Delhi District Court
Kaynet Finance Limited vs Mahendra Singh And Ors on 18 April, 2024
IN THE COURT OF SH. ANURAG SAIN,
DISTRICT JUDGE, (COMMERCIAL COURT)-01,
PATIALA HOUSE COURT, NEW DELHI
Arbtn. No.5792/2018
M/s Kaynet Finance Ltd.
A company under companies Act, 1975
having corporate Office at 633,
Pulachi Wadi,
2nd Floor, Abhinandan Plaza,
Deccan Gymkhana, Pune: 411004
Delhi Branch Office At:
Ambadeep Building,
1104-1107, 11th Floor,
14, KG Marg, New Delhi
....Petitioner
vs.
1. Mahendra Singh
CALTEX House,
Near Kapsya Chowk,
NH-31, Begusarai,
Bihar-851101 ....Respondent no.1
2. Mr. Arun Kumar
Arbitrator
Appellate Arbitral Tribunal
National Stock Exchange of India Limited
305, 3rd Floor,
Vasundhara Metro Mall,
Boring Canal Road,
Patna. ....Respondent no.2/Ld. Arbitrator
3. Mr. Ajay Kumar,
Arbitrator
M/s Kaynet Finance Ltd. Vs. Mahendra Singh and ors. Page No.1 of 15
Arbtn. No.5792/2018
Appellate Arbitral Tribunal
National Stock Exchange of India Limited
305, 3rd Floor,
Vasundhara Metro Mall,
Boring Canal Road,
Patna. ....Respondent no.3/Ld. Arbitrator
4. Ms. Hansa Jha
Arbitrator
Appellate Arbitral Tribunal
National Stock Exchange of India Limited
305, 3rd Floor,
Vasundhara Metro Mall,
Boring Canal Road,
Patna. ....Respondent no.4/Ld. Arbitrator
Date of Institution : 15.10.2018
Arguments heard on : 23.03.2024
Decided on : 18.04.2024
Appearances : Sh.Anand Mishra, Ld. Counsel for petitioner
Sh.Ajay Kohli and Ms. Dipika Prasad, Ld. Counsel for
the respondent
JUDGMENT
1. Appellant petitioner i.e. M/s Kaynet Finance Limited filed this petition against respondent i.e. Mahendra Singh under Section 34 of Arbitration and Conciliation Act (in short referred to as 'Arbitration Act') for setting aside the Arbitral Award dated 13.07.2018 passed by Appellate Arbitral Tribunal constituted by Mr. Arun Kumar, Mr. Ajay Kumar and Ms. Hansa Jha in AM NO.F&O/PA-0002/2017. It is averred that petitioner had filed an appeal against M/s Kaynet Finance Ltd. Vs. Mahendra Singh and ors. Page No.2 of 15 Arbtn. No.5792/2018 award dated 21.03.2018 given by Sh. R.N. Prasad, Mr. Vijay Sharma and Sh.Om Prakash.
2. The case of the objector/petitioner as averred in the present objection petition is that petitioner is reputed SEBI registered intermediary of Capital markets having membership of both Bombay Stock Exchange Ltd. (BSE) and National Stock Exchange of India Ltd. (NSE), pursuant to which petitioner is entitled to purchase, sell shares, and deal in derivative instruments on behalf of its clients. It is averred that clientele relationship was mapped by Delhi Branch of petitioner and client code 102M33 was allotted to respondent no.1 after his duly execution of the KYC, Member -Client Agreement, Risk Disclosure Documents (RDD) which clearly states the risk associated while dealing in capital market and right and obligation of the member and the constituent inters and the said KYC executed on 21.06.2016. It is averred that in terms of the said KYC, respondent no.1 opted to receive the electronic contract notes at his email id. The petitioner sent a detailed welcome letter to each client which mentions his KYC details along with necessary precautions to be taken by the client while dealing through petitioner in Securities/Derivative market. The clauses of the welcome letter stated the contract between petitioner and respondent no.1 regarding the manner in which order shall be placed. It is averred that as part of KYC, respondent no.1 had executed power of attorney in favour of the petitioner towards adjustment of securities in DEMAT account without having separate individual instructions every time. It is averred that it was categorically informed to the respondent no.1 through welcome call and welcome letter, at the time of account opening that the organization does not involve itself into the business of Portfolio Management Services and do not M/s Kaynet Finance Ltd. Vs. Mahendra Singh and ors. Page No.3 of 15 Arbtn. No.5792/2018 guarantee any return on the funds invested through petitioner.
