Madras High Court
Angel Broking Private Limited vs Mrs.Purnima Sarvesh on 19 June, 2019
Author: N.Sathish Kumar
Bench: N.Sathish Kumar
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Reserved on :12.06.2019
Pronounced on :19.06.2019
IN THE HIGH COURT OF JUDICATURE AT MADRAS
CORAM
THE HONOURABLE MR.JUSTICE N.SATHISH KUMAR
Original Petition No.1014 of 2017 &
Application No.3206 of 2019
Angel Broking Private Limited,
Having its Registered Officer at
G-1, Ground Floor,
Akruti Tade Centre,
Road No.7, MIDC,
Andheri – E, Mumbai 400 093. ... Petitioner
Vs
Mrs.Purnima Sarvesh ... Respondent
Prayer :- This Original Petition has been filed under section 34 of the Arbitration
and Conciliation Act to set aside the Award passed in Arb.No.NSE/CRO.ARBN/
F&O/C-006/2017/5750 of 2017 dated 15.09.2017 posted on 26.09.2017 and
received by the petitioner on 29.09.2017.
For Petitioner : Mr.G.Surya Narayanan
For Respondent : Mr.P.V.Balasubramaniam
http://www.judis.nic.in
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ORDER
Challenge has been made against the impugned Award passed by the Arbitral Tribunal dated 15.09.2017.
2. Brief facts leading to filing of this Original Petition is as follows :
The Claimant is a registered client of the Respondent from 24th June 2016 and was allotted a unique client code P76740 by the Respondent after duly receiving the payment of the requisite upfront margin deposited as required under the NSEIL (F&O) Regulations and activation of the trading account on 27 th June 2016 and was further mapped under Mrs.Josphin J, as the Sub-
Broker/Authorized Person. They had also entered into the Trading Member and Authorized Person Agreement dated 29.04.2016 and Sub Broker/Authorized person Agreement dated 24.06.2016 for trading shares on behalf of the Claimant. After opening trading account in June 2016, the trading operations was commenced and performed for the Claimant by one Mr.Joseph Dinesh and had been carrying out trading activities as Sub Broker/Authorized Person of the Respondent on the NSE in Futures and Options segment. The agreed understanding with the respondent was that all the trades to be executed by the Respondent in the name of the Claimant would either have to be explicitly ordered by the Claimant, or else require prior intimation and authorization from the Claimant. The mode of placing orders as agreed upon between the Claimant http://www.judis.nic.in 3 and the Respondent was either through telephone or personal meeting and the arrangement was such that the concerned trades would be carried out only after obtaining the requisite authorization and thereafter the contract notes in respect of each trade would be sent across to the Claimant in digital form. Further, the digital intimation/confirmation in respect of each trade would be mandatorily intimated to the claimant through SMS on her registered mobile number. The Claimant had been proper and diligent in the operation of her trading account and had always made sure to enter into transactions only after enquiring about the margin available and confined her trading within the limits of such margins and upto December 2016, all trades from the Claimant's account had been carried out within the trading limit set out by the Claimant as per the mutual agreement between the parties. However, in December 2016, the Claimant had received an intimation through SMS and call logs that the Respondent had initiated trades which were in excess of the limits set out by the Claimant.
3. The issue was taken up by the claimant with the respondent and a meeting was held with the Respondent and Sub broker to which it was clearly set out that trades would be carried only to the extent of the maximum fixed limit of 2000 shares on inter-day basis for trades and the same stood acknowledged and accepted by the sub broker acting on behalf of the respondent vide his message on 12.12.2016 documenting the above arrangement and provided assurance of the same. On 11.01.2017, she had received messages, just prior to closing of http://www.judis.nic.in 4 the Market, the outstanding amount towards margin in respect of certain trades, which were not authorized by the Claimant. The claimant had noticed that 54000 shares were traded without any prior consent or authorization by the respondent, which was far in excess of the limit agreed. The said unauthorized trade had resulted in a net loss of Rs.51,00,760.19 to the Claimant and also the respondent debited from the Claimant's account to an extent of Rs.73,326.10 towards other charges. Immediately, the Claimant made a call to the Sub broker acting on behalf of the respondent and demanded an explanation for the same. As he gave evasive reply, the Claimant raised the dispute to the Investor Grievance Cell and the IGRP has taken the complaint on record and issued notice to the respondent on 13.01.2017. The IGRP panel after considering the submissions of the respective parties along with the evidence placed before it held that the respondent is liable for the unauthorised trade performed on 11.01.2017 and further admitted the claim of Rs.51,74,006.19 in favour of the claimant vide its Order dated 07.02.2017.
