Madras High Court
R.Narayanan vs M/S. India Info Line Securities Private ... on 13 June, 2013
Equivalent citations: AIRONLINE 2013 MAD 24
Author: V.Ramasubramanian
Bench: V.Ramasubramanian
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 13-06-2013
CORAM
THE HON'BLE MR.JUSTICE V.RAMASUBRAMANIAN
Original Petition No.558 of 2007
R.Narayanan .. Petitioner
Vs.
1. M/s. India Info Line Securities Private Limited
rep. by its Managing Director (Trade Member)
Bldg. No.24, Nirlon Complex
Off Western Express Highway
Goregaon (East), Mumbai 400 063.
2. V.Natarajan .. Respondents
Petition under Section 34 of the Arbitration and Conciliation Act, 1996, read with Order XLIII, Rule 7 of the O.S. Rules.
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For Petitioner : Mr.R.Yashodh Vardhan, S.C.
For Mr.M.Ramamoorthy
For Respondents : Mr.V.Venkatasamy
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O R D E R
This is a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, seeking to set aside the award passed by the Arbitrator.
2. Heard Mr.R.Yashodh Vardhan, learned senior counsel for the petitioner and Mr.V.Venkatasamy, learned counsel for the respondents.
3. The petitioner entered into a Broker-Client agreement with the first respondent herein. The first respondent is a Trading Member of the National Stock Exchange of India Limited. Clause 8 of the said agreement dated 23.8.2003 visualises a minimum margin deposit by the client, without which the trading cannot be done on behalf of the client. If the minimum margin deposit falls below the amount prescribed, the trading operations may have to be suspended. Under Clause 10.1.1 of the said agreement, a printed contract had to be despatched by the first respondent to the petitioner and all transactions had to be confirmed through the net.
4. Several transactions took place in terms of the said agreement, both by way of purchase as well as by way of sale of shares. But, from October 2005, the first respondent started claiming that the account of the petitioner was in constant debit. Claiming that as on 08.7.2005, the debit balance accumulated to Rs.8,18,524.35, the first respondent raised a claim against the petitioner for payment of the said amount. Since the petitioner repudiated the claim, the first respondent initiated arbitration proceedings in the National Stock Exchange of India Limited, by filing Form I. The National Stock Exchange of India Limited issued a notice calling upon the petitioner (i) to submit a list of five persons in Form II, among those eligible to act as Arbitrators, in the order of preference; and (ii) to submit his defence in Form III, with supporting documents, along with Rs.8,000/- towards fee cum deposit.
5. Accordingly, the petitioner submitted Forms II and III, along with a cheque for Rs.8,000/- on 03.9.2005. The sole Arbitrator, appointed by the National Stock Exchange of India Limited, heard the matter and eventually, passed an award on 07.02.2006, directing the petitioner herein to pay to the first respondent a sum of Rs.7,04,975/-, together with interest at 12% per annum. Challenging the said award, the petitioner has come up with the above petition under Section 34 of the Arbitration and Conciliation Act.
6. The petitioner has challenged the award of the Arbitrator primarily on the following grounds:
(i) that the Arbitrator concluded the proceedings and passed an award, without acceding to or even disposing of his request for a direction to the first respondent to submit certain details and materials;
(ii) that he was not given adequate opportunity and the mandatory procedure under Sections 23(2) and 24 of the Arbitration and Conciliation Act, 1996, was given a go by; and
(iii) that the Arbitrator failed to appreciate the provision for minimum margin deposit money and the effect of Clause 10.1.1 of the agreement, especially in the context of the trading done by the first respondent to the tune of about Rs.2.60 Crores, on 9th and 10th of May 2005.
7. I have carefully considered the above contentions. It is needless to point out that the scope of an enquiry under Section 34 of the Act is very limited. A Court is entitled to set aside an arbitration award, only if the petitioner satisfies the Court (a) that he was under some incapacity; (b) that the arbitration agreement was not valid under the law to which the parties have subjected themselves; (c) that he was not given proper notice of the appointment of the Arbitrator or of the arbitral proceedings, or otherwise was unable to present his case; (d) that the arbitral award deals with a dispute not contemplated by or not falling within the terms of submission to arbitration; (e) that the composition of the Tribunal was not in accordance with the agreement of the parties; (f) that the subject matter of the dispute is not capable of settlement by arbitration; and (g) that the arbitral award is in conflict with the public policy of the country.
