Bangalore District Court
Shivamallappa vs M/S. Angel Broking on 28 February, 2020
IN THE COURT OF THE XXX ADDL. CITY CIVIL & SESSIONS
JUDGE, BANGALORE CITY
DATED THIS THE 28 th DAY OF FEBRUARY 2020
-: PRESENT: -
SRI.MAANU K.S., B,Sc., LL.B.,
XXX Addl. City Civil & Sessions Judge,
Bengaluru City.
A.S. NO.120/2017
PLAINTIFF/S : SHIVAMALLAPPA,
S/o Late Nanjappa,
Aged about 68 years,
No.786, 5th Main,
Aravindanagar,
Mysuru-570 023.
(By Pleader Mrs.B.B.Parvathi,
Adv.)
/VS/
DEFENDANT/S: 1. M/S. ANGEL BROKING
LTD., Reg. Office G-1, Akruthi
Trade Centre Road No.07,
MIDC, Marol Andheri (E),
Mumbai -400 093.
Rep.by Ms.Sarika Pol,
Deputy Vice President.
2. National Stock Exchange of
India Ltd., Office No.101, DBS
House, 26,
Cunningham Road,
Bengaluru-560 052.
Rep.by Manager,
(By Pleader Sri.S.N., Adv. for
D1, Sri.SARR, Adv. for D2)
*****
2 A.S.No.120/2017
JUDGMENT
1. This arbitration suit has been filed under Sec.34(2)(a)(v) and (b)(ii) of Arbitration and Conciliation Act of 1996, questioning the validity of arbitral award dtd.21-06-2017 passed by the Appellate Arbitration Tribunal in Appeal (A.M.)No. F&O/B-0009/2016 and thereby to set aside the said award and to allow the claim made by the plaintiff herein along with costs of the proceedings.
2. The brief facts of the case of the plaintiff are as follows:
(a). It is the case of the plaintiff that the defendant No.1 is a company incorporated under The Companies Act, 1956 having registered office at Akruthi Trade Centre Road, Andheri East, Mumbai with branches all over India and registered as the member of the National Stock Exchange of India Ltd. Mumbai, dealing in the capital and derivative segments of NSE as a Stock Broker and Trading member and it is also a registered member of the Mumbai Stock Exchange Ltd. (BSE) for trading in capital and derivative segments. It is further contended that the 2nd respondent is the National Stock Exchange of India Ltd., Mumbai having its branches all over India including Bengaluru as stated above, which shall provide an Institutional arbitration mechanism enunciated by SEBI for settlement of disputes between a client and a Trading Members, through arbitration proceedings.
(b). He further contended that he was working at Arasikere as a Development Officer in LIC of India and 3 A.S.No.120/2017 during that period, he came in contact with the representative of the 1st defendant named Mr.H.S.Hemanth, who being a Sub-broker to the 1 st defendant had requested him to open a Demat account with the 1st defendant and accordingly, he opened a Demat account by entering into a stock broking agreement called Member Client Agreement on 22-6-
2009 and on confirmation of opening account, a unique client code bearing No. S70678 was allotted to him by the 1st defendant. He further contended that earlier he had a Demat account with BGSE, Bengaluru with whom he held stocks worth around 91 lakhs contributed primarily in the shares allotted in public issue of shares over a period of time and as per the request of the Sub-broker at Arasikere and under a bonafide belief, he transferred the holdings of shares worth Rs.91 lakhs held with BGSE, Bengaluru to the 1st defendant and more particularly to the Sub-broker H.S.Hemanth at Arasikere. He further contended that besides opening a Demat account for equity, the defendant No.1 has also requested to open an account with it for commodity dealing which he obliged as it was without any extra costs. He further contended that with the bonafide intention of investment in the equity shares or for subscribing to initial public issues, apart from the substantial stocks held by him, he had totally remitted a sum of Rs. 8,27,382/- from 27-07-2009 to 16-02-2010.
4 A.S.No.120/2017(c). He further contended that after having received the shares transferred from BGSE, the value of which was around Rs. 91 lakhs, the defendant No.1 and its sub-broker H.S.Hemanth at Arasikere had started unauthorized trading in his Demat account and using the holding as stake, the defendant No.1 has engaged in trading unilaterally in all sorts of segments of cash, future and option and commodity almost simultaneously without even waiting for the remittance of cash margin by him to start the first trading and consequent to the reckless trading or over trading, the ledger balance was running in debit all the time. He further contended that although to offset the debit balance, the existing stocks were sold out on an ongoing basis, the defendant No.1 willfully maintained the account in debit without bringing to the credit with the dual purpose of increasing the trade and earn brokerage and also to collect overdue charges on the debit balance on a regular basis and since he had no email address facility, he was kept in dark about the happening in the Demat account except receiving of occasional Contract Notes in bunches from the defendant No.1 through ordinary mail and as such, he used to lodge a protest over telephone for unauthorized trade, but the same remained unsuccessful. He further contended that as per the regulations of exchange, the defendant No.1 is not justified to trade in his account without a confirmed order of instructions received from him and that the defendant No.1 is duty bound to maintain a record of 5 A.S.No.120/2017 such orders placed by him, besides furnishing a copy of the record of such order to him on regular basis.
