Delhi District Court
Surender Kumar Goel vs M/S Motilal Oswal Securites Ltd on 3 December, 2024
IN THE COURT OF MS SAVITA RAO, DISTRICT JUDGE
COMMERCIAL COURT-01, SOUTH,
SAKET COURTS, DELHI
CNR No. DLST01-004234-2024
OMP (Comm) No. : 15/24
In the matter of :-
Sh. Surender Kumar Goel
S/o Sh. Har Prasad Goel
R/o Y-22, Hauz Khas
New Delhi - 110016
............Petitioner
Vs.
M/s Motilal Oswal Securities Ltd.
A Company incorporated under the provisions of
The Companies Act, 1956, having its office at :
Palm Spring Centre, 2nd Floor
Palm Court Complex, New Link Road,
Malad (W), Mumbai - 400064
..............Respondent
Date of institution of the petition : 05.01.2015
Date of Assignment to this court: 15.04.2024
Date of final arguments : 05.08.2024, 27.08.2024,
4.10.2024, 14.10.2024,
06.11.2024, 07.11.2024,
14.11.2024, & 22.11.2024
Date of Order : 03.12.2024
ORDER
1. This is petition u/s 34 of Arbitration and Conciliation Act, OMP (Comm) No. : 15/24 1/44 filed by the petitioner challenging the award dated 30.12.2013 passed by Ld. Arbitrator and the Appellate Award dated 29.09.2014.
2. Facts giving rise to present petition are that respondent is a registered broker of the National Stock Exchange and Bombay Stock Exchange and offers services to investors across the country through self as well as through its sub-brokers/authorized persons for dealings in shares and securities at the platform of the said Stock Exchange. There is one sub broker/authorized person of respondent/Trading Member namely Prudence Investments being operated by wife of petitioner as Proprietor of Prudence Investment. A trading account was opened by petitioner/constituent with the Trading Member/respondent through its aforesaid sub broker/authorized person on 16.10.2006 for carrying out dealings in shares and securities at NSE and BSE in their derivative segments i.e. capital/cash Market and Futures and Options. Respondent/Trading member had been maintaining an open, mutual and running account during the course of its ordinary business on financial year basis in respect of dealings carried out by the petitioner/constituent in his account.
3. Petitioner called upon the respondent to provide him all the financial ledgers since the date of commencement of trading which were supplied by the respondent to petitioner on 26.07.2012. On receipt of the said financial ledgers, petitioner OMP (Comm) No. : 15/24 2/44 found that many entries were wrongly entered by the respondent which were illegal, un-authorized and not justified. All such alleged wrong and un-authorized entries were detailed in the petition and on the strength of above, it was stated that in this manner, the debit entries for sum of Rs. 1,46,81,160.39 were required to be deleted and/or reversed from the account of the petitioner and after deletion and/or reversal of the said entries, respondent was required to pay a sum of Rs. 1,46,77,474.59 to the petitioner. Accordingly, Statement of claim of said amount was filed by petitioner against the respondent before NSE, Delhi, which was followed by filing of supplemental statement of claim as petitioner inadvertenly had failed to claim any relief in respect of the shares as mentioned in para E in the relief clause of the Statement of claim filed by him.
4. As stated by petitioner, the number of shares held by him further increased on account of allotment of bonus shares from time to time by the respective companies, however, respondent had wrongly and illegally did not account for the dividend of certain shares which were kept with the respondent in the margin account. Instead of accounting for the said divindend in the account of the petitioner, respondent booked the said dividend in the account of the sub-broker.
5. On behalf of respondent, it was submitted that the petitioner executed a Tri-partite agreement dated 16th October OMP (Comm) No. : 15/24 3/44 2006 and registered himself as a constituent of the Respondent through his wife's firm, Prudence Investments, who acted as the sub- broker/ Authorized Person under the Respondent. Almost all the transactions in the name of the Petitioner were executed by the office of his wife, except few options trades which were executed from the Respondent's Mumbai office. Under Clause 31,32 and 33 of the said Tri-Partite Agreement, the Petitioner agreed to indemnify the Respondent and authorized to transfer funds and securities from his account to family account including his wife's brokerage account. Petitioner filed a claim of Rs. 1,46,77,474.50 and interest @18% p.a. The said claim is based on the allegation of unauthorized options trades resulting in a loss of Rs. 22,56,855.91, debit entry of Rs. 37,42,758,74, debit entry of Rs. 23,94,982.87 etc. Respondent filed their reply and produced evidences, (1) SMS trade confirmation, (ii) electronic contract notes, (iii) ECN sent log report, and (iv) quarterly ledger confirmation and demat account statement including the email communication between the Petitioner's son, Mr. Anish Goel and the Respondent and prayed for rejection of the claim of the Petitioner. However, the Respondent admitted that 1080 shares of HDFC and 2,000 shares of KLG Systems were lying with them which would be released upon issuing a "NO CLAIM" letter by the Petitioner.
OMP (Comm) No. : 15/24 4/446. After completion of proceedings before Ld. Arbitrator, original award dated 30.12.2013 was passed. Against the said award, petitioner preferred an appeal which was also dismissed by Arbitral Tribunal vide appellate award dated 20.09.2014. Now, by way of present petition, petitioner is assailing the original award dated 30.12.2013 as well as appellate award dated 29.09.2024.
7. First challenge made by petitioner in the instant petition is pertaining to issue of option trade in Petitioner's A/c (PRD001) during 08.05.2009 to 19.06.2009 amounting to Rs.22,56,855.91. It was submitted by Ld. Counsel for petitioner that Petitioner was doing share trading since 2005 with the Respondent and Option Trades which resulted in loss of Rs. 22,56,855.91, were never executed by petitioner. The Petitioner's sub-broker is Prudence Investments who has a NEAT Terminal installed in Delhi. Since the Petitioner has been assigned by the Respondent as sub-broker (Prudence Investments), the trades axiomatically had to be executed through the NEAT Terminal in Delhi. Clause on "Recording of Client Conversation" of the Agreement between the Petitioner and Respondent dt. 16.10.2006 expressly states that electronic recordings/ tape records of the conversation over the telephone will be made for trades and such electronic records will be relied upon to resolve disputes regarding trading transactions, which is also the mandate of the National Stock OMP (Comm) No. : 15/24 5/44 Exchange (Futures & Options Segment) Trading Regulations ("NSE Regulations") (Clause 3.4.1) wherein the stock broker shall not only ensure confirmed order instructions obtained before placement of an order on NEAT but also shall keep records in cases where the orders are received from telephone (the telephone recording is mandatory). All trades were generally executed by telephone and therefore, it was submitted before the arbitral tribunal that telephone records should be furnished to show that these trades had actually been executed based on pre- trade authorisation.
8. Ld. Counsel for respondent submitted that prior to 22nd March 2018, it was not mandatory for a share broker to keep voice recording for placement of order. SEBI by a Circular No. SEBI/HO/MIRSD/DPO-I/CIR/P/2018/54 dated 22nd March 2018 made it mandatory for the share brokers to keep voice recordings for placement of orders by the clients. The petitioner's transactions were executed much prior to the date of the circular and therefore the findings recorded by the Arbitral Tribunal and Appellate Tribunal do not require any interference. Reliance was placed upon Nirmal Bang Securities Pvt. Ltd. Vs. Tilak Bachar, wherein it was observed that :
" The inescapable conclusion is that confirmation in writing was neither necessary nor mandatory under the applicable laws and the contract governing the parties at the appropriate stage when the impugned transactions had occurred. It would also be evident from the transactions and the course of the conduct and dealings between the parties, that the OMP (Comm) No. : 15/24 6/44 parties consistently followed a particular mechanism in their dealings. The respondent made gains under the same mechanism and duly appropriated the same. It is only when he made severe losses on 31.10.2013 that he challenged the transactions which had occurred on 31.10.2013. We are of the view that there is a whole body of evidence which is to be found from the morning phone calls which the call records show (at page 178), confirmatory SMS messages sent after the transactions (at page 155 to 162), electronic confirmation note on that date (at page 119 to 151) and the phone call on the evening of 31.10.2013 of which there is a transcript which have been ignored by the Tribunal in passing the impugned award. The cumulative effect upon a reasonable appreciation of the whole evidence leads to the only conclusion that the respondent had authorized the impugned transactions on 31.10.2013".
