Bombay High Court
Ventura Securities Ltd vs M/S. Centpercent Investment Ltd on 18 September, 2012
Author: Anoop V. Mohta
Bench: Anoop V. Mohta
1 arbp286-09j
rpa IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO.286 OF 2009
Ventura Securities Ltd.
A company incorporated under the
provisions of the Companies Act, 1956
and having its registered office at
Dhannur 'E', 15 Sir P. M. Road, Fort,
Mumbai 400 001 and having its
Corporate Office at C/112, 1st Floor,
Building No.1, Kailash Industrial
Complex, Parksite, Off. L.B.S. Marg,
Vikhroli (West), Mumbai 400 079. .. Petitioner
V/s.
M/s. Centpercent Investment Ltd.
A company incorporated under the
provisions of the Companies Act, 1956
and having its office at 12 Khetan
Bhavan, 198 Jamshedji Tata Road,
Churchgate, Mumbai 400 020. .. Respondent
....
Mr. P. K. Samdani, Senior Counsel with Mr. Simil Purphit & Mr. A. A.
Mukri i/b. M/s. Purohit & Company for the Petitioner.
Mr. M. M. Vashi with Mr. Jayant Gaikwad i/b. M/s. Ajay Khandhar &
Associate for the Respodnent.
....
CORAM : ANOOP V. MOHTA, J.
DATE : 18th SEPTEMBER, 2012.
::: Downloaded on - 09/06/2013 19:08:37 :::
2 arbp286-09j
ORAL JUDGMENT :-
The Petitioner-original Applicant has challenged Award dated 15th December, 2010, passed by the Arbitral Tribunal in the matter of Arbitration under the Bye-laws, Rules and Regulations of National Stock Exchange of India Limited (For short "NSEIL"), whereby rejected the claim and the counterclaim.
2. The basic events are as under:
The Petitioner is member of the National Stock Exchange of India Ltd., as well as the Bombay Stock Exchange Limited (for short "BSEL"). On 3rd September, 2007, the Respondent appointed the Petitioner as its share and stock broker to effect transactions in shares and securities at the NSEIL as well as the BSEL on the Cash Market Segment, as well as, Futures & Options (F & O) Segment. On 4th September, 2007, the Respondent requested the Petitioner to create an Email ID on the website of the Petitioner. Accordingly, the Petitioner created an Email ID on its website. Pursuant to the said appointment and the instructions given by the Respondent from time to time the Petitioner effected transactions on the Cash Market Segment as well as F & O segment through NEAT system of NSEIL ::: Downloaded on - 09/06/2013 19:08:37 :::
3 arbp286-09j under the client ID code of the Respondent.
3. As alleged, on 18th January, 2008, there was a debit of Rs.6,54,350.90 in the account of the Respondent, which included a sum of Rs.14,87,430/- debit towards margin. On 21 st January, 2008, the Respondent instructed the Petitioner to treat 30000 shares of Cosmo Films, which were purchased by the Respondent through the Petitioner on Cash Market Segment, as collateral securities. On 21 st January, 2008, the market witnesses a fall resulting in to MTM loss of Rs.1,14,237.73 in the account of the Respondent and margin requirement of Rs.1,33,19,230.31, resulting in to a net debit of Rs.1,26,00,389.14. Due to fall of market the value of collateral securities in the account of the Respondent, had fallen down to Rs.21,36,700/-. Thus, there was a net shortfall of Rs.1,04,64,689.14.
4. As alleged, on 22nd January, 2008, the market witnessed further drastic fall on account of which the trading was suspended for an hour for cooling of market between 10:00 a.m. and 11:00 a.m. The other hand value of collateral securities had gone down. There was a further MTM loss of Rs.59,84,980/- in the account of the Respondent. Thus,an aggregate amount of Rs.1,85,85,369.14 (i.e. ::: Downloaded on - 09/06/2013 19:08:37 ::: 4 arbp286-09j Rs.1,26,00,389.14 + Rs.59,94,980/-) was outstanding and receivable from the Respondent. The value of the collateral securities had further fallen down to Rs.21,00,000/-. Thus, there was an aggregate shortfall of Rs.1,64,85,369.14.
5. The Petitioner approached the Respondent and required the Respondent to immediately meet the margin shortfall in his account, however,the Respondent expressed its inability. Therefore, immediately after the market resumed the Petitioner started squaring off outstanding position of the Respondent. The Petitioner prepared and issued the contract note as well as bill, which were dispatched by the Petitioner to the Respondent through courier, and the same were received, retained, accepted and acknowledged by the Respondent. The petitioner also forwarded Electronic Contract Note on the Email ID of the Respondent, and the same were received by the Respondent. After squaring off all the outstanding position of the Respondent, a sum of Rs.84,58,688.20 remained due and payable by the Respondent to the Petitioner with respect to its F&O transactions.
In the scenario of falling market, the Petitioner had squared off the outstanding positions of the Respondent.
