TaxTMI 
TaxTMI 
2016 (7) TMI 1354
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....based on the facts of the said petition setout are as under :- ( 2. ) The respondent herein is one of the broker registered with the National Stock Exchange of India Ltd. (hereinafter referred to as the Stock Exchange). It is the case of the petitioner that he was one of the high networth client of the respondent for last several years and had been carrying on trading in various transactions through the Chembur branch office of the respondent. The petitioner started effecting the transaction through the said Chembur office w.e.f. April 2007 on the F&O segment. The petitioner had provided 6500 shares of Reliance Petroleum Ltd. with the respondent as a security. ( 3. ) It is the case of the petitioner that in the evening of 16 th January, 2008, the respondent informed the petitioner that there was a shortfall of approximately Rs. 3,50,000/- in her account. To meet the said shortfall, the petitioner immediately issued a cheque in favour of the respondent for a sum of Rs. 4,00,000/-. In the morning of 18th January, 2008, the respondent informed the petitioner that the said cheque of Rs. 4,00,000/-was misplaced in their office. The petitioner accordingly instructed her bankers to mark....
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....22 nd January, 2008 herself. The petitioner forwarded a cheque of Rs. 15,00,000/- immediately and the same had been received and encashed by the respondent. ( 7. ) It is the case of the petitioner that she was shocked and surprised when in the evening of 22nd January, 2008 she received a call from the office of the respondent and was informed that all the outstanding position in her account had been squared off directly by the head office of the respondent on the instructions of the Stock Exchange alleged to have been received in the noon on 22 nd January, 2008. It is the case of the petitioner that she protested the purported squaring off effected by the head office of the respondent on the alleged instructions of the Exchange and called upon the respondent to provide the proof regarding the Exchange having given such alleged instructions to its member brokers, to enable the petitioner to take up the matter with the Exchange. The respondent however avoided to provide the details of such alleged instructions to the petitioner on one or the other pretext. ( 8. ) It is the case of the petitioner that on 29 th January, 2008, the petitioner came across an electronic contract note for....
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.... petitioner and directed that both the parties shall bear their cost of arbitration. Being aggrieved by the said arbitral award, the petitioner filed the Arbitration Petition No.47 of 2009. ( 13. ) The arbitral tribunal allowed the claims made by the respondent in other four arbitration proceedings and rejected the counter claims made by the petitioner. Those awards are subject matter of the Arbitration Petition No.46 of 2009, Arbitration Petition No.48 of 2009, Arbitration Petition No.57 of 2009 and Arbitration Petition No.1148 of 2012.By an order and judgment dated 17 th September, 2012, the learned Single Judge of this court was pleased to set aside the impugned award dated 24th September, 2008 and remanded all the aforesaid petitions for reconsideration on all the issues and keeping all the points open. This court also directed the arbitral tribunal to reconsider the case after giving opportunity to all the parties. ( 14. ) Being aggrieved by the said order and judgment dated 17 th September, 2012 passed by the learned Single Judge of this court, the respondent preferred five separate appeals before the Division Bench of this court. By a common judgment dated 25th June, 2013,....
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....that on the basis of such demand made by the respondent, the petitioner had already a sum of Rs. 4,00,000/- on 18th January 2008, a sum of Rs. 5,00,000/- on 18th January 2008 and a sum of Rs. 15,00,000/- on 22nd January 2008. He submits that the petitioner had sufficient balance in her bank account to meet the alleged shortfall in margin money if any. He submits that since the demand for margin money made by the respondent on 22nd January, 2008 was only in the sum of Rs. 15,00,000/-, the petitioner had deposited the said amount with the respondent. ( 18. ) It is submitted that as a matter of fact the petitioner had made an enquiry with the respondent that if there was any further shortfall, the petitioner was ready and willing to pay, however the respondent did not inform any further shortfall if any. He submits that though the petitioner was dealing with the Chembur branch office of the respondent from April 2007, without raising any further demand for alleged shortfall of margin money on 22 nd January, 2008 inspite of the enquiry having been made by the petitioner, the head office of the respondent without any instructions from the petitioner and without any authority squared of....