9. As further submitted, similarly Hon'ble Bombay High Court in Arbitration Petition no. 742 of 2017 between Nirmal Bang Securities Pvt. Ltd. Vs. Erach Khavar, recorded the findings under para 49,50 and 51 of the Judgment, wherein it was observed that :
" 52... when the constituent is aware of the transactions and has not objected to the same, the transactions cannot be said to be unauthorized. Further, if any objection is raised by the constituent, it is to be raised within a reasonable time".
10. Respondent's submission was pertaining to all orders having been placed by petitioner through sub broker's office from the terminal installed in Delhi. It was further submitted that even otherwise the location of the terminal from where the transactiions were executed is irrelevant. What is relevant is whether the transactions were executed in the client code of the petitioner and whether the petitioner has raised objection to the validity of the said trade within reasonable time. The Arbitral OMP (Comm) No. : 15/24 7/44 Tribunal called Trade Log Report from the exchange and recorded their finding. The petitioner against his debit balance of Rs. 73,23,878.50, made payment of Rs. 20,00,000/- by RTGS dated 08.05.2009 and thereby ratified the option trades and other disputed trades. Finding of facts recorded by the Arbitral Tribunal cannot be interfered in the proceedings under section 34 as the byelaws of the exchange provides collection of margin by cash/ by way of securities. There are situations where the ledger account of client shows debit balance but the client has large number of securities with the share broker and on the basis of said securities, broker allowed F&O transactins and said transactions cannot be called as unauthorised or illegal. In the present case, petitioner always had securities available with the respondent and therefore the execution of transactions in the name of the petitioner cannot make the said transactions illegal or unauthorized.
11. It was stated that in almost an identical case before the Hon'ble High Court in a petition u/s 34 of the Act wherein petitiner raised almost identical objection and the respondent narrated the fact of subsequent payment and transfer of securities. Hon'ble Bombay High Court rejected the petition and recorded its findings as under:
" In my view, the award does not suffer from any illegality or perversity much less can be said to be in conflict with public policy of India. The award has been made consistent with the materials produced including OMP (Comm) No. : 15/24 8/44 the documents and the undisputed position emerging from the accounts. If the tribunal concluded that a substantial sum from the total amount as claimed by the petitioners has been paid by the respondents and that too without any objections having been raised, then, in the peculiar facts of the case, the other finding of the Tribunal that respondent has not violated the regulations of the concerned exchange cannot be faulted. The transactions were going smoothly. It is in such circumstances and bearing in mind the contents of paras 5.30 to 5.10 of the award. I find that no case for interference is made out by the petitioners".
12. Ld. Counsel for petitioner submitted that no specific reason concerning each and every trade was provided by the respondent justifying their execution at the terimnal installed at Mumbai instead of Delhi. Further, these trades, which were taken as new positions, could not be undertaken when as per the case of the respondent there was a debit balance in the ledger account of the petitioner to the tune of Rs. 72,69,379/- a day before the execution of the said trade i.e. 7th May 2009. As submitted, the Arbitral tribunal grossly erred in observing that the shares lying as collateral in the sub-broker's account could be taken as sufficient margin for executing the aforesaid option trades. Further, it any shares are lying in the sub-broker's account, the same could not be taken towards margin for conducting trading in the account of the petitioner. It was also submitted that even if it is assumed for the sake of arguments that the two trades had taken place at the terminal of the sub-broker at Delhi and were with the consent and knowledge of the petitioner, the claim in OMP (Comm) No. : 15/24 9/44 respect of other trades ought to have been allowed by the Arbitral Tribunal.
13. Ld. Arbitrator noted the submission of petitioner that if the respondent was able to establish that even a single trade in option had been executed from the terminal of the sub broker, he would withdraw the case,which led to calling of order log/trade log report from the exchange regarding the trades of the petitioner, for the relevant period alongwith location of trading terminal from which the trades originated. As per trade data record, option trade for purchase of shares of JP Associates on 29.5.2009 and on 1.6.2009 were executed from the terminal installed in the office of the sub broker. Some of the option trades , as noted, were executed at the terminal installed at Mumbai office of the respondent. Petitioner had also submitted that no new trade option could have been allowed by respondent on 08.05.2009 when there was debit balance of Rs. 726937/- in the ledger account.
14. As noted by Ld. Arbitrator, no objection to these trades was raised by petitioner despite the issuance of quarterly ledger account to the petitioner in which the option trade transactions were reflected with error reporting clause. It was also noted that even otherwise, the petitoner and his son had access to back office service of respondent regularly. Therefore these transactions and trades in option could not have been missed by OMP (Comm) No. : 15/24 10/44 them, yet objections were not raised by the petitioner or the sub broker. Ld. Arbitrator also noted that it was not the case of the petitioner that he was disputing only those option trades which were executed at Mumbai but it has also not been disputed that some other trades in other segment of the market had also been executed through the terminal installed at Mumbai office of the respodent. Ld. Arbitrator found that some of the option trades were executed through the terminal installed in the office of sub broker at Delhi, contract notes of those trades and quarterly ledger accounts reflecting those transactions had been duly delivered to the petitioner without any objection having been raised thereafter. Therefore, petitioner could not dispute option trades in sum of Rs. 2256855.91 because of the losses suffered.
15. Ld. Counsel for petitioner submitted that a trade has to have pre exeuction instructions. The arbitral tribunal instead of seeking pre-trade authorisations rejected the Petitioner's claim on the reasoning that contract notes were issued, therefore, the transactions were genuine. Reliance was placed upon First Global Stock Broking Pvt. Ltd. vs. Tarun Gupta FAO(Comm) No. 119/2024, judgment dt. 01.07.2024, 2024:DHC:4879-DB, wherein it was observed that the sacrosanct evidence to establish that a trade has been executed, has to be pre-execution instructions. The NSE Regulations mandate obtaining such instructions prior to placing the orders on NEAT. Failure to OMP (Comm) No. : 15/24 11/44 obtain such instructions is violative of NSE Regulations and the contractual covenants between the client and the stock broker. It was also held that admission solely on the basis of contract note is not sufficient. Ld. Counsel for petitioner further submitted that there was clear admission that phone records have not been maintained which clearly shows that transactions were suspicious and not genuine and such loss is not of the Petitioner.
16. Ld. Appellate Tribunal also noted that :
"The Arbitral Tribunal failed to appreciate that the trading member had not produced any evidence of instructions/orders from the constituent- applicant for these Option trades. Moreover, all the 117 trades in this period
---except three specific trades done at Delhi---were executed at the Mumbai terminal of the trading Member and not at Delhi. He further submitted that the reason advanced by the respondent for executing these trades at Mumbai was of "technical glitch" at their Delhi terminal. This reason, the appellant submits, is not worthy of acceptance as a technical glitch cannot last over a period of one month. The appellant further submitted that the option trades executed at Mumbai were taken as new positions, which could not be done as there was a debit balance of over Rs.72 lakhs in the ledger account of the appellant at the beginning of this period. The Arbitral Tribunal, it is urged on behalf of the appellant, further erred in observing that the constituent had not raised any objection to these trades if these were really unauthorized. Our attention was sought to be drawn to the e-mail dated 21-07-2009 from the Trading member to Sh. Surender Goel, in which there is a reference in various discussions"; according to the appellant these discussions were on the subject of these unauthorized trades.
