. Whereas, the statement was not reflecting information about transfer of money so made, nor the respondent No. 1 entered into any trade or business for debit of such sum nor he consented or gave any authority or permission to the applicant for transfer of such amount. It was carried by the Arb. No. 06/2011 Page 2 of 13 M/s Religare Securities Ltd. vs Ram Sewak Prasad & Anr.
applicant without any information, knowledge and consent of the respondent No. 1. Besides the respondent No. 1 gave four cheques all dated 24.01.2008 and one cheque of 08.02.2008 but the same were presented after much delay to the perils and risk of respondent No. 1, not only causing wrongful loss to the respondent No. 1 but also unnecessary interest was charged from the respondent No. 1. On 11.04.2008, the respondent No. 1 had also received two contracts notes from the applicant pertaining to NSE and BSE, that after debiting Rs. 6,00,000/ in his account, the applicant had also sold his all share holdings (i.e., from pool trading account and beneficiary account) and made his account Nil, without his consent permission and knowledge, thereby putting the respondent No. 1 to losses; whereas at that time the amount owed by respondent No. 1 was only Rs. 2,56,120/, that is why the claim was made. 1.2 (Applicant's Case) : Whereas, according to applicant respondent No. 1 Ram Sewak along with his son Umang Jain approached the applicant with request to open trading account with the applicant, accordingly they entered into Member Client Agreement (MCA) with the applicant. As per clause 13 of MCA the parties agreed to refer any claim or dispute to the arbitration as per rules, byelaws and regulations of National Stock Exchange Securities and circulars issued thereunder. At the time of opening the account, the respondent No. 1 and his son Umang Jain represented that they are father and son, respectively, and the account so opened shall be treated a "family Arb. No. 06/2011 Page 3 of 13 M/s Religare Securities Ltd. vs Ram Sewak Prasad & Anr.
account" for the purposes of margining and also for the purposes of due fulfillment of various obligations under the agreement. The respondent No. 1 further requested the applicant to consider the balance of monies and shares lying in the two accounts in combination with each other for the purpose of ascertaining the availability of margin money and security in either of the two accounts. The respondent No. 1 had signed a separate contract of guarantee to adjust / appropriate / set of / recover dues of one member from another member client. Since the contract of guarantee is a separate contract, it cannot be adjudicated, by the mechanism of arbitration provided by virtue of Member Client Agreement (MCA). Ld. Arbitrator had no jurisdiction to adjudicate upon such issue being not arbitrable, as the arbitration clause is with regard to the dispute between the client and the stock broker with respect to dealings through the stock exchange. The applicant has also filed a civil suit No. 312/08 in the court of Civil Judge, Tis Hazari, Delhi, for declaration and injunction against the respondent no. 1, which was served upon the respondent No. 1. As per clause 4 of standing instructions (SIAV04) the respondent No. 1 authorized the applicant to set off a part or whole of the margin money against any of the dues or against the dues of a member of his family in the event of his failure or failure of the member of his family to meet any respective of their obligations, the clause 4 has been reproduced, which reads as follows : Arb. No. 06/2011 Page 4 of 13 M/s Religare Securities Ltd. vs Ram Sewak Prasad & Anr.
Clause 4 - I / we hereby authorize you to set off a part or whole of the margin (i.e. by way of appropriation of the relevant amount of cash or by sale or transfer of all or some of the securities which form part of the margin), against any of my / our dues or against the dues of a member of my / our dues or against the dues of a member of my / our "Family" (for the purpose of this agreement "family" shall hereinafter mean all the individuals, relatives, group companies / associate companies / firms / entities and such other persons) in the event of my / our failure or the failure of a member of my / our Family to meet any of their respective obligations under these terms".
On account of slow down in the market conditions, the applicant acting upon standing instructions / authorization, carried out a transfer entry of Rs. 6,00,000/ from the account of respondent No. 1 to the account of his son on 21.02.2008, duly reflected in the statement for the period 01.04.2007 to 31.03.2008 of respondent No. 1 and of his son. Since then respondent started threatening the applicant to reverse the transaction or face humiliation besides threat to demean reputation of the applicant through media and to create nuisance in the office. Whereas, nothing was done contrary to the agreement and agreement of guarantee.
