Delhi District Court
Unified Credit Solutions Pvt. Ltd vs Anand Rathi Share And Stock Brokers Ltd on 14 July, 2022
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
OMP (Comm.) No. 91/2021
Unified Credit Solutions Pvt. Ltd.
901 Vikrant Tower, 4 Rajendra Place,
New Delhi-110008.
Through its Authorized Representative
Telephone : 9810458541
E-mail:[email protected] ...Petitioner
versus
Anand Rathi Share And Stock Brokers Ltd
Registered Address : Express Zone, A Wing, 10 th Floor,
Western Express Highway, Goregaon East, Mumbai-400063.
Telephone:022-62817190/7498339752
Email: [email protected]; [email protected] ...Respondent
Date of Institution : 18/09/2021
Arguments concluded on : 23/05/2022
Decided on : 14/07/2022
Appearances : Sh. Nikhil Palli and Sh. Tanmay Mehta, Ld. Counsel
for petitioner.
Sh. Balaji Subramanian and Ms. Ishani Banerjee, Ld.
Counsel for respondent.
JUDGMENT
1. Petitioner had filed the present petition under Section 34 of The Arbitration and Conciliation Act, 1996 (herein after referred as The Act), impugning the appellate arbitral award dated 17/06/2021 in Arbitration Appeal Case No. NSEDRO/0002266/ 20-21/ISC/IGRP/ARB/APPL, titled M/s Unified Credit Solutions Pvt. Ltd. vs M/s Anand Rathi Share and Stock Brokers Ltd; whereas said appeal case had arisen from original arbitral award dated 02/02/2021 in Arbitration Matter No.: NSEDRO/0002266/ OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 1 of 35 20-21/ISC/IGRP/ARB, titled Unified Credit Solutions Private Limited vs Anand Rathi Share and Stock Brokers Limited. Appellate Arbitral Award was passed by panel of three Learned Arbitrators comprising (1) Hon'ble Mr. Justice (Retd.) Mahmood Ali Khan, Presiding Arbitrator; (2) Sh. R.K Ahooja, Arbitrator and (3) Sh. Ashok Kumar Tripathi (Retd. Judge), Arbitrator. The arbitral award dated 02/02/2021 was passed by panel of three Learned Arbitrators comprising (1) Hon'ble Mr. Justice (Retd.) K.S. Gupta, Presiding Arbitrator; (2) Sh. S.P. Marwah, Arbitrator and (3) Sh. Manish Gupta, Arbitrator. In the original arbitral award dated 02/02/2021 the claim of petitioner/claimant for declaring the close out trades executed by respondent as unauthorized trades and award of compensation of Rs. 44,10,000/- was dismissed by the panel of Learned Arbitrators. Appellate Arbitral Tribunal affirmed the original award dated 02/02/2021 and dismissed the appeal.
2. I have heard Sh. Nikhil Palli and Sh. Tanmay Mehta, Ld. Counsel for petitioner; Sh. Balaji Subramanian and Ms. Ishani Banerjee, Ld. Counsel for respondent and perused the record of the case, reply of respondent to petition, the arbitral proceedings record, relied upon precedents, filed brief written arguments on behalf of parties and given my thoughtful consideration to the rival contentions put forth.
3. Adumbrated in brief following are the material relevant facts of the case of petitioner. Petitioner is an incorporated registered company dealing in export of credit management services, became a Constituent of the respondent Trading OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 2 of 35 Member (in short TM) and opened trading account with it in September, 2018 after executing due Know Your Customer (in short KYC) and allied documents. In the period between 09/03/2020 and 16/03/2020, petitioner entered into contracts, hedging a total sum of USD 800,000 Lakhs (Eight Hundred Thousand Dollars Only). These contracts, which were executed, were due for maturity between the period of June to November, 2020. The details of Transactions, Order Nos. and the Contract Descriptions, amongst others are in the following table:-
Date of Order No. Contract Buy/Sale Quantity Transaction Description 9 March 1000000003879139 USD-INR 26th S 100,000 2020 June 20 9 March 1000000003882736 USD-INR 29th S 100,000 2020 July 20 12 March 1000000000699794 USD-INR 29th S 100,000 2020 July 20 12 March 1000000000729550 USD-INR 27th S 100,000 2020 August 20 12 March 1000000002099508 USD-INR 27th S 100,000 2020 August 20 16 March 1000000002618093 USD-INR 28th S 100,000 2020 September 20 16 March 1000000000755000 USD-INR 27th S 100,000 2020 October 20 16 March 1000000002619020 USD-INR 25th S 100,000 2020 November 20 Upon execution of any contract, there was a requirement of margin. Petitioner deposited Rs. 35,00,000/- with respondent in period between 06/03/2020 and 20/03/2020 in order to discharge its Margin/Mark to Market (hereinafter referred to as "MTM") obligations arising from the contracts placed by it in the period between 09/03/2020 to 16/03/2020. Above said orders were placed by the petitioner telephonically with respondent through the assigned Relationship Manager, Mr. Narender Kumar, who OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 3 of 35 was appointed by respondent. Petitioner was cautious of its obligations and, in a timely manner, discharged any call for margin with abundant precaution. Petitioner even had made excess payments on margin calls on an immediate basis, as and when demanded by respondent through its above said relationship manager. Petitioner was required to pay Rs. 6.15 Lakhs (approximately) on account of additional margin obligation dated 19/03/2020. Instead petitioner paid Rs. 15 Lakhs on 20/3/2020. In other words, not only the petitioner promptly and within the reasonable time of receipt of margin call, paid the required margin money, but petitioner also kept additional margin. The subject matter of the dispute relates to transaction of 23/03/2020 which are as follows:-
i. On 23rd March, 2020 at 9:14 AM, the Petitioner received an email from the respondent with the subjection "Position Alert" specifying that the MTM square of warning had reached 76.27, and that the Petitioner's positions could be squared off by the administrator.
ii. At 9:16 AM, another email was received that the Petitioner's position could be squared off by the administrator.
iii. The Respondent also claims to have intimated the Petitioner through SMSs on a real-time basis between 9:12 AM to 9:25 AM on 23rd March 2020, claiming to have updated the Petitioner regarding the mark to market losses.
iv. In between the period of 9:16 AM to 9:25 AM, the entire position of the Petitioner had been squared off by the Respondent by buying USD 600,000 (USD Six Hundred Thousand only) at around 9:16 AM and USD 200,000 (USD Two Hundred Thousand Only) at around 9:25 AM respectively.