(b) The learned counsel for the respondent has countered the above arguments. It is subrnitted that the location of the terminal from which trades are entered cannot be the determinant of the genuineness or otherwise of the trades. It is pointed out that ECNs of all these trades were sent to the appellant on his designated e-mail ID with error reporting clause, but no objection was ever raised before taking up the issue in the Arbitration pevceedings. Further, quarterly ledger accounts were duly to the appellant in which these trades were reflected. Apart from these, the appellant hast access to the back office facility on the website of the respondent and Sh.
Anish Geel had been accessing this facility on a regular basis. Regarding the OMP (Comm) No. : 15/24 12/44 tack of margin, the respondent argues that there was a shortage of margin only on a few days during this period, in this connection he has invited our attention to the Margin Statement filed during the Arbitration proceedings. In any case, it is aggwent there is no absolute bar on a Trading member from allowing trades even if there is a margin shortfall; this is evident from the fact that SEBI provides for a penalty on the Trading Members in case such trades are carried out. The respondent cited the judgment of the H'ble Bombay High Court in Arbitration Petition no. 950 of 2011 in which it was held that non collection of margin by a rading member from the clients does not invalidate the trades. In any event, on 08- 05-2009 itself the appellant- constituent had put in additional funds of Rs.20 lakh. It is farther pointed out that after the disputed period there have been several pay- ins and pay-outs, which itself shows that the appellant was completely satisfied with the correctness of the entries in his ledger account. The sub-broker, who was none else than the appellant's wife had received her share of commission in respect of these Option trades which are now disputed in appeal.
(c). We have carefully examined the submissions and arguments of the rival parties. We find that confronted with the constituent's bland denial of the Buthenticity of these trades during the Arbitration proceedings, the Arbitral Tribunal had called for and obtained from the NSE the order log/trade log report for the disputed period both for the F&O trades and the Option trades. The disputed trades were seen to be executed in the appellant's client code. The Tribunal also noted that F&O trades during the same period, executed at Mumbai terminal, were not disputed by the appellant. The Arbitral Tribunal, therefore, rightly concluded that the execution of some trades at the Mumbai terminal could not, in itself, be regarded as being inconsistent with the genuineness of the trades. They further noted that despite having received the Contract Notes for all these trades the appellant did not ever raise any dispute with regard to the trades, until the filing of the Arbitration application three years later. During the course of hearing of the appeal before us, it was urged by the learned counsel for the appellant that the e-mail dated 21-07-2009 is sufficient evidence that the trades had been disputed, as the phrase "based on our various discussions" in this mail refers only to the discussions around these Option trades. We are, however, not impressed by this argument. The mail in question, after recording the above phrase, goes on to list certain specific areas in which an understanding had been arrived at and the genuineness of the Option trades in the relevant period does not appear in the list. The Arbitral Tribunal also noted that the appellant had paid a sum of Rs.20 lakh on 08-05-2009, that is, at the at the start of the period in dispute and if the respondent, considering the fact that the appellant-constituent and his family OMP (Comm) No. : 15/24 13/44 generated voluminous business, had chosen to enter trades even in the face of lack of adequate margin, the risk was the Trading Member's, but the trades themselves could not be invalidated simply on this ground. As has been noted earlier, SEBI has provision for imposing penaities on the Trading Members in such instances".
17. Ld. Counsel for petitioner reiterated that all trades happened through Mumbai Terminal of the respondent even as per the trade files submitted by the respondent. Contention of Ld. Counsel for petitioner is found correct that two terminals of Delhi office mentioned in the trade file of Maanvi Goel and Tanu Goel were allotted on 31.7.2009 which was after the execution of option trade and on same ID 953, Mumbai Terminal was activated where trades were done at Mumbai. It was also submitted that if the calls had indeed been made from the Delhi office of the petitioner, there would have been no requirement to request for the call records . As further submitted, even after the record had been summoned by Ld. Arbitrator, only the trade log was submitted and the call records remained undisclosed. Transactions involving two terminals of Delhi office, allocated on 31.7.2009 were linked to Mumbai office as is evident from Trade Logs. Consequently, the transfer as noted by Ld. Arbitrator could not have occurred from this server at the earlier stage, through sub broker. Ld. Arbitrator either overlooked this vital evidence or the same had not been adequately brought to the notice of Ld. Arbitrator.
OMP (Comm) No. : 15/24 14/4418. With regard to the finding of quarterly ledger details having been issued and no objection having been raised by the petitioner, it was submitted that respondent's email dated 21.07.2009 sent to petitioner by respondent has been misconstrued by the Arbitrator, a bare perusal of which would make it clear that respondent had agreed to provide a credit to the extent of Rs. 8 lacs relating to ' option' trade to the petitioner.
19. Email dated 21.07.2009 refers to various discussions between parties and acknolwedgment with regard to execution of option trade and reversal of entry of Rs. 8 lacs with regard to options trade. Vide same email, respondent mentioned paying Rs.6.50 Lacs on account of option trade which were not debited to the Petitioner's account. Thereby, it cannot be concluded that no objection was raised by petitioner or that there was no discussion in this regard, which led to reversal of entry for option trade and non debit of Rs. 6.50 lacs in account of petitioner. It may be correct that considering the voluminous business with petitioner and his family, respondent if had chosen to enter option trades, even in face of lack of adequate margin, the risk was of trading members and trades could not have been invalidated on this ground. Nevertheless, in the instant matter, pre-authorization by petitioner was not established on record. Ld. counsel for petitioner submitted that original arbitral tribunal erred in relying on an alleged transcript of conversation which alleged to have OMP (Comm) No. : 15/24 15/44 taken place between the petitioner and the respondent to arrive at a finding that the transactions in the account of the petitioner were conducted by Sh. Anish Goel, the son of petitioner. No voice recording was provided by the respondent before the Arbitral Tribunal in relation to the said transcript. As such, the said transcript could not have been relied upon by the Original Arbitral Tribunal.
20. Call recording not being mandatory prior to 2018, yet call details or confirmation SMS/MSG were not established on record. Observation of Hon'ble High Court in First Global Stock Broking Pvt. Ltd. vs. Tarun Gupta FAO(Comm) No. 119/2024, judgment dt. 01.07.2024, 2024:DHC:4879-DB, is worth noting here that :
63. ........ although Regulation 3.4.1 of the National Stock Exchange of India Ltd. (F&O Segment), Trading Regulation, 2000 may not have, at the relevant time required telephonic recording of the instructions to be preserved, the said Regulation expressly provided that the required trading members to ensure that appropriate confirmed order instructions are obtained from the constituents before placement of order on the NEAT Systems. The trading members were also required to keep relevant record or documents of the same and/or completion or otherwise of these orders thereof. The relevant extract of Regulation 3.4.1 of the said Regulations, which were applicable at the material time reads as under:
"3.4.1 Trading Members shall ensure that appropriate confirmed order instructions are obtained from the constituents before placement of an order on the NEAT system and shall OMP (Comm) No. : 15/24 16/44 keep relevant records or documents of the same and of the completion or otherwise of these orders thereof."
64. It is apparent from the above that even though there was no requirement to keep recording of telephonic conversations, the appellant was bound to keep relevant records and documents to evidence that appropriate confirmed order instructions were obtained. Concededly, there are no records whatsoever available with the appellant evidencing receipt of appropriate confirmed order instructions. The contention that the receipt of instructions must be inferred on the basis that the appellant did not raise objections on receipt of contract notes, was rightly rejected by the Appellate Arbitral Tribunal, in view of the overall factual conspectus, as noticed herein above".