(d). He further contended that as per the regulations, the 1st defendant is obliged to give payouts of the proceeds of sale to him unless instruction was obtained to the contrary by running account authorization from him, but no such payouts were ever affected by the 1 st defendant during the entire trading period, thereby the 1st defendant has violated the guidelines of NSE and put him in jeopardy in all time and in the said process, the 1st defendant illegally played with his port folio and caused heavy loss. He further contended that the other major deviation from the laid down regulation of the Exchange is diverting the funds partly to commodity trading by the 1st defendant without his consent, although both the exchanges are different from one another and also activity of trade. He further contended that consequent to the massive unauthorized trading activity of the 1st defendant, his holding of stocks started depleting on the one hand and the debit balance was accumulated enormously touching as high as Rs. 93,04,894/- at one time, putting together all the segments. He further contended that the debit balance was created by the 1st defendant despite he holding a stock worth of around Rs. 91 lakhs, cash remittance of around Rs. 8.27 lakhs, and dividend receipt of Rs. 65,384/-.
6 A.S.No.120/2017(e). He further contended that in order to keep him in dark, to facilitate itself to engage in an unauthorized trade, the 1st defendant failed to submit the periodical statement of account or holding statement or ledger balance to him and when the oral protest made by him did not yield any result and when the ostensible malpractice was noticed by him, he lodged a complaint to SEBI on 10-01-2013 and a complaint was also lodged to the Head office of 1st defendant in Mumbai on 01-08- 2013, besides complaining to their cluster office at Hubli on the identical date and since the 1st defendant did not bother to redress the grievance, he made a complaint before NSE, Bengaluru on 04-03-2014 seeking justice and following his complaint to NSE, Bengaluru, an Investors Grievance Redressal Meeting was arranged at NSE, Bengaluru and after three sittings, the IGRP had passed an order on 30-05-2014, who could not arrive at any meaningful or conclusive order as regard to the unauthorized trade carried out in cash and future segments and as regards the unauthorized trade in commodity segment, he was asked to approach appropriate body at Chennai. He further contended that following the fall out of decision at Investors Grievance Cell at NSE, he had no option but to prefer a case to arbitration to be conducted by NSE, Bengaluru under the mechanism evolved by SEBI and accordingly, a case was filed at NSE, Bengaluru on 22-09-2016 for a claim of Rs. 94,17,926-50.
7 A.S.No.120/2017(f). He further contended that after the adjudication, the impugned award was passed by the tribunal on 24-01-2017 by rejecting his claim and giving a clean chit to the 1st defendant and being aggrieved by the said order, he preferred an appeal to the Appellate Tribunal at NSE, Bengaluru on 28-02-2017 with a revised claim for a sum of Rs. 91,11,871/- under various heads as detailed in para-21 of the petition. He further contended that while submitting the appeal as per the prevailing regulations, he had among other things chosen 5 Arbitrators in the order of preference to the 2 nd defendant in Form No.III, suggesting the names of Justice Sri.Ramachandra Rao Gururajan, Mr.K.P.Rao, Mr.H.M.A.Khan, Mr.G.V.Srinivasa Murthy and Mr.B.R.Sudhakar and as per the regulations, the 2 nd defendant is required to form a panel of three from among the above list and the receipt of application was duly acknowledged by the 2nd defendant on 03-03-2017. He further contended that contrary to prevailing practice and regulations, the 2nd defendant had appointed the panel of Arbitrators of their own choice without any notice or permission from him consisting of Mr.A.V.Murlidharan, Mr.B.P. Rao and Mr.N.Nithyananda. He further contended that disagreeing with the decision of the 2nd defendant in appointment of Arbitrators different from the preferred list of arbitrators submitted by him, he challenged the appointment of arbitrators by various letters to 2nd defendant and also by filing memos for wrongly choosing the appellate arbitration panel by it, 8 A.S.No.120/2017 which was however totally ignored by the 2 nd defendant and instead, the 2nd defendant claimed to have complied with the appointment of arbitrators in terms of SEBI Circular bearing No.CIR/MRD/ICC/8/2013 dtd.18-03- 2013. He further contended that the wrongly chosen arbitrators panel also defied the challenge of appointment of arbitrators by him and on the other hand, went ahead in fixing the hearing initially on 13-04- 2017 and later on 04-05-2017 amidst protest by him which hearing was unlawful and contrary to the principles of natural justice, while he also expressed his inability to participate in the hearing accordingly.
(g). He further contended that despite his protest, the hearing was conducted by the wrongly choosen panel of arbitrators on 04-05-2017 in his absence at the behest of the 2nd defendant and the controversial panel of arbitrators led by Mr.N.Nithyananda, the presiding Arbitrator, conducted the hearing in his absence and delivered an impugned perverted, biased and a partial award as anticipated by giving a clean chit to the 1 st defendant and dismissing his claim in toto on 21-06- 2017 and aggrieved by the said decision of the Appellant Arbitral award, he has now preferred this petition under Sec.34 of Arbitration and Conciliation Act of 1996 on the following:
GROUNDS:
(a) That the appointment of the Arbitrators by the 2nd defendant is illegal and unwarranted 9 A.S.No.120/2017 and the prevailing procedure prescribed by the SEBI has not been followed by the 2nd defendant despite he filing Form No.III in the prescribed form choosing 5 Arbitrators in order of preference and the 2 nd defendant ought ot have short listed any three of them to form a panel to adjudicate the case, which the 2nd defendant has not done and the 2nd defendant has chosen 3 different Arbitrators other than the names found in the chosen 5 by him to form the panel which is highly illegal and unfounded.