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....arned counsel for the petitioner that under Regulation 3.10(b), the respondent trading member could have closed out the transactions of selling or buying derivatives contracts only if the constituent would not have made payment of daily settlement within the next trading day. ( 21. ) It is submitted that even if according to the respondent any demand was made for the amount over and above the amount of Rs. 15.00 lacs from the petitioner on 22nd January, 2008 and such balance amount was not paid by the petitioner to the respondent till 23rd January, 2008, the respondent had no liberty to close the transactions by selling derivatives contracts and securities of the petitioner till 23rd January, 2008. He submits that admittedly the respondent in this case had closed out the transactions of the petitioner on 22 nd January, 2008 itself which was in violation of Regulation 3.10(b) and thus such transactions closed out by the respondent were not binding upon the petitioner. He submits that the arbitral tribunal however, did not consider the mandatory provisions of Regulations 3.10(a) and (b). The award is contrary to Regulations framed by the Stock Exchange which were binding on both the....
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....tion in F & O in trading account of the petitioner and shares pledged against the margin requirement, the account of the petitioner was having margin violation and there was huge margin requirement and MTM debit in the account. The respondent thus had alleged to have insisted all the clients of all branches to ensure sufficient margin in their trading account to hold positions in F & O. ( 26. ) According to the respondent, on 18th January, 2008 opening balance in the account of the petitioner was showing debit of Rs. 27,45,689.70, including margin debit of Rs. 40,20,840.55 and a cheque payment of Rs. 5.00 lacs. There was MTM debit of Rs. 11,83,035/- incurred on 18th January, 2008. According to the respondent, on 21st January, 2008 there was opening debit of Rs. 35,38,149.64, including margin debit of Rs. 40,30,264.99. According to the respondent, on 22 nd January, 2008, margin requirement due from the petitioner was due Rs. 50,82,738.76 and MTM requirement was Rs. 61,06,224.60 including MTM debit of Rs. 21,69,848.49 incurred on 22nd January, 2008. ( 27. ) It was the case of the respondent in the statement of claim that a cheque of Rs. 15.00 lacs was received by the respondent fro....
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....rversity in the impugned award. ( 30. ) It is submitted by the learned counsel for the petitioner that if the respondent would have demanded any margin amount of Rs. 15.00 lacs on 22 nd January, 2008, the petitioner would have paid such margin money and in support of this plea the petitioner had produced the bank account statement of the petitioner showing sufficient credit balance in the account of the petitioner. The arbitral tribunal however, did not consider such crucial document in the impugned award and allowed the claims made by the respondent against the petitioner based on no evidence. He submits that the respondent did not produce any proof or evidence before the arbitral tribunal showing demand of margin money over and above Rs. 15.00 lacs. The entire award is based on presumptions and surmises and by drawing adverse inference against the petitioner which shows non-application of mind on the part of the arbitral tribunal. ( 31. ) In support of this submission that even if there was any margin requirement in the account of the petitioner since 16 th January, 2008 itself or thereafter prior to 21st January, 2008, the respondent could not have waited for closing out the t....
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....mitted by the learned counsel for the petitioner that though the arbitral tribunal on one hand has rendered a finding that till 21st January, 2008 there was no dispute raised by the respondent in respect of the margin money though there was a debit balance according to the respondent in the account of the petitioner till 21st January, 2008, on the other hand the arbitral tribunal has dis- believed the case of the petitioner that there was no demand for margin money on 22nd January, 2008 above Rs. 15 lacs and thus the petitioner did not pay such margin money over and above the sum of Rs. 15 lacs. He submits that the findings rendered by the arbitral tribunal in favour of the respondents is contrary to the pleadings of the respondents in the statement of claim and the rejoinder filed in the arbitral proceedings. ( 35. ) It is submitted that none of the documents produced by the respondent would show that the respondent had made any demand of margin money upon the petitioner on 22nd January, 2008 over and above Rs. 15 lacs which demand also was made orally. He submits that it was not the case of the respondent that the demand was made by the head office of the respondents upon the pe....