21. Call Log/Trade data records brought on record rather, reflect transactions having been made from two terminals of Delhi office, which were allotted subsequent to the date of transactions, sufficient to raise suspicion about the authenticity of the transaction coupled with the fact of lack of adequate margin in account of petitioner, subsequent discussion between parties and alleged redressal of objection pertaining to such transactions/option trade as conveyed by respondent itself, vide email dated 21.07.2009, renders the findings as perverse.
22. With regard to issue pertaining to debit entries on 20.06.2009 of Rs. 37,42,758.74 and on 26.08.2009 of Rs.23,94,982.87, it was the submission of Ld. counsel for respondent that :
OMP (Comm) No. : 15/24 17/44(a) petitioner executed a tripartite agreement wherein petitioner's wife's firm was the second party. Clause 32 and 33 authorized the respondent to adjust the credit balance and securities lying in his account against the debit balance in the family account. Therefore, family includes the petitioner's wife's sub-broker's brokerage account also for the purpose of transfer of funds and securities.
Clause 29 (seems to have been wrongly mentioned as Clause
31) was reproduced as under:
" The client and sub broker, individually and jointly (with family/group) shall indemnify and shall always keep indemnified the stock broker harmless from and against all claims demands............".
(b) arbitral tribunal considered the said claim of the petitioner and recorded their findings on the basis of provisions contained under Clause 32 and 33 of the Tripartite Agreement.
(c) during the telephonic conversation dated 11th August 2011, petitiner admitted that his son Mr. Anish Goel was looking after the account, and he signed the slip to get the share transferred. Mr. Anish Goel by his email dated 8th August 2011 authorized transfer of shares from PRD12 (Petitioner's wife's brokerage account to PRD001 (Petitioner's account). By another email dated 19th September 2009, Mr. Anish goel further confirmed value of stock lying in PRD200. In this manner, petitioner has ratified transfer of funds and securities from his account to the account of his wife's sub brokership account by OMP (Comm) No. : 15/24 18/44 treating the same as family account. By said conduct, petitioner is estopped from disputing the said transfer of shares and money.
23. Ld. Counsel for respondent placed reliance upon 2003 (2) SCC 355 titled as B.L. Shridhar Vs. K.M. Munireddy, wherein it was noted that :
"37. If a man either by words or conduct has intimated that he consents to an act which has been done and that he will not offer any opposition to it, although it could not have been lawfully done without his consent, and he thereby induces others to do that which they otherwise might have abstained from, he cannot question legality of the act he had sanctioned to the prejudice of those who have so given faith to his words or to the fair inference to be drawn from his conduct".
24. Ld. counsel for respondent further placed reliance upon Union of India Vs. Ibrahim Uddin and Anr. (2012) 8 SCR 35 , Shreepal Kumar Pukharaj Vs. Edelweiss Securities Ltd. (2011) BHC and PSA Sical Terminus (P) Ltd. Vs. Board of Trustees of Chinda, Baram Port Trust, Tutirocin (2021) SCC Online SC 508 , wherein interalia, it was noted that :
" Estoppel is where a man is concluded by his own act or acceptance to say the truth. Though estoppel is described as a mere rule of evidence, it may have the effect of creating substantive rights as against the person estopped. An estoppel cannot have the effect of conferring upon a person a legal status expressly denied to him by a statute. But where such is not the case, a right may be claimed as having come into existence on the basis of estoppel which is capable of being enforced or defended as against the person precluded from denying it".OMP (Comm) No. : 15/24 19/44
25. Ld. Counsel for petitioner submitted that there was fundamental error and misdirection both in law and facts in invocation of Clauses 32 and 33 of Tripartite Agreement dt. 16.10.2006 which on a plain reading are not applicable to the present factual matrix. The dispute is that certain credits available in the Petitioner's Trading A/c PRD001 were illegally debited and transferred to Prudence Investments Brokerage A/c PRD1200 (not Trading A/c) relying on: (i) Clauses 32 and 33 of the Tripartite Agreement and (ii) on the premise that the Petitioner and Prudence Investment is family (being husband and wife). Petitioner and the Sub-broker Prudence Investment cannot be construed as family account as the relationship between a stock broker and a sub-broker is governed by Broker-Sub-broker Agreement. Arbitral tribunal fails to consider that the account in which two credit entries in sum of Rs. 37,42,758.74 and Rs. 23,94,982.87 were transferred by the respondent was the Master account of Sub-Broker i.e. Prudence Investments and the said account was not a family account or group account of the petitioner in respect of dealings in the cash segment or derivative segment of the exchange. Merely, because the said concern was the propreitorship concern of the wife of the petitioner, the said fact does not change the nature and character of the said account. In the said account, only brokerage were received by the said broker and it has nothing to do with any trading either in the cash OMP (Comm) No. : 15/24 20/44 segment or the derivative segment of the exchange, as mentioned in Clause 32 and 33 of Tripartite Agreement.
26. It was further submitted by Ld. Counsel for petitioner that :
(a) the undisputed fact is that debit is from Petitioner's Trading A/c in F&O Segment (entries dt. 20.06.2009 and 26.08.2009) to Prudence Investments' Brokerage A/c in F&O Segment; whereas Clause 32 permits transfer from cash segment to cash segment and Clause 33 permits transfer from cash segment to F&O segment.
(b) the family adjustment is permissible only qua same genre i.e. within trading account of the same family. In the facts of the present case, the Petitioner and his wife Mrs. Shanti Goel both had trading accounts PRD001 and PRD101 with the Respondent. Shanti Goel also had sub broker account PRD1200 as a proprietor of Prudence Investments. The adjustment could be made qua trading accounts whereas in the present case, the adjustment is made from a trading account against an alleged due in brokerage account.
(c) the relationship between a stock broker and a sub- broker is governed by Broker - Sub-broker agreement, whereas the relationship between a trader and stock broker is governed by Tripartite and Bipartite Agreements. The dues which a sub-broker will have will be qua brokerage etc. under a separate contract and OMP (Comm) No. : 15/24 21/44 those dues cannot be offset against the dues in a trading account which are not in relation to any brokerage etc.
27. Clause 32 and 33 of Tripartite Agreement refer to entitlement of stock broker to adjust and set off the amounts and securities payable to the client/family/group in respect of transactions done by the client/family/group on the cash segment of the exchange against the amounts receivable from the client /family/group, with further authorization by the client in favour of stock broker to appropriate credits lying in his group/family accounts on the cash segment of the exchange against debits in his group/family accounts on the derivative segment of the exchange through issue of cheque or by passing appropriate journal entries. Petitioner herein is holding the trading account whereas his wife is holding a separate trading account as well as sub broker account.
28. Ld. Counsel for petitioner referred Regulation 6.1.6.1(b) and 6.1.6.2(v)(a) of the National Stock Exchange (Futures & Options Segment) Trading Regulations and Regulation 6.1.5(b) of the National Stock Exchange (Capital Market) Trading Regulations which mandates a broker to keep the money and security belonging to a client in a separate account. The relevant extract is reproduced hereunder:
Regulation 6.1.6.1(b) of National Stock Exchange (Futures & Options Segment) Trading Regulations: "It shall be compulsory for all Trading Members to keep the money of the constituents in a separate OMP (Comm) No. : 15/24 22/44 account and their own money in a separate account. Bank account(s) holding constituent funds shall be named as "Name of Stock Broker - Client Account". No payment for transaction in which the Trading Member is taking a position as a principal shall be allowed to be made from the constituent's account."