(b) That the 2nd defendant has claimed in its letter that the selection of Arbitrators by it was in terms of SEBI Circular bearing No.CIR/MRD/ICC/8/ 2013 dtd.08-03-2013, which is highly unfounded as the question of appointment of the Arbitrators by Stock Exchange by automated process arises only in case where the client and member fails to choose the Arbitrators from the common pool by submitting Form No.III along with the application which was accepted by the 2 nd defendant on 03-03-2017.
(c) that the 2nd defendant ought to have chosen the Arbitrators from the said chosen list only and as such, the very appointment of the Arbitrators by the 2nd defendant was illegal and contrary to the provisons contained in the arbitral mechanism constituted by SEBI.
(d) That the hearing date was not fixed as per the due process of law specially without ensuring the receipt of defence statement by him and therefore, favoritism to 1st defendant was exhibited in the very beginning by the panel of Arbitrators.
(e) That in spite of he challenging the very appointment of the Arbitrators through memos dtd.19-04-2017, 24-04-2017 and 02-
05-2017, the Arbitrators have passed the 10 A.S.No.120/2017 impugned award without adhering to the principles of natural justice and fair play.
(f) That the Arbitrators have violated the fundamental principals of natural justice and have not acted in a fair manner and were biased in taking into consideration only the interest of the 1st defendant which is clearly evident from a perusal of the award which clearly indicates that all the facts and documents produced have not even looked into, let alone analyzed and the award has given a complete go by to the evidences adduced and the documents produced and has been passed on the assumptions and presumptions of the Arbitrators.
(g) That the award has been passed without examining all the issues involved and as such, the award has violated the basic principles of natural justice and the same is against to the public policy of India and contrary to the judgment passed by the Hon'ble Supreme Court of India.
(h) That the impugned award suffers from various other infirmities.
3. Therefore, by contending that the petition is filed well within limitation, the plaintiff on the basis of all the above said grounds and other various grounds set out in the petition filed by him has sought for setting aside the impugned arbitral award dtd.21-06-2017 passed by the panel of Appellate Arbitration Tribunal constituted by the 2nd defendant by calling for the records from 2nd defendant and to allow the claim made by him along with an order for refund of entire fees paid at the initial Arbitration and Appellate Arbitration Tribunal to the 2nd defendant.
11 A.S.No.120/20174. After service of summons, both the defendants have appeared and filed their objections opposing the present arbitration suit and sought for dismissal of the same. The 1st defendant has contended that the present suit has been filed by the plaintiff under the provisions of Sec.34(2)(a)(v) and (ii) of Arbitration and Conciliation Act of 1996 and as per the provisions of Sec.34(2)(a)(v), the award can be challenged if 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 Part I of Arbitration and Conciliation Act of 1996, from which the parties cannot derogate or failing such agreement, was not in accordance Part I and as per Sec.34(2)(a)(ii), if the arbitration agreement is not valid under the law to which the parties have subjected to it or failing any indication thereon, under the law for the time being in force, then the arbitration award could be set aside. But in the present case, the plaintiff has not made out a case both under Sec.34(2)(a)(v) and (ii) of Arbitration and Conciliation Act of 1996 and hence, on this ground alone, the suit of the plaintiff is liable to be dismissed. The defendant No.1 has further contended that the plaintiff's intention is to obstruct and protract the proceedings and drag it to a frivolous litigation. It further contended that the plaintiff in the year 2009 registered with it as a constituent for trading in both the segments of NSE and had executed and delivered to it regulatory prescribed documents, including the Client Registration 12 A.S.No.120/2017 form, the Member Client Agreement, the Risk Disclosure documents and fulfilled all the other documents being the proof of identity and address of the plaintiff also came to be registered for trading in BSE. It further contended that the plaintiff being a Development Officer in LIC of India, Arsikere Branch had opened a trading account with Bengaluru Stock Exchange Financials earlier to the opening of account with it and had a huge trading experience in trading and financial aspects of Stock Market and has invested Rs. 8,27,382/- from 20- 07-2009 to 16-02-2010 for purchase of shares in the NSE cash, BSE and trades in Commodity segment. It further contended that the plaintiff has carried out a trade transaction during the years 2009-2011 and thereafter, in the year 2014, he raised a complaint of before NSE IGRP by making following allegations and claims (1) trades were executed without authorization/ consent for purchase or for sale up to about Rs. 45 crores which were done and that sub-broker is not found and that on 01-08-2013, he wrote a letter to the office of Broker in Hubli and Mumbai and that he has not received any response so far, (2) claims amount of Rs. 90,93,582/- (3) Sub-broker claimed an amount of Rs. 5.75 lakhs as margin on account of client code A43975 which does not pertain to him and that the shares were sold to adjust this margin, (4) for 1½ years, the sub- broker did not respond to his calls, (5) no dividend/payout was received by him, (6) wants 13 A.S.No.120/2017 statement of account since beginning and (7) dealings were in commodity for which he has not given authority.