4. The contention of the respondent is that the Claimant opted to trade in NSE F & ) segments and pursuant to the same transferred 145000 shares of Karur Vysya Bank to the respondent as collateral security and margin for the purpose of trading in the securities market. The Claimant had bought securities and taken payout during the course of her trades. All the relevant entires for credits and debits consequent to the trades carried out by the Claimant are http://www.judis.nic.in 5 recorded in the ledger of the Claimant. The Claimant had executed her first trade on 10.08.2016 and the dispute raised by the claimant pertains exclusively to the transactions executed on 11.01.2017. The mode and manner of executing trades on 11.01.2017 were not in any way different from those previous trades performed under the Claimants trading account and Claimant has not disputed the same as they have ended in profit. As the sale on 11.01.2017 resulted in gross loss of Rs.51.74,006.19, the loss itself is the cause of the dispute. Further, trading in the account of the Claimant is borne out of authority and therefore there is no question of unauthorized trade in the account of the Claimant and thus the Claimant has not made out a case of unauthorized trading for entertaining the present claim. Even if it were to be assumed that the trade on 11.01.2017 were unauthorized, the Claimant is only entitled to claim a relief in the form of discharge from her liability to pay the respondent the loss resulting from the disputed trades. Hence, the respondent has made a counter claim for Rs.53,48,233.26 along with accrued interest at the rate of 18% from 11.01.2017 and prayed for dismissal of this petition.
5. The Claimant initially preferred a complaint before the IGRP and the IGRP panel passed an Order in favour of the Claimant. Thereafter, the petitioner had preferred a claim before the Arbitral Tribunal and the Tribunal has also passed the Award. As against which the present Original Petition has been filed.
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6. The following Issues have been framed for consideration by the Arbitral Tribunal :
1) Who is responsible for performing the trading operations claimants trading account with client I'd No.P76740 i.e., the Claimant's Funds and securities were required to be handled by the Respondent or the Authorized Peron/Sub Broker of the respondent?
2) Whether the disputed trades dated 11.01.2017 performed in the trading account of the Claimant under the unique Client I'd No.P76740 was authorized or not?
3) Whether Mr.Joseph Dinesh performed trading operations under the Claimant's account as the Authorized person/Sub Broker of the Respondent or as the authorized person under the terms of a private agreement with the Claimant?
4) Whether the dealings performed under the Claimants trading account are against the provisions of the NSEIL Bye- laws, Regulations and Rules and if so, who is to be held liable for the said breaches and violations?
5) Whether the Claimant is entitled to the various reliefs claimed in tis statement of claim?
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6) Whether respondent is entitled to the various reliefs claimed a Counter – claim in its Statement of defence?
7) Whether the successful party in the present arbitration proceedings is entitled for the reimbursement of the Legal fees, cost and expenses incidental to the reference?
7. The Arbitral Tribunal after analysing the entire materials and evidence has found that the respondent has failed to provide sufficient evidence to prove that the disputed trades on 11.01.2017 for 54,000 shares under the Claimant's account were performed after obtaining authorization and allowed the claims of the Claimant by upholding the Order dated 07.02.2017 of IGRP and dismissed the counter claim filed by the respondent.