3. It is averred that no unauthorized transactions were executed in respondent no.1 account and proper compliances procedures were followed. Further the case of the petitioner is that as per KYC agreement, it clearly refers that (the order placed by customers to petitioner or any other such company may be in writing or in any other manner as agreed by the client and stock broker") and the respondent no.1 had signed the declaration that he had understood the contents of "Rights and Obligation", hence the observation that they are undertaking trade transactions without instructions and consent from the respondent no.1 was unsustainable and thus he has filed claim petition before Arbitrators alleging that he did not instructed petitioner telephonically for any orders, which were placed to generate brokerage.
4. It is averred that panel arbitrators completely overlooking the contrctual obligations in AM NO. F&O/PA-0002/2017 vide their award dated 21.03.2018 directed petitioner to pay losses of Rs.43,50,000/- which includes brokerage earned by petitioner amounting to Rs.15,66,122/-. The petitioner filed appeal before Appellate Arbitral Tribunal to which reply was filed by respondent no.1. It was categorically held by Appellate Tribunal that there was no contractual violation by the petitioner, but on the other hand it while reversing award of panel arbitrators, directed petitioner to refund brokerage of Rs.15,66,122/-. It is averred that contractual relationship between the parties was executed at the office of petitioner, which was earlier situated near Ram Krishna Metro Station Delhi and has now been shifted to KG Marg, New Delhi and the D-mat account of respondent no.1 was at Delhi and the orders were M/s Kaynet Finance Ltd. Vs. Mahendra Singh and ors. Page No.4 of 15 Arbtn. No.5792/2018 placed by respondent no.1 at Delhi, thus this Court has territorial jurisdiction.
5. By way of present petition under Section 34 of the Arbitration Act, the petitioner is challenging the said award dated 13.07.2018 mainly on the following grounds besides other grounds:
(a) that the arbitral award is bad in law as there is no whisper in impugned arbitral award that petitioner company neglected/breached any contractual or legal duties;
(b) that conclusion of arbitral tribunal that unauthorized trading was nto established since electronic contract notes were sent for transaction as mandated under contract and complainant ratified every act of petitioner company and in this manner the margins earned by petitioner for their work was part of consideration and could not have been directed to be refunded;
(c) that there was no requirement to prove any pre-trade order and consent for all pre-trades were implied by rectification of electronic contract notes and contents of post trade verification calls with SMS alerts;
(d) that on the one hand appellate arbitral tribunal held that respondent no.1 never disputed any previous transactions and it was case of deemed acceptance of trade. However, it remains unexplained the basis in which brokerage earned by petitioner were directed to be refunded;
(e) that lact of reason and vague words in award "there has been some lapses on both sides" for directing payment of brokerage was misconduct stipulated under Section 34 of ArbitrationAct as it lacked M/s Kaynet Finance Ltd. Vs. Mahendra Singh and ors. Page No.5 of 15 Arbtn. No.5792/2018 the basis ingredient of a judgment and;
(f) that there was misconduct in reasoning of appellant arbitral award since the award could not categorically explain the lapses on the part of the petitioner.