5. The 1st resondent further contended that the NSE IGRP took the complaint of the plaintiff, conducted the detailed enquiry, summoned the documents and records pertaining to the dispute raised by the plaintiff and passed the order holding that allegations with with regard to sale of shares is not admitted and as regards his complaint for transaction in commodities, he is advised to approach appropriate authority for redressal and pursuant to the orders of the NSE IGRP dtd.30-05- 2014, the plaintiff has invoked the Arbitration clause and challenged the order passed by NSE IGRP by filing a statement of claim dtd.22-09-2016, which was registered as Arbitration Matter (A.M.) No.F&O/B0009/2016 and after issuing notice to it, both were heard, documents were summoned, opportunities were accorded to file rebuttal/response to the claim and thereafter, the Arbitrators dismissed the claim of the plaintiff herein and being aggrieved against the said award, the plaintiff has challenged the same before the Appellate authorities in appeal bearing Appeal (A.M.) No.F&O/B-009/2016 and during the course of hearing, the appellate Arbitrators have summoned the additional documentary evidence from it like certificate of bulk mailers, all contract notes, DP holding statements with date of posting, confirmation as to which office was handling the dispatch of contract notes, complete SMS log, Voice recordings on order including F&O and change of address of client from 14 A.S.No.120/2017 Arsikere to Mysore and after giving personal hearing and opportunity to submit objection, rebuttal statement, counter to rebuttal statement and taking on record the additional documents, the Appellate panel of Arbitrators have passed the impugned award and while passing the impugned award, the Appellate Arbitration Tribunal has also overruled the challenge made by the plaintiff regarding the appointment of Arbitrators and also the other grounds raised by him before this Court. As such, the allegations made by the plaintiff against it which have been rejected by NSE IGRP, Arbitrator and Appellate Arbitrators by accepting the documentary evidence submitted by it, clearly disprove the allegations made by the plaintiff on unauthorized trade, illegal transfer of funds, collecting excess brokerage, delayed payment charges, etc. and therefore, there is no illegality in the impugned award passed by the learned Appellate Arbitration Tribunal and since the scope of challenge to the arbitration award under Sec.34 is very much limited and supervisory in nature, no grounds have been made out by the plaintiff to interfere with the impugned award passed by the learned Appellate Arbitration Tribunal and therefore, the same needs to be dismissed and accordingly, the 1st defendant sought for dismissal of the suit.
6. The 2nd defendant by submitting its objections with respect to the allegations leveled against it in appointment of Arbitrators contended that the allegations leveled against it are all false and frivolous and that the 15 A.S.No.120/2017 entire process of selection of Arbitrators is as per SEBI circular dtd.18-03-2013, which is fully automatic process and the 2nd defendant has no say to it and by producing the said circular dtd.18-03-2013, it further contended that the names of the Arbitrators provided by both the plaintiff and defendant No.1 in the appeal were different and in such cases, as per the above said circular, the selection of the Arbitrators was done through automatic process, wherein neither of the parties to the arbitration nor the concerned 2nd defendant is directly involved. It further contended that there is no cause of action for the plaintiff to seek any relief against it and as such, the petition against it is liable to be dismissed and therefore, sought for dismissal of the same.
7. All the counsels have filed their written arguments and the counsel for the plaintiff has also filed written reply arguments. The counsel for defendant No.1 has also filed memo with decision. Perused the records, the written arguments filed by both plaintiff and defendants No.1 and 2, written reply arguments and also the decision relied by defendant No.1.
8. The following points arise for my consideration:
1. Whether the plaintiff has established that the facts and circumstances of this case attract the provisions of Sec.34(2)(a)(v) & 34(2)(b)(ii) of The Arbitration and Conciliation Act, 1996?
2. Whether the impugned award passed by the Appellate Arbitral Tribunal in Appeal 16 A.S.No.120/2017 Matter (A.M) No.F&O/B-0009/2016, dtd.21-06-2017 is liable to be set aside?
3. What order?
9. On the basis of the materials placed on record, my answers to the above points are as under:
Point No.1: In the negative.
Point No.2: In the negative.
Point No.3: As per the final order for the following:
REASONS
10. POINT NOS.1 & 2: Since, these points are interlinked with each other and discussion on one point has its direct bearing on the discussion on another point, to avoid repetition of facts, I have taken these two points jointly for discussion.
11. This arbitration suit arise out of the arbitration award passed by the learned Appellate Arbitration Tribunal in the matter of Arbitration under the Bye Laws, Rules and Regulations of the National Stock Exchange of India Ltd., where under the mechanism of Institutional arbitration has been set up in respect of the dispute arising between the Trading Members interse and between the Trading Members and constituents arising out of or, in relation to dealings, contracts and transactions made subject to the Bye-Laws, Rules and Regulations of the Exchange or with reference to anything incidental thereto or in pursuance thereof or relating to their validity, construction, 17 A.S.No.120/2017 interpretation, fulfillment or the rights, obligations and liabilities of the parties thereto. As per the said Bye laws, any such dispute shall be referred to the Investor Grievance Redressal Panel (IGRP) for conciliation by the Exchange by adopting such procedures as may be prescribed by it under the Chapter XI of National Stock Exchange of India Limited Bye-Laws. Under the said Bye- Laws, any person aggrieved by the directions passed by the IGRP may seek for a reference to Arbitration Panel who shall adjudicate the claims of the parties in terms of the Arbitration and Conciliation Act, 1996 and the Bye- Laws of National Stock Exchange of India Limited and shall pass the award. Under the said Bye-Laws, there is a provision for further appeal to the Appellate Arbitration Tribunal consisting of 3 arbitrators against the award passed by the panel of Arbitrators, which shall deal with the matter in accordance with the Bye-Laws and Arbitration and Conciliation Act, 1996 and against the said award passed by the Appellate Arbitration Tribunal, there is a further scope for challenging the said arbitral award under Sec.34 of Arbitration and Conciliation Act, 1996. This is under these provisions, the present petition is filed before this Court challenging the award passed by the learned Appellate Arbitration Tribunal consisting of 3 arbitrators.