::: Downloaded on - 09/06/2013 19:08:37 :::5 arbp286-09j
6. On 22nd January, 2008, the market started showing signs of recovering. Looking at the improving scenario of market and with sole intention to disown the losses arising from the squaring off transactions, the Respondent raised false and frivolous disputes. A meeting had taken place between the director of the Petitioner and the Respondent to resolve the disputes amicably. During the meeting, the Respondent had made representations that it would give huge business to the Petitioner, whereby the losses in the account of the Respondent would be compensated for. With an intention to amicably resolve the dispute, the Parties had shown its willingness to agree to a settlement as under:
1. The Petitioner agreed to :
a. Transfer 30,000 shares of Cosmo Films to the
account of the Respondent;
b. Give a Draft Memorandum of Understanding
(MOU) to be executed between the parties.
2. The Respondent agreed to :
a. Pay Rs.24,00,000;
b. Execute the MOU and;
c. Provide substantial business in future to the
Petitioner for the loss incurred.
::: Downloaded on - 09/06/2013 19:08:37 :::
6 arbp286-09j
7. As alleged, accordingly in good faith the Petitioner transferred 30,000 shares of Cosmo Films to the account of the Respondent and a Memorandum of Understanding was drafted and also forwarded by the Petitioner to the Respondent. However, after receiving said 30,000 shares of Cosmo Films, contrary to the settlement talks, the Respondent neither paid Rs.24,00,000/- nor executed the MOU.
8.
The Petitioner filed the claim against the Respondent to recover a sum of Rs.84,58,688.20 together with interest thereon at the rate of 18% p.a. from 22nd January, 2008 till payment and/or realization, bearing Arbitration Matter No.F&O/M-073/2008. The Respondent filed the counter claim to recover a sum of Rs.12,00,000/-.
9. The learned Arbitrator Tribunal has dismissed the claim as well as the counter claim mainly on the reasons recorded in following paragraphs:
"60. As per the Settlement, the Applicant was to return 30000 shares of Cosmos Films purchased by the Applicants for the ::: Downloaded on - 09/06/2013 19:08:37 ::: 7 arbp286-09j Respondents. Curiously enough though this settlement did not go through on 20.2.2008, the shares of Cosmos Film which was a security for the applicant were returned to the Respondent for which the Applicant have no reasonable explanation to offer. This settlement was not referred to by the Applicants in their statement of claim as filed but the same was brought to the notice of the Arbitral Tribunal by the Respondent in the Written Statement and the Counter Claim filed. The Applicants have thereafter in their Rejoinder stated that so far as the Agreement was concerned, as no settlement was arrived at in view of the fact that the Respondents had forwarded a Memorandum of Understanding where they had arbitrarily made changes, the same was not executed because they had backed out of the same. However, so far as the settlement is concerned, the same was received by the Applicant on 25.3.2008 and the statement of claim has been filed on the next day i.e. on 26.3.2008. No doubt the Settlement did not materialize but the important issue that remains to be determined and has remained unanswered is that 30000 shares of Cosmic Film were returned by the Applicants to the Respondents on 20.2.2008 at which point of time the Settlement between the parties had not been finalised and the return of the shares was a part of the term of the settlement.::: Downloaded on - 09/06/2013 19:08:37 :::
8 arbp286-09j This conduct of the Applicant in returning the shares before the Settlement being arrived at adversely affects the case of the Applicant as to why would the Applicant return the shares, a valuable security, when the shares were treated as collateral securities and they had a claim against the Respondents for Rs.84,58,688.20 Ps. This conduct of the Applicant therefore creates a doubt in our mind as to what was the real intention of the parties which regard to the transaction between the Applicant and the Respondent why would the Applicant forego a claim of Rs.60,58,688.20 Ps. returned the shares and only claimed a sum of Rs.24,00,000/- from the Respondent. This arrangement as recorded in the Settlement and the return of 30000 shares of Cosmic Films on 20.2.2008, without a settlement being arrived at creates a doubt in the mind of the Arbitral Tribunal with regard to the nature of the transactions and what in fact was the arrangement between the Applicant and the Respondent. This situation, therefore, makes us question the conduct of the Applicant as to whether the Applicant is justified to claim the amount and in the absence of any reasonable explanation from the Applicant with regards to settlement and return of shares despite the settlement not having materialized, we are of the opinion that the Applicant is not able to justify his claim ::: Downloaded on - 09/06/2013 19:08:37 ::: 9 arbp286-09j nor is the Applicant is entitled to claim the amount under Reference as he has not come before us with clean hands.
61. The Respondents has also filed a counter claim for a sum of Rs.12,00,000/-. However, the said counter claim is not maintainable as this amount was deposited towards the margin account in respect of which the Respondents has entered into transactions, has received benefits which he is not entitled to claim by way of counter-claim and the counter claim stands rejected."
10. The parties, in such commercial matter, at any point of time, can settle the matter. Admittedly, as agreed the settlement did not materialized. But, the fact remains and as recorded, there is no justification on record why 30000 shares of Cosmic Films were returned by the Petitioner. The Tribunal referring to this settlement and contents of the MOU and the fact that the same could not be materialized has raised various doubts and thereby referring to the conduct, rejected the claim; also by recording that the Petitioner-
Applicant is not entitled to claim the amount as "he has not come before us with clean hands."