The short question which arises for adjudication in the present petition is, whether the findings of the Arbitral Tribunal, that this squaring off position by the Respondent was valid, is a correct finding or not.OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 4 of 35
Sufficient notice was not given as per the National Stock Exchange Regulations ( F&O Segment) (which require positions to be squared off the next day); whereas, the case of respondent is that it had taken action as per its policy, which as per the Respondent, was available on its website and also in the knowledge of the petitioner which permitted such emergent or urgent squaring off of positions even within the same day, and even within the short timelines as was done in the present case. Petitioner had raised dispute. On 26/03/2020, petitioner sent an email to the respondent, marking the Investor service cell of the National Stock Exchange (in short NSE) and the Securities and Exchange Board of India (in short SEBI), pointing out that the actions of the respondent had caused the petitioner a loss of Rs. 33 Lakhs; inter alia also pointing out that as per the understanding of the petitioner, there was not merely a system failure but a deliberate act to cause unlawful gain to someone at the cost of petitioner. The request was also made to the investor service cell of NSE and SEBI to investigate the matter. NSE referred the matter to the IGRP panel. The panel heard both the parties on 06/07/2020 and without admitting the claim on 06/07/2020, members of IGRP panel closed the complaint of petitioner on 06/07/2020 itself. Feeling aggrieved, the petitioner sought for initiation of arbitration proceeding making a claim of Rs.44,10,000/- with interest @ 18% per annum. On 02/02/2021, the arbitration application of petitioner was dismissed by the panel of three Learned Arbitrators, as above said. Aggrieved with the order of the arbitration panel dated 02/02/2021 petitioner preferred appeal before Appellate Tribunal; which appeal was OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 5 of 35 dismissed by order dated 17/06/2021 of Learned Appellate Tribunal.
4. Petitioner has impugned the appellant arbitral award mainly on the following grounds. The finding to the effect that Regulation 3.10(b) of the NSE (F&O Segment) Regulations would have to be read along with the RMS policy (i.e., Risk Management Policy) of the respondent, is erroneous in as much as it appears to give precedence to the internal policy of a broker, vis-a-vis the NSE Regulation, which cannot be permitted. The effect of impugned award is to deprive investors of reasonable notice to make up any alleged MTM losses or shortfalls of margin. Even as per the best case of respondent, the first SMS was sent at 9:12 AM and by 9:25 AM, i.e., within a span of 13 minutes, the positions had been closed out causing losses to the petitioner. By no stretch of imagination, period of 13 minutes can be considered sufficient notice to make up any deficiency, even if the claim of the petitioner of having sent five SMSs, in addition to the two admitted emails at 9:14 AM and 9:16 AM, is accepted. Even as per the best case of the respondent, its first two SMSs at 9:12 AM and 9:13 AM, indicated the MTM losses are 65.48% and 71.64% respectively i.e., below 75% requirement as per the own policy of respondent. So, for the first time, by way of the email at 9:14 AM information was given that the MTM square off percentage had reached 76.27% and within 2 minutes of said email i.e., at 9:16 AM the respondent squared off position of the petitioner by buying USD 600,000 (USD Six Hundred Thousand Only) and at around 9:25 AM within 11 minutes of such email squared off remained of position of the petitioner by buying USD OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 6 of 35 200,000 (USD Two Hundred Thousand Only). In other words, the notice effectively given to the petitioner was not even 13 minutes, but effectively only 2 minutes and 11 minutes respectively. NSE (F&O Segment) Regulation 3.10 (b) is couched in sound public policy which requires reasonable notice to any investor to make up the margin or shortfall in the event of volatility. It would set a dangerous precedent by allowing brokers to, within a span of merely 13 minutes, close out positions on claimed intimations to investors. Period of 13 minutes, cannot be considered a sufficient notice to allow making up of the margins in the event of shortfalls, even if there was volatility in the market. The stand of the Arbitral Tribunal is also contrary to previous decisions wherein it had been held that (a) there must be a clear demand of margin shortfall; (b) there must be notice to the investor that if the margin is not replenished, the open position may be squared off. The concept of "notice" postulates a reasonable notice in as much as the logic is to provide the investor with an opportunity to fulfill any shortfall in margin compared to the losses which would be incurred in its absence. A notice of 13 minutes, cannot be considered a notice at all in law or fact, in as much as it gives effectively, almost no opportunity to any investor to make up the shortfall to prevent squaring up of positions. The impugned actions of respondent were illegal, contrary to public policy. The findings of Arbitral Tribunal at first instance as well as the Appellate Arbitral Tribunal are perverse in law and contrary to well established legal principles which constitute the public policy of India. The requirement of reasonable notice is fundamental, and cannot be dispensed with irrespective of any discretion given to brokers by NSE to decide OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 7 of 35 the quantum of margins and the form of collections; since any such discretion bereft of reasonable notice deprives an investor of reasonable notice to fulfill the margin shortfall, if any; so it must be considered as contrary to the NSE Regulations, and even otherwise, the fundamental policy of a law. The provision of reasonable notice, even in a volatile market, would effectively mean that it is the sole discretion of the respondent to square off positions, since in the absence of reasonable notice, any intimation, would be a mere formality without reasonable opportunity correspondingly being provided to the investor. Also the right of respondent to square off positions is where there is a prior failure of the client to bring in additional margins and it postulates that there was first a intimation to the client, and then a reasonable time to make up the deficiency. Even as per policy of respondent, the time period of 13 / 11 / 2 minutes cannot be considered as a reasonable time and therefore, cannot amount to a 'failure'. Also RMS policy cannot violate the NSE Regulations. Even otherwise, the data sourced by the petitioner from Reuters, would clearly show that on 23/03/2020, there was no sudden spike or grave volatility as claimed by the respondent as a basis for squaring off the positions of the petitioner. Respondent had created an artificial picture of volatility only to benefit itself at the expense of petitioner. The impugned award is against public policy. Arbitral Tribunal had taken a view which is not even a possible view on the documents and facts of the matter. The award is perverse in law and contrary to well established legal principles which formed the public policy of India. Petitioner had prayed for setting aside of impugned appellate award which upheld the allegedly erroneous findings of arbitral award dated OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 8 of 35 02/02/2021 and IGRP decision dated 06/07/2020 passed against the petitioner.