12. In the light of the above said facts and circumstances which made the plaintiff to file this petition and keeping the provisions of Sec.34(2) of Arbitration and Conciliation 18 A.S.No.120/2017 Act of 1996 and scope of interference by this Court in mind, if the impugned award passed by the Appellate Arbitration Tribunal dtd.21-06-2017 is carefully perused, this Court does not find any illegality or irregularity in the award passed by the learned Appellate Arbitration Tribunal. The plaintiff has challenged the impugned award mainly on two grounds, one under Sec.34(2)(a)(v) and the other under Sec. 34(2)(a)(ii) of Arbitration and Conciliation Act of 1996. Sec.34(2)(b)(v) of Arbitration and Conciliation Act of 1996 deals with setting aside the arbitration award if this Court is satisfied that the party making the application furnishes proof that the composition of the arbitral tribunal or the arbitral procedure is not in accordance with the agreement of the parties, unless such agreement was in conflict with the provision of part-I of Arbitration and Conciliation Act of 1996, from which the parties cannot derogate or failing such agreement, was not in accordance with the said part. Secondly, the plaintiff has challenged the impugned award under Sec.34(2)(b)(ii) which provides for setting aside the arbitral award if the Court finds that the arbitral award is in conflict with the public policy of India.
13. To substantiate the ground under Sec.34(2)(a)(v), the plaintiff has mainly contended that as per the circular issued by the SEBI, he was to select the Arbitrators in the panel of list of his choice and file the same in Form No.III and accordingly, he has filed the Form No.III by 19 A.S.No.120/2017 selecting the names of Hon'ble Justice Sri.Ramachandra Rao Gururajan, Mr.K.P.Rao, Mr.H.M.A.Khan, Mr.G.V.Srinivasa Murthy and Mr.B.R.Sudhakar as the Arbitrators of his choice and the 2nd defendant ought to have selected any 3 among them as Arbitrators, but the 2nd defendant without selecting any 3 of them has appointed 3 other Arbitrators whose names were not suggested by him and thereby in the appointment itself the 2nd defendant shown favorism to 1st defendant and when the said act is questioned, the 2 nd defendant has tried to give explanation that the selection was as per SEBI circular by automatic process.
14. It is the further case of the plaintiff that the automatic process of appointment of Arbitrators should have been done by the 2nd defendant only in case of failure on his part to chose the Arbitrators from the common pool as per paragraph No.2 of the SEBI Circular dtd.18-03-2013 and since he has chosen the names of Arbitrators from among the said common pool, the 2 nd defendant ought to have appointed any of the three persons mentioned by him in Form No.III as Arbitrators and since the 2 nd defendant has appointed all together different three persons as Arbitrators other than the persons mentioned by him in Form No.III, the very appointment of the Arbitrators by the 2nd defendant itself is erroneous and unfounded one and that the 2nd defendant had not authority to appoint the Arbitrators under the automatic process unless the enabling paragraph No.2 is operative.
20 A.S.No.120/2017It is his further contention that as per the provisions of said circular, he has challenged the very appointment of the Arbitrators by filing memo dtd.19-04-2017, 24-04- 2017 and 02-05-2017 and despite filing the said memos, the Appellate Arbitration Tribunal have passed the impugned award and dismissed the appeal preferred by him by acting in a partisan and biased manner taking into consideration only the interest of the 1st defendant.
15. The said contention of the plaintiff has been countered by the 2nd defendant by contending that as per the provision of paragraph No.2 of the said circular, the 2 nd defendant could have appointed the Arbitrators as per the choice of the client (plaintiff ) and trading member cum stock broker or clearing members( 1 st defendant) only if both of them have suggested common person to be appointed as Arbitrators in their respective forms filed by them and since both the plaintiff and the 1 st defendant have suggested all together different names in their respective Form No.III and IV, as per the enabling paragraph No.2 of the circular issued by SEBI dtd.18-03- 2013, it has appointed the Arbitrators by adopting the automatic process, wherein neither the parties to the arbitration i.e. the plaintiff and the 1 st defendant being the client and member nor the 2nd defendant being the concerned stock exchange will be directly involved in appointing the said Arbitrators and the whole process of appointing the Arbitrators will be based on the randomized, computer generated selection of Arbitrators 21 A.S.No.120/2017 from the list of Arbitrators in the common pool and as such, the appointment of the Arbitrators made by the 2nd defendant cannot be termed as without authority or illegal.
