2016 (7) TMI 1354 - HC - Indian Laws

Court sets aside arbitral awards for lack of evidence, perversity, violating NSE regulations. Compliance over discretion

Kritika Nagpal Versus Geojit Financial Services Ltd.

Kritika Nagpal Versus Geojit Financial Services Ltd. - TMI Issues Involved:1. Impugned arbitral awards.2. Margin shortfall and payment.3. Squaring off transactions.4. Compliance with National Stock Exchange (NSE) regulations.5. Discretion under Stock Broker-Client Agreement.6. Admissibility of evidence and findings of the arbitral tribunal.7. Counterclaims by the petitioner.Detailed Analysis:1. Impugned Arbitral Awards:The petitioners challenged five separate arbitral awards rendered by the arbitral tribunal under the NSE bye-laws, rules, and regulations. The tribunal allowed the respondent's claims and rejected the petitioners' counterclaims. The High Court heard all five petitions together and based its judgment on Arbitration Petition No. 47 of 2009.2. Margin Shortfall and Payment:The petitioner claimed to have been informed of a shortfall of Rs. 3,50,000/- on 16th January 2008 and issued a cheque for Rs. 4,00,000/-. Another cheque for Rs. 4,00,000/- was issued on 18th January 2008 after the first was misplaced. On 18th January 2008, the petitioner was informed of an additional margin shortfall of Rs. 5,00,000/-, which was paid the same day. On 22nd January 2008, the petitioner was informed of a margin shortfall of Rs. 15,00,000/-, which was paid immediately. The petitioner argued that no further shortfall was communicated, and the respondent's subsequent squaring off of the petitioner's positions was unauthorized.3. Squaring Off Transactions:The petitioner protested the squaring off of her positions on 22nd January 2008 by the respondent's head office, allegedly on instructions from the Stock Exchange. The petitioner requested proof of such instructions, which the respondent did not provide. The respondent argued that the market volatility necessitated the squaring off to mitigate losses due to margin violations.4. Compliance with NSE Regulations:The petitioner contended that the respondent violated Regulation 3.10 of the NSE, which mandates that trading members demand margin deposits from constituents. The regulation allows closing out transactions only if the constituent fails to pay the daily settlement by the next trading day. The petitioner argued that the respondent did not follow this procedure and squared off the transactions prematurely.5. Discretion Under Stock Broker-Client Agreement:Clause 29 of the Stock Broker-Client Agreement allowed the respondent to demand margin money and liquidate positions at its discretion. However, the petitioner argued that this discretion should be exercised reasonably and in compliance with NSE regulations. The arbitral tribunal's reliance on Clause 29 was deemed perverse and contrary to the mandatory provisions of Regulation 3.10.6. Admissibility of Evidence and Findings of the Arbitral Tribunal:The arbitral tribunal's findings were based on presumptions and lacked evidence. The respondent could not prove that demands for margin money exceeding Rs. 15,00,000/- were made and not paid by the petitioner. The tribunal's adverse inference against the petitioner was found to be without basis.7. Counterclaims by the Petitioner:The tribunal rejected the petitioner's counterclaims, which sought recovery of losses due to the respondent's unauthorized squaring off of transactions. The High Court found this rejection to be patently illegal, given the tribunal's failure to consider the mandatory NSE regulations and the lack of evidence supporting the respondent's claims.Conclusion:The High Court set aside the impugned arbitral awards, finding that the tribunal's decisions were perverse, based on no evidence, and violated mandatory NSE regulations. The court emphasized the importance of compliance with statutory regulations over discretionary clauses in agreements. The judgments in all five petitions were aligned with the reasoning in Arbitration Petition No. 47 of 2009.