Delhi District Court
Smc Global Securities Ltd ( Us 34) vs Aakash Goel on 17 February, 2024
DLND010007282015
IN THE COURT OF ADDITIONAL DISTRICT JUDGE 01,
NEW DELHI DISTRICT, PATIALA HOUSE COURTS,
NEW DELHI
Presided over by : MS. VIJETA SINGH RAWAT (DHJS)
Arbitration No. 11433/16
SMC Global Securities Ltd.
(Through Its Authorised Representative)
Having its Registered Office at :
11/6B, Shanti Chambers,
Pusa Road, New Delhi - 110005
......... Petitioner
Versus
Sh. Aakash Goel
33, Regal Building,
Sansad Marg, New Delhi 110001
........ Respondent
Suit presented On : 17.07.2015
Arguments Concluded On : 08.11.2023
Judgment Pronounced On : 17.02.2024
JUDGMENT
1. This petition u/s 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996 (hereinafter, referred to as 'The Act") has been filed by the petitioner / the trading member (hereinafter, referred to as the 'TM') against the respondent / registered constituent (since 2004) trading in different segments of the Arbitration No. 11433/16 SMC Global Securities Ltd. Vs. Aakash Goel Page no. 1 of 13 exchange including derivatives, challenging the order dated 15.04.2015 of the Ld. Appellate Tribunal upholding award dated 15.12.2014 of the Ld. Sole Arbitrator allowing a claim of Rs.5,57,000/ with interest to the respondent/ constituent.
2. In brief, the facts are that the respondent / constituent opened his trading account in the NSE - F&O segment on 22.02.2013 and was allotted Unique Client Code PGEA02 for carrying out transactions in the exchange. The membership was to be governed by the member client agreement and risk disclosure documents executed between the parties. The respondent / constituent filed a claim alleging that TM had squared off its position without making adequate margin calls and for making unauthorized transactions on 16.05.2014. Per contra, the respondent denied the charges of the respondent / constituent and explained the action of squaring off being valid on the basis of real time factors and since the market was volatile and no funds were forthcoming. It is stated that the respondent / constituent had short sold his position on 2122.04.2014 with expiry on 29.05.2014, however, on account of results of general election being declared on 16.05.2014, contrary to the respondent / constituent's expectations, the market turned bullish and as, the respondent / constituent would have suffered huge loss, in order to protect him from the loss, the position was squared off. It was also claimed that a call was given to the applicant before taking action. It was also insisted that the respondent / constituent being a professional in the aforementioned trading was aware of the Arbitration No. 11433/16 SMC Global Securities Ltd. Vs. Aakash Goel Page no. 2 of 13 risks and it was his duty to continuously monitor the market value of the securities and provide the deficit margin.
3. Ld. Sole Arbitrator vide his award dated 15.12.2014, observed as under :
"I have considered the averments and written submission of both the parties carefully. What the Respondent has stated about the rights of the TM cannot be denied; they are the standard rights that are available with every stock broker / TM. The issue really is to what extent they are germane to the grievance of the Applicant. It is not as if once an account in the F&O Segment is opened, the Constituent automatically abdicates or loses all his rights over his account. The TM may, in his wisdom, clean the margin shortfall, depending upon his appreciation of the prevailing risks in the market. However, no where does the rights of the broker / TM provide that such action can be taken entirely suo motu without first informing the constituent. Whatever freedom that the TM has is consequent upon the Constituent being first informed. This would also be in consonance with principles of natural justice.
During the hearing, after pointing out the provisions in the "Policy and Procedures the Respondent has stated that they did not inform the Applicant, but had informed his father. In our considered opinion, the need to inform the Constituent first is absolute and cannot be taken away from him. Informing his father cannot be deemed to be a permissible alternative to informing the client / constituent. Even during the discussions in the IGRP, it was the unequivocal finding of the Member that the TM has squared off the position without prior intimation or sufficient notice to the Constituent. It must be remembered that this account being a off line account, a margin call is a must.
In so far as the claim amount is concerned the Applicant had stated during the hearing that the amount was computed on the basis of the straight value of trades without authorization. Either this claim is to be outright denied, or as in this case, if mistakes are pointed out, then, assuming without admitting the correctness of the case, what should be the correct amount to be claimed, can be computed. Merely denying the claim as has been done by Arbitration No. 11433/16 SMC Global Securities Ltd. Vs. Aakash Goel Page no. 3 of 13 the Respondent is not enough.
Given the aforestated context, I am of the opinion that the Applicant has presented a valid case in his favour. In the result the Application succeeds. The Respondent to pay the Applicant the sum of Rs.5,57,000/, within 15 days of this order. A delay will attract a penal interest of 12%. No other order as to costs."
4. The petitioner appealed against the award and the Ld. Arbitral Tribunal upheld the award holding as under "
".... In the absence of any document showing maintenance of given percentage to carry the position, the squaring off is without rights of the TM. The claim of the TM that the telephone calls made, on the morning of 16th May 2014, to the father of the Respondent were the margin calls is not acceptable in absence of recording of the conversations."
