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Judgment
Anoop V. Mohta, J.—The Petition is u/s 34 of the Arbitration and Conciliation Act, 1996 (for short, the Act), whereby challenge is made to the Award dated 2 September, 2008 passed by the learned Arbitral Tribunal constituted under the Bye-laws, Rules and Regulations of National Stock Exchange of India Ltd. (F & O Segment) (for short, NSEIL).
The case of the petitioner is as under:
The respondent filed a false and frivolous claim against the petitioner for a sum of Rs. 7,76,576/-, consisting of a sum of Rs. 5,76,576/- as and by way of purported loss on account of difference between the squaring off rates and the highest rate reported in the said scrip after the date of squaring off and a sum of Rs. 2,00,000/- as and by way of compensation for alleged arbitrary sale and purchase of securities.
The petitioner herein filed written statement and also a Counter claim against the respondent for a sum of Rs. 2,567.10, which was due by the respondent to the petitioner at the foot of the account.
On 02.09.2008, the learned Arbitrator passed an Award in favour of the respondent and against the petitioner for a sum of Rs. 4,76,246/-.
The relevant NSEIL Rules are as under:
3.10 (b) Constituent 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 transaction 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 constituents.
In case of open purchase position undertaken on behalf of constituents, the Trading Member shall be at liberty to close out transactions by selling derivatives contracts, in case of constituents if he 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 constituents 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 constituents.
4.4.15 The Trading Member shall not make payment in cash to the constituents and shall not receive payment in cash from the constituents, towards the payment of Mark to Market settlement for future contracts.
4.4.16 (a ) Trading Member shall not make payment in cash to the constituents and shall not receive payment in cash from the constituents, towards the payment of Mark to Market settlement for future contracts.
(b) The Trading Member shall make or receive all payment to/or from the constituents by account payee crossed Cheques/Demand Drafts or by way of direct credit into the respective bank account through Electronic Fund Transfer Facility or any other mode allowed by the Reserve Bank of India.
Combines Risk Disclosure Document for Capital Market
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. If the index has moved against you, you will be required to deposit the amount of loss (notional) resulting from such movement. This margin will have to be paid within a stipulated frame, generally before commencement of trading next day.
The basic contention raised by the learned Counsel appearing for the constituent is on the ground of Waiver by relying on Commissioner of Customs, Bombay Vs. Virgo Steels, Bombay and Another, .
This petition is filed by the trading member against the Award dated 2nd September, 2008 whereby directed the petitioner/trading member to pay Rs. 4,76,246/- as calculated on the basis of difference in the rate of squaring off and the highest rate upto the settlement date and thereby granted the position on the principle of "notional loss" by further observing that there is no other way to calculate the reasonable compensation for loss in such matters.
In this case, admittedly the respondent/constituent has already entered into relevant agreement with the petitioner/trading member as done in Arbitration Petition No. 89/2009. The respondent here is the wife of the petitioner in other Petition. The petitioner/trading member is common in both the matters. The respondent/constituent issued a cheque of Rs. 2 lacs on 22.01.2008 to cover possible debit in M to M Account against the debit of Rs. 4,80,606/-. As prices of stock fell down on 25.02.2008, there was debit of Rs. 3,85,806/- towards Mark to Mark rate. The petitioner/trading member deposited the said amount on the same date. Her case also is that she had securities worth of Rs. 15.66 lacs in her account. Here also, admittedly, on 23.01.2008 the Bank rejected the cheque. The amount could not be therefore realised. The petitioner/trading member therefore squared off the account. The complaint was also lodged by the respondent. The petitioner demanded the payment of Rs. 2 lacs on or before 6.3.2008. The petitioner sent Contract Note on 5.3.2008 informing the respondent/constituent about selling of her shares worth Rs. 8,70,000/- on 3.3.2008.
In this case also, there is a submission made with regard to the arrangement to receive deficit in M to M in 4 to 5 days and there was no demand made. The submission with regard to the waiver and mutual arrangement recorded in the Arbitration Petition No. 89/2009 (Mr. Rajendra Kumar Bothra) squarely applies here also. The respondent/constituent cannot claim any right in view of the same. The trading member considering market position can exercise his discretion as authorised by the Rules and can proceed further to recover the amount even by selling the securities to recover the dues. Admittedly, the respondent/constituent has not made the payment. The petitioner could not have ascertained the account until the realisation of cheque as issued on 22.01.2008 itself. However, it is clear that the petitioner knew about it on 25.01.2008, still did not take any step either of demanding the amount and/or selling of securities which were admittedly sufficient to cover the claim. The Arbitrator rightly held as under:
6.6 ...The Respondent''s right to sell securities arose on 23-1-2008 and he could have exercised it earliest on 25-1-2008, when the cheque was returned. The Respondent''s contention that he had right to sell them anytime after 22-1-2008 is, however, not acceptable. In case of dispute, the risk of holding it after 25-1-2008 will lie with the Trading Member and the benefit of the better rate prevailing on any relevant day will have to be given to the constituent. In the present case the Applicant would have realized higher price on 25-1-2008 at average rate for RELIANCE3 372 shares x 2575 = Rs. 9,57,900/- as against Rs. 8,71,638/- realized on 3-3-2008. The Respondent is liable to pay difference of Rs. 86,262/-.