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....roker to make demand for margin money as per the requirement from time to time. He submits that in case of "mark to market loss", payment was not required to be made by the constituent next day of the settlement. He submits that the petitioner was required to pay margin money on the basis of the day to day transaction. It is submitted that in any event the said clause 29 gave discretion to the respondent broker to demand margin money or not. He submits that the fact remains that there was huge shortfall in margin money in the account of the petitioner and thus the respondent was entitled to square off the transactions in the account of the petitioner. ( 39. ) It is submitted by the learned senior counsel that various findings recorded by the arbitral tribunal and more particularly the findings on various admissions made by the petitioner had not been challenged by the petitioner in the arbitration petition. He submits that there was continuous debit in the account to the petitioner since 16th January, 2008. He submits that if there was no shortfall of the margin money in the account of the petitioner, the petitioner would not have requested the respondent to inform the amount of s....
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.... relation manager of the respondent could make a demand for margin money which was admittedly not made by him. He submits that the squaring off of the transaction was made by the head office and not by the Chembur Office. He submits that INSOFAR as F&O transactions are concerned, every day the settlement of account takes place. He submits that the actual market to market loss can be calculated at the end of the day. However the respondent has squared off the transaction at 11.51 a.m. and did not wait till end of the day. Under Regulation 3.10(A) read with 3.10(B), the payment has to be made on the next day. He submits that though according to the respondent there was shortfall in the margin amount, neither any dispute was raised by the respondent admittedly till 21 st January, 2008 nor the transactions were squared off on or before 21 st January, 2008. He submits that if according to the respondent, there was a debit balance in the account of the petitioner since 16th January, 2008, it was duty of the respondent to close down the transaction in the account of the petitioner immediately and was not required to wait till 22nd January, 2008. ( 45. ) IT is submitted that if the respon....
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.... in margin amount in the account of the petitioner since 16th January 2008 onwards till 22nd January 2008. It was not the case of the respondent that the petitioner had made the payment of Rs. 4,00,000/- on 17th January, 2008 and a sum of Rs. 5,00,000/- on 18 th January, 2008 to meet the exact amount of shortfall in the account of the petitioner. On the contrary the case of the respondent was that even after payment of the said amount of Rs. 4,00,000/- and Rs. 5,00,000/- on 17th January,2008 and 18th January, 2008, there was substantial amount of shortfall and debit balance in the account of the petitioner. Even according to the respondent on 22nd January,2008 the mark to market loss of Rs. 21st January, 2008 was Rs. 40,28,241.46 and the margin requirement at the opening of 22nd January, 2008 was Rs. 40,30,264.99 thereby the total debit in the account of the petitioner at Rs. 71,28,135.05 at the end of the day on 21st January, 2008 and opening of 22nd January, 2008. ( 49. ) It was not the case of the respondent in the arbitral proceedings that the said sum of Rs. 15,00,000/- paid by the petitioner on 22 nd January, 2008 was part payment of the margin money. The respondent could no....
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....t accrued thereon to its Constituents or utilise the same as per the instructions of such Constituents. (b) Constituent(s) in default In case of non-payment of daily settlement bythe 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 sh....
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....s held that the trading member usually makes a margin call which his client is required to fulfill. It is held that in the instance case it is on record that the respondent herein had made margin call and the petitioner had made a request not to square off her outstanding position and had assured the respondent that whatever would be the debit/shortfall would be paid. It is held that if any such request is made by the constituent, the trading member usually considers the situation and may await the payment from the client. It is held that it is on record that there was no payment made between the time of Rs. 4,00,000/- on 16th January, 2008 and payment of Rs. 5,00,000/- on 18th January, 2008 except the request of the petitioner not to square off the outstanding position in her account by the respondent herein and thus in such a situation, the squaring off the outstanding position by the respondent herein on 22nd January, 2008 caused crash was justified. In my view the findings rendered by the arbitral tribunal is based on presumption and surmises and not based on evidence. ( 53. ) A perusal of Regulation 3.10 framed by the Stock Exchange clearly indicates that it is mandatory obli....