::: Downloaded on - 09/06/2013 19:08:37 :::10 arbp286-09j
11. The settlement, if not proceeded further by the parties for whatever may be the reason, needs to be overlooked. The unsigned MOU could not have been taken note of and the Arbitral Tribunal ought to have proceeded with the matter on merits as if their exists no such settlement. In the present case, as recorded above, the learned Tribunal rejected the claim also on the ground of malafide.
There are no specific issues raised revolving around the unsigned MOU and/or the conduct of the parties and/or the alleged unclean hands. The effect of return of 30000 shares of Cosmic Film by the Petitioner to the Respondent on 20 th February, 2008, just cannot be overlooked. The learned Arbitrator ought to have given reasons while dealing with this passage when the Petitioner had admittedly raised a claim of Rs.85,00,000/-. Any arrangement, if failed, the consequences should be that the parties and the Arbitral Tribunal have to proceed with the matter without such settlement contended.
But, by raising doubts about the settlement and for rejection of claim in such fashion, in my view, amounts to overlooking and/or failed to take note of the documents already on record. This falls within the ambit of error on the face of record and illegality.
12. The findings are given even on no merits, in the absence ::: Downloaded on - 09/06/2013 19:08:37 ::: 11 arbp286-09j of clear findings but referring only to above settlement. The effect of return of 30000 shares by the Petitioner, in my view, is relevant factor. This fact cannot be dissected when the finding is clearly given by the learned Tribunal upholding the action of the Petitioner-
Applicant, squaring of the transaction on 22nd January, 2008, as the Respondent failed to meet the margin.
13. It is necessary to note in such type of transactions, the law and relationship between the parties. There is nothing on record to show that before taking action of squaring it off on 22 nd January, 2008, any due or prior notice was given. The request was made not to proceed with the action of squaring. It appears that action was taken as the Respondent not fulfilling and/or back out of the settlement as referred above.
14. It is recorded that the Petitioner has forwarded the contract notes and the bills by courier and also by its E-mail ID on 21st January, 2008. On 22nd January, 2008, the market witnessed the downfall and as the margin requirement was 1 Crore 26 lakhs, and, thereafter a net shortfall of Rs. 1 Crore and 4 lakhs, and as there was no response, the action square off taken ought to have been ::: Downloaded on - 09/06/2013 19:08:37 ::: 12 arbp286-09j considered.
15. It is relevant to note that the learned Arbitral Tribunal has even recorded that "the Respondent cannot seek to absorb those from the liability of margin payment by making a fishing enquiry, dealing in any way when the Respondent, who has entered into the transactions in such following matters and as taken a financial risk for which he cannot attribute any negligence or malafide to the Applicants". The Arbitral Tribunal in fact concluded that the Applicant cannot be faulted for squaring off the Respondent's transactions on 22nd January, 2008, for failure on the part of the Respondent to deposit the margin requirements. Though the Tribunal has given above finding on merit, yet rejected the Petitioner claim in toto.
16. The Tribunal has dismissed even the counter-claim by simply holding that "the deposit was towards the margin account and has received benefit." The Award therefore needs interference.
17. In a situation where the claims as well as the counter claim read with the issues and/or points are interlinked and ::: Downloaded on - 09/06/2013 19:08:37 ::: 13 arbp286-09j interconnected and difficult to dissect or separate, the Court in my view, has no option but to remand the whole matter back for re-
consideration. Mere setting aside the Award, is not sufficient in every matter as the arbitration proceedings set concluded once the Award is quashed and set aside, without any further orders or directions. The matter if remanded for re-consideration there maybe early and proper decision on merit. In the interest of justice, and to avoid further delay in the matter and to achieve the purposes and object of the arbitration, in my view, the Court is empower to remand the matter by giving specific and/or restricted directions. In a given case, permit the parties to the evidence and/or file additional material and/or direct the Arbitral Tribunal to proceed and/or assume on the basis of material already available on record. The reasons given in favour of the Petitioner-Applicant that the action of squaring off was well within the power; and as there was default on the part the Respondent; and the rejection of the claim also on the ground of conduct and the doubts, are interlinked and interconnected.
18. Another linked aspect is of rejection of the counter claim by assigning no specific reasons. It is relevant to note here in a ::: Downloaded on - 09/06/2013 19:08:37 ::: 14 arbp286-09j Arbitration Proceedings like this where both the parties filed their respective monetary claims, the Tribunal needs to consider the same simultaneously. If claim is accepted and the counter claim is rejected then there is no question of any adjustment. But, if claim is accepted in part so also the counter claim, the Tribunal needs to consider the amount while passing the final Award. The adjustment of such claim and/or counter claim is important factor while passing the Award.
19. Resultantly, (a) Award dated 15th December, 2008, is quashed and set aside. (b) The matter is remanded back for re-
consideration. (c) All points are kept open. (d) The Tribunal to dispose of the matter expeditiously, by giving full opportunity to the parties. (d) Parties to take steps in accordance with law. (g) There shall be no order as to costs.
(ANOOP V. MOHTA, J.) ::: Downloaded on - 09/06/2013 19:08:37 :::