Delhi District Court
Shri Sharad Maheshwari vs Nirmal Bang Securities Pvt. Ltd on 3 January, 2018
IN THE COURT OF MS. ASHA MENON: DISTRICT &
SESSIONS JUDGE (SOUTH DISTRICT) SAKET: NEW DELHI
CISARBTN2612017
CNRDLST 010019272017
Shri Sharad Maheshwari
S/o Late Shri Ram Baboo Maheshwari
R/o M10, Second Floor,
Greater KailashII Market,
New Delhi110048 .....Petitioner
Versus
Nirmal Bang Securities Pvt. Ltd.
Having its registered office at
Flat No.120, New Delhi House,
27, Barakhamba Road,
New Delhi110001 ......Respondent.
Date of Institution: 07.02.2014
Judgment reserved on: 14.12.2017
Judgment pronounced on: 03.01.2018
JUDGMENT
The present objection petition has been filed under Section 34 of the Arbitration & Conciliation Act, 1996 by the petitioner Shri Sharad Maheshwari against the respondent Nirmal Bang Securities Private Limited before the Hon'ble High Court of Delhi. Pursuant to order dated 13.01.2017 of the Hon'ble High Court of Delhi, the case has been transferred to this Court and is accordingly being disposed off.
This judgment will dispose of the objection petition filed under Section 34 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the Act) against the Awards dated CISARBTN2612017 Page 1 of 17 04.03.2013 passed by the Ld. Arbitral Tribunal and the Award dated 23.09.2013 passed by the panel of Ld. Appellate Arbitral Tribunal at National Stock Exchange of India Limited at New Delhi.
The facts that have emerged from the records are that the petitioner Shri Sharad Maheshwari had entered into an agreement with the respondent Nirmal Bang Securities Private Limited and had signed the Member Client Agreement dated 27.10.2010 for Trading in Stocks and Equities as per the terms and conditions in the said Member Client Agreement. There appears to be no dispute that initially a sum of Rs.11 lakhs had been paid by the petitioner to the respondent for the purposes of trading. Subsequently, another sum of Rs.14 lakhs was paid by the petitioner to the respondent on 24.02.2011. The dispute arose when the appellant claimed refund of Rs.25 lakhs on the ground that the two of the employees of the respondent namely, Shri Gaurav Varshney and Shri Prakash Singhal had sent him emails assuring the repayment of the said Rs. 25 lakhs, further guaranteeing the petitioner from any loss by also stating that loss if any would be not more than 2% and the expected profit was more than 10%.
The claim of Rs. 25 lakhs was first filed before the Ld. Arbitral Tribunal of Justice V.S Aggarwal (Retd.), Presiding Arbitrator Shri Vijai N. Mathur and Shri Divakar Dev, coarbitrators. The claim was for the original amount with interest, thus totalling Rs.28,969.89/. The Ld. Arbitral Tribunal concluded that there was no merit in the claim in as much as it was the Member Client Agreement, which governed the transaction and the email dated 31.10.2010 did not reflect a concluded contract. It was further held that emails dated 22.02.2011, 05.05.2011, 08.09.2011 and 05.10.2011 were unreliable and did not CISARBTN2612017 Page 2 of 17 appear genuine as the email I.D was missing from these documents and further there was no reference to these emails in the notice issued by the claimant dated 19.12.2011. Accordingly, the claim was dismissed.
This decision was challenged before the Ld. Appellate Arbitral Tribunal comprising of Shri Nesar Ahmed, Presiding Arbitrator, Shri Pramod K.Gupta and Shri Neeraj Aarora, Co Arbitrators. Ld. Appellate Arbitral Tribunal considered the grounds of appeal, which centred around the Ld. Arbitral Tribunal not having summoned the employees of the respondent company to prove the claim of the appellant; that the transactions had been without permission and approval of the appellant; that the emails were not forged or fabricated as the name of the sender was reflected in the emails as it was saved as a contact on the computer by the recipient with the email address and that the verification from the service provider ought to have been obtained before the Ld. Arbitrator had rejected the same, to conclude that the documents relating to these emails also reflected manipulation as the time line was different and no explanation was offered on behalf of the appellant as to how the email I.D with the name reflected recorded some other time, therefore, the rejection of the emails were not proper by the Ld. Appellate Arbitral Tribunal.
The Ld. Appellate Arbitral Tribunal further held that the parties signed the Member Client Agreement dated 27.10.2010 apart from the various documents including KYC, Investor Rights and Obligation, General Terms and Conditions and also Internet Trading Letter and the Terms for Internet Trading etc. as required and subject CISARBTN2612017 Page 3 of 17 to the Rules, Byelaws and Regulations of the NSEIL. It observed that none of these documents referred to any guaranteed profit/loss and rather explicitly stated that there could be no such guarantee of profit or for exception from losses while executing orders of purchase and/or sale of a security or derivative being traded on. It was further held that as the contract notes were sent through emails, as provided by the appellant in the KYC, the appellant was able to see the transactions online by accessing his account using the login ID and the password provided by the respondent and he was also aware of the balance and statement of account, which he used to receive through emails as confirmed in Para 5 of the grounds of the appeal before the Ld. Appellate Arbitral Tribunal. It was submitted that since the appellant is a Post Graduate and a Director of a Company no other conclusion could be drawn that the transactions were signed with the approval of the appellant. Thus, the appeal was dismissed.
Now, by way of present objections these very pleas have been taken before this Court namely: that there was no approval for the transactions and Shri Gaurav Varshney and Shri Prakash Singhal had guaranteed profit and no loss and had also assured that the principal amount of Rs.25 lakhs was safe and would be transferred in the bank account of the petitioner on 10.11.2011; that the Ld. Arbitral Tribunal and the Ld. Appellate Arbitral Tribunal had failed to appreciate that the respondent had agreed to give a guaranteed profit scheme; that the petitioner being inexperienced in investments in shares was induced by the employee of the respondent to invest in shares; that the Ld. Arbitral Tribunal and the Ld. Appellate Arbitral Tribunal had erroneously rejected the emails sent by the employees of the CISARBTN2612017 Page 4 of 17 respondent being not conversant with the technicalities of the emails/email I.D. storage; that the Ld. Arbitral Tribunal and the Ld. Appellate Arbitral Tribunal failed to appreciate that in the event of rebooting of the computer there might be difference of 12 seconds in some of the computers and in the present case the petitioner's computer was rebooted, which recorded difference in time of few seconds in the emails, as produced before the Ld. Arbitral Tribunal and the emails as produced before the the Ld. Appellate Arbitral Tribunal and these discrepancies could not lead to the conclusion of the documents being manipulated; that being a layman the emails were not mentioned in the complaint dated 19.12.2011 which was not a legal notice, as treated by the Ld. Arbitral Tribunal and the Ld. Appellate Arbitral Tribunal; that pay outs had not been ever requested by the petitioner and the respondent had paid the same of its own after informing the petitioner that the amounts were of the profits earned by the petitioner and it was also alleged that the statement of the transaction submitted by the respondent was a fabricated and manipulated document and ought not to have been considered by the Ld. Arbitral Tribunal and the Ld. Appellate Arbitral Tribunal.
Additionally, a new ground was raised before this Court in these objections that the respondent had violated its statutory responsibilities and obligations while entering into the alleged transaction on the NSE on behalf of the petitioner, as it did not have sufficient margin money which was a mandatory requirement of the NSE Byelaws 19 to 22. It was submitted that the Ld. Arbitral Tribunal and the Ld. Appellate Arbitral Tribunal failed to appreciate the conduct of the respondent which was contrary to the Bye Law 26, CISARBTN2612017 Page 5 of 17 which required the suspension of the trading member from its business forthwith. It was further submitted that the Regulation 3.9(a) CMR made it clear that unless the constituent has credit with the member which is equivalent to the value of the shares purchased, the deposit of margin money by the constituent was a must before the member could by shares on behalf of the constituent and under Regulation 3.9 (b) where a member purchased or sold for the constituent without margins as specified, the member could entail penalties that could be levied by the NSE.
It was further submitted that it was necessary to examine the employees of the respondent company to prove the claim of the petitioner, as they were acting as a mouth piece of the respondent company and, therefore, non examination by the Ld. Arbitral Tribunal and the Ld. Appellate Arbitral Tribunal was a violation of the principles of natural justice. Further, in the absence of any evidence, the respondent company had not been able to show how they were instructed or given approval for the transactions in the alleged statement of transaction. Thus, it was submitted that the Ld. Arbitral Tribunal and the Ld. Appellate Arbitral Tribunal could not have relied on the Member Client Agreement dated 27.10.2010 while not considering the material on record, rules, regulations and byelaws of SEBI. Thus, it was prayed that the claim of the petitioner be allowed and the respondent be directed to pay a sum of Rs.28,96,986/ alongwith interest @18% per annum from the date of the claim till payment by setting aside the Awards dated 04.03.2013 and 23.09.2013 and allowing the claim.
In the reply filed on behalf of the respondent company it CISARBTN2612017 Page 6 of 17 was submitted that the present objections under Section 34 of the Act were not maintainable as none of the grounds provided for under Section 34 of the Act was made out. It was further submitted that the Award had been properly passed after considering all the materials on record and the Court could not sit as a Court of appeal to examine the correctness of the Award on merits. It was submitted that reasonableness of reasons given were not open to challenge and no erroneous legal proposition has been pointed nor an error apparent on the face of the Award.
Relying on the various judgments, it was submitted that even where two views were possible the Court cannot substitute its view for that taken by the Ld. Arbitrator. It was submitted that the Member Client Agreement governed the transactions and the details had been provided to the petitioner and had also been placed on the record of the Ld. Arbitral Tribunal. The Contract notes had also been sent by email and these were the governing documents. It was submitted that updates had also been made to the petitioner which had not been denied. Further, the statement of accounts would show that there was no profit and, therefore, there was no strength in the claim of the petitioner that the payments were made towards profit. Thus, it was clear that the petitioner had accessed his accounts numerous times over a period of several months of transaction and yet had not made any complaint.
It was further submitted that the attempt through the present objections was to shift the losses suffered by the petitioner in the usual course of transactions in the stock market on to the respondent and that the claim had been rightly dismissed by the Ld. CISARBTN2612017 Page 7 of 17 Arbitral Tribunal and the Ld. Appellate Arbitral Tribunal. It was further submitted that this new case set up of absence of margin money was also without force and though this plea cannot be looked into it was denied that there was no margin money and that the plea was only an after thought as the statement of account of the petitioner maintained by the respondent clearly revealed that the respondent had not entered into transactions without taking margin money from the petitioner. Thus, it was prayed that the objections be dismissed.
I have carefully perused the record and I have heard the submissions of Ld. Counsel for petitioner Ms. Gurkamal Hora Arora with Shri Amit Choudhary and Ld. Counsel Shri Rajesh Ranjan with Shri Neeraj Matta for the respondent. Additionally, written submissions have been filed by the respondent alongwith the citations, which I have also considered.
The Ld. Counsel for the petitioner relied on the emails to submit that there was a guarantee of loss being not more than 2% and a gain of more than 10%. The Ld. Counsel has referred to the contents of the emails to submit that the respondent was responsible for loss. Profit of Rs.3,18,000/ had been transferred in the month of May and further such amount had been transferred towards profit with the assurance that Rs.25 lakhs was still in safe custody. However, to the surprise of the petitioner only a balance of Rs.607/ was found in the account contrary to these assurances and therefore, the complaint was made. Ld. Counsel explained the discrepancies in the emails with regard to the time and submitted that these could not suffice to reject the emails as the statement of account filed by the respondent confirms what was found in the emails. It was submitted that 20% had to CISARBTN2612017 Page 8 of 17 remain in the account as margin money without which no transaction was possible and all the negative entries in the statement of account reflected that on all those dates there was no margin money on account, despite which the respondent continued transacting violating the regulations of SEBI and NSE. Thus, it also reflected that the transactions were done without the consent and knowledge of the petitioner and was thus in violation of the terms of the agreement as well. It was also submitted that no contract notes were signed by the petitioner as the respondent had not returned the contracts duly signed which was again a mandatory requirement as per the SEBI circular. It was submitted that the petitioner was wrongly denied an opportunity of examining the employees of the respondent. Therefore, ld. Counsel submitted that the claim was liable to be allowed and the awards set aside.
On the other hand, Ld. Counsel for the respondent submitted that the grounds as listed from (a) to (o) related to merits of the claim and which were beyond the scope of Section 34 of the Act and the grounds in (p) to (t) had been taken for the first time in the present objections. It was submitted that as was held by the Hon'ble Delhi High Court in 'State Trading Corporation of India Ltd. Vs Toepfer International Asia PTE Ltd.', FAO (OS) 242/2014 decided on 02.07.2014, the Court while dealing with the objections u/s. 34 of the Act was only to check if the decision making process was faulty or whether the decision was against the public policy. In the present set of objections, there was no averment to show how the awards were opposed to public policy, whereas the grounds related to improper appreciation of the material which could not be considered by the CISARBTN2612017 Page 9 of 17 Court. It was submitted that the question of margin money did not arise as initially a sum of Rs.11 lakhs had been deposited and when that got over a sum of Rs.14 lakhs was deposited with the respondent and, therefore, trading had been with proper margin. It was further submitted that the Ld. Arbitral Tribunal and the Ld. Appellate Arbitral Tribunal had rightly concluded that the emails were not reliable as they had no thread to authenticate the emails and the two sets of emails were different. Moreover, the terms of the KYC clearly forbid the client from going by the advice of any employee. So, even if the emails were to be seen, they would not bind the respondent as such advice was taken by the petitioner at his cost.
Moreover, despite getting all the transaction details by email the petitioner had not made any complaint to any authority. Thus, it was clear that all transactions were with the approval of the petitioner and in conformity with the terms of the contract. The written submissions are also on these lines and are not being repeated. It is further stated in the written submissions that the reliance of the petitioner on the SEBI circular dated 18.11.1993 for supply of hard copy of contract notes were not applicable to the facts of the present case as petitioner had admittedly authorized and instructed the respondent to issue contract notes in digital form and the respondent had done so and these were governed by the SEBI circulars dated 15.12.2000, 29.04.2003 and 08.09.2005 and thus the action taken by the respondent was in compliance with SEBI and NSE circulars.
The Superior Courts have over a period of time repeatedly defined the scope of powers of the Court dealing with the objections filed u/s. 34 of the Act. In 'P.R. Shah, Shares and Stock CISARBTN2612017 Page 10 of 17 Brokers Private Limited Vs B.H.H. Securities and others', (2012) 1 SCC 594 it was held as under:
"A Court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An Award can be challenged only under the grounds mentioned in Section 34(2) of the Act......"
Therefore, in the absence of any ground u/s. 34 (2) of the Act, it is not open to the Court to reexamine the facts to determine whether a different decision could be arrived at.
The Hon'ble Delhi High Court in 'State Trading Corporation of India Limited Vs Toepfer International Asia. PTE Limited' has held as under:
"A Section 34 proceedings, which in essence is the remedy of annulment, cannot be used by one party to convert the same into a remedy of appeal. In our view, mere erroneous/wrong finding of fact by the Arbitral tribunal or even an erroneous interpretation of documents/evidence is noninterferable under Section 34 and if such interference is done by the Court, the same will set at naught the whole purpose of amendment of the Arbitration Act." Again, "The remedy provided in Section 34 against an arbitral award is in no sense an appeal. The legislative intent in Section 34 was to make the result of the annulment procedure prescribed therein potentially different from that in an appeal. In appeal, the decision under review not only may be confirmed, but may also be modified. In CISARBTN2612017 Page 11 of 17 annulment, on the other hand, the decision under review may either be invalidated in whole or in part or be left to stand if the plea for annulment is rejected......."
"Section 34 is found to provide for annulment only on the grounds affecting legitimacy of the process of decision as distinct from substantive correctness of the contents of the decision......"
"Annulment in the case of arbitration focuses not on the correctness of decision but rather more narrowly considers whether, regardless of errors in application of law or determination of facts, the decision resulted from a legitimate process."
The Hon'ble Supreme Court in 'Associate Builders Vs Delhi Development Authority' (2015) 3 SCC 49 held that " an arbitration award can be set aside under the Act only on the grounds mentioned u/s 34(2) (a) & (iii) and not otherwise". It was noted by the Hon'ble Supreme Court that none of the grounds contained in sub section (2)(a) of Section 34 dealt with merits of the decision rendered by an arbitral award. It was only when the award is in conflict with the public policy of India the Court could look into the merits of the arbitral award under certain specified circumstances.
Section 34 of the Arbitration & Conciliation Act, 1996 reads as under: "(2) An arbitral award may be set aside by the Court only if
(a) the party making the application furnishes proof that (I) a party was under some incapacity; or
(ii)the arbitration agreement is not valid under the law CISARBTN2612017 Page 12 of 17 to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii)the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv)the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on mattes beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v)the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b)the Court finds that
(i)the subjectmatter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii)the arbitral award is in conflict with the public policy of India.
After the amendment on 2015 the additional explanation and subsection 2(a) has been added which is as follows: (1) in subsection (2), in clause (b), for the Explanation, the following Explanations shall be substituted, namely: "Explanation 1 For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
(ii)it is in contravention with the fundamental policy of Indian CISARBTN2612017 Page 13 of 17 law; or
(ii)it is in conflict with the most basic notions of morality or justice.
Explanation 2For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
(II) after subsection (2) the following subsection shall be inserted, namely:"
2(A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award;
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law oar by reappreciation of evidence."
None of these provided for reappraisal of evidence and material.
The judgment relied upon by the respondent being the judgment of the Hon'ble Supreme Court in 'Rashtriya Ispat Nigam Ltd. Vs Dewan Chand Ran Saran', Civil Appeal No.3905/2012 decided on 25.04.2012 and 'Steel Authority of India Ltd. Vs Gupta Brother Steel Tubes Ltd.', Civil Appeal No.5241/2002, decided on 09.09.2009 have held that while dealing with the objections the Court does not sit in appeal nor can the Court substitute its own evaluation of the conclusion of the law or fact. Even if there was an error in the interpretation of the contract by an arbitrator, it cannot be corrected as it was not an error on the face of the award. However, an award contrary to substantive provisions of law or against the terms of contract would be patently illegal. If the conclusion of the arbitrator is based on a possible view of the matter, the Court is not supposed to interfere with the award.
Again, the Hon'ble Delhi High Court in 'M/s SMCC CISARBTN2612017 Page 14 of 17 SCCPVCCJV Vs Rail Vikas Nigam Ltd.' OMP No. 30/2013, decided on 15.01.2013 has reiterated that the scope for interference by Court with an award passed by an arbitrator was very limited and the Court while hearing objections against the arbitral award was not sitting as a Court of appeal and could not re appreciate the evidence. Moreover, it was held that merely saying that award was against the public policy was not enough as the petitioner has to make out a strong case within the four corners of the provisions. The Hon'ble Supreme Court in 'Associate Builders Vs Delhi Development Authority' (2015) 3 SCC 49 had occasioned to explain as the contours of public policy. These were reiterated by Hon'ble Supreme Court in case of 'ONGC Ltd. Vs Western Geco International Limited', (2014) 9 SCC 263.
Thus, while dealing with the present set of objections, this Court has no jurisdiction to reappraise the material on the record. Thus, all submissions made in respect of the emails cannot be considered by this Court while dealing with the objections. Both the Ld. Arbitral Tribunals have concluded that the emails are unreliable and the matter rests there.
As held by the Hon'ble Delhi High Court in State Trading Corporation of India's case (supra) Section 34 is in essence a remedy of annulment and mere erroneous/wrong finding of fact, erroneous interpretation of document/evidence cannot provide grounds for interference. Objections cannot take the colour of an appeal for re decision on merits. As held by the Hon'ble Delhi High Court, the remedy of appeal focuses on both legitimacy of the process of decision and the substantive correctness of the decision. Annulment, focuses CISARBTN2612017 Page 15 of 17 more narrowly and considers whether regardless of errors in application of law or determination of facts, the decision resulted from a legitimate process.
The question then is whether by declining to summon the employees of the respondent, the Ld. Arbitral Tribunals adopted an invalid procedure. This question has to be answered in the negative. There is no doubt at all that the parties were bound by the Member Client Agreement. Thereafter there were specific contract notes and the KYC which also provided for the terms and conditions governing the transaction and the interface between the petitioner and the respondent. No oral testimony can add or subtract from these terms. Therefore, the observation that summoning the employees would be purposeless was a valid and a proper conclusion. This has not vitiated the process.
It is clear from the record that the petitioner had given the respondent total of Rs.25 lakhs for investment in the stock market. There can be no occasion for any broker or intermediary to guarantee profitability in the stock market or undertake to be responsible for the losses of the investor. Such a claim by the petitioner has no legs to stand. The conclusions of the Ld Arbitral Tribunal as well as the Ld. Appellate Arbitral Tribunal in this regard cannot be faulted.
The only question then remaining is regarding the margin money. Such an issue had not been raised by the petitioner at any stage either with the respondent or during the arbitration. In any case, alleged violation of the statutory rules, byelaws and regulation by an intermediary or broker can give no advantage to the petitioner who is making a claim for return of the money he had invested and lost. If the CISARBTN2612017 Page 16 of 17 broker or intermediary is liable under law for violation of rules, regulations and byelaws of the SEBI and NSE those are distinct consequences and cannot be determinative of the question as to whether the petitioner is entitled to the return of his total investment of Rs.25 lakhs with interest. Therefore, this plea can have no bearing on the merits of the claim, which had to be established independently, as the question was only whether the petitioner was entitled to the return of Rs. 25 lakhs he had given to the respondent for further investments in the market/secondary market on the ground that two employees had assured that the money was safe.
There are no merits in the present objections nor are they covered under any of the grounds provided under Section 34 of the Act. No perversity in conclusions has been shown in the Awards dated 04.03.2013 and 23.09.2013. Nor has the petitioner succeeded in establishing these Awards to be against public policy. The objections are accordingly, dismissed.
The records of the Ld. Arbitrator be sent back alongwith a copy of this judgment.
The file be consigned to the Record Room.
Announced in open Court
today i.e. 03.01.2018 (ASHA MENON)
District & Sessions Judge (South)
Saket/New Delhi.
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