5. Respondent in filed reply denied the averments of petition stating that three independent authorities namely the Investor Grievance Resolution Panel (IGRP) of the NSE, the three members Arbitral Tribunal headed by Hon'ble Mr. Justice (Retd.) K.S. Gupta and the three members Appellate Arbitral Tribunal headed by Hon'ble Mr. Justice (Retd.) M.A. Khan have all come to the unanimous conclusion that there was no fault or breach of NSE Regulations by the respondent and the trading loss incurred by the petitioner was on account of extreme market volatility. The unanimous finding by three independent multi-member bodies does not suffer from patent illegality as set out above and it is also not contrary to the public policy of India. The impugned award was passed by Arbitral Tribunal in consonance with the Rules, Byelaws and Regulations of the NSE, and after following due process of law. Learned Arbitrators have passed the award after considering the facts on record and the usage of trades and customs/practice prevailing in the Stock Exchanges whilst passing the award. There was no infirmity, irregularity and/or illegality appearing either on the face of the award or on the face of the record and the award passed by the Learned Arbitrators is just, valid, binding and enforceable one. In order to delay and defeat its commercial obligations, petitioner has filed the present petition which deserves dismissal with cost. Petitioner is seeking re-appreciation of the evidence placed before Arbitral Tribunal and the present petition being in the nature of First Appeal is not sustainable. Under Section 34 of the Act, the jurisdiction of this OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 9 of 35 Court is limited and this Court cannot re-adjudicate the merits of the matter. As such, there were no grounds to challenge the impugned awards and petition deserves dismissal. The following three principal grounds have been taken in the petition:-
(a) Para IV.D of Risk Management Policy of the Respondent ("RMS policy") is contrary to Reg 3.10 of the NSE (Futures & Options Segment) Trading Regulations ("F&O Regulations");
(b) Market volatility on 23.03.2020 was artificially/deliberately created by the Respondent in order to cause loss to the Petitioner; and
(c) The Petitioner was not given reasonable time to deposit additional margin before his open positions were squared off by the Respondent.
None of the above grounds fall within the meaning of public policy or patent illegality as set out above. The IGRP Order, arbitral award and appellate award have unanimously held that there is no contradiction between Para IV.D of RMS Policy and Para 3.10 of the F&O Regulations, which dealt with two different things. Further, there was extreme market volatility on 23/03/2020, which led the petitioner's losses exceeding 75% MTM limits very quickly, which in turn led to the respondent squaring off those positions as per its policy. This was not in any way created or engineered by the respondent. The respondent was not obliged to expose itself to risk and act contrary to its policy, when losses had exceeded 75% MTM limit. Hence, the contention of petitioner was rejected by three independent authorities and there is no case made out for interference by this Court. Petitioner in the instant case wanted to trade in currency futures. This kind of trading is inherently speculative as one is trying to earn a profit based on an assumption of future OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 10 of 35 movement of exchange rates. It is made more speculative because of the concept of short-selling, which is what the petitioner was doing. Short selling is agreeing to sell a security at a future date at a fixed price without actually owning the security at the time of the contract. The seller is speculating that the price will fall, and therefore at the time of settlement, he will buy the security in the spot market at a cheaper price and perform his agreement and make a profit. It is apparent that if the price instead rises, the short seller will make a loss. The petitioner had taken a 'sell' position on USD-INR contracts worth a total of USD 800,000 with various dates of expiry. These were all cases of short selling and the petitioner was essentially speculating that the USD rate would come down at the time of settlement of the contracts but if the USD rate instead rose, the petitioner would incur a loss. The risk/reward is further increased because of the concept of margins. Here, if a person wishes to enter into a contract worth Rs. 100, he does not have to pay that amount; rather he has to only pay something called a 'margin', which is a small percentage of the amount. The margin varies from contract to contract. If the margin is say 2.5%, that means by just spending/blocking Rs. 2.5, the client is taking a position on a contract of Rs. 100. Similarly in the instant case, the petitioner had entered into the short selling of the USD-INR contracts worth USD 800,000 by blocking only a small amount as margin. This gives enormous flexibility in trading, but the risk is that a small fluctuation can wipe out the entire margin. That is the reason that currency futures prices are indicated at four decimal points (e.g. USD-INR at 77.3075). Even a change in the rate of one-fourth of a paisa (0.0025), which is called 'one tick', can OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 11 of 35 have a huge impact. Margin is a mandatory requirement as per Reg. 3.10(a) of the F&O Regulations. Whenever the broker calls for deposit of margin money, the client needs to deposit the same immediately. Reg. 3.10(b) deals with non-payment of daily settlement amount by the client and has nothing to do with margin money. It only provides that if the daily settlement amount is not paid within the next trading day, the broker may square off the open transactions and adjust the losses against the margin deposited with him. 'Mark-to-Market' or MTM is a totally different concept. As explained above, futures trading is inherently speculative and involves a high degree of risk. In order to reduce the amount of risk for all the parties involved, brokers use the concept of mark-to-market (MTM), which is continuously comparing the futures price to the spot price and checking the result (profit/loss) on the margin. This is done on a real-time basis. If the MTM loss exceeds a specified percentage of the margin deposited, the contracts will be 'squared off' i.e. closed, in order to avoid further loss. Otherwise, if the broker maintains open positions even though the losses have exceeded the margin, the broker has exposed himself to liability, which he obviously would not wish to do. The above two concepts have been explained very clearly in the RMS policy, which is in public domain and is broadly similar to the risk management policies of most well known brokers. There is no contradiction between the policy and the F&O Regulations, as held by the IGRP Order, Arbitral Award, and Appellate Award. Further, it is noteworthy to mention here that the Risk Disclosure document which was part of the KYC documents executed by the petitioner at the time of opening of account has enumerated the risks involved in OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 12 of 35 Derivative segment trading as under:-
"2.1 A. Futures trading involves daily settlement of all positions. Every day the open positions are marked to market based on the closing level of the index / derivatives contract. If the contract has moved against you, you will be required to deposit the amount of loss (national) resulting from such movement. This amount will have to be paid within a stipulated time frame, generally before commencement of trading on next day.
B. If you fail to deposit the additional amount by the deadline or if an outstanding debt occurs in your account, the stock broker may liquidate a part of or the whole position or substitute securities. In this case, you will be liable for any losses incurred due to such close-outs."