6. The respondent no.1 filed reply to the petition of the petitioner, wherein the main ground taken by it was that this Court has no territorial jurisdiction to try and entertain the present proceedings in view of judgment passed by Hon'ble Supreme Court in case "BGS SGS SOMA JV Vs. NHPC Limited, passed in Civil Appeal No.9307/2019, wherein it has been expressly held that the Courts at the "seat" of Arbitration, that is at the place where the Arbitration took place, "alone" have jurisdiction to entertain challenges against the arbitral award which was made at such seat and in the present case, the award was passed at "Patna", as such the Courts at Patna alone shall have jurisdiction to try and entertain any challenge to the Arbitral Award. It is also averred that the respondent no.1 has also preferred an objection petition before the Ld. Competent Court at Patna against the Appellate Arbitration Award dated 13.07.2018, which is pending adjudication as on date, wherein the respondent no.1 has sought various reliefs including setting aside/modify the appellate arbitration award dated 13.07.2018 passed by Ld. Appellate Tribunal; uphold the first arbitral award dated 21.03.2018 passed by the First Appellate Tribunal; Direct the respondent no.1 to pay interest computable @18% p.a. to the appellate on the aforesaid sum of Rs,.43,50,000/- from the date of first arbitral award etc. In parawise reply, the respondent no.1 denied the averments of the petition and it is averred that Mr. Avinash Mishra, Mr. Praveen Singh and Ms. Neha Gupta approached the answering respondent no.1 and convinced him to M/s Kaynet Finance Ltd. Vs. Mahendra Singh and ors. Page No.6 of 15 Arbtn. No.5792/2018 open his Trading account with the petitioner company located at New Delhi and while opening the trading account, it was clearly conveyed by the respondent no.1 that he could not spare his time to indulge into speculative trading and further that he was unaware about the intricacles of the "Future and Option Transactions" and requested the petitioner and its representatives that not to indulge themselves in such speculative and risky transactions and also that the respondent no.,1 never carried out trading in "F&O" Segment with any brokers and accumulated his shares of various company with passage of time from his hard earned money having made long term investments. The respondent no.1 also conveyed to the petitioner and its representatives that he was not in a position to bear huge losses at this juncture of his age more so since he was required to discharge obligations towards his family and for the said purpose, he was likely to liquidate his "holdings" within a short span of time. It is averred that the petitioner and its officers assured the respondent no.1 not to worry and assured that they would diligently manage his account, but on the condition that respondent no.1 must say/convey "OK" to trading confirmation on the "recorded lines" to the petitioner company on the pretext that it was merely a compliance requirement of the exchanges. Further it is the case of the respondent no.1 that infact respondent no.1 was induced to say 'OK" to the trading confirmations on the false pretext that communicating such OK was a mere formality that was required to be complied with and the ob the basis of this, the petitioner opened a Demat account and a Trading account with the petitioner company and transferred all his "holdings" from his Demat Account held with ICICI Bank, to the said Demat Account opened by him with the petitioner company. It is averred that respondent no.1 transferred funds twice on two different occasions, in his Trading Account opened with the M/s Kaynet Finance Ltd. Vs. Mahendra Singh and ors. Page No.7 of 15 Arbtn. No.5792/2018 petitioner company, since they conveyed the respondent that the funds were required for the purposes of making investments in "stocks". The contents of the petition stated to be wrong are denied and it is prayed that the present petition be dismissed with costs.
7. I have heard arguments advanced by both the sides and given due consideration to the facts and pleadings of the case and the documents relied upon by the parties, submissions put forth by the respective counsels and the relevant legal position.