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....n deposit. In my view, the obligation on the part of the respondent trading member to demand margin from the constituent was mandatory and not discretionary. Since according to the respondent themselves there was a substantial amount of debit balance in the account of the petitioner with the respondent since 16 th January, 2008 which amount further increased day to day till 22nd January, 2008, the petitioner not having paid the sufficient margin amount as required according to the respondent, the respondent was bound to close out the transaction immediately and was not required to wait till 22nd January, 2008 with a view to mitigate the alleged losses suffered by the respondent due to non-deposit amount of the margin money as required under the regulation and also under the agreement entered into between the parties. ( 56. ) A perusal of the impugned award indicates that the arbitral tribunal has not referred to the said Regulation 3.10 or has not considered the effect thereof which provision cast mandatory duty and obligation upon the trading member to demand margin money in the circumstances setout therein. The arbitral tribunal has only considered Clause 29 of the agreement ent....
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....indicates that there is inconsistency between the said Regulation 3.10 and clause 29 of the agreement INSOFAR as duties and obligation of trading member to demand margin money and to close out the transaction upon the constituent committing the default is concerned. The Regulation 3.10 is more stringent and is mandatory which is required to be followed by the trading member for demanding margin and to close out the transaction mandatorily in case of a default whereas clause 29 of the agreement between the parties gives a discretion upon the trading member to close out the transaction or not in case of default of payment of margin money by the constituent. In my view in view of the inconsistency between Regulation 3.10 framed by the Stock Exchange which is a statutory regulation and clause 29 of the agreement, Regulation 3.10 framed by the Stock Exchange would prevail over clause 29 of the agreement entered into between the parties. In my view the arbitral tribunal has totally overlooked the mandatory provisions of Regulation 3.10 in the impugned award and has committed a patent illegality. ( 60. ) This court in case of Bonanza Commodities Brokers Pvt.Ltd. (supra) has considered th....
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....e account of the petitioner on 22 nd January, 2008 without giving an opportunity to the constituent to make the payment on the next trading day on F&O segment of the Exchange for the concerned settlement period. It is not in dispute that the respondent broker had closed out the transaction in the account of the petitioner in the morning trading hours on 22nd January, 2008 itself. The arbitral tribunal has totally overlooked these mandatory provisions of Regulation 3.10 in the impugned award and has committed patent illegality ( 63. ) This court in case of Ankit Bimal Deorah (supra) has considered a case where the trading member was not able to produce any document or proof in support of his plea that he had demanded any margin money on 22 nd January, 2008 before squaring off the co-laterals through the clearing member and thus could not have recovered any alleged loss from the constituents. The facts of this case are identical the facts before this court in case of Ankit Bimal Deorah (supra) squarely applies to the facts of this case. I am respectfully bound by the said judgment. ( 64. ) In my view, even if Clause 29 of the agreement gave the discretion upon the respondent member....
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....tion of law laid down by the Supreme Court in case of Ravindra Kumar Gupta and Company (supra) and in case of P.R.Shah, Shares and Stock Brokers Private Limited (supra) holding that this court cannot sit in appeal over an award by reassessing or re-appreciating evidence to find out whether different decision could be arrived at against findings of arbitral tribunal in absence of grounds under section 34. However, since the impugned award rendered by the arbitral tribunal in this case shows perversity and patent illegality, there is no bar in setting aside such award showing perversity and patent illegality. The judgment of Supreme Court ion case of Ravindra Kumar Gupta and Company (supra) and in case of P.R.Shah, Shares and Stock Brokers Private Limited (supra) would not assist the case of the respondent and is distinguishable in the facts of this case. ( 68. ) Insofar as submission of the learned senior counsel for the respondent that the petitioner has not challenged the findings of various alleged admissions made by the petitioner in the arbitration petition is concerned, there is no merit in this submission of the learned senior counsel. A perusal of the grounds raised in the ....