Anand Rathi Share and Stock Brokers Ltd., Formerly known as Navratan Capital and Securities Ltd. vs Jayshree Sanjay Sonawane

Anoop V. Mohta, J.—The Petition is filed u/s 34 of the Arbitration and Conciliation Act, 1996, (the Act), whereby the challenge is made to an award dated 12th September, 2008, passed by the learned Arbitrator of the National Stock Exchange of India Limited (NSE), based upon the Bye-laws, Rules and Regulations of NSE.

The Petitioner-Applicant is a trading Member and the Respondent is Constituent, who entered into a Member-Client Agreement dated 17th February, 2007, thereby appointed the Petitioner-Applicant as her share and stock broker to effect the transactions on the Cash Market Segment as well as Futures and Options Segment at NSE. They also execute "Know Your Client" Form as well as the "Combined Risk Disclosure Document". The Petitioner has allotted the client code to the Respondent.

The Petitioner effected various transaction for and on behalf of the Respondent through the NEAT system of NSE under the client ID Code. As per their practice and understanding, party used to do business over the telephone/mobile. Therefore, before executing the trade and status of transactions were informed continuously to the Respondent over the telephone. Apart from this, the contract notes as well as bills/contract-cum-bills were used to deliver to the Petitioner or were collected by the Respondent''s representative from the branch office of the Petitioner. There was no practice of obtaining any acknowledgment for delivery of the same, as averred. The Petitioner has maintained an account of the Respondent in its books of account in the ordinary and regular course of its business. The transactions took place till 26/09/2007. The Respondent was aware of the same and never raised earlier, any dispute with regard to the contract notes and or the bills. The Respondent had paid day to day margin upto 1st October, 2007. The said outstanding position of the Respondent, expired on 25th October, 2007. A sum of Rs. 35,692.62 (Rupees thirty five thousand six hundred ninety two and sixty two paise only) remained unpaid as per the books of account.

The Petitioner, therefore, called upon the Respondent by letter dated 8th November, 2007 to pay the said amount. The Respondent resisted and denied the same including the receipt of the contract notes and the bills. By another letter dated 21st December, 2007, the Petitioner called upon the Respondent to pay the amount with interest. That was also resisted and denied. The Petitioner, therefore, filed the claims in pursuance to the Rules, Bye-Laws and Regulations of NSE. The Respondent appeared and filed written submissions dated 18th April, 2008. There was no specific counter claim raised by the Respondent.

The Arbitrator by the impugned award directed the Petitioner to make the payment to the Respondent, without any counter claim specifically raised and thereby rejected the Petitioner-Applicant''s claim in toto. The basic observations and operative part of the award is reproduced as under:

5.21 Having considered the submissions, documents and oral arguments put forth by both the parties, the Sole Arbitrator concludes that both the parties are at fault. Under the circumstances the Sole Arbitrator concludes that the net loss of Rs. 2,69,643.10 incurred as enumerated in Table II hereinabove be shared by both the parties equally i.e. Rs. 1,34,821.55 say Rs. 1,34,822/-. Therefore the Respondent is liable to be paid an amount Rs. 81,178/- i.e. Rs. 2,16,000/- invested/paid less 50% loss amount of Rs. 1,34,822/- by the Applicant.

5.22 There is brokerage of Rs. 25,773/- earned by the Applicant from the Respondent but have to share 50% of the loss as calculated in Table II hereinabove. Similarly the Respondent has received Rs. 14,098/- from the Applicant for which the Respondent has disputed the transactions in her account.

5.23 Accordingly the Sole Arbitrator has not considered both these aboveforesaid amount of brokerage earned by the Applicant and amount received by the Respondent. The Sole Arbitrator therefore is not inclined to award interest to both parties.

5.24 Accordingly the Sole Arbitrator pass the following Award.

Award

I, Sole Arbitrator in the Arbitration Matter No: F & O/M-049/2008 between the Applicant � M/s. Anand Rathi Shares & Stock Brokers Limited (Trading Member) and the Respondent Mrs. Jayshree Sanjay Sonawane (Constituent) give Award as under:

The Applicant is directed to pay the sum of Rs. 81,178/-(Rs. Eighty one thousand one hundred seventy eight only) to the Respondent.