16. A perusal of the Form No.III filed by the plaintiff discloses that Hon'ble Justice Sri.Ramachandra Rao Gururajan, Mr.K.P.Rao, Mr.H.M.A.Khan, Mr.G.V. Srinivasa Murthy and Mr.B.R.Sudhakar were nominated by him as Arbitrators, whereas the defendant No.1 by filing its Form No.IV has made a choice of Arbitrators by referring to the names of Sri.B.P. Rao, Sri.R.Mohan, Sri.A.V.Murlidharan, Sri.K.K.Srinivasan and Sri.Goutham Sarkar. As per the note No.(d) of Form No.III, Sl.No.4 with head note, choice of Arbitrators, r/w the enabling para-2 of the circular dtd.18-03-2013 issued by the SEBI clearly discloses that if the client and member i.e. the plaintiff and 1 st defendant failed to chose the Arbitrators from the common pool, the Arbitrators will be chosen by an automatic process, wherein neither the parties to the arbitration nor the concerned stock exchange will be directly involved. Admittedly, plaintiff and 1st defendant have not suggested the names of common Arbitrators in their respective forms No.III & IV. Since the words used in enabling para-2 of Circular are "if the client and member fail to chose the Arbitrators from the common pool, the Arbitrators will be chosen by an Automatic Process", the same gives a meaning that both plaintiff and defendants should have suggested the 22 A.S.No.120/2017 common names in their respective forms to be appointed as Arbitrators and since there was no consensus ad-idem between them, the 2nd defendant has chosen the same by automatic process as per Circular issued by SEBI. This Court does not find any illegality committed by 2nd defendant in appointment of the learned panel of Arbitrators and the plaintiff except making allegation against defendant No.2, has not furnished the proof of illegality committed by the defendant No.2 in appointing the Learned Arbitrators. Therefore, at any stretch of imagination, it cannot be held that the appointment of the panel of Arbitrators by the 2 nd defendant is without authority and that the composition of the arbitral tribunal was not in accordance with the agreement of the parties as stated in Sec.34 (2)(a)(v) of Arbitration and Conciliation Act of 1996.
17. Now after having held that the appointment of the Arbitrators is in accordance with the provision of law, the only possible criteria available for the plaintiff to prove that the impugned award passed by the Appellate Arbitration Tribunal is illegal would depend upon the plaintiff proving the another aspect of Sec.34(2)(a)(v) that the arbitral procedure adopted by the Appellate Tribunal was not in accordance with the agreement of the parties unless such an agreement was in conflict with a provision of Part-I of the Arbitration and Conciliation Act of 1996 from which the parties cannot derogate or failing such agreement, was not in accordance with the 23 A.S.No.120/2017 provisions of Arbitration and Conciliation Act of 1996. If the said aspect has to be proved, the plaintiff has to show that the Appellate Arbitration Tribunal has not followed the procedure as per the terms of the agreement or as per the provisions of the Arbitration and Conciliation Act of 1996. To prove the said aspect, it has to be demonstrated before this Court that the Arbitrators have not acted in fair manner and that they were biased against him and that they were not independent and impartial and thereby, the learned Appellate Arbitration Tribunal has not followed the procedure as per provisions of Arbitration and Conciliation Act of 1996. A perusal of the entire records placed before the Appellate Arbitration Tribunal as well as the records placed before this Court does not show that the Learned Arbitrators were partial and biased against the plaintiff. It is to be noted that the plaintiff has also challenged the appointment of Arbitrators before Learned Appellate Arbitration Tribunal by filing memos dtd.19-04-2017, 24- 04-2017 and 21-05-2017 and as per Sec.13(3) and (4) of Arbitration and Conciliation Act of 1996, the learned Appellate Arbitration Tribunal has before dealing with merit of the case decided the challenge made by plaintiff and rejected the challenge made by plaintiff which clearly shows that they have conducted the arbitration proceedings as per the procedure prescribed in the Arbitration and Conciliation Act. Absolutely no materials have been placed by the plaintiff to caste aspersion on the integrity of the Arbitrators or regarding the 24 A.S.No.120/2017 independence or impartiality of the said Arbitrators which is the only criteria to be taken into consideration for a challenge of appointment of Arbitrators as per Sec.11(8b) of the Arbitration and Conciliation Act of 1996. Though, it has been contended by the plaintiff that he has questioned the very appointment of the Arbitrators by filing protest memos before the Appellate Arbitration Tribunal on 19-04-2017, 24-04-2017 and 02- 05-2017, he has not even produced any such memos before this Court to show that he had made such representations.