5. Now, by way of the present petition, the award of the Ld. Appellate Tribunal is under challenge for being against public policy of India on account following broad reasons:
(a) That the Ld. Arbitral Tribunal has acted in non compliance of Section 28(a) of the Act as it ignored circular no.
NSE/INSV/2561/2 dated 20.01.2014 issued by NSE making it mandatory for the TM to collect initial margins from its respective constituents on upfront basis and which also extends to the currency and derivative segments. Thereafter, it is averred that a certificate from AVP Risk Management and Operations was also submitted to explain and clarify the deficit of margin and yet, the same was ignored by the Ld. Arbitrator. To allow the award to be upheld would send a wrong precedent as it would make taking risk control measures difficult by the trading member.
Arbitration No. 11433/16SMC Global Securities Ltd. Vs. Aakash Goel Page no. 4 of 13
(b) That the award was obtained on concealment of facts as initially, the constituent denied receiving margin call before squaring off the position , at the appellate stage, the petitioner, produced the call record and then, father of the respondent / constituent (also his authorized representative) acknowledged the calls and admitted that 04 lots of NIFTY were sold as per his consent.
(c) The Ld. Appellate Tribunal has made an incorrect observation that the affidavits of the parties qua the margin call are contradictory.
(d) That the Ld. Arbitral Tribunal has ignored the Exchange dynamics and real time basis margin requirements to appreciate whether sufficient time for deposit of margin was given or not.
(e) That the Ld. Arbitral Tribunal ignored the request of considering the view of the exchange on deficit of margin and also misunderstood the concept of notional loss. During course of arguments, grant of notional costs has also been stated to be against NSE rules.
(f) That the Ld. Arbitral Tribunal has not taken into account relevant evidence of margin calls.
(g) That the Ld. Arbitral Tribunal has not applied its mind to the dispute and has merely adopted the findings of another tribunal in a similar matter pertaining to the mother of the respondent / constituent.
Arbitration No. 11433/16SMC Global Securities Ltd. Vs. Aakash Goel Page no. 5 of 13 REPLY
5. Preliminary objections have been taken that the petition is without due authorization and that it is barred by limitation.
6. On merits, allegations have been denied and it is submitted that "telephone call" cannot be substituted for "margin call". It is maintained that no margin call was made. It is stated that the findings of the Ld. Arbitrator and the Ld. Arbitral Tribunal are speaking in nature and do not warrant interference. It is denied that there has been any violation of public policy.
ARGUMENTS
7. It has been argued on behalf of the petitioner that the Ld. Arbitral Tribunal has ignored the SEBI byelaws by granting notional loss. Thereafter, it has also been argued that the allegation that the squaring off was done without intimation to the respondent / constituent is belied by the affidavit of Sh. Neeraj Goel, father of the respondent / constituent who was also acting as his authorized representative and who clearly admitted in his affidavit that call was made and he consulted the respondent / constituent before directing closure 04 lots of NIFTY. Therefore, it has been submitted that the Ld. Arbitral Tribunal has wrongly appreciated the material on record.
8. On behalf of the respondent / constituent, it has been argued that call was never denied but only "margin call" was Arbitration No. 11433/16 SMC Global Securities Ltd. Vs. Aakash Goel Page no. 6 of 13 stated not to have been received. Further, it is stated that as per 2008 circular, the TM was required to maintain recordings of margin call records which it failed to produce. Further, it has been submitted that the grievance qua notional loss being against SEBI's guidelines was never raised before the Ld. Appellate Tribunal. Finally, it has also been submitted that even after adjustment of margin, there was positive balance in the account of the respondent / constituent and therefore, the petitioner / TM failed to justify suo moto action.
REASONING
9. Before proceeding to decide on the contentions, the Court deems it appropriate to remind itself of the scope of powers U/s 34 of the Arbitration Act. It has been very recently held in Delhi Airport Metro Express Pvt. Ltd. Vs. Delhi Metro Rail Corporation Ltd. Civil Appeal no. 5627 of 2021, Arising out of SLP (C) no. 4115 of 2019 decided on 09.09.2021 as under:
"...22. A cumulative reading of the UNCITRAL Model Law and Rules, the legislative intent with which the 1996 Act is made, Section 5 and Section 34 of the 1996 Act would make it clear that judicial interference with the arbitral awards is limited to the grounds in Section 34. While deciding applications filed under Section 34 of the Act, courts are mandated to strictly act in accordance with and within the confines of Section 34, refraining from appreciation or re appreciation of matters of fact as well as law. (See: Uttarakhand Purv Sainik Kalyan Nigam Limited. v. Northern Coal Field Limited.1, Bhaven Construction Through Authorised Signatory Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Another2 and Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran3 ).