8. The grounds on which the petitioner challenges the arbitration award do not fall under Section 34(2)(a)(ii) or (iv) or (v) or Section 34(2)(b). At the most, the grounds raised by the petitioner could fall only under Section 34(2)(a)(i) or (iii). In other words, the contentions raised can, at the most, come under the category of (a) the petitioner being under some incapacity; or (b) the petitioner not being given proper notice of the arbitral proceedings, or (c) the petitioner being otherwise, unable to present his case. The main grievance of the petitioner is that he was unable to present his case and was under some incapacity, due to the non furnishing of the information and documents sought for by him. Therefore, it is necessary to test whether the case of the petitioner would fall under any of these categories.
9. The award of the Arbitrator shows that the claim made by the first respondent in Form I was sent to the Arbitrator, along with a set of documents, by the National Stock Exchange, on 08.9.2005. As per the award, further written submissions were made by the Trading Member on three dates, namely, 21.10.2005, 13.01.2006 and 31.01.2006.
10. The petitioner's reply in Form III, along with other documents, were sent to the Arbitrator to the National Stock Exchange on 08.9.2005. As per the award, further written submissions were made by the petitioner on 07.10.2005, 04.11.2005, 21.12.2005, 30.12.2005, 13.01.2006, 16.01.2006 and 06.02.2006.
11. The arbitration award also proceeds on the footing that the hearing took place on two days namely 07.10.2005 and 16.01.2006. Therefore, it is clear even from the arbitral award that at least one written submission was made by the petitioner, after the hearing on 16.01.2006. The petitioner had made submission on the date of the hearing, namely 16.01.2006. He also made submission subsequently on 06.02.2006.
12. The case of the first respondent is also akin. The first respondent made one set of written submission on 13.01.2006 and another written submission on 31.01.2006, after the last date of hearing, namely 16.01.2006. Therefore, in order to appreciate the contention raised by the petitioner, it is necessary to have a look at the contents of the submissions made by the petitioner on the date of last hearing, namely 16.01.2006 and on the subsequent date, namely 06.02.2006.
13. The copy of the written submission made by the petitioner on 16.01.2006 shows that the petitioner made a specific demand for providing the contract notes pertaining to the date 14.3.2005. He also indicated in the last line of the written submissions made on 16.01.2006 that he would submit a reply within seven days of receipt of the documents/clarifications.
14. By a letter dated 31.01.2006, the National Stock Exchange of India Limited forwarded to the petitioner the copy of the contract notes received from the first respondent on 31.01.2006. That means, the contract notes sought by the petitioner by his representation dated 16.01.2006 was provided to him only after the last date of hearing.
15. Similarly, the petitioner sent a letter dated 06.02.2006, requesting the National Stock Exchange to verify the veracity of the contents of the contract notes from their data base. To this letter, the National Stock Exchange sent a reply dated 07.02.2006, attaching the details of the trades executed in the client code of the petitioner on 14.3.2005. But, the Arbitrator passed an award on 07.02.2006 itself.
16. Therefore, the contention that the petitioner was not given adequate opportunity to present his case appears to be justified. The contract notes demanded by the petitioner and furnished by the National Stock Exchange, formed an important part of the defence that the petitioner had to the claim of the first respondent. Their significance was explained by the petitioner in his letter dated 10.02.2006. But, by that time, the award had already been passed by the Arbitrator and nothing remained. Therefore, I am of the view that the case of the petitioner would fall under Section 34(2)(a)(i) and (iii), in the sense that the petitioner was under some incapacity to make a proper presentation and he was otherwise unable to present his case, due to the non receipt of documents and particulars summoned by him, before conclusion of the arbitration proceedings.
17. I am conscious of the fact that the proceedings before an Arbitrator cannot take place so exhaustively or leisurely, adhering to all the Rules of Procedure and Rules of Evidence under the sun. But important documents summoned by one of the parties and the light that such documents would throw either upon the claim of the claimant or upon the defence of the respondent, had to be taken into account by an Arbitrator.