8. During the course of arguments in the present matter it has been stated by the counsel for the petitioner that petitioner is a Trading Member of Stock Exchange and respondent no.1 became its client in terms of KYC executed between the parties, which was annexed with the plaint, wherein at page 55, the respondent no.1 gave his email id towards communication of contract notes. It is averred that the other valid document is Welcome letter, wherein clause 23 to 27 stipulated the manner of trade. It is averred that claim of respondent no.1 was that trade was done in his account without his instructions for about five months causing a loss of Rs.62,04,650.95p. Petitioner urged that all acts contemplated under the contract was performed by petitioner and respondent no.1 could not point out single breach of contract and that all contract notes were duly served on email of respondent no.1 which was ratified being not objected. It is averred that there was no evidence of pre-trade order and an award of Rs.43,50,000/- was passed against the petitioner, to which petitioner file appeal, wherein the original arbitral award was set aside. However, award to refund brokerage of Rs.15,66,122/- was confirmed against M/s Kaynet Finance Ltd. Vs. Mahendra Singh and ors. Page No.8 of 15 Arbtn. No.5792/2018 the petitioner. As regards, territorial jurisdiction, it is averred that the Trading Account of respondent no.1 was opened at Delhi and petitioner company was at Delhi and the KYC being the agreement was at Karnal and hence no cause of action towards filing of any suit happened at Patna. In support of his submissions, ld. counsel for the petitioner has relied upon following judgments:
(a) HMP Engineers Ltd. Vs. Rallis India, passed by Hon'ble Delhi High court on 18.04.2002;
(b) D Net Malayalam Digitals Pvt. Ltd. Vs. Asianet Satellite passed by Hon'ble Kerala High Court, In FAO No.154 of 2015;
(c) Emkay Global Vs. Girdhar Sondhi; AIR 2018 SC 3894;
(d) Jupiter Rubber Pvt. Ltd. Vs. Union of India; MANU/DE/1150/2020
(e) Sukumar Chand Jain Vs. DDA; MANU/DE/3054/2009
9. Ld. counsel for the respondent no.1 mainly argued on the point that this Court has no territorial jurisdiction since the seat of arbitrator in the present matter was designated at "Patna" and the Arbitral award dated 21.03.2018 was passed in Patna and that the petitioner also preferred the appeal qua the said arbtiral award dated 21.03.2018 before the Appellate Arbitral Tribunal under th Bye Laws of the National Stock Exchange in "Patna". In support of his arguments, ld. counsel for the respondent no.1 has relied upon following judgments:
(a) BGS SGS SOMA JV Vs. NHPC Limited, passed in Civil Appeal No.9307/2019;
(b) Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India, 2019 SCC OnLine SC 677 and;
M/s Kaynet Finance Ltd. Vs. Mahendra Singh and ors. Page No.9 of 15 Arbtn. No.5792/2018
(c) Associate Builders vs. Delhi Development Authority, (2015) 3 SCC 49
10. In the present the core issue before this Court is whether this Court has territorial jurisdiction to try and entertain the present petition. In BBR (INDIA) Private Limited Vs. S.P. Singla Constructions Private Limited Civil Appeal Nos. 4130-4131 Of 2022, Hon'ble Supreme Court held that :
"We have already referred to the first few sentences of the aforementioned paragraph and explained the reasoning in the context of the present case. The paragraph BGS SGS Soma (supra) also explains the non-obstante effect as incorporated in Section 42 to hold that it is evident that the application made under Part-I must be to a court which has a jurisdiction to decide such application. Where 'the seat' is designated in the agreement, the courts of 'the seat' alone will have the jurisdiction. Thus, all applications under Part-I will be made in the court where 'the seat' is located as that court would alone have jurisdiction over the arbitration proceedings and all subsequent proceedings arising out of the arbitration proceedings. The quotation also clarifies that when either no 'seat' is designated by an agreement, or the so- called 'seat' is only a convenient venue, then there may be several courts where a part of the cause of action arises that may have jurisdiction. An application under Section 9 of the Act may be preferred before the court in which a part of cause of action arises in the case where parties had not agreed on the 'seat of arbitration'. This is possible in the absence of an agreement fixing 'the seat', as an application under Section 9 may be filed before 'the seat' is determined by the arbitral tribunal under Section 20(2) of the Act. Consequently, in such situations, the court where the earliest application has been made, being the court in which a part or entire of the cause of action arises, would then be the exclusive court under Section 42 of the Act. Accordingly, such a court would have control over the arbitration proceedings".