2.1 Ld. Sole Arbitrator framed the following issues :
1. Is the main issue in the dispute, namely transfer of a sum of Rs. 6 lacs from applicant's account is within the jurisdiction of this arbitral tribunal to decide? And if so;
2. Was the respondent within his rights to do so?
3. Whether the delay in crediting cheques given by the Applicant was justified?
4. Whether the Respondent was justified in disposing off all the shares and securities of the Applicant? And
5. To what relief, if any, is the applicant entitled to?Arb. No. 06/2011 Page 5 of 13
M/s Religare Securities Ltd. vs Ram Sewak Prasad & Anr.
2.2 Ld. Sole Arbitrator, after, assessing the record and contentions of both sides, came to the conclusion that there was an arbitrable dispute in terms of clause 6 of agreement and NSE bylaws rules and regulations, there was no reason for applicant to enter into separate agreement, which is barred by the rules and regulations; there was no specific consent of respondent no. 1 for transfer of amount or shifting of amount from the account of respondent No. 1 vis a vis despite receiving the cheques in the office of applicant, where respondent No. 1 was usually visiting, the credit of cheques was not given in time in the account of respondent No. 1 and he was charged interest. Ultimately, award of Rs. 7,00,000/ (i.e., Rs. 1,00,000/ as compensation instead of claimed amount of Rs. 2,50,000/ due to market fall and Rs. 6,00,000/ wrongly transferred from the account of respondent No. 1) with interest @ 12% has been passed in favour of respondent No. 1 and against the applicant. The applicant is aggrieved by the impugned award dated 10.02.2009.
3.1 The applicant reiterates its case in the application, which has been complied in paragraph 1.2 above. The grounds of application are identical with the plea taken before Sole Arbitrator, however, the applicant is aggrieved that the same were not appreciated by the sole arbitrator. Neither he had jurisdiction nor the subject was arbitrable nor any wrong has been done by the applicant nor it was within the jurisdiction of Sole Arbitrator to Arb. No. 06/2011 Page 6 of 13 M/s Religare Securities Ltd. vs Ram Sewak Prasad & Anr.
award compensation. The contract of guarantee not only bars respondent No. 1's claim but also it was not subject matter of arbitration, being a separate contract of guarantee within the domain of civil court. The respondent No. 1 and his son both had opened account with the applicant and by virtue of authorization / standing instruction clause No. 4, the applicant within its right to shift the amount, it was done as per agreement. However, the impugned award of Rs. 7,00,000/ is also contrary to the provisions of law that instead of directing reverse entry of Rs. 6,00,000/ from the account of Umang Jain to the account of respondent No. 1, award has been passed against the applicant, at the most there could be direction of reversal entry of transfer.
This is the substance of application and oral submissions of Ld. Counsel for applicant, while relying upon B.K. Choudhary vs DDA, CS(OS) No. 1781 of 1992 and IA No, 9203 of 1992 that Arbitrator cannot award more than what has been claimed by the claimant, while referring section 30 and 33 of Arbitration and Conciliation Act, 1996. The award is against public policy.
3.2 Whereas, the respondent No. 1 not only reiterates his case, precisely narrated in paragraph 1.1 above, but also opposed the application vehemently by strong words. There is not only misrepresentation but also concealment of material facts as well as play of fraud by the applicant. In Arb. No. 06/2011 Page 7 of 13 M/s Religare Securities Ltd. vs Ram Sewak Prasad & Anr.
addition, the respondent No. 1 and his son Umang Jain never opened the account on the same day nor the respondent No. 1 ever since consented to treat his account as a 'family matter" with his son Umang Jain. Two independent accounts cannot be treated one account or combined account and the acts of applicant amounts to corrupt practice. The clause of 4 of standing instruction is misplaced and the respondent No. 1 and his son never stood guarantor for each other nor he have any authorization to the appellant to shift any amount from his account to other account or vice versa. The act of applicant was without authorization, therefore, there is no flaw in the impugned award nor the reversal entry would undo the things suffered by the respondent No. 1, since there are two independent accounts. The application does not fulfill the requirement of Act, 1996 and there is no authorization in favour of Sh. Brijesh Bhatt, author of the application and application is liable to be dismissed. This is the substance of written reply and oral submissions advanced.