18. A careful scrutiny of the claim made by the first respondent against the petitioner before the Arbitrator would show that the petitioner became a constituent of the first respondent by entering into a Broker-Client agreement for trading in scripts. Even as per the statement filed by the first respondent before the Arbitrator on 10.1.2006, the trading is done by the first respondent on behalf of their clients like the petitioner herein in three methods. The first is through the internet by using user identity and password. The second method is through phone calls made by the customers of the first respondent like the petitioner for placing orders. The third is through personal visits of customers like the petitioner, during which they placed orders for buying and selling securities. The fact that the petitioner started trading in securities through the first respondent by making a deposit of Rs.2 lakhs in the first instance, is admitted by the petitioner. The fact that there is also a minimum margin deposit is also admitted.
19. As per Clause 10.1.1 of the Broker Client agreement, a printed contract note has to be despatched by the first respondent to the petitioner as per the time frame stipulated by the relevant Rules of Exchange in the Exchange Manuals, for all transactions undertaken by the petitioner. All transactions undertaken by the petitioner via internet during trading hours will be confirmed to the petitioner as per the notified option. As per Clause 14.1.1 of the agreement, the petitioner agreed that the gross exposure computation norms, the resulting authorised trade limit for him and the minimum margin deposit requirement for each product are discretionary parameters set up by the first respondent. The agreement also stipulates that the first respondent can record the authorisation given by clients like the petitioner, either personally or over phone and that such recordings may be relied upon by the first respondent as and when required to resolve the disputes in connection with the trading transactions.
20. The petitioner raised a very significant objection to the effect that the volume of transactions that had led to the present claim of the first respondent could not have been transacted by the petitioner in view of his social standing and minimum margin deposit. However, the first respondent relied upon the violent fluctuations in the account of the petitioner to show that the petitioner was in the habit of buying and selling all scripts to a greater volume. The statement of accounts filed by the first respondent shows that there were debit entries crossing Rs.4 lakhs on a few occasions. Therefore, it was contended by the first respondent and also accepted by the Arbitrator that the petitioner was transacting in large volumes.
21. But, the Arbitrator failed to take note of a crucial fact namely that on no occasion, the volume of transaction crossed Rs.5 lakhs except on 10.5.2005 and 16.5.2005, when the transaction touched more than Rs.65 lakhs. If, in this context, the contention of the petitioner had been viewed, the Arbitrator would have found that a closer scrutiny of the rival contentions, on the basis of documents, was absolutely necessary to pass an award in this case.
22. I have discussed the above factual details only for the limited purpose of showing that a small time investor like the petitioner could not have been allowed by a broker like the first respondent to trade to the extent of more than Rs.65 lakhs on a single day, without instructions in writing. This has to be seen in the context of the defence raised by the petitioner that he never authorised intra day tradings. As a matter of fact, there was a specific point raised by the petitioner that on 9th and 10th May, transactions to the tune of Rs.2 crores and Rs.68 lakhs had been made in his account. I do not know how the first respondent could have allowed even if the petitioner wanted, transactions of such a huge nature from a small time investor like the petitioner. Since the Arbitrator did not approach the issue from this point of view, but closed the arbitration proceedings even before the contract notes summoned by the petitioner were produced, I am of the view that the case of the petitioner falls within the category that one of the parties was unable to present his case fully before the Arbitrator. Since this satisfies Section 34(2)(a)(iii), the award is liable to be set aside and the matter remitted back for a fresh consideration.
23. The fact that the Arbitrator concluded the proceedings and passed an award even before the receipt of the necessary documents and even before the petitioner could make his submissions on those documents, is clearly borne out to us by a letter dated 29.5.2006 sent by the National Stock Exchange of India Limited to the petitioner. It must be remembered that the National Stock Exchange nominated the Arbitrator. The relevant portion of the said letter dated 29.5.2006 of the National Stock Exchange reads as follows :
"During the hearing held on January 13, 2006 written submissions made by both the parties submitted were exchanged. Further, the arbitrator directed the trading member to submit the details of the Jet Airways securities traded on March 14, 2005.