Regulation 6.1.6.2(v)(a) of National Stock Exchange (Futures & Options Segment) Trading Regulations: The Trading Members shall keep the dematerialised securities of Constituents in a separate beneficiary account distinct from the beneficiary account maintained for holding their own dematerialised securities. No delivery towards the own transactions of the Trading Members shall be allowed to be made from the account meant for Constituents. For this purpose, every Trading Member is required to open a beneficiary account in the name of the Trading Member exclusively for the securities of the Constituents (hereinafter, to be referred to as "Constituents beneficiary account"). A Trading Member may keep one consolidated Constituents' beneficiary account for all its Constituents or different accounts for each of its Constituents as it may deem fit."
Regulation 6.1.5(b) of National Stock Exchange (Capital Market) Trading Regulations: "It shall be compulsory for all Trading Members to keep the money of the clients in a separate account and their own money in a separate account. Bank account(s) holding clients funds shall be named as "Name of Stock Broker - Client Account". No payment for transaction in which the Trading Member is taking a position as a principal will be allowed to be made from the client's account."
29. Reference was also made to Clause 8 of Tripartite Agreement signed between Petitioner, Respondent and Prudence Investment that:
"The stock broker agrees that the money/securities deposited by the client shall be kept in a separate account, distinct from his /its own account or account of any other client and shall not be used by the stock broker for himself /itself or for any other client or for any purpose other than the purpose mentioned in SEBI Rules & regulation circulars/ Guidelines/Exchange Rules / Regulations/Bye Law and Circulars".OMP (Comm) No. : 15/24 23/44
It was also submitted that therefore, the journal entries made by debiting the Petitioner's trading account and crediting Prudence Investments/Shanti Goel's Brokerage Account are in violation of Regulations of National Stock Exchange and also the Tripartite Agreement binding on the Respondent.
30. Following the abovenoted mandate, stock broker/sub broker was required to maintain separate account with regard to money/securities deposited by the client, distinct from its own account or account of any other client. Therefore, the trading account of the petitioner as well as of his wife could not have been clubbed with the sub broker account of Prudence Investment i.e. the proprietorship concern of wife of petitioner. SEBI and NSE Guidelines mandate stringent norms to ensure transparency and prevent conflict of interest, particularly for intermediaries like sub broker. A sub broker account is a business account which operates under professional capacity and facilitates trading for others under the purview of the broker . These accounts are not personal trading accounts and as such are not automatically considered family accounts under the definition used for proprietary or personal trading. Trading accounts of family members though can be considered family accounts depending upon the parameters that the accounts are operated from personal investments/trading, that there is financial dependency or pooling of resources between family members OMP (Comm) No. : 15/24 24/44 and that a declaration or disclosure has been made to treat these accounts as family accounts for margin and exposure purposes. If the family or group has provided prior written consent authorizing the broker to pool their accounts for settlements, the broker may adjust amounts or securities across accounts but without such consent , such adjustments would violate the regulations and norms.
31. Vide Clause 32 and 33 of Tripartite Agreement, nevertheless, petitioner had consented for adjustment and set off, of the amounts by respondent and for appropriation of credits and securities in respect of transactions on the Cash Segment of the exchange as well as on the Derivative Segment of the exchange in his group/family accounts. Thereby, petitioner, his wife and other family member's trading accounts could be treated as family accounts for the purpose of appropriation of credits lying in their family accounts against debits on Cash and Derivative Segment of the Exchange. Prudence Investment, nevertheless, was not holding the trading account but was holding sub broker account. Therefore, there was no such term or clause in the tripartite agreement to consider sub broker account and trading account as Family or Group Account which is distinct, separate and business account. If the adjustment involves the sub broker's account whose obligations are distinct from client or family account, thereby debiting a family member's trading account to OMP (Comm) No. : 15/24 25/44 settle a sub broker's alleged obligations is violation of the Regulations and Norms which could also lead to conflict of interest and mis-use of funds. In terms of Clause 32 and 33, the amount could be appropriated or adjusted or set off on the Cash and Derivative Segment of exchange, whereas the sub-broker account which was merely a facilitator and brokerage account, was not involved with trading transactions on Cash or Derivative exchange.
32. Despite the obligations of Sub broker account as separate and distinct from trading accounts, if it was still to be treated as family account alongwith trading accounts of family members, explicit written consent, at least, was required for such adjustments, which is not the case here. There was no prior written consent from client/family for adjustments including any arrangement to settle obligations collectively with the sub broker account. Besides that, the clear documentation of clients' consent and adjustment was required to be maintained by the respondent while ensuring that client's funds and securities remain separate unless such pooling is explicity authorized. A broker cannot automatically adjust funds or securities between the client/family or group accounts including to or from a sub broker's account unless there is explicit written authorization from all parties involved and full compliance with Regulations. The consent, in terms of clause 32 and 33, to the sub broker account, despite the OMP (Comm) No. : 15/24 26/44 specific stipulation with regard to consent for appropriation of funds only on Cash and Derivative Segment, is stretching too far, contrary to the terms of the agreement between the parties.
33. Ld. Arbitrator drew inference from involvement of son of petitioner in business affairs and noted that son of petitioner was managing the business of sub brokership and was also looking after and carrying out trades in his mother's account and the accounts of other clients who were trading through the sub broker, thereby had knowledge but he had never raised objection against credit transfer from F&O Ledger . It was observed by Ld. Arbitrator that the objection raised by petitioner was hypertechnical since all the family accounts i.e. account of petitioner herein and of sub broker were, being managed by a single person. Also that , wife of petitioner had taken advantage of the transfer of money from her husband's account to her account but had never raised any objection before filing of the arbitration reference.
34. It was also noted that "assuming for the sake of arguments, though not holding, the transfer of credit not being in accordance with terms of tripartite agreement, petitioner having acquiceased to those transfers for a long time, was now estopped from doing so. Merely because son of the petitioner was managing the business in all the accounts, it did not entitle the respondent to make the adjustments or transfer entries or credits in/to the OMP (Comm) No. : 15/24 27/44 account of sub-broker without the explicit consent of the petitioner or at least his authorized representative which ipso facto, could not have been considered family account. Contention of Ld. Counsel for petitioner carries weight that adjusting the negative balance in the account of sub broker after debiting the account of petitioner cannot be said to be, to the advantage of wife of the petitioner.
35. Similarly, for 3160 shares of Reliance Industries Limited which were kept as collateral with respondent were sold and sale proceeds of the shares was credited into sub broker account . It was submitted by Ld. Counsel for petitioner that respondent sold Petitioner's 3160 shares of Reliance Industries Ltd. kept as collateral with Respondent and credited sale proceeds of Rs.29,80,605.05 into Prudence Investments' Brokerage A/c (Cash Segment) on 13.05.2011. These shares were given as collateral by the Petitioner to the Respondent for the purpose of trading in his account as per Demat Instruction Slips & Demat Transaction Ledger. These shares were suo moto sold illegally by the Respondent and its proceeds were credited in the Prudence Investments' Brokerage Account. The fundamental premise on the basis of which the alleged collateral of Petitioner i.e. 3160 shares of Reliance Industries Ltd. have been sold and adjusted against dues of Prudence Investments is that Prudence Investments and the Petitioner are family/group. This is OMP (Comm) No. : 15/24 28/44 erroneous and stems from complete misreading of the contract. The grouping of family as explained hereinabove can only be in one genre i.e. trading accounts or sub-broker accounts and not interchangeable. In the present case, the dues are of sub-broker whereas shares are of a trader which cannot be offset under Clause 32 of the Tripartite Agreement.