The discretion/option is available with the trading member to take steps, once it is clear that the constituent is unable and/or failed to make the requisite payment on due date and time, to recover the amount as early as possible by using discretion in favour of taking action immediately to recover the due & balance amount and specially in view of the volatile market position, if any. Therefore, after 25.01.2008 there was no reason for the petitioner to defer and/or hold the securities further and as case is made out on the basis of material available that the petitioner/trading member would have realised higher price on 25.01.2008 instead of 3.3.2008, the amount awarded with the reasoning so given cannot be said to be contrary to the contract between the parties. The constituent should not suffer because of delay or latches on the part of the trading member or vice versa.
The Arbitrator is right in holding that the case of Mr. Rajendra Bothra (Arbitration Petition No. 89/2009) is quite different on facts and circumstances. Therefore, in the absence of any other procedure and provision and as this is also one of the way of calculating the reasonable compensation for loss and which is not beyond the law or prescribed by law, the reasoning so given in para 6.8 granting the claim to the respondent/constituent, therefore, in my view, cannot be said to be bad in law. The assessment made by the Arbitrator is within the frame work of law and the record by expressing the opinion and by awarding the reasonable compensation, based upon the calculation so made, in the facts and circumstances of the case, cannot be said to be perverse or contrary to the law. The discretion so exercised by the Arbitrator and after assessing the reasonable compensation for loss, based upon the principle of "notional loss", in my view, need no interference. There is no challenge made by the respondent with regard to the interest.
6.8 The Applicant has calculated her claim on the basis of difference in the rate of square off and the highest rate up to the settlement date. The Respondent objects to this calculation as hypothetical. The Respondent has also not mentioned how could the loss due to unjustified square off be calculated. Though the Respondent has objected to grant of notional loss, there is no other way to calculate the reasonable compensation for loss. However, the Applicant has calculated the notional loss by taking the highest rate of each scrip upto the settlement day. It is unreasonable to say that in each case, the Applicant would have sold off positions by striking highest rate. The reasonable loss can be worked out only by assuming that the positions were carried over till the settlement day and sold on last day at average price, i.e. The highest + lowest + 2. On this basis the value of positions of the Applicant squared off on 22-1-2008 would have realized Rs. 3,92,560/- as under:
Quantity
Rate on 31-1-2008
Average
Rate of Square off
Difference
Highest
Lowest
GMR INFRA
5000
184
166
175
137
1,90,000
HOTEL LEELA
3750
47
41
44
39
0,18,750
POWER GRID
3850
111
101
106
91
0,57,750
TATA STEEL
1146
745
609
719
609
1,26,060
3,92,560
The Applicant''s claim, therefore, sustains to the extent of Rs. 3,92,560/-.
Therefore, in view of the above, the difference between the actual squaring off rate and the average market rate as adjudicated cannot be said to be impermissible. In the present facts and circumstances and considering the scope and purpose of this market, and in the absence of any specific or fixed formula available and as the Arbitrator has used discretion to award reasonable compensation on the foundation of average market rate with sufficient reasoning, in my view, cannot be said to be bad in law and/or contrary to Rules and Regulations and contract, merely because there was no specific pleadings raised by the constituent member. The Arbitrator just cannot overlook the total claim so raised against the petitioner/trading member with supported material to justify their claim/compensation. The amount awarded cannot be therefore stated to be unreasoned and/or without any basis or material. The grant of such compensation/damages in such business/transaction, in my view, is permissible and/or cannot be stated to be contrary to law. The purpose of security so provided and as available and as it is permissible within the Rules, the trading member failed to exercise due diligence and discretion, if any, and therefore, the reasoning so given by the Arbitrator while awarding the compensation cannot be stated to be non-application of mind. (Clause 5.1 of Regulation of NSCCL (Future and Option Segment). It is difficult to accept the case that the Award is based on conjunctures and surmises and/or proceeded on hypothesis as alleged. The Award cannot be stated to be against the principle of natural justice.
Resultantly the Petition is dismissed. The Award is maintained. No costs.