The IGRP Order, Arbitral Award and Appellate Award have been passed on the basis of evidence that there was genuinely extreme market volatility on 23/03/2020 primarily on account of Covid-19 pandemic. It is not permissible to petitioner to seek re- appreciation of the evidence on this point. The view of the authorities was based on the 'tick-by-tick price movement chart' for the period in question. Said chart shows extreme volatility. It was established beyond doubt that volatility was genuine and not created by respondent. The concept of reasonable time would always depend on facts and circumstances. There is no dispute that in routine trading, a maximum of 24 hours is given to the client to deposit funds in response to margin calls. In situations of extreme volatility, the broker is not expected to hold on to open positions while losses are mounting by the minute. That is why the RMS policy clearly states that positions will be squared off when losses exceed 75% MTM limit. Respondent in this case had followed its policy and in fact could have been exposed to liability if it failed to follow its own policy. This cannot be called as unreasonable. Petitioner was admittedly notified repeatedly that the losses were mounting and on reaching 75%, the square OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 13 of 35 off was inevitable. The time taken between the loss reaching the specified limit and the squaring off of the contracts is not dictated or specified by the respondent, it happened in a dynamic manner as per market conditions. Respondent through Ld. Counsel termed the grounds for impugning the award to be devoid of merits and prayed for dismissal of the petition.
6. Ld. Counsel for petitioner argued in terms of the laid grounds for impugning the awards, elicited above. Ld. Counsel for the petitioner prayed for setting aside of the impugned awards, relying upon the following precedents:-
1. Bonanza Portfolio vs Meeta Parikh, Arbitration Petition No. 1149 of 2018 decided by Bombay High Court on 22/08/2019;
2. Kritika Nagpal vs Geojit Financial Services Ltd., Arbitration Petition No. 47 of 2009 decided by Bombay High Court on 17/09/2012;
3. Vinod Kumar Sharma vs Yes Securities (India) Limited, Arbitration Petition No. 404 of 2017 decided by Bombay High Court on 17/09/2019;
4. Bonanza Commodities Brokers Pvt. Ltd. vs Mrs. Roshanara Bhinder, Arbitration Petition No. 195 of 2015 decided by Bombay High Court on 16/04/2015;
7. Ld. Counsel for respondent argued in terms of the averments in the reply, elicited above. It was also argued that this Court cannot re-appreciate the evidence nor can sit in appeal over the arbitral award but can interfere on merits only on the limited grounds provided in Section 34 of the Act. Ld. Counsel for respondent argued that petitioner was admittedly notified repeatedly that the losses were mounting and on reaching 75%, the square off was inevitable whereas the time taken between the loss reaching the specified limit and the squaring off of the contracts is not dictated or specified by the respondent, it OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 14 of 35 happened in a dynamic manner as per market conditions. Ld. Counsel for respondent prayed for dismissal of the petition, relying upon the following precedents:-
1. Delhi Airport Metro Express Pvt. Ltd. vs Delhi Metro Rail Corporation Ltd., 2021 SCC OnLine SC 695;
2. Anglo American Metallurgical Coal PTY. Limited vs MMTC Limited, (2021) 3 SCC 308;
3. MMTC Limited vs Vedanta Limited, (2019) 4 SCC 163;
4. Dyna Technologies Private Limited vs Crompton Greaves Limited, (2019) 20 SCC 1;
5. Ssangyong Engineering and Construction Company Limited vs National Highways Authority of India (NHAI), (2019) 15 SCC 131;
6. HSBC Invest Direct Securities (India) Ltd. vs Manishaben Ghanshyabai Patel, 2012 SCC OnLine Bom 340;
7. M/s Angel Capital & Debt Market Limited vs Mrs. Rajkumari Laddha, 2013 SCC OnLine Bom 450;
8. Nidhi Verma vs Prabhudas Lilladher Pvt. Ltd., 2013 SCC OnLine Bom 323;
9. Mrs. Money Nair vs Sharekhan Ltd., 2016 SCC OnLine Bom 2640.
8. An arbitral award can be set aside on the grounds set out in Section 34 (2) (a), Section 34 (2) (b) and Section 34 (2A) of the Act in view of Section 5 of the Act and if an application for setting aside such award is made by party not later than 3 months from the date from which the party making such application had received the signed copy of the arbitral award or if a request had been made under Section 33 of the Act, from the date on which that request had been disposed of by the Arbitral Tribunal. If the Court is satisfied that the applicant was prevented by sufficient cause from the making the application within the said period of three months it may entertain the application within further period of 30 days, but not thereafter.
9. Section 34 (1) (2), (2A) and (3) of The Arbitration and Conciliation Act, 1996 read as under:-
OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 15 of 35"34. Application for setting aside arbitral award- (1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub- section (3).
(2) An arbitral award may be set aside by the court only if-
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation 1 - For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-- (i) the making of the award was OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 16 of 35 induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.-- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter."
10. Supreme Court in case of Associate Builders vs. Delhi Development Authority, (2015) 3 SCC 49 has held that the interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when conscience of the Court is shocked or when illegality is not trivial but goes to the root of the matter. It is held that once it is found that the arbitrator's approach is neither arbitrary nor capricious, no interference is called for on facts. The arbitrator is ultimately a master of the quantity and quality of evidence while drawing the arbitral award. Patent illegality must go to the root of OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 17 of 35 the matter and cannot be of trivial nature.
Also was held therein that:
"33. "...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 fact cannot be corrected. A possible view by the arbitrator on facts has necessarily 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....
Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts.."
11. Supreme Court in case of Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India, 2019 SCC OnLine SC 677 has held that under Section 34 (2A) of the Act, a decision which is perverse while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. A finding based on the documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties and therefore would also have to be characterized as perverse. It is held that a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.
12. Supreme Court in the case of Delhi Airport Metro Express Pvt. Ltd. vs Delhi Metro Rail Corporation Ltd. (supra) held that :-
"26. Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression 'patent illegality'. Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 18 of 35 the expression 'patent illegality'. What is prohibited is for courts to re-appreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34 (2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression 'patent illegality'.
13. Supreme Court in the case of Anglo American Metallurgical Coal PTY. Limited vs MMTC Limited (supra) inter alia held that when the view taken by the Arbitral Tribunal is a possible view based on oral and documentary evidence led in the case, it cannot be characterized as being either perverse or being based on no evidence. Also was held therein that when there are number of documents exchanged between the parties in the performance of contract, all of them must be read as a connected whole, relating each particular document to "existing facts", which include how particular words are used in a particular sense, given entirety of correspondence between the parties.
14. Supreme Court in the case of Dyna Technologies Pvt Ltd vs Crompton Greaves Limited, MANU/SC/1765/2019 inter alia held that the requirements of reasoned order were that to be proper, intelligible and adequate. In the absence of reasoning, when there is complete perversity in the reasoning then only it can be challenged under the provisions of Section 34 of the Act.
OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 19 of 3515. Supreme Court in the case of MMTC Ltd. vs Vedanta Ltd. (supra) inter alia held that as per the proviso to Section 34 (2A) of the Act, an award shall not be set aside merely on the ground of an erroneous application of the law or by appreciation of evidence.
16. Bombay High Court in the case of HSBC Invest Direct Securities (India) Ltd. vs Manishaben Ghanshyabai Patel (supra) inter alia held that Regulation 3.10(b) cannot be referred and read to adjudicate the issue with regard to the margin money. It is applicable for non payment of daily settlement by the constituent and not non payment of margin money as was observed in the case before said Court.
17. Following are the relevant National Stock Exchange (Futures & Options Segment) Trading Regulations:-
3.10 MARGIN FROM THE CONSTITUENTS
(a) The Trading Members must demand from its constituents the Margin Deposit which the member has to provide under these Trading Regulations in respect of the business done by the Members for such constituents.
The Trading Members shall buy and/or sell derivatives contracts on behalf of the constituents only on the receipt of margin of minimum such percentage as the Relevant Authority may decide from time to time, on the price of the derivatives contracts proposed to be purchased, unless the constituent already has an equivalent credit with the Trading Member. The Trading member may collect higher margins from constituents, as he deems fit.
The Trading Member shall obtain a written undertaking from the constituents that the latter shall when called upon to do so forthwith from time to time provide a Margin Deposit and/or furnish additional Margin as OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 20 of 35 required under these Rules and Regulations in respect of the business done for the constituent by and/or as agreed upon by constituent with the Trading Member concerned.
The Trading Member shall demand from his constituents the amounts arising in respect of daily settlement in accordance with the Clearing Corporation Regulations for business done by the Members on behalf of such constituents or such higher amounts, as the Trading Member deems fit. The Trading Member may, if so desire, for administrative convenience maintain the daily settlement margin balance upto a pre-agreed balance level to avoid collecting and paying daily settlement amount on a daily basis, which may be referred to as maintenance margin.
The trading member may keep the unutilised margin deposits of its Constituents in bank deposits and pay interest accrued thereon to its Constituents or utilize the same as per the instructions of such Constituents.
(b) Constituent(s) in default In case of non-payment of daily settlement by the constituents within the next trading day, the Trading Member shall be at liberty to close out transactions by selling or buying the derivatives contracts, as the case may be, unless the constituent already has an equivalent credit with the Trading Member. The loss incurred in this regard, if any, shall be met from the margin money of the constituent.
In case of open purchase position undertaken on behalf of constituents, the Trading Members shall be at liberty to close out transactions by selling derivatives contracts, in case the constituent fails to meet the obligations in respect of the open position within next trading day for the execution of the full contract or within next trading day of the contract note having been delivered, unless the constituent already has an equivalent credit with the Trading Member. The loss incurred in this regard, if any, shall be met from the margin money of the constituent.
In case of open sale position undertaken on behalf of the constituents, the Trading Member shall be at liberty to close out transactions by effecting purchases of derivatives contracts if the constituent fails to meet the obligation in respect of the open position within next trading day of the transaction having been executed on the F&O Segment of the Exchange for the concerned settlement period. Loss on the transaction, if any, shall be deductible from the margin money of the constituent.
OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 21 of 353.11 The relevant Authority may from time to time prescribe- ........................................................................................................
(b) the mode, method, or manner in which the margins shall be collected by the trading member from the constituent;
......................................................................................................... 4.5.2 General Principles .........................................................................................................
(d) Adherence to Trading Practices: Trading Members shall adhere to the Rules, Regulations and Bye-laws of the Exchange and shall comply with such operational parameters, rulings, notices, guidelines and instructions of the Relevant Authority as may be applicable from time to time.
.........................................................................................................."
18. Following are the relevant portions of RMS Policy of respondent relied upon:-
"D. Risk Base Square off:
All positions under All Product will be subject to 75% MTM Loss i.e., positions will be liquidated if loss reaches to a pre decided level of client margin loss. The OPEN positions (i.e. the carry forward overnight positions) and the intraday leverage position ( across segments ) will be squared off at 75% MTM Loss.
.................................................................................. LIQUIDATION AND CLOSE OUT OF POSITION
19. Without prejudice to the stock broker's other rights (including the right to refer a matter to arbitration), the client understands that the stock broker shall be entitled to liquidate/close out all or any of the client's positions for nonpayment of margins or other amounts, outstanding debts, etc. and adjust the proceeds of such liquidation/close out, if any, against the client's liabilities/obligations, Any and all losses and financial charges on account of such liquidated/closing-out shall be charged to and borne by the client.
.................................................................................
POLICIES & PROCEDURES .................................................................................
(e) The right to sell clients securities or close clients positions, without giving notice to the client, on account of non- payment of clients dues (This shall be limited to the extent of settlement/margin obligation) OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 22 of 35 ARSSBL shall have the right to sell client's securities, both unpaid securities as well as collaterals deposited towards margins, or close out client's open positions, without giving notice to the client where there is a delay/failure of the client to the pay-in obligations and/or there is a failure of the client to bring additional margins to cover the increase in risk in the dynamic market conditions.
................................................................................."
19. Following are the SMSs allegedly sent by respondent to petitioner:-
Delivery Date/ Contents of SMSs
Time
3/23/2020 9:12 Dear Client for your a/c GDL2U013 MTM
has reached 65.48% of your available funds
in Eq/Comm Seg, please provide additional
fund to avoid square off at 75% as per
predefined policy.
3/23/2020 9:13 Dear Client for your a/c GDL2U013 MTM
has reached 71.64% of your available funds
in Eq/Comm Seg, please provide additional
fund to avoid square off at 75% as per
predefined policy.
3/23/2020 9:14 Dear Client for your a/c GDL2U013 entire
outstanding positions will be squared up
due to MTM breach.
3/23/2020 9:16 Dear Client for your a/c GDL2U013 MTM
has reached 80.87% of your available funds
in Eq/Comm Seg, please provide additional
fund to avoid square off at 75% as per
predefined policy.
3/23/2020 9:25 Dear Client for your a/c GDL2U013 MTM
has reached 90.36% of your available funds
in Eq/Comm Seg, please provide additional
fund to avoid square off at 75% as per
predefined policy.