11. Hon'bls Supreme Court in BGS SGS Soma JV Vs. NHPC Ltd.
(Supra) has held as under:
99. Given the fact that if there were a dispute between NHPC Ltd. and a foreign contractor, clause 67.3(vi) would have to be read as a clause designating the "seat"
of arbitration, the same must follow even when sub-clause (vi) is to be read with sub-
M/s Kaynet Finance Ltd. Vs. Mahendra Singh and ors. Page No.10 of 15 Arbtn. No.5792/2018 clause (i) of Clause 67.3, where the dispute between NHPC Ltd. would be with an Indian Contractor. The arbitration clause in the present case states that "Arbitration Proceedings shall be held at New Delhi/Faridabad, India...", thereby signifying that all the hearings, including the making of the award, are to take place at one of the stated places. Negatively speaking, the clause does not state that the venue is so that some, or all, of the hearings take place at the venue; neither does it use language such as "the Tribunal may meet", or "may hear witnesses, experts or par- ties". The expression "shall be held" also indicates that the so-called "venue" is really the "seat" of the arbitral proceedings. The dispute is to be settled in accordance with the Arbitration Act, 1996 which, there- fore, applies a national body of rules to the arbitration that is to be held either at New Delhi or Faridabad, given the fact that the present arbitration would be Indian and not international. It is clear, therefore, that even in such a scenario, New Delhi/Faridabad, India has been designated as the "seat" of the arbitration proceedings.
100.However, the fact that in all the three appeals before us the proceed- ings were finally held at New Delhi, and the awards were signed in New Delhi, and not at Faridabad, would lead to the conclusion that both parties have chosen New Delhi as the "seat" of arbitration under Section 20(1) of the Arbitration Act, 1996. This being the case, both parties have, therefore, chosen that the Courts at New Delhi alone would have exclusive jurisdiction over the arbitral proceedings. There- fore, the fact that a part of the cause of action may have arisen at Faridabad would not be relevant once the "seat" has been chosen, which would then amount to an exclusive jurisdiction clause so far as Courts of the "seat" are concerned.
12. After relying upon the Constitutional Bench decision in Bhartiya Aluminium Company v. Kaiser Aluminium Technical Services Inc (BALCO) (2012) 9 SCC 552, in BGS SGS Soma (supra), Hon'ble Supreme Court has been held that sub- section (3) of Section 20 refers to 'venue' whereas the 'place' mentioned in sub-section (1) and sub-section (2) refers to the 'jurisdictional seat'. To explain the difference, in BALCO (supra), a case relating to international arbitration, reference was made to several judgments, albeit the judgment in Shashoua v. Sharma, (2009) EWHC 957 (Comm.) was extensively quoted to observe that an agreement as to the 'seat of arbitration' draws in the law of that country as the curial law and is analogous to an exclusive jurisdiction clause. The parties that have agreed to 'the seat' must challenge an interim or final award only in the courts of the place designated as M/s Kaynet Finance Ltd. Vs. Mahendra Singh and ors. Page No.11 of 15 Arbtn. No.5792/2018 the 'seat of arbitration'. In other words, the choice of the 'seat of arbitration' must be the choice of a forum/court for remedies seeking to attack the award.
13. The aforesaid principles relating to international arbitration have been applied to domestic arbitrations. In this regard, in para 38 of BGS SGS Soma (supra), Hon'ble Supreme Court held as under:
A reading of paragraphs 75, 76, 96, 110, 116, 123 and 194 of BALCO (supra) would show that where parties have selected the seat of arbitration in their agreement, such selection would then amount to an exclusive jurisdiction clause, as the parties have now indicated that the Courts at the "seat" would alone have jurisdiction to entertain challenges against the arbitral award which have been made at the seat. The example given in paragraph 96 buttresses this proposition, and is supported by the previous and subsequent paragraphs pointed out hereinabove. The BALCO judgment (supra), when read as a whole, applies the concept of "seat" as laid down by the English judgments (and which is in Section 20 of the Arbitration Act, 1996), by harmoniously construing Section 20 with Section 2(1)(e), so as to broaden the definition of "court", and bring within its ken courts of the "seat" of the arbitration.
14. It has been held by the Hon'ble Apex Court in a case titled as Indus Mobile Distribution Pvt. Ltd. Vs. Datawind Innovations Pvt. Ltd. & Ors., Civil Appeal No. 53705371 of 2017 dated 19.04.2017, (2017) 7 SCC 678 that the juridical seat of arbitration would decide the territorial jurisdiction of the court and that court alone to the exclusion of other courts would have the jurisdiction to entertain any application under the Arbitration Act.