There is no award to interest.

The cost of Arbitration to be borne by the Applicant and the Respondent equally.

There is no award to any other costs and expenses.

The Award is signed and issued in three originals. NSEIL may retain the stamped original and forward one original to each of the Applicant and the Respondent.

Therefore, the present Petition. The parties have no objection to the disposal of this Petition finally by this bench at this stage itself. Therefore, heard finally, by consent of the parties.

The Arbitrator, as recorded above, has passed the award against the Petitioner, though there was no specific claim of set-of or counter claim raised by the Respondent. There is nothing on record that the parties have accepted any such claim or counter claim and/or such procedure to be followed by the Arbitrator. The grant of such counter claim in a matter where the Respondent even pleaded ignorance about the transaction. The existence of those agreements and its contents were challenged and denied. The grant of such counter claim by observing that both the parties are at default is contrary to the law and the contract between the parties. The Arbitrator has observed that the Respondent from time to time based upon this agreement entered into various transactions and then the business on telephone. There was no objection or dispute about the procedure of sending contract notes, bills without any acknowledgment. The Respondent accepted all earlier transactions prior to 26th September, 2007 which were based upon the same practice and procedure, but not accepted the case of the Petitioner of subsequent transactions and completely overlooked the statement of accounts which support the claims of the Petitioner.

The failure on the part of the Petitioner to place on record acknowledgment in respect of the contract notes/bills, without considering the practice adopted and followed by the parties on prior confirmation either personally or through representatives before executing the trade and status of transactions which were informed continuously is also not correct. The Petitioner has placed on record the telephone bills to support the same. The Respondent has only made simple denial. The learned Arbitrator has recorded that the Respondent has invested on several occasions from February 2007 to October 2007 totaling to Rs. 2,16,000/- with the Respondent. The learned Arbitrator also recorded that, it is observed from the ledger statement of the Respondent that there is credit of Rs. 2,64,521.64 on October 23, 2007. There are buy transactions on October 25, 2007 in Optidex Nifty which has resulted in debit of Rs. 2,99,837.09 (bill amount). The net ledger balance after posting of the Bill for October 25, 2007 resulted in net debit of Rs. 35,315.45. And thereby, rejected the contention/ case of the Respondent that there was no privity in the contract between the parties. Having once observed the same, the rejection of the claim of the Petitioner and grant of award against the Petitioner in favour of the Respondent by observing that the loss should be shared by both the parties equally and divided that amount accordingly, is contrary to law and is impermissible, specially when there is nothing to show that the parties have agreed and consented for the same. It is also in breach of principle of natural justice. The impugned award, therefore, in my view is contrary to law and illegal and is unsustainable. The impugned award, therefore, reflects non-application of mind. There is no such provision and practice of division of losses, in such fashion. It is impermissible unless consented and/or agreed specifically. There is no dispute about the agreements including the Arbitration clause. The parties have in fact, acted accordingly. There is no specific and separate challenge by the Respondent to the award.

The Arbitrator failed to consider the payments made by the Respondent from time to time based upon the transactions on telephone. The lack of acknowledgments on the contract notes, therefore, in the present facts and circumstances, itself are not sufficient to maintain the award as passed.

In view of above, the submission with regard to the alleged fraud or the alleged crime, cannot be gone into at the instance of the Respondent in such petition, specifically when those grounds were not supported by any particulars before the Tribunal. Even otherwise, for want of specific material and pleadings, those aspects cannot be gone into the Petition u/s 34 of the Act also. The remedy is elsewhere.

The submission to maintain the award dismissing the claim of the Petitioner is unacceptable. The reasoning so given for dismissing the claim and allowing the counter claim are inter-linked and inter-connected, therefore, inseparable. Therefore, in view of above restricted challenge and the reasonings, I am inclined to set aside the awards passed on above ground in all other connected matters also.

Resultantly, the impugned award dated 12th September, 2008, passed by the Arbitral Tribunal, is quashed and set aside.

The Petition is accordingly allowed. No order as to costs.