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2012 DIGILAW 1794 (BOM)

Kalyansinh K. Kumpavat v. Prashant J. Patel

2012-09-24

ANOOP V.MOHTA

body2012
Judgment The Petitioner has challenged the impugned Award dated 15 June, 2009 passed by the sole Arbitrator appointed under the bye-laws, rules and regulations of the National Stock Exchange of India Ltd. (NSEIL). 2 The basic events are as under: In March 2006, the Petitioner was approached by Respondent's Intermediaries M/s. Mahalaxmi Shares and commodities and convinced the Petitioner to invest in Share Trading and Derivatives. The Petitioner was made to sign some documents by the said Intermediaries, the copies of which were never provided to Petitioner till the matter was referred to arbitration. The Petitioner also issued a cheque to the said Intermediaries bearing Cheque No. 176763 from HDFC Bank only for Mappin purpose. The Petitioner never dealt directly with the Respondent. All the communication he did with the Respondent was only through the said intermediaries. 3 In May 2007, the Petitioner was again convinced by the said Intermediaries to invest in F & O segment stating that it would be more profitable for him. 4 In September, 2007, the Petitioner requested the said intermediaries to stop transacting in the F & O segment as the Petitioner was unable to understand this segment. The Petitioner was never provided any copies of Ledger, Contract notes, his demat account status or any related information by the said Respondent and its Intermediaries from the period wherein petitioner started investing till the matter was referred to arbitration. 5 On 26.05.2008, the Petitioner wrote a letter in local regional language to the said Intermediaries seeking explanation for the Draft and cheques he issued and particulars of his demat status and its whole particulars therein. 6 On 20.09.2008 Communication from NSE received to submit defense in prescribed format. Arbitration proceedings were conducted. All the documents related to the Petitioner's demat account which includes Contract Notes, Ledger Accounts etc were provided by the Respondent only in the Arbitration proceedings. 7 On 16 June, 2009 impugned Award was passed by the learned Arbitrator. 8 On 14 July, 2009, the Petitioner invoked Section 33 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) against the Award passed on 16 June, 2009. 9 The operative part of the Award is as under: “6 Award 6.1 The award in the matter on the basis of reasoning in para 5.1 to 5.4 is as under: (i) The Respondent Mr. Kalysingh K. Kumpavat to pay Rs. 9 The operative part of the Award is as under: “6 Award 6.1 The award in the matter on the basis of reasoning in para 5.1 to 5.4 is as under: (i) The Respondent Mr. Kalysingh K. Kumpavat to pay Rs. 5,52,164.57 to the Applicant M/s. Prashan J. Patel within a month from the date of this Award. (ii) The Respondent to also pay interest at a rate of 12% per annum on Rs. 5,52,164.57 from 01.03.2008 till the date of award within a month from the same date. (iii) If the Respondent fails to pay amount at (I ) and (ii) above, within a month as stipulated, he will be liable to pay further interest at 10% per annum on the amount at (I) above from the date of award to the date of actual payment. 6.2 The parties to bear their own cost of arbitration. 6.3 The award is made in three originals, each duly stamped with Rs.100/-NSEIL may retain one original and may send one each to the Applicant and the Respondent.” 10 There is a clear finding given by the learned Arbitrator that the Applicant/Respondent failed to produce proper Proof of Deliveries (PODs) in respect of the delivery of contract notes. The genuineness of PODs is also recorded to be doubtful. The objection raised by the Petitioner's counsel, as recorded, are quite reasonable. The case of the Petitioner was that the trading in F & O was discontinued since 27.09.2007. Further dealing by the Respondent in such situation always raises doubt. Even if there are oral instructions to do the business, but it is subject to the bye-laws, trade and practice, apart from relationship between the parties. If the case of the Petitioner that there were no instructions to carry out any transaction, the burden was definitely upon the Respondent to prove that there were instructions and accordingly the business was done and the contract notes were duly delivered first. In the present case, if there is a finding given that the Applicant failed to produce any PODs in respect of the delivery of the contract notes, in my view, this goes to the root of the matter. 11 The Applicant/trading member, under the bye-laws, has been provided with various discretionary powers. He has to use this discretion, based upon the nature of business and trade. 