18. However, a perusal of the records submitted by the defendant No.2 discloses that the plaintiff has filed a memo on 07-04-2017 wherein he has raised such objections to the present panel, but he has not raised such objection in memo dtd.31-03-2017 when notice of appointment of Arbitrators fixing of initial date of arbitration was fixed by learned Appellate Arbitration Tribunal nor has he produced any such documents which castes aspersion on the integrity of the Arbitrators who have been appointed by the 2nd defendant. The learned Appellate Arbitration Tribunal while dealing with the said objections raised by the plaintiff have overruled the said objections raised by the plaintiff and held that the 2nd defendant has followed the due process prescribed for appointment of the Arbitrators and the appellate arbitration proceedings which is triggered by Appellant's application should not be obstructed or 25 A.S.No.120/2017 delayed and the appellant by not availing the opportunity of personal hearing has denied himself an opportunity to advance submissions in support of his application and also oppose the defence of the respondent to the extent they are opposed to the facts. They have also made specific observations that since the present arbitration proceedings was an institutional Appellate Arbitration proceedings, the specific regulations regulate the appointment of Arbitrators and the only requirement being obtaining disclosure regarding independence, impartiality of the arbitrators viz. Sec.11(6) and 11(8b) of Arbitration and Conciliation Act of 1996 and since the plaintiff herein has failed to prove the contents of this objections, the objections filed by him regarding the appointment of Arbitrators are rejected. Therefore, in absence of any proof furnished by the plaintiff at any stretch of imagination, it cannot be held that the Appellate Arbitration Tribunal has not followed the terms of the arbitration agreement and the provisions of Part-I of Arbitration and Conciliation Act of 1996 while conducting the arbitration proceedings, thereby attracting the provisions of Sec.34(2)(a)(v) of the Arbitration and Conciliation Act of 1996 to set aside the impugned award passed by the learned Appellate Arbitration Tribunal.
19. The other ground of challenge made by the plaintiff is under Sec.34(2)(b)(ii) of Arbitration and Conciliation Act of 1996, which empowers this Court to set aside the 26 A.S.No.120/2017 arbitral award if the plaintiff based on the available records placed before this Court shows that the arbitral award is in conflict with the public policy of India. The explanation No.1 of Sec.34(2)(b)(ii) gives a clarification that an award is in conflict with the public policy of India only if (1)the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81 or (2) that it is in contravention of the fundamental policy of Indian Law or (3) that it is in conflict with the most basic notions of morality or justice and in explanation No.2, it has been further clarified that the test as to whether there is a contravention of policy of Indian Law shall not entail a review under the merits of the dispute.
20. In the recent decision reported in (2015)3 Supreme Court Cases 49 in the matter between Associate Builders Vs. Delhi Development Authority, the Hon'ble Supreme Court while following the decision rendered by it in Oil and Natural Gas Corporation Limited Vs. Saw Pipes Limited explained each of heads of public policy, under which, an arbitration award can be set aside has held as follows:
none of the grounds contained in S.34(2)(a) deal with the merits of the decision rendered by an arbitral award - It is only when arbitral award is in conflict with public policy of India as per S.34(2)(b)(ii), that merits of an arbitral award are to be looked into under certain specified circumstances, as given below.
- Heads of "Public Policy of India" (with their sub- heads) are:27 A.S.No.120/2017
I. Fundamental Policy of Indian Law: (i) Compliance with statutes and judicial precedents; (ii) Need for judicial approach; (iii) Natural justice compliance;
(iv) Wednesbury reasonableness;
II. Interest of India;
III. Justice or Morality;
IV. Patent Illegality: (i) Contravention of substantive law of India; (ii) Contravention of A & C Act, 1996;
(iii) Contravention of the terms of the contract.
- When any of the heads/sub-heads of test of "public policy" is applied to an arbitral award, Court does not act as Court of appeal - Interference is permissible only when findings of arbitrator are arbitrary, capricious or perverse, or when conscience of court is shocked, or when illegality is not trivial but goes to root of the matter - Not when merely another view is possible-
Furthermore, arbitrator being ultimate master of quantity and quality of evidence while drawing arbitral award, award based on little evidence or on evidence which does not measure up in quality to a trained legal mind cannot be held invalid.
21. Keeping the above principles laid down by the Hon'ble Supreme Court in mind, if the impugned award passed by the learned Appellate Arbitration Tribunal is carefully perused, this Court does not find any of the ingredients as mentioned in Sec.34(2)(b)(ii) and the explanation No.1 therein as explained by the Hon'ble Supreme Court. Even though the plaintiff has not specifically mentioned the specific provision in the petition as to whether he is invoking the provisions of Sec.34(2)(b)(ii), the grounds narrated in the petition makes it clear that he has challenged the impugned award under the above said provision and not under Sec.34(2)(a)(ii) of Arbitration and Conciliation Act of 1996. Except stating that the impugned award passed by the learned Appellate Arbitration Tribunal is not fair and that the panel of 28 A.S.No.120/2017 Arbitrators have acted in a partisan and biased manner by taking into consideration only the interest of the 1 st defendant and that there was a total go by given by the panel to the principles of natural justice and that the appellate tribunal has passed the impugned award based on the assumptions and presumptions without looking into the material documentary evidence available on record and thereby, the said impugned award passed is in conflict with the public policy of India, absolutely nothing is brought to the notice of this Court in support of the said allegations made by him in the materials available on record to show that the impugned award passed by the learned Appellate Arbitration Tribunal is in conflict with the public policy of India.