36. It was further submitted that clause 27 of the Bipartite Agreement, ex facie, has no applicability. The said clause contemplates adjustment as regards the dues of trader vis-à-vis his broker. In the present case, the dues as alleged are of sub- broker to stock broker. This is in violation of Regulation 6.1.6.1(b) and 6.1.6.2(v)(a) of the National Stock Exchange (Futures & Options Segment) Trading Regulations and Regulation 6.1.5(b) of the National Stock Exchange (Capital Market) Trading Regulations . It was also submitted that in email exchange dated 13.07.2011, between the Respondent & Petitioner's son Mr. Anish Goel, an objection was raised on behalf of the Petitioner against the transfer of proceeds of shares in Prudence Investments' Brokerage Account which establishes that the transfer of sale proceeds was unauthorised.
37. Much of the emphasis was put on the knowledge, 'no objection' and taking advantage of transfer of funds from account of petitioner in the sub broker account of wife of OMP (Comm) No. : 15/24 29/44 petitioner. Ld. Arbitrator noted the submission on behalf of respondent that :
" Clause 27 and 32 of Tripartite Agreement authorize the respondent to adjust and set off the amount and securities payable to the group/family client and the petitiOner had authroized respondent to transfer the shares and pass appropriate entry within the group/family client and the group included sub broker's account. Vide email dated 08.08.2011, son of petitioner confirmed the validity of the transfer of shares from petitioner's account to the sub broker's collateral account and requested for transfer of shares from sub broker's account to the account of petitioner. This was followed by another email dated 19.9.2009 wherein he valued the stock of sub brokers account at Rs. 88 lacs and requested for release of RPL shares from sub broker's demat account to the petitioner's demat account. Ld. Arbitrator relying upon these emails observed that contents of emails fully support the case of respondent and belied the case of petitioner as the shares though in the name of petitioner were transferred by him to the pool/margin account of the respondent as collateral to the sub broker's account . That is why, he requested for transfer of some shares from sub brokers account to the petitioner's account".
38. Following was noted by Ld. Arbitrator:
" If those shares were lying in the pool/margin account as collateral to the account of the applicant (PRD 001) there was no need of making a request to the respondent to transfer them to the account of the applicant. Similarly, Shri Anish Goel again gave the value of the shares in the sub broker's account at Rs. 88 lakhs and requested for transfer of RPL shares of the value of Rs. 50 lakhs to the account of the applicant and retain the remaining shares as collateral to the account of sub broker. If all those shares were lying in the pool/margin account as collateral to the account of the applicant there was no need of making such a request to the respondent and allowing it to retain remaining shares as collateral to the account of sub broker. It is abundantly clear from these two Emails that all the RIL shares along with some other shares were lying in the pool/margin account as collateral to the account of Smt. Shanti Goel sub broker and not as collateral of the applicant's account. The applicant himself had transferred those shares to the pool / margin account and he had also agreed acquiesced to their being treated as collateral to the sub broker's account. The respondent now cannot turn around and claim those shares to be lying in the pool/margin account of the respondent as collateral to his own account. The OMP (Comm) No. : 15/24 30/44 respondent, therefore, rightly credited the sale proceeds of the sale of 3150 RIL shares to the credit of sub broker's account in order to liquidate the debit balance outstanding in the said account. The claim of the applicant has no merit and is, accordingly, rejected.
39. Ld. Counsel for petitioner submitted that while rejecting the claim in respect of the sale proceeds of Rs. 29,80,605.05 of 3160 shares of Reliance Industries Ltd, the arbitral tribunals have totally misinterpreted the emails dated 19.09.2009 and 8.08.2011 sent by Sh. Anish Goel, the son of petitioner. None of the said emails suggest that either the petitioner or Sh. Anish Goel had ever authorized the respondent to take the said shares as collateral security in the account of the sub-broker namely Prudence Investments. The said emails were request from Sh. Anish Goel to transfer the said shares to the account of the petitioner to which they rightfully belonged. There was no evidence before the Arbitral Tribunal to suggest that the said shares were given towards collateral for the sub-broker by the petitioner.
40. Vide email exchange between the parties, petitioner was told to maintain balance at Rs. 35 lacs, therefore, vide email dated 19.09.2009 respondent was requested to transfer RPL shares into PRD001 account while remaining shares were to act as collateral against the debit in PRD1200. There are series of email exchange betwen the parties with no reference to acquiesance by the petitioner or agreeing to the transfer of funds OMP (Comm) No. : 15/24 31/44 from the trading account of petitioner to the sub broker account being held by his wife.
41. Vide email dated 21.07.2009, following was informed :
" Sir, based on our various discussions, I am giving below the numbers and decisions for your implementation:
1. Current debit in PRD1200 (main sub broker account) is Rs. 12251888/-.
2. Current value of shres in collateral is Rs. 13898538.
3. Based on your instructions, we have divided the debit in two parties viz. :-
Debit from 3 clients Rs. 52 lakhs Less: Reversals of Brokerage, interest and penalties agreed by us:
Rs. 12 lakhs Less: Reversal of option trade Rs. 8 lakhs Net debit for these 3 clients Rs. 32 lakhs We request you to clear this debit through monthly installments of Rs. 1.50 lakhs. Please send the PDCs favouring Motilal Oswal Securities Limited alongwith a covering letter. We will keep shares worth Rs. 48 lakhs as cover (current value) towards these debits. We will release proportionate shares every three months from this account based on clearing of installments provided the remaining debit of 70.51 lakhs is cleared first.
4. Remaining debit of Rs. 7051888. This will be cleared by you within a time frame. You had informed me that this debit could get cleared in a month's time. Pls note that the collateral shares against this debit is Rs.
9098538 (current value). As a special gesture, we will not charge interest on this debit from July 1st till 15th August post which interest will be charged. In case the stock collateral value falls below Rs. 75 lakhs, we will be forced to sell the proportionate shares to recover this debit and remaining shares shall be added to the collateral against debit of point 3 above.
5. There is no brokerage credit pending from our side. As regards to interest charged earlier, I will not be able to reverse anything over and above Rs. 12 lakhs reversed in point 3 above. I had made it clear to Anish time and again that this large debit and the position is being allowed only against interest payments which was agreed upon.
6. Also, we had done some hedging options trade where we had paid Rs. 6.50 lakhs and had not debited your account for that amount. All in all, we have take a hit of Rs. 6.50 lakhs + 12 lakhs in this account. Anything more shall not be possible.
OMP (Comm) No. : 15/24 32/44Pls confirm the above arrangement on email to me so that I can put it in action at our end. Meanwhile, we are willing to pay Rs. 50 K payout every month towards meeting office expenses provided the brokerage shares of PRD1200 is more than that.
Regards Vijay Kumar Goel, Associate Director Broking & Distribution, Motilal Oswal Securities Ltd."
42. Vide email dated 19.9.2009, son of petitioner conveyed to respondent that :
" I would like to request you to make necessary changes in PRD1200 and as discussed, the balance should be 35 lacs minus one lac adjustment on account of aug month brokerage.
The stock value of PRD 1200 is 88 lacs plus 3 lac cash security kindly release all RPL shares (i.e. equal to 50 lacs) into PRD001, Demat account as it remaining shares will act as a collateral against the debit in the PRD1200. Kindly transfer the remaining shares on quarterly bases to PRD001 demat account".
43. Vide email dated 07.05.2011, son of petitioner further informed that:
" on 05th may it was not a discussion. It was more of you telling me that you are selling my collateral stock for the debit in my account. I have started working on the same and will be able to give the complete reply by Tuesday with all the details as per my meeting with Mr. Ajay and Mr. Vijay when I last visited Mumbai".
44. Vide email dated 08.08.2011, petitioner asked respondent to transfer the shares in PRD001 account from PRD1200 as he was in need of funds to pay his loan installments with mention that he had been following up on this for past two weeks.