4. FINDINGS In order to appreciate the rival contentions, there is a occasion to go through the statutory provisions of Section 30, 31, 34 of the Act, 1996 and Section 124 and 126 of the Indian Contract Act, 1872, in the light of material on record, inclusive of the record of arbitration proceedings and Arb. No. 06/2011 Page 8 of 13 M/s Religare Securities Ltd. vs Ram Sewak Prasad & Anr.
the contentions advanced. The issues raised are taken one by one. 5.1 The prime objection is with regard to jurisdiction of Ld. Sole Arbitrator and matter of arbitration on the ground that because of separate authorization / agreement of guarantee, it is beyond the scope of arbitration. The applicant has placed on record MCA (4 sheets) and it is accompanying a 5 sheet of SIAV04 (supplementary member client th agreement) and this fifth sheet is containing clause 4 being relied upon by the applicant. The original agreements have not been placed in support of application nor before the Sole Arbitrator but applicant had filed a specimen of application forms, which also contains SMCV01 to SIAV04 (supplementary member client agreement). In clause 10 thereof, it is specifically mentioned that agreement is supplement to, and does not supersede the main member client agreement and as per clause 13 of MCANSE, the dispute is arbitrable. Therefore, there is no substance in the application that it was not a arbitrable dispute or Ld. Sole Arbitrator had no jurisdiction and in the light of such additional reason also, the Sole Arbitrator's finding that he had jurisdiction to adjudicate the dispute, is confirmed and it was subject matter of Arbitration.
5.2 There is an occasion to go through the provisions of sections Arb. No. 06/2011 Page 9 of 13 M/s Religare Securities Ltd. vs Ram Sewak Prasad & Anr.
124 and 126 of the Indian Contract Act, 1872, the same read as follows :
Sec. 124 "Contract of indemnity" defined - A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a "contract of indemnity."
Sec. 126 "Contract of guarantee", "surety", "principal debtor" and "creditor". A "contract of guarantee" is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the "surety"; the person in respect of whose default the guarantee is given is called the "principal debtor", and the person to whom the guarantee is given is called the "creditor". A guarantee may be either oral or written.
To say, in a contract of indemnity there are two parties to the contract i.e. the indemnifier and the indemnified. In the contract of guarantee, there are three parties namely, guarantor / surety, the principal debtor and the creditor. In both the eventualities, the parties have to enter into an agreement enforceable under the law. In the former, it is a bilateral agreement and in the later case tripartite agreement. Therefore, for the following additional reasons, it is held that there is no flaw in the findings returned on issue No. 1 and 2 in the impugned award :
(a) paragraph 7 of the award reproduces clause no. 6 of the agreement that stock broker agrees and undertakes that the money deposited by the client shall be kept in a separate account and same shall not be used for any other client or for the purposes other than the purposes mentioned in the SEBI rules or in the rules and regulations. Therefore, the agreement SIA V04 (i.e., 4th page of SMC) is contrary to clause 13 of MCANSE;Arb. No. 06/2011 Page 10 of 13
M/s Religare Securities Ltd. vs Ram Sewak Prasad & Anr.
(b) the account of respondent No. 1 is a separate account from the account of Umang Jain. There is no tripartite agreement amongst the applicant Religare Securities Limited, respondent No. 1 Sh. Ram Sewak and Sh. Umang Jain to conclude that they are party to a common agreement to be called contract of guarantee. To say, in the absence of contract of guarantee, in terms of section 126 of Indian Contract Act, a bilateral agreement between the applicant and respondent No. 1 cannot be construed an agreement of guarantee in respect of an agreement between the applicant and Sh. Umang Jain and viceversa. The sheet SIAVO4 does not name Shri Umang Jain. Again, to say, two separate bilateral agreements will not constitute an agreement of guarantee in terms of section 126 of Indian Contract Act.
(c) In view of reasons (a) and (b) above, shifting of amount of Rs. 6,00,000/ from the account of respondent No. 1 to the account of Sh. Umang Jain by relying upon clause No. 4 of SIAV04 is contrary to the provisions of substantial law of Indian Contract Act.
(d) In paragraph 8 of the Award, Ld. Arbitrator concluded that the so called agreement of guarantee is contrary to clause 13 of MCA, NSE but in paragraph 10 it was concluded that there was no specific consent of respondent No. 1 for shifting of account, both the conclusions appears to be paradoxical to some extent, however, in view of conclusions drawn in
(a), (b) and (c) above, it stand clarified that there does not exist contract of guarantee.
6.1 The respondent No. 1 had given the cheque to the applicant but the amount was not given in time to the credit of respondent No. 1, there is no flaw in the findings returned on issue No. 3 that respondent No. 1 was a regular visitor to the office of applicant and just for want of trading account number, the credit was not given, whereas, the applicant had registration form with complete detail, inclusive of telephone numbers of the respondent No. 1, therefore, the delay is attributable to applicant. There is Arb. No. 06/2011 Page 11 of 13 M/s Religare Securities Ltd. vs Ram Sewak Prasad & Anr.
no flaw in the findings given on issue No. 3 by Ld. Sole Arbitrator. 6.2 The findings of issue No. 4 are based on the findings returned on issue No. 1, 2 and 3, since the findings of issue No. 1,2 and 3 are not perverse, therefore, finding of Ld. Sole Arbitrator on issue No. 4 warrants no interference.
7.1 Issue No. 5 of Relief, awards Rs. 7,00,000/, inclusive of Rs. 6,00,000/ of amount transferred from the account of respondent No. 1 to the account of Umang Jain. In paragraph 3.1 above, it has already been held that transfer of amount from the account of respondent No. 1 was contrary to the substantial provisions of law, therefore, to that extent findings have been rightly returned by the sole Arbitrator. Since it was an act of applicant contrary to the provisions of law and for want of valid consent / agreement, therefore, reversal of entry is not the relief but award of Rs. 6,00,000/.
7.2 So far, award of compensation of Rs. 1,00,000/ is concerned, it is based on the assessment of record as well as the prevailing market trend, which has been taken cognizance by the sole Arbitrator, the respondent No. 1 had lodged claim of Rs. 10,00,000/. But the losses claimed were Rs. 2,50,000/, however, considering the feature attributable Arb. No. 06/2011 Page 12 of 13 M/s Religare Securities Ltd. vs Ram Sewak Prasad & Anr.
to the applicant, the amount was reduced to Rs. 1,00,000/. It is within the domain of sole Arbitrator, in terms of section 31 of the Act, 1996 to pass appropriate award, inclusive of cost and interests, therefore, award of Rs. 1,00,000/ on account of loss of stock was within the jurisdiction of Ld. Sole Arbitrator and law laid down in B.K. Roy Chowdhary (Supra) does not apply to the situation in hand.
7.3 Therefore, there is no flaw in the findings of relief of issue No. 5 given by Ld. Sole Arbitrator in the reasoned award dated 10.02.2009.
8. The application is dismissed and award is confirmed. However, any expression given in the present judgment, does not tantamount to any finding on the merits of pending Suit No. 312/2008, being not subject matter of present application.
File is consigned to record room.
Announced in the open Court (INDER JEET SINGH)
on 15 Pausa, Saka 1933
th
Additional District Judge03,
South District, Saket Courts,
New Delhi / 05.01.2012
S
Arb. No. 06/2011 Page 13 of 13