22. In the written arguments submitted on behalf of the plaintiff, it has been stated that generally the Arbitrators after passing an award in a proceedings, instructs the party to produce the stamp of the certain sum as per the claim and the party will have to produce the stamp before the Arbitrators for engrossing the said award, but perusal of the impugned award passed by the learned Appellate Arbitration Tribunal discloses that the same has been engrossed on a stamp paper which has been purchased earlier to the date of passing the impugned award, which clearly demonstrates that highest level of procedural irregularity and the collusion on the part of the Arbitrators and the 1st defendant, rendering the award a nullity. It has been further stated that the 29 A.S.No.120/2017 defendant No.1 has produced the receipts for having engaged in the business, but surprisingly the defendant No.1 has not produced the contract notes issued by the plaintiff, which clearly goes to show that the respondent has been indulged in trading without the instructions and contract note from him, which led him to suffer heavy loss and when this act of the defendant No.1 has been questioned by him right from the beginning, the defendant No.1 came forward with a proposal of settling the matter through arbitration, but the arbitration panel failed to deliver justice to him, due to which he preferred an appeal before the Appellate Arbitration Tribunal and requested for appointment of the Arbitrators from among the 5 persons named by him, which was also surprisingly not considered by the 2nd defendant for the best reason known to it and appointed the Arbitrators, whose names were not suggested by him, against which, he filed an application agitating the same and finally boycotted the entire proceedings and along with the said written arguments, he also caused a notice under Order XII Rule 8 of C.P.C. calling upon the 1 st defendant to produce the contract notes executed for buying and selling the equity shares and commodity.
23. This Court while considering the ground No.1 of challenge regarding the aspect as to whether the constitution of arbitration panel was in accordance with the contract of arbitration has already dealt with the contentions raised by the plaintiff regarding the 30 A.S.No.120/2017 appointment of the Arbitrators who constituted the Appellate Arbitration Tribunal and held that there was no illegality or irregularity in the constitution of the Appellate Arbitration Tribunal. Leaving that part of the arguments, if the other part of the arguments of the counsel for the plaintiff is taken into consideration and the objections filed by the 1st defendant in respect of the said notice taken by the plaintiff under Order XII Rule 8 of C.P.C. is also taken into consideration, as rightly contended by the 1st defendant, it has to be first kept in mind by this Court that this Court is not acting as an Appellate Court sitting in appeal over the impugned award passed by the learned Appellate Arbitration Tribunal or that this Court is not sitting as a Civil Court of first instance recording the evidence of the parties and to give its findings, but on the other hand, this Court sitting as a supervisory Court has got a limited scope to see whether the impugned award passed by the Appellate Arbitration Tribunal is hit by any of the provisions contained in Sec.34 of the Arbitration and Conciliation Act of 1996 and nothing more. Hence, this Court is of the opinion that the notice taken by the plaintiff under Order XII Rule 8 of C.P.C. is not maintainable and the same cannot be considered.
24. It is to be noticed that the Appellate Arbitration Tribunal even in absence of the participation of the plaintiff, has called the 1st defendant for additional evidences to be submitted within 12 days from the date of hearing to 31 A.S.No.120/2017 examine the correctness of the oral submissions made likr certificate of bulk mailers, all contract notes, DP holding statement with date of posting, confirmation as to which office was handling the dispatch of contract notes, complete SMS log, voice recordings on orders including F&O and change of address of the plaintiff from Arsikere to Mysore. Based on the said direction issued by the learned Appellate Arbitration Tribunal, the defendant No.1 herein by its letter dtd.25-05-2017 produced the said documents along with its submissions and after going through all the said documents, the learned Appellate Arbitration Tribunal has given a specific finding that they do not find any illegality in the orders passed by the Arbitration Tribunal and that there is no need to review the observations of the Arbitration Tribunal as the appellant being educated adequately exposed to securities market for decades and equipped with the administrative and commercial knowledge of his vocation, should have exercised due diligence in responding to transactions which are at variance, if any, of the instructions or intent expressed by him and time being the essence of such actions, he ought to have taken the caution immediately and that the contract notes, proof of dispatch of contract notes, SMS logs, DP holding statements, voice recordings and other documents adequately explained that the transactions were within his knowledge and therefore, by rejecting his appeal, they have passed the impugned award which appears to be rendered with all fairness and equity.
32 A.S.No.120/2017Therefore, the contentions of the plaintiff that the impugned award passed by the learned Appellate Arbitration Tribunal is in conflict with the public policy of India and that the same needs to be set aside falls to ground.
25. That apart, none of the requirements as explained in explanation No.1 of Sec.34(2)(a)(ii) or the grounds set out by the Hon'ble Supreme Court of India in the above decision reported in (2015)3 Supreme Court Cases 49 in the matter between Associate Builders Vs. Delhi Development Authority also does not exists to hold that the impugned award passed by the learned Appellate Arbitration Tribunal is in conflict with the public policy of India. Therefore, in view of the failure of the plaintiff to substantiate the grounds set out by him in this petition for setting aside the impugned award passed by the learned Appellate Arbitration Tribunal, there is no hesitation for this Court to answer points No.1 and 2 in the negative. Accordingly, I answer points No.1 and 2 in the negative.
26. POINT NO.3: In view of the forgoing discussions and my answers to points no.1 & 2 in the negative, the suit is liable to be dismissed. In the result, I proceed to pass the following:
ORDER The arbitration suit filed by the plaintiff is hereby dismissed with costs.33 A.S.No.120/2017
The award passed by the Appellate Arbitration Tribunal in Appeal (A.M.)No. F&O/B-0009/2016 dtd.21-06-2017 is hereby confirmed.
Office is directed to send back the arbitration records to 2nd defendant.
(Dictated to the Judgment Writer on computer, corrected, signed and then pronounced by me in the open Court on this THE 28 th DAY OF FEBRUARY 2020 ).
(MAANU K.S.), XXX ADDL. CITY CIVIL & SESSIONS JUDGE, BENGALURU CITY.