45. Nevertheless, previous email dated 13.07.2011 seems to have missed the attention of Ld. Arbitrator or was not brought to OMP (Comm) No. : 15/24 33/44 the notice of Ld. Arbitrator whereby son of petitioner had informed the following:
" Kindly find the attached file containing detail of all activities of PRD1200 since the time Bad debts were transferred in our account i.e. 21.01.2009. I seriously want to settle this matter once and for all and move ahead in life.
I have strictly abided by points on which we all have agreed upon as per our meeting in Mumbai.
Please reply to this at the earliest and transfer shares and money to my father's account as he is too possessive about his shares. I have lost crucial three years of my life and dont want to waste any more time".
46. Ld. Counsel for petitioner submitted that Rs. 35 lacs in the account of sub broker i.e. Prudence Investment was not the outstanding but was required to be maintained as balance as per discussion between the parties. From perusal of all the emails, it cannot be concluded that son of petitioner had acquiceased to the transfer of funds or shares to be treated as collateral for PRD1200. While, it may be considered that the son of petitioner had agreed for retention of shares as collateral to maintain the value at Rs. 35 lacs, at the same time, he had requested for transfer of the remaining shares to the demat account of his father . The reason that he requested for transfer of some shares from sub broker's account to the petitioner's account therefore cannot be misconstrued that all the RIL Shares alongwith some other shares were lying in the pool/margin account as collateral to the account of sub broker and not as collateral to the petitioner's account. Taking embrage from the misconstruction of Clause 32 OMP (Comm) No. : 15/24 34/44 and 33 of the Tripartite Agreement, respondent had treated the shares as collateral to the pool/margin account including the account of sub-broker, for which there was no explicit consent obtained . The implied consent of the son of petitioner on behalf of petitioner can be construed, for keeping the 'remaining shares' as collateral to the account of sub broker, but in view of the specific request for transfer of the remaining shares to the account of petitioner, while also stating that his father was too possessive about his shares, cannot again be misconstrued as acquiesance or treating the shares lying in the pool/margin account as collateral to the sub broker account which was not part of the family account.
47. So much so that, respondent had retained 1080 shares of HDFC and 200 shares of KLG as collateral in sub broker's account and it was willing to release them provided the petitioner and sub broker give in writing that they were receiving those shares in full and final settlement of the claim. Ld. Arbitrator though held the same to be unjustified as the respondent could not have withheld them when the petitioner had directed the respondent to release those shares. Although, it was noted that those shares were transferred by the petitioner from his own demat account to the pool/margin account of the respondent as collateral of the sub broker's account. Nevertheless, no such explicit consent or even 'no objection' is found on record to treat OMP (Comm) No. : 15/24 35/44 the shares as collateral to the sub broker's account except for the shares as specifically mentioned in email dated 13.07.2011 . Rather, if the shares were treated as collateral to the sub broker's account, petitioner could not have asked for transfer of the same to the account of petitioner.
48. With regard to debit of transaction processing charges, Ld. Counsel for petitioner submitted that Ld. arbitral tribunals erred while rejecting the claim regarding transaction charges of Rs. 1,75,570.41 in cash segment and Rs. 28,58,387.41 in F&O Segment and failed to consider that the alleged debit was created in the account of petitioner only on account of illegal and un- authorized transfer of credit balances by the respondent to the Master Brokerage Account of the sub-broker. Had these credits not transferred, there would have been no debit balance in the account of the petitioner and petitioner would not be liable to pay any interest at all, as levied by the respondent. Contention of Ld. Counsel for petitioner is found correct. On one hand, the amount was debited from account of sub-broker without consent of petitioner and then transaction processing charges were levied upon the same.
49. Ld. Counsel for respondent submitted that the provisions of section 34 (2) of the Act limit the grounds on the basis of which an award can be set aside. The award dated 30.12.2013 and the appellate award dated 29.9.2014 are reasoned award OMP (Comm) No. : 15/24 36/44 based on documentary evidence and the law applicable at the relevant time, therefore, no interference is required.
50. Reliance was placed upon 2021 SCC Online SC 508 PSA Sical Terminus (P) Ltd. Vs. Board of Trustees of Chidambaram Port Trust, Tuticorin, wherein it was observed that :
" 42. It will thus appear to be a more than settled legal position, that in an application under Section 34, the court is not expected to act as an appellate court and reappreciate the evidence. The scope of interference would be limited to grounds provided under Section 34 of the Arbitration Act. The interference would be so warranted when the award is in violation of "public policy of India", which has been held to mean "the fundamental policy of Indian law". A judicial intervention on account of interfering on the merits of the award would not be permissible. However, the principles of natural justice as contained in Section 18 and 34(2)(a)(iii) of the Arbitration Act would continue to be the grounds of challenge of an award. 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". It is only such arbitral awards that shock the conscience of the court, that can be set aside on the said ground. An award would be set aside on the ground of patent illegality appearing on the face of the award and as such, which goes to the roots of the matter. However, an illegality with regard to a mere erroneous application of law would not be a ground for interference. Equally, reappreciation of evidence would not be permissible on the ground of patent illegality appearing on the face of the award".
51. Ld. counsel for petitioner submitted that present petition was filed on 03.01.2015 and challenges the award dated 30.12.2013 and appellate award dt. 28.09.2014, all of which is prior to the amendment of Section 34 of the Act that came into effect from 23.10.2015. Accordingly, as per the judgment of the Hon'ble Supreme Court in Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India, OMP (Comm) No. : 15/24 37/44 (2019) 15 SCC 131, the applicable law shall be the law prior to 23.10.2015. Petitioner has invoked the jurisdiction of this Hon'ble Court under Section 34 of the Arbitration & Conciliation Act, 1996 ("the Act") as the award is in conflict with the public policy of India and is ex facie perverse. Patent illegality has crept in the appellate award as the claims have been rejected on an apparent and clear misreading of the applicable contractual clauses which is not just a mistake apparent but clear perversity that goes to the root.
52. Ld. Counsel for petitioner further submitted that the Petitioner falls within the contours of the scope of challenge under Section 34 of the Act in view of the following judgments:
(a) Ssangyog Engineering & Construction Co. Ltd. Vs. National Highways Authority of India (2019) 15 SCC 131:
" 19. There is no doubt that in the present case, fundamental changes have been made in the law. The expansion of "public policy of India" in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705 ["Saw Pipes"] and ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263 ["Western Geco"] has been done away with, and a new ground of "patent illegality", with inbuilt exceptions, has been introduced. Given this, we declare that Section 34, as amended, will apply only to Section 34 applications that have been made to the Court on or after 23.10.2015, irrespective of the fact that the arbitration proceedings may have commenced prior to that date".
(b) ONGC Ltd. Vs. Western Geco International Ltd (2014) 9 SCC 263:
" 35. What then would constitute the 'Fundamental policy of Indian Law' is the question. The decision in Saw Pipes Ltd. (supra) does not elaborate that aspect. Even so, the expression must, in our opinion, include all such fundamental principles as providing a basis for administration of justice and enforcement of law in this country. Without meaning to exhaustively enumerate the purport of the expression "Fundamental Policy of Indian OMP (Comm) No. : 15/24 38/44 Law", we may refer to three distinct and fundamental juristic principles that must necessarily be understood as a part and parcel of the Fundamental Policy of Indian law. The first and foremost is the principle that in every determination whether by a Court or other authority that affects the rights of a citizen or leads to any civil consequences, the Court or authority concerned is bound to adopt what is in legal parlance called a 'judicial approach' in the matter. The duty to adopt a judicial approach arises from the very nature of the power exercised by the Court or the authority does not have to be separately or additionally enjoined upon the fora concerned. What must be remembered is that the importance of Judicial approach in judicial and quasi judicial determination lies in the fact so long as the Court, Tribunal or the authority exercising powers that affect the rights or obligations of the parties before them shows fidelity to judicial approach, they cannot act in an arbitrary, capricious or whimsical manner. Judicial approach ensures that the authority acts bonafide and deals with the subject in a fair, reasonable and objective manner and that its decision is not actuated by any extraneous consideration. Judicial approach in that sense acts as a check against flaws and faults that can render the decision of a Court, Tribunal or Authority vulnerable to challenge".