Dear GDL2U013: Positions as on 09:30
3/23/2020 9:30 USDINR20AUGFUT NRML Bought 200
@79.7850 cde_fo,USDINR20JUNFUT
NRML Bought 100 @77.8675
cde_fo,USDINR20JULFUT NRML Bought
200 @78.2669 cde_fo,USDINR20SEPFUT
NRML Bought 100 @80.4900
cde_fo,USDINR20OCTFUT NRML
Bought 100 @80.6475
cde_fo,USDINR20NOVFUT NRML
Bought 100 @81.2500 cde_fo
OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 23 of 35
20. Following are the contents of the emails allegedly sent by respondent to petitioner:-
"From: WebAdmin <[email protected] > Date: 23 March 2020 at 9:14:18 IST To: P Sachdeva <[email protected]> Cc: "[email protected]" < [email protected] > Subject: Position Alert Dear UNIFIED CREDIT SOLUTIONS PRIVATE LIMITED, This is to inform you that your MtoM sqroff warning percentage has reached 76.27 for entity account-GDL2U013 across exchange across segment across product for Category LOAA, your following positions can be squared off by the administrator.
EXCH SEG TRD SYMBOL PRODUCT BUY QTY SELL QTY BUY
AMOUNT SELL AMOUNT
CDE_fo USDINR20NOVFUT NRML 0 100 0.00 774000000.00
CDE_fo USDINR20OCTFUT NRML 0 100 0.00 770500000.00
CDE_fo USDINR20SEPFUT NRML 0 100 0.00 769075000.00
CDE_fo USDINR20AUGFUT NRML 0 200 0.00 1534300000.00
CDE_fo USDINR20JULFUT NRML 0 200 0.00 1528150000.00
CDE_fo USDINR20JUNFUT NRML 0 100 0.00 761950000.00
CASH BALANCE :1996908.380000
NOTIONAL CASH :500000.000000
SPAN MARGIN PRSNT :1038382.000000
EXPOSURE MARGIN PRSNT :632842.500000
UNREALISED PROFIT : -1904500.000000
DIRECT COLLATERAL : 0.000000
In case of any queries we request you to contact us:
Customer Care Helpdesk : 022-3950 9800/1800-200-1002 Dealing (Call-n-Trade) : 1800-200-1002/1800 121 1003 Email id : [email protected] We assure you of our best of services at all times Thanks & Regards, Anand Rathi Shares and Stock Brokers Ltd."
"-----Original Message------
From: WebAdmin [mailto:[email protected] ] Sent: Monday, March 23, 2020 at 9:16 AM To: P Sachdeva <[email protected]> Cc: [email protected] Subject: Position Alert Dear UNIFIED CREDIT SOLUTIONS PRIVATE LIMITED OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 24 of 35 This is to inform you that your MtoM sqroff warning percentage has reached 76.67 for entity account-GDL2U013 across exchange across segment across product for Category LOAA, your following positions can be squared off by the administrator. EXCH SEG TRD SYMBOL PRODUCT BUY QTY SELL QTY BUY AMOUNT SELL AMOUNT CDE_fo USDINR20NOVFUT NRML 0 100 0.00 774000000.00 CDE_fo USDINR20OCTFUT NRML 0 100 0.00 770500000.00 CDE_fo USDINR20SEPFUT NRML 0 100 0.00 769075000.00 CDE_fo USDINR20AUGFUT NRML 0 200 0.00 1534300000.00 CDE_fo USDINR20JULFUT NRML 0 200 0.00 1528150000.00 CDE_fo USDINR20JUNFUT NRML 0 100 0.00 761950000.00 CASH BALANCE :1996908.380000 NOTIONAL CASH :500000.000000 SPAN MARGIN PRSNT :1038382.000000 EXPOSURE MARGIN PRSNT :632942.500000 UNREALISED PROFIT : -1914500.000000 DIRECT COLLATERAL : 0.000000 In case of any queries we request you to contact us:
Customer Care Helpdesk : 022-3950 9800/1800-200-1002 Dealing (Call-n-Trade) : 1800-200-1002/1800 121 1003 Email id : [email protected] We assure you of our best of services at all times Thanks & Regards, Anand Rathi Shares and Stock Brokers Ltd."
21. Bombay High Court in the case of M/s Angel Capital & Debt Market Limited vs Mrs. Rajkumari Laddha (supra) inter alia held that merely because the trading member accommodates his constituent by not insisting on his open margin deficit being immediately replenished and gives him time to do so, his right to square off the open position for want of adequate margin cannot be denied.
22. Bombay High Court in the case of Bonanza Portfolio vs Meeta Parikh (supra) appreciated the law laid in the case of M/s Angel Capital & Debt Market Limited vs Mrs. Rajkumari OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 25 of 35 Laddha (supra) and held that there is no quarrel with the proposition of law, elicited above, but what is important is that in such a case the trading member must indicate a clear demand of margin short-fall which puts the constituent to a notice that if the margin is not replenished, the open position may be squared off. There is nothing in the records of this case to indicate that in the fact of the matter the trading member respondent had given any such notice to the constituent petitioner that if the margin is not replenished in reasonable time, the open position may be squared off. Also there is nothing in record to indicate that the trading member respondent had insisted on the constituent petitioner to replenish the deficit of margin in reasonable time with any clear demand of any specified amount. No clear demand of any specified amount exists in elicited SMSs or emails allegedly/purportedly sent by trading member respondent to constituent petitioner to replenish the deficit of margin in reasonable time.
23. Above elicited first two SMSs at 9:12 AM and 9:13 AM indicated the MTM Losses 65.48% and 71.64% respectively i.e., below the 75% requirement as per own policy of trading member respondent. It was for the first time, by way of email at 9:14 AM on 23/03/2020 intimation was given by trading member respondent to constituent petitioner that the MTM square off percentage had reached 76.27% and within two minutes of said email i.e., at 9:16 AM the trading member respondent squared off position of petitioner by buying USD 6,00,000 and at around 9:25 AM within 11 minutes of above said first email, the trading member respondent squared off remained of position of OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 26 of 35 petitioner by buying USD 2,00,000. Notice effectively given by petitioner was not even 13 minutes but effectively only 2 minutes and 11 minutes respectively.
24. True that as put forth by Ld. Counsel for respondent, Appeal (L) No. 513/2019 impugning judgment in case of Vinod Kumar Sharma vs Yes Securities (India) Limited (supra), as per copy of order dated 19/11/2019 in said appeal, filed by Ld. Counsel for respondent, is pending adjudication after admission but fact remains that there is no order of stay passed in said appeal by Appellate Court staying the operation of the impugned judgment therein.
25. Bombay High Court in the case of Vinod Kumar Sharma vs Yes Securities (India) Limited (supra) inter alia held that:-
"28. It was the case of the respondent itself that there was a shortfall in margin money requirement on the part of the petitioner since 9th February, 2016 itself. There was a stiff fall in the market on 11th February,2016. It is the case of the respondent that the respondent had tried to contact the petitioner on the registered mobile and the landline between 2.30 p.m. and 3 p.m., but the petitioner was not responding to those phone calls. The respondent had accordingly sent e-mail at 3.02 p.m on 11th February,2016 calling upon the petitioner to deposit the difference between the margin money before 11 a.m. on 12th February,2016. Under Regulation 3.10 (a), it is the obligation on the part of the trading member to demand from the constituent, the margin deposit which the member has to provide under those Trading Regulations in respect of the business done by the members for such constituents. The trading member is authorized to buy/sell derivatives contracts on behalf of the constituent only on the receipt of margin of minimum such percentage as the relevant authority may decide from time to time, on the price of the derivatives contracts proposed to be purchased, unless the constituent already has an equivalent credit with the trading member.
29. On the other hand Regulation 3.10 (b) provides that in case of open purchase position undertaken on behalf of the constituents, the trading member shall be at liberty to close out the transactions by selling derivatives contracts, in case the constituent fails to meet OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 27 of 35 the obligations in respect of the open position within next trading day for the execution of the full contract or within next trading day of the contract note having been delivered, unless the constituent already has an equivalent credit with the trading member. The loss incurred in this regard, if any, shall be met from the margin money of the constituent. The said regulation further provides that in case, the open purchase position undertaken on behalf of the constituents, the trading member shall be at liberty to close out the transactions by selling derivatives contracts if the constituent fails to meet the obligation in respect of the open position within next trading day of the transaction having been executed on the F&O Segment of the Exchange for the concerned settlement period. Loss on the transaction, if any, shall be deductible from the margin money of the constituent."
26. Bombay High Court in the case of Kritika Nagpal vs Geojit Financial Services Ltd. (supra) had construed Regulation 3:10
(a) and 3.10 (b) of the Regulation (F&O Segment) issued by the National Stock Exchange of India Limited and held that under the said Regulation, trading member can buy or sell derivatives contracts on behalf of the constituent only on the receipt of margin of minimum such percentage as the relevant authority may decide from time to time, on the price of the derivatives contracts proposed to be purchased, unless the constituent already has an equivalent credit with the trading member. It was held therein that after construing the Regulation 3.10 (b) that in case of open sale position undertaken on behalf of the constituents, the Trading Member shall be at liberty to close out transactions by effecting purchases of derivatives contracts if the constituent fails to meet the obligation in respect of the open position within next trading day of the transaction having been executed on the F&O Segment of the Exchange for the concerned settlement period. In the case in hand also, petitioner had not instructed the respondent trading member to have any fresh transaction.
OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 28 of 3527. Bombay High Court in the case of Bonanza Commodities Brokers Pvt. Ltd. vs Mrs. Roshanara Bhinder (supra) inter alia held that the trading member could not have squared off the open position of the constituent without demanding any additional amount to replenish the margin.
28. True that in judicial intervention under Section 34 of the Act, this Court cannot re-appreciate the evidence nor can sit in appeal nor the following findings of facts can be interfered on merit. The Arbitral Tribunal had given the finding of fact that in the present case, situation was unusual and onerous. The market was so volatile on 23/03/2020. The volatility referred to the dynamic changes and price swings. It was also appreciated that it was "trading in currency". Trading in currency is a risky trade. In this trade, every minute is important than every hour and every hour is important than every day. 'Speculation' is modus of trading in currency in the hope of gain but with the risk of loss. The Appellate Arbitral Tribunal also recorded the finding of fact that the record of minute by minute price movement of the positions on 23/03/2020 filed by the Trading Member shows that there was spike in the currency market.
29. Following are the observations and findings of Appellate Arbitral Tribunal in context with RMS policy:-
"14. RMS policy is framed by the trading members keeping in view market scenario and its own risk perceptions of the market and SEBI/Exchange Regulations. Derivative trading in currency segment is risk bearing since profit and loss is affected by fluctuation in currency rates. The price movement for currencies is influenced by many national and international factors and events. The RMS policy of the TM gave right to the TM to close out the OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 29 of 35 client's positions after due notice if it delayed or failed to make pay-in obligation. This policy allowed closing out of client's position at pre decided level MTM loss at 75% of the available funds with due notice to the appellant. The appellant was well aware of this policy as observed by us above."
30. Ld. Counsel for respondent had inter alia argued that Regulation 3.10(b) does not come in the way of the broker from squaring off the open positions at the appropriate time by exercising his discretion based on the market position, in terms of law laid in the cases (i) M/s Angel Capital & Debt Market Limited vs Mrs. Rajkumari Laddha (supra); (ii) Nidhi Verma vs Prabhudas Lilladher Pvt. Ltd. (supra) and (iii)Mrs. Money Nair vs Sharekhan Ltd. (supra).