8. The learned counsel appearing for the petitioner would contend that the petitioner has not authorized any agents and has not given trade authoriation to Mr.Joseph Dinesh, who happened to be the husband of Ms.Josephin, the authorized person of the respondent. The disputed transactions are obviously the result of the private dealing between the claimant and the said Joseph Dinesh. The agreement, the applicant had executed with the respondent for establishing a broker – client relation clearly prohibited the applicant from striking any separate arrangement or deals with anyone else for carrying out transactions in the account and the Claimant breached her contract with the respondent and http://www.judis.nic.in 8 also committed a breach of Trust Act. The Claimant readily claimed the profit of Rs.1,28,375/- from 8000 Bank Nifty PE traded on 11.01.2017, but wanted the respondent to compensate for the loss incurred on the Bank Nifty CE generally alleging that the trades are all unauthorized. Further, the Order passed by the IGRP has no legal sanctity as a panel constituted to mediate the dispute has no authority to pass an independent order for being relied upon by a legal machinery or functionary. If the applicant contends that her claim was allowed in full by the IGRP, then Arbitration reference cannot arise on the same cause of action for the same relief against the respondent. In any event, respondent has relinquished her claim for payment by the respondent by moving the amendment application and thereby, substantially altered the original case moved before the IGRP. There is no point now in contending that the IGRP has allowed the Claimant's claim as the claim itself no longer survives. Hence, the Award is not sustainable in law and on facts and the same has to be set aside.
9. The learned counsel for the respondent submitted that the contention of the petitioner that they are unaware of and unrelated to Mr.Joseph Disnesh is clearly false and nothing more than an afterthought to raise a sham defence in the present proceedings. On the contrary, since the respondent had themselves produced documents containing the signature of the said Joseph Dinesh including the signature as an authorized person and the same constitute an admission on the part of the petitioner regarding the authorization given to the http://www.judis.nic.in 9 said Dinesh to act on their behalf, the petitioner is now estopped from denying knowledge of the said authorization merely for creating a sham defense in the present proceedings. Further, the petitioner has not raised any such defense regarding not knowing or authorizing the said person before the IGRP proceedings and hence, the respondent is liable for the unauthorized trades executed by the said person from the Claimant's account. Further the crux of the entire dispute revolves around the illegal and unlawful debit entry created by the Respondent over the client account and in such circumstances, there is no amount due from the Claimant to the respondent and any loss arising out of the impugned transactions must be borne by the respondent since the same arose on account of trades which were executed without the consent of the Claimant. Therefore, when the Claimant is not liable for any claim and the petitioner is not entitled for any counter claim. In support of his contentions he relied on the following judgments Associate Builders Vs. Delhi Development Authority reported in 2015 (3) Supreme Court Cases 49 Fiza Developers and Inter-Trade Private Limited Vs. AMCI (INDIA) Private Limited and another reported in 2009 (17) Supreme Court Cases 796 M/s.Sudarsan Trading Co. Vs. Government of Kerala and another reported in 1989 (2) Supreme Court Cases 38 Steel Authority of India Limited Vs. Gupta Brother Steel Tubes Limited reported in 2009 (10) Supreme Court Cases 63 http://www.judis.nic.in 10
10. Heard the learned counsel for the petitioner and the learned counsel for the respondent and perused the entire Award and materials available on record.
11. Admittedly, there is Trading Member and Authorized Person Agreement and the Sub-Broker/Authorized Person Agreement between the parties. The person who traded the shares is none other than the husband of the authorized agent of the petitioner. Besides, he is also connected with the petitioner and he has signed in several documents. The learned Arbitrator has factually found that the trade was unauthorised and violation was done without the knowledge of the respondent. Therefore, the contention of the petitioner that the respondent has a private contract with an unauthorised person and he has traded the shares cannot countenanced. The Arbitral Tribunal has found that the person who traded is under the control of the petitioner and such being the position, the Award cannot be interfered. It is well settled that the Award can be interfered only in the circumstances as enumerated under section 34 of the Arbitration and Conciliation Act
12. In a judgment in Associate Builders Vs. Delhi Development Authority reported in 2015 (3) Supreme Court Cases 49 when the Apex Court explained the term patent illegality and held that patent illegality must go to the root of the matter, Public Policy violation should be so unfair and unreasonable http://www.judis.nic.in 11 as to shock the conscience of the Court. The supervisory role of the Court under Section 34 is to be kept at a minimum level and interference is envisaged only in case of fraud or bias, violation of natural justice, etc., If the Arbitrator has gone contrary to or beyond the express of law of the contract or granted relief in the matter not in dispute that would come within the purview of Section 34 of the Arbitration and Conciliation Act 1996.