Vide letter dated January 16, 2006 you had sought some additional documents from the trading member and the same was forwarded to the trading member and the arbitrator on January 17, 2006. The trading member submitted copies of the contract note on January 31, 2006 and the same was forwarded to you vide letter dated January 31, 2006. Further, vide letter dated February 6, 2006 you requested the Exchange to verify the veracity of the contract notes submitted by the trading member. The Exchange vide letter dated February 7, 2006 provided the details of the trades executed in your client code "NSWAMI" on March 14, 2005 by the trading member. A copy of the same was forwarded to the arbitrator.
As per the Bye-law 13(b) of Chapter XI of the Bye-laws of the Exchange the arbitration award has to be passed normally within 3 months from the date of entering reference (the date of first hearing). Since the period of three months was expiring on January 7, 2006, the arbitrator requested for additional time of one month for the completion of the arbitration matter under Bye-law 13(c) of Chapter XI of the Bye-laws of the Exchange. Accordingly, extension of one month was granted by the Relevant Authority to the arbitrator to make the award. The award dated February 7, 2006 made by the sole arbitrator was received by the Exchange on February 8, 2006 and the same was forwarded to you and the trading member on February 8, 2006."
24. Therefore, it is clear from the above letter that the petitioner was seeking copies of documents in support of his defence and that the first respondent was also furnishing the same, even after the conclusion of the hearing on 16-01-2006 and the passing of the Award on 6.2.2006. This confirms the contention of the petitioner that he was under an incapacity to defend his case properly before the Arbitrator.
25. As contended by the learned Senior Counsel for the petitioner, Section 23 of the Act, lays down the procedure for filing Statements of Claim and Defence. Under sub-section (2) of Section 23, the parties are required to submit, all documents they considered to be relevant, along with their Statements. Alternatively, they must at least add a reference to the documents that they will submit. But a perusal of the Statement of Claim made by the first respondent shows that the relevant documents were not enclosed.
26. As a matter of fact, Section 24 also lays down the procedure to be adopted by the Arbitral Tribunal. Sub-section (2) of Section 24 requires the Arbitral Tribunal to give sufficient advance notice of any hearing, for the purpose of inspection of documents, goods or other properties. But unfortunately, the Arbitral Tribunal did not adhere to any of these procedures. Even when the petitioner was collecting evidence, to the knowledge of the Arbitrator, the Arbitrator closed the proceedings and passed the Award. The Arbitrator did not even put the petitioner on notice that he was closing the proceedings and that no more documents could be called for. A useful reference could be made to a passage from Justice R.S.Bachawat's Law of Arbitration and Conciliation (5th Edition-2010) at page 1547. It reads as follows:-
"The Arbitrator will be guilty of misconduct if he makes the Award without giving distinct notice that the proceedings are closed and he will proceed to make his Award."
Therefore, the petitioner was justified in thinking that the proceedings had not been concluded.
27. In view of the above, the Arbitration Award is liable to be set aside, since the petitioner was disabled from presenting his case properly, which is one of the grounds available under Section 34(2)(a)(iii) of the Act. Therefore, the original petition is allowed and the impugned Award is set aside.
28. Under Section 16(1) of the Arbitration Act, 1940, the Court had the power to remit the Award for reconsideration, under three contingencies listed therein. But there is no corresponding provision in the 1996 Act. The parties, under the 1996 Act, can take recourse either to Section 33(4) or the Court should act in terms of Section 34 (4). But there is no specific provision for an order of remand. The Supreme Court did not specifically recognise such a power in Mc Dermott International Inc. vs. Burn Standard Co. Ltd {2006 (11) SCC 181}. The Delhi High Court in Hindustan Fertilizer vs. J.M.Boxi and Co. {2008 (3) RAJ 464 (Delhi)} and the Madras High Court in Central Warehousing Corporation vs. A.S.A.Transport {2008 (3) MLJ 382 Mad-DB} have taken the view that the Court has no power to remit the matter back to the Arbitrator. Therefore, I cannot even remit the matter back to the Arbitrator. Hence, the original petition is allowed and the Award is set aside, leaving it open to the parties to workout their remedies in a manner known to law. There will be no order as to costs.
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