31. The elicited observations of Appellate Arbitral Tribunal in appreciation of RMS policy framed by trading member also makes it abundant clear that the RMS policy of the trading member gave right to the trading member to close out the client's position after due notice if it delayed or failed to make pay-in obligation. By no figment of imagination, period of 13 minutes can be considered to be reasonable sufficient notice by trading member to constituent to make up any alleged MTM losses or shortfall of margin and to cure the deficiency by deposit of additional sum for further margin money to prevent trading member to square off the positions of constituent petitioner. Petitioner had entered into the contracts in the period between 09/03/2020 to 16/03/2020, hedging in all total sum of USD 800,000, as detailed in the table in the paragraph no. 3 of this judgment and these contracts were due for maturity in between the period of June 2020 to November, 2020. It is not the case of OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 30 of 35 the parties to the lis that on every day consequent to petitioner entering into the aforesaid contracts, the petitioner was indulging in secondary trade with respect to aforesaid contracts or otherwise, to even infer that it was mandatory for petitioner to keep a conscious watch every second in entire trading hours every day with hawk eye, for messages communicated by trading member to constituent, either by SMS or by email. Respondent did not dispute averment of petitioner that petitioner had placed the above elicited orders in above said period telephonically to respondent through its assigned Relationship Manager, Mr. Narender Kumar, so appointed by respondent. It is not the case of respondent that even a single telephonic call was made/attempted by any authorized representative of trading member respondent to petitioner on the eventful morning of 23/03/2020, before, during or consequent to sending of SMSs or emails and before squaring off the positions by the trading member respondent so as to put constituent petitioner to due notice to make up the margin or shortfall, explaining the volatility in the market in the span of couple of minutes. Per contra by sending of above said SMSs and/or emails, within few minutes, what has been alleged by respondent is that the trading member respondent gave due notice to constituent petitioner but constituent petitioner failed to make the margin or shortfall in pay-in obligations and it was put on the shoulder of constituent petitioner that as per RMS policy, the trading member closed out petitioner client's position at pre decided level MTM loss at 75% of the available funds. At no moment of time, trading member respondent had ever given due reasonable notice to constituent petitioner with sufficient time; if not for a day, even then for couple of hours or even an hour, OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 31 of 35 before closing out positions to make up the margin or shortfall in such an event of volatility. The cardinal principle of natural justice namely 'audi alteram partem' has been put to winds. Depriving an investor/constituent of reasonable notice to fulfill the margin shortfall, if any, is per contra to NSE Regulations, elicited above, as well as fundamental policy of law. Rights of trading member to sell constituent/client's securities or to close out client's open position only arise in the event when there is (i) delay and/or (ii) failure of such constituent/client to the pay-in obligations and/or (iii) there is failure of constituent/client to bring any additional margin(s) to cover the increase in risk in the dynamic market conditions. Such a right of trading member respondent to square off positions is accordingly only when there is a prior failure of the client/constituent to bring any additional margin(s) and it so postulates that there was first an intimation to the client and then a reasonable time to make up such deficiency. Even as per elicited RMS policy of trading member respondent, the time period of 13 /11 / 2 minutes, elicited above, by no figment of imagination can be considered as a reasonable time and therefore, cannot amount to failure of the petitioner/client/ constituent to bring any additional margin(s). Respondent trading member could not have squared off the open positions without demanding specified additional amount of margin money after due reasonable notice to constituent petitioner with sufficient time to make up such deficiency, in terms of law laid in the cases
(i) Bonanza Commodities Brokers Pvt. Ltd. vs Mrs. Roshanara Bhinder (supra); (ii) Vinod Kumar Sharma vs Yes Securities (India) Limited (supra); (iii) Kritika Nagpal vs Geojit Financial Services Ltd. (supra) and (iv) Bonanza Portfolio Ltd. vs Meeta OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 32 of 35 Parikh (supra).
32. In the fact of the matter, in view of foregoing discussions, the impugned awards of (i) Appellate Arbitral Tribunal and (ii) Arbitral Tribunal are perverse in law and contrary to well established legal principles, which form the public policy of India and liable to be set aside and are accordingly set aside.
33. Delhi High Court in case of Nussli Switzerland Ltd. v. Organizing Committee Commonwealth Games, 2014 SCC OnLine Del 4834 had inter alia held:-
34. A party like the Organizing Committee which has its claims rejected, except a part, but which subsumes into the larger amount awarded in favour of the opposite party, even if succeeds in the objections to the award would at best have the award set aside for the reason the Arbitration and Conciliation Act, 1996 as distinct from the power of the Court under the Arbitration Act, 1940, does not empower the Court to modify an award. If a claim which has been rejected by an Arbitral Tribunal is found to be faulty, the Court seized of the objections under Section 34 of the Arbitration and Conciliation Act, 1996 has to set aside the award and leave the matter at that. It would be open to the party concerned to commence fresh proceedings (including arbitration) and for this view one may for purposes of convenience refer to sub-Section (4) of Section 43 of the Arbitration and Conciliation Act, 1996. It reads: -
"43. Limitations-
(1) xxxxx (2) xxxxx (3) xxxxx (4) Where the Court orders that an arbitral award be set aside, the period between the commencement of the arbitration and the date of the order of the Court shall be excluded in computing the time prescribed by the Limitation Act, 1963, for the commencement of the proceedings (including arbitration) with respect to the dispute so submitted."
34. Aforesaid pronouncements of Delhi High Court in the case of Nussli Switzerland Ltd. v. Organizing Committee Commonwealth Games (supra) found approval of Supreme OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 33 of 35 Court in case of The Project Director, National Highways No. 45 E AND 220 National Highways Authority of India vs. M. Hakeem & Anr., Civil Appeal No. of 2021 [Arising out of SLP (Civil) No.13020 of 2020] decided on 20/07/2021.
35. Division Bench of Delhi High Court in the case of Mahanagar Telephone Nigam Limited vs Fujitshu India Private Limited, MANU/DE/0459/2015 inter alia appreciated the following law laid by Supreme Court in the case of McDermott International Inc. v. Burn Standard Co. Ltd. and Ors., MANU/ SC/8177/2006:(2006) 11 SCC 181 :-
"The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it."
36. Supreme Court in the case of Kinnari Mullick & Anr. vs Ghanshyam Das Damani, Civil Appeal No. 5172 of 2017 [Arising out of SLP (Civil) No. 2370 of 2015 decided on 20/04/2017 appreciated the legal position expounded in the case of McDermott International Inc. vs Burn Standard Ltd., (supra) wherein it was observed that parliament had not conferred any power of remand to the Court to remit the matter to the arbitral tribunal except to adjourn the proceedings as provided under sub-section (4) of Section 34 of the Act. It was also held therein that the limited discretion available to the Court under Section 34(4) of the Act can be exercised only upon a OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 34 of 35 written application made in that behalf by a party to the arbitration proceedings. It is crystal clear that the Court cannot exercise this limited power of deferring the proceedings before it suo moto.
37. Delhi High Court in the case of Steel Authority of India Limited vs Indian Council of Arbitration & Anr., LPA 103/2016 decided on 28/03/2016 placed reliance upon the decision of Supreme Court in the case of McDermott International Inc. vs Burn Standard Ltd. (supra), wherein it was held that once an award has been set aside, the parties would be free to begin the arbitration once again.
38. Accordingly, consequent to setting aside of the impugned Appellate Arbitral Award and the Arbitral Award; parties to this lis have all their rights and remedies as available in law including under The Act including under Section 43 of The Act and may take recourse to appropriate remedies permissible in law.
39. The parties are left to bear their own costs.
40. File be consigned to record room.
Digitally signed by GURVINDER PAL GURVINDER SINGH
PAL SINGH Date: 2022.07.14
14:14:30 +0530
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
On 14th July, 2022. Patiala House Court, New Delhi.
(DK) OMP (Comm.) No. 91/2021 Unified Credit Solutions Pvt. Ltd. vs Anand Rathi Share And Stock Brokers Ltd Page 35 of 35