............................
" 38. Equally important and indeed fundamental to the policy of Indian law is the principle that a Court and so also a quasi-judicial authority must, while determining the rights and obligations of parties before it, do so in accordance with the principles of natural justice. Besides the celebrated 'audi alteram partem' rule one of the facets of the principles of natural justice is that the Court/authority deciding the matter must apply its mind to the attendant facts and circumstances while taking a view one way or the other. Non-application of mind is a defect that is fatal to any adjudication. Application of mind is best demonstrated by disclosure of the mind and disclosure of mind is best done by recording reasons in support of the decision which the Court or authority is taking. The requirement that an adjudicatory authority must apply its mind is, in that view, so deeply embedded in our jurisprudence that it can be described as a fundamental policy of Indian Law".
.........................
" 40. It is neither necessary nor proper for us to attempt an exhaustive enumeration of what would constitute the fundamental policy of Indian law nor is it possible to place the expression in the straitjacket of a definition. What is important in the context of the case at hand is that if on facts proved before them the arbitrators fail to draw an inference which ought to have been drawn or if they have drawn an inference which is on the face of it, untenable resulting in miscarriage of justice, the adjudication even when OMP (Comm) No. : 15/24 39/44 made by an arbitral tribunal that enjoys considerable latitude and play at the joints in making awards will be open to challenge and may be cast away or modified depending upon whether the offending part is or is not severable from the rest".
(c) Associate Builders Vs. Delhi Development Authority (2015) 3 SCC 49:
" When a court is applying the ' Public Policy' test to an arbitration award, it does not act as a court of appeal and consequently errors of facts cannot be corrected. A possible view by the arbitrator on the facts has necessary to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus, an award based on little evidence or on evidence which does not measure up in quality to a trainedTimes New Roman legal mind would not be held to be invalid on this scope. Once it is found that the arbitrator's approache is not arbitrary or capricious, then he is the last word on facts" .
" An arbitral tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a terms of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person could do".
" The expression ' justice' when it comes to setting aside an award under the public policy ground can only mean that an award shocks the conscience of the court" .
(d) ONGC Ltd Vs. Saw Pipes Ltd (2003) 5 SCC 705:
" 31. Therefore, in our view, the phrase 'Public Policy of India' used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term 'public policy' in Renusagar's case (supra), it is required to be held that the award could be set aside if it is OMP (Comm) No. : 15/24 40/44 patently illegal. Result would be - award could be set aside if it is contrary to: -
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. Such award is opposed to public policy and is required to be adjudged void".
(e) Hindustan Zinc Vs. Friends Coal Carbonisation (2006) 4 SCC 445:
" 14. The High Court did not have the benefit of the principles laid down in Saw Pipes (supra), and had proceeded on the assumption that award cannot be interfered, even if it was contrary to the terms of the contract. It went to the extent of holding that contract terms cannot even be looked into for examining the correctness of the award. This Court in Saw Pipes (supra), has made it clear that it is open to the court to consider whether the award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India".
(f) Delhi Development Authority Vs. R.S. Sharma & Co. (2008) 13 SCC 80:
" 21. From the above decisions, the following principles emerge:
(a) An Award, which is:
(i) contrary to substantive provisions of law ; or
(ii) the provisions of the Arbitration and Conciliation , 1996 or
(ii) against the terms of the respective contract; or
(iv) Patently illegal; or
(v) prejudicial to the rights of the parties ;OMP (Comm) No. : 15/24 41/44
is open to interference by the Court under Section 34(2) of the Act.
(b) Award could be set aside if it is contrary to :
(a) fundamental policy of Indian Law; or
(b) the interest of India; or
(c) justice or morality;
(c) The Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court.
(d) It is open to the Court to consider whether the Award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India With these principles and statutory provisions, particularly, Section 34(2) of the Act, let us consider whether the Arbitrator as well as the Division Bench of the High Court were justified in granting the Award in respect of Claim Nos.1 to 3 and additional Claim Nos. 1to 3 of the claimant or the appellant-DDA has made out a case for setting aside the Award in respect of those claims with reference to the terms of the Agreement duly executed by both parties".
53. Though, it is correct that scope of jurisdiction under section 34 of the Arbitration Act is limited and is not open for appellate analysis. The court cannot sit in appeal while adjudicating a challenge to an Award. In terms of well settled law, the arbitral awards should not be interfered with, in a casual and cavalier manner, unless the court comes to a conclusion that the perversity of the award goes to the root of the matter without there being a possibility of alternative interpretation which may sustain the arbitral award. Nevertheless, in the instant matter, award has been passed against the specific terms of contract.
OMP (Comm) No. : 15/24 42/44Observations of Ld. Arbitrator have been observed as patently illegal and perverse on many aspects as discussed in preceeding paragrpahs. In Ssangyong Engineering & Construction Co. Ltd. Vs. National Highways Authority of India, it was also noted that :
" it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law and secondly, that such award is against the basic notions of justice or morality. 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 (Supra), as understood in Associate Builders (supra), and paragrpahs 28 and 29 in particular, is now done away with. In so far as domestic awards made in India are concerned, an additional ground is now available under sub-section (2A), added by the Amendment Act, 2015, to section 34. Here, there must be patent illegality appearing on the fact 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 India 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.
Secondly, it is also made clear that re-appreciation 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.
To elucidate, para 42.1 of Associate Builders (supra), namely a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Paragraph 42.2 of Associate Builders (supra), however, would remain that 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.
The change made in section 28 (3) by the Amendment Act really follows what is stated in paragraphs 42.3 in Associate Builders (supra), namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitratror construes the contract in a manner that no fair minded or reasonable person would; in short take or the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted him, he commits an error of jurisidiction . This ground of challenge will now fall within the new ground added under section 34 (2A)" .
OMP (Comm) No. : 15/24 43/4454. Ld. Counsel for petitioner also relied upon the judgment passed by Hon'ble High Court in Jamia Milia Islamia Vs. Airway Engineers Pvt. Ltd. 2019 SCC Online Del 8369 to buttress his submission with regard to maintainability of challenge to the findings of Ld. arbitrator in part. In the judgement (supra), Hon'ble High Court had set aside findings of Ld. Arbitrator on claims no. 1,5 & 6 and also on the counter claims and had relegated the parties to have such claims and counter claims adjudicated through proper proceedings in accordance with law.
55. In the instant matter, as findings of Ld. Arbitrator, confirmed by Appellate Tribunal to the extent of challenge made by petitioner, have been found perverse, beyond the terms of the contract between the parties, ignoring the vital evidence and being patently illegal, award passed by Ld. Arbitrator and the Appellate Award are hereby set aside to the extent of challenge. Objection petition u/s 34 of Arbitration and Conciliation Act stands allowed. Parties are at liberty to take legal recourse pertaining to redressal of their respective claims as available in law. File be consigned to record room.
savita Digitally signed
by savita rao
Date: 2024.12.03
rao 16:48:30 +0530
Announced in the open (SAVITA RAO)
court on this Day DISTRICT JUDGE
of 3rd December 2024 (COMMERCIAL COURT)-01
SOUTH, SAKET COURTS, DELHI
OMP (Comm) No. : 15/24 44/44