1 (2020) 2 SCC 455 2 2021 SCC OnLine SC 8 3 (2012) 5 SCC 306 Arbitration No. 11433/16 SMC Global Securities Ltd. Vs. Aakash Goel Page no. 7 of 13
23. For a better understanding of the role ascribed to courts in reviewing arbitral awards while considering applications filed under Section 34 of the 1996 Act, it would be relevant to refer to a judgment of this Court in Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI)4 wherein R.F. Nariman, J. has in clear terms delineated the limited area for judicial interference, taking into account the amendments brought about by the 2015 Amendment Act. The relevant passages of the judgment in Ssangyong (supra) are noted as under: "34. What is clear, therefore, is that the expression "public policy of India", whether contained in Section 34 or in Section 48, would now mean the "fundamental policy of Indian law" as explained in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49:
(2015) 2 SCC (Civ) 204] i.e. the fundamental policy of Indian law would be relegated to "Renusagar" understanding of this expression. This would necessarily mean that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] expansion has been done away with. In short, Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] ,as explained in paras 28 and 29 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2) (a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in para 30 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .
35. It is important to notice that the ground for interference insofar as it concerns "interest of India" has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". This again would be in line with paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.
36. Thus, it is clear that public policy of India is now 4 (2019) 15 SCC 131 Arbitration No. 11433/16 SMC Global Securities Ltd. Vs. Aakash Goel Page no. 8 of 13 constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204], or secondly, that such award is against basic notions of justice or morality as understood in paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204]. Explanation 2 to Section 34(2)(b)
(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco [ONGC v.
Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] , as understood in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , and paras 28 and 29 in particular, is now done away with.
37. Insofar as domestic awards made in India are concerned, an additional ground is now available under subsection (2 A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within "the fundamental policy of Indian law", namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.
38. Secondly, it is also made clear that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.
39. To elucidate, para 42.1 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Para 42.2 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fairminded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if Arbitration No. 11433/16 SMC Global Securities Ltd. Vs. Aakash Goel Page no. 9 of 13 the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2A).
41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse."...
25. Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression 'patent illegality'. Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression 'patent illegality'. What is prohibited is for courts to reappreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fairminded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression 'patent illegality'...
10. At the outset, it would be relevant to mention that re Arbitration No. 11433/16 SMC Global Securities Ltd. Vs. Aakash Goel Page no. 10 of 13 appreciation of evidence is beyond the scope of petition u/s 34 of the Act. Be that as it may, the Ld. Arbitral Tribunal has considered the material and submissions produced before it qua making of "margin call" and has arrived at a reasoned finding that the respondent / constituent was not given sufficient time to make good the margin, before squaring off the position. It has also observed that margin percentage required to be maintained by the respondent / constituent to carry on the position was also not communicated. Therefore, the objection that the Ld. Arbitral Tribunal ignored the evidence qua making of "margin call"
cannot be sustained. Hence, the grievance of the petitioner that the Ld. Arbitrator and the Ld. Arbitral Tribunal failed to appreciate the deficit margin is of no consequence.
11. During the course of arguments, it has been submitted that the SEBI Byelaws have been ignored by granting notional loss. However, in rebuttal, Ld. Counsel for the respondent / constituent has argued that the argument has been raised for the first time before this Court only and it has also been submitted that loss was not notional. Relying upon Annexure III filed alongwith the arbitration application, it has been submitted that actual loss caused was about Rs.5,67,000/.
12. Ld. Arbitrator in his award dated. 15.12.2014 has observed as under :
"In so far as the claim amount is concerned the Applicant had stated during the hearing that the amount was computed on the basis of the straight value of trades without authorization. Either this claim is to be outright denied, or as Arbitration No. 11433/16 SMC Global Securities Ltd. Vs. Aakash Goel Page no. 11 of 13 in this case, if mistakes are pointed out, then, assuming without admitting the correctness of the case, what should be the correct amount to be claimed, can be computed. Merely denying the claim as has been done by the Respondent is not enough.
Given the aforesaid context, I am of the opinion that the Applicant has presented a valid case in his favour. In the result the Application succeeds. The Respondent to pay the Applicant the sum of Rs.5,57,000/, within 15 days of this order. A delay will attract a penal interest of 12%. No other order as to costs."
13. Order dated 15.04.2015 of the Arbitral Tribunal has not commented on the quantification of the claim at Rs. 5,57,000/. Even though, an objection has been taken on behalf of the respondent that the issue of notional loss was not raised before the Ld. Arbitrator or the Arbitral Tribunal, it is to be borne in mind that the objection is legal in nature and that before the Ld. Arbitral Tribunal, it had been submitted that the same is frivolous as the respondent had sought to compare the status of two different dates and of two different companies with different risk perceptions. On clarification sought, annexure III is the only basis on which quantification of loss has been done from the trading account of a different entity. Therefore, it cannot be said that the loss shown by the respondent is the actual loss suffered by him. Rather, in the considered view of this Court, it would be merely be a conjecture. Actual loss could probably have been shown by leading cogent evidence of the trading pattern of the respondent / constituent. Hence, so far as the quantum of damages is concerned, in the considered view of this Court, there has been no evidence and the finding on the quantum of damages could not have been a plausible view.
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14. Therefore, in view of the above discussion, the order of the Ld Arbitral Tribunal dated 15.04.2015 is set aside.
15. File be consigned to records.
Pronounced in open Court
on 17.02.2024 (Vijeta Singh Rawat)
Additional District Judge01,
New Delhi District,
Patiala House Courts,
New Delhi
Arbitration No. 11433/16
SMC Global Securities Ltd. Vs. Aakash Goel Page no. 13 of 13