12. Similarly, a Division Bench of this Court in Puravankara Projects Limited v. Mrs.Ranjani Venkatraman Ganesh and Another [2018 (6) MLJ 588] also followed the above judgment of the Apex court and held that only in the circumstances envisaged under the decision of the Apex Court the Award can be interfered.
14. In Swan Gold Mining Ltd., v. Hindustan Copper Ltd reported in 2015(5) SCC 739 the Honourable Apex Court has held as follows:
"12. Section 34 of the Arbitration and Conciliation Act, 1996 corresponds to Section 30 of the Arbitration Act, 1940 making a provision for setting aside the arbitral award. In terms of sub-section (2) of Section 34 of the Act, an arbitral award may be set aside only if one of the conditions specified therein is satisfied. The Arbitrator’s decision is generally considered binding between the parties and therefore, the power of the Court to set aside the award http://www.judis.nic.in 12 would be exercised only in cases where the Court finds that the arbitral award is on the fact of it erroneous or patently illegal or in contravention of the provisions of the Act. It is a well settled proposition that the Court shall not ordinarily substitute its interpretation for that of the Arbitrator. Similarly, when the parties have arrived at a concluded contract and acted on the basis of those terms and conditions of the contract then substituting new terms in the contract by the Arbitrator or by the Court would be erroneous or illegal.
13. It is equally well settled that the Arbitrator appointed by the parties is the final judge of the facts. The finding of facts recorded by him cannot be interfered with on the ground that the terms of the contract were not correctly interpreted by him.
21. Mr. Sharan, learned senior counsel appearing for the appellant, also challenged the arbitral award on the ground that the same is in conflict with the public policy of India. We do not find any substance in the said submission. This Court, in the case of Oil and Natural Gas Corporation Ltd. (supra), observed that the term ‘public policy of India’ is required to be interpreted in the context of jurisdiction of the Court where the validity of award is challenged before it becomes final and executable. The Court held that an award can be set aside if it is contrary to fundamental policy of Indian law or the interest of India, or if there is patent illegality. In our view, the said decision will not in any way come into rescue of the appellant. As noticed above, the http://www.judis.nic.in 13 parties have entered into concluded contract, agreeing terms and conditions of the said contract, which was finally acted upon. In such a case, the parties to the said contract cannot back out and challenge the award on the ground that the same is against the public policy. Even assuming the ground available to the appellant, the award cannot be set aside as because it is not contrary to fundamental policy of Indian law or against the interest of India or on the ground of patent illegality.
22. The words “public policy” or “opposed to public policy”, find reference in Section 23 of the Contract Act and also Section 34 (2)(b)(ii) of the Arbitration and Conciliation Act, 1996. As stated above, the interpretation of the contract is matter of the Arbitrator, who is a Judge, chosen by the parties to determine and decide the dispute. The Court is precluded from re-appreciating the evidence and to arrive at different conclusion by holding that the arbitral award is against the public policy."
15. In the present case, there is a Sub broker/Authorized person Agreement between the parties and the person who traded for the respondent is the husband of authorized person of the petitioner. On entire reading of the well reasoned award, this Court found that the Arbitral Tribunal had factually found that the petitioner is entirely responsible for performing the trading operations on behalf of the Claimant on the basis of the agreements entered between the parties. Further the contention of the petitioner that as the respondent has http://www.judis.nic.in 14 preferred a complaint before IGRP, proceedings cannot be initiated before the Arbitral Tribunal and that as the amendment petition has been filed with regard to her claim cannot be countenanced as the said defence has been taken before this Court for the first time. Besides none of the grounds under section 34 of the Arbitration and Conciliation Act is made out to interfere the Award. Hence, this Court, keeping in mind the scope of interference under section 34 of the Arbitration and Conciliation Act, is of the view that the well reasoned Award made by the Arbitrator cannot be interfered.
16. Accordingly, this Original Petition is dismissed. Consequently, the connected application is closed. No cost.
19.06.2019
Index : Yes/ No
Internet : Yes
Speaking/Non-speaking Order
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N.SATHISH KUMAR, J.
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Order in
Original Petition No.1014 of 2017
19.06.2019
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