15. The Hon'ble Supreme Court of India in a case titled as BBR (India) Private Limited Vs. S.P. Singla Constructions Private Limited, (Supra) while discussing BGS SGS SOMA (Supra) has held in Para 23 as under:
M/s Kaynet Finance Ltd. Vs. Mahendra Singh and ors. Page No.12 of 15 Arbtn. No.5792/2018 "23............ In the context of the present case and noticing the first order passed by the arbitral tribunal on 5 th August 2014 stipulating that the place of the proceedings would be Panchkula in Haryana and in the absence of order significant indica on application of Section 20(2) of the Act, the city of Panchkula in Haryana would be the jurisdiction 'seat' of arbitration. As 'the seat' was fixed vide the order dated 5 th August, 2014, the courts in Delhi would not have jurisdiction'.
16. Now coming to the facts of the present case, admittedly in the present case since the seat of arbitrator was designated at "Patna" and the Arbitral award dated 21.03.2018 was passed in Patna and that the petitioner also preferred the appeal qua the said arbtiral award dated 21.03.2018 before the Appellate Arbitral Tribunal under th Bye Laws of the National Stock Exchange in "Patna". Thus, in view of the directions passed by Hon'ble Apex Court and the Hon'ble High Court of Delhi as above, this court does not have territorial jurisdiction to decide the objection petition filed by the petitioner.
17. It is the case of the petitioner that the Trading Account of respondent no.1 was opened at Delhi and petitioner company was at Delhi and the KYC being the agreement was at Karnal and hence no cause of action towards filing of any suit happened at Patna.
18. The Rules and By-Laws of the National Stock Exchange of India Ltd. contain elaborate provisions regarding conduct of arbitration and jurisdiction. By-Law no.(17) is also relevant and the same reads as under:
M/s Kaynet Finance Ltd. Vs. Mahendra Singh and ors. Page No.13 of 15 Arbtn. No.5792/2018 "Jurisdiction (l7) The arbitration and appellate arbitration shall be conducted at the regional centre nearest to the address provided by Constituent in the KYC form or as per the change in address communicated thereafter by the Constituent to the trading member. Further, in case the award amount is more than Rs. 50 Lakh, the next level of proceedings (arbitration and appellate arbitration) may take place at the nearest metro city, if desired by any of the party involved. The additional cost for arbitration and appellate arbitration, if any, is to be borne by the appealing party. Furthermore, the application under Section 34 of the Act, if any, against the decision of the Appellate Arbitral [Award passed by the Appellate Arbitrator shall be filed in the competent court nearest to the address provided by Constituent in the KYC form or as per the change in address communicated thereafter by the Constituent to the trading member."
19. In terms of the aforesaid by-law, the application under Section 34 of the Act, if any, against the decision of the Appellate Arbitral shall be filed in the competent court nearest to the address provided by Constituent in the KYC form or as per the change in address communicated thereafter by the Constituent to the trading member. It is the admitted case that the award in the present case has been passed in Patna, Petition under Section 34 of Arbitration and Conciliation Act against the said award is filed by the respondent in Patna, which is earlier to the present petition and the address of respondent no.1 in the KYC form is Karnal.
20. Thus, in view of the aforesaid discussions, the present petition is not maintainable as this Court does not have the jurisdiction to try and decide the present case. The petition is ordered to be returned to the petitioner under Order 7 Rule 10 CPC and liberty is granted to the petitioner to file the same before M/s Kaynet Finance Ltd. Vs. Mahendra Singh and ors. Page No.14 of 15 Arbtn. No.5792/2018 the court having the territorial jurisdiction to entertain and try the present matter. Let the present petition be returned to the petitioner with endorsement on the petitioner about the date of presentation and date of returning the petition. The original documents, if any, be also returned to the petitioner, as per rules. The petition along with documents be returned to the petitioner against acknowledgment. Self attested copy of the petition and the documents be filed by the petitioner in lieu of the same.
21. File be consigned to Record Room after due compliance.
ANNOUNCED IN THE OPEN COURT on 18th April 2024.
ANURAG SAIN District Judge (Commercial Court)-01 Patiala House Court, New Delhi.
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