11 The Applicant/trading member, under the bye-laws, has been provided with various discretionary powers. He has to use this discretion, based upon the nature of business and trade. The discretion so exercised just cannot be accepted to mean that the Arbitrator and/or even the Court has no power to interfere with the same. The commercial discretion so contemplated under the bye-laws cannot be equated with the discretion of the Court and/or the Arbitral Tribunal. The parties, though agreed and relied upon the trade members for all the purpose while dealing with the security transactions, still it is necessary for such trade member to use such discretion, based upon the commerce in question. They are the expert in dealing with such type of situation, but still while considering the objection so raised by the other side and if it is noted even by the Arbitrator, in the present case that there is no sufficient material and/or evidence on record to show that there were delivery of contract notes even after direction to discontinue the business on 27.09.2007 and if those are missing, in my view, the case and the reason to grant the Award, is unacceptable. 12 The Petitioner has also raised counter claim. While deciding the claim of the Respondent, the learned Arbitrator has failed to even record and refer the counter claim filed by the Petitioner. The Arbitrator, even under the bye-laws of NSEI, in my view, under obligation to deal with those claims as well as counter claim equally. The Arbitration Act itself provides that the Arbitrator must give equal treatment to both. The Arbitrator must act fairly in all respects. Though Evidence Act and/or Code of Civil Procedure (CPC) are not applicable as provided in Sections 18 & 19, still the basic principles, equity, fair play and natural justice, just cannot be overlooked by the Arbitrator even in such matter. 13 The Petitioner had raised objection under Section 16 of the Arbitration Act. There is nothing mentioned even about the same. The Arbitrator is under obligation to deal with the aspect of jurisdiction at the earliest. Even if decided earlier, need to refer the same while passing the final Award. The aspect of jurisdiction, in a given case, goes to the root of the matter and just cannot be overlooked by the Tribunal constituted under the bye-laws. The Arbitrator is under obligation to deal with the aspect of jurisdiction at the earliest. Even if decided earlier, need to refer the same while passing the final Award. The aspect of jurisdiction, in a given case, goes to the root of the matter and just cannot be overlooked by the Tribunal constituted under the bye-laws. The objection regarding maintainability if is raised even before the Tribunal apart from jurisdiction. The Arbitrator is under obligation to deal with the same, the Petitioner has raised such grounds under Section 34 specifically. This, in my view, goes to the root and proper adjudication/decision is necessary. 14 The Arbitrator has awarded Rs.5,52,164.57 but there is nothing mentioned and/or provided how the said figure is arrived at. There is no supporting basis or material placed on record. 15 Strikingly, pending the arbitration, as noted, some amounts were deposited by the Petitioner. The Arbitrator has dealt with the same. The point is, under the bye-laws, as dispute arose and as complaint was filed before the NSEIL, the point of reference was specific. Therefore, the Arbitral Tribunal is under obligation to deal with the point of reference only. They just cannot go beyond that. 16 There is nothing referred and/or pointed out, how the Arbitrator, in such matter, pending the arbitration, permit the parties to deal with the transaction afresh and taking note of those transactions, permit the parties to add and/or amend the claim and/or counter claim. In a given situation, those fresh transactions itself, may create fresh dispute and/or problem. Therefore, any subsequent transaction between the parties, unless specifically permitted just cannot be taken note of any of pending arbitration proceedings, specifically when there is nothing recorded and/or point of both the parties, have agreed for such procedure. There is nothing on record that the bye-laws permit the parties to enter into such type of transaction pending the arbitration proceedings between the parties, referring to earlier disputes. 17 There is clear finding given that the amount so deposited by the Petitioner was towards the other family business transaction. Merely because the cheque was deposited by the Petitioner that itself cannot be the reason to accept the case of the Respondent that the payment was made by the Petitioner towards the pending liability/claim, specifically when there is a finding recorded that the cheques/amounts so deposited was towards the other family business transactions. Merely because the cheque was deposited by the Petitioner that itself cannot be the reason to accept the case of the Respondent that the payment was made by the Petitioner towards the pending liability/claim, specifically when there is a finding recorded that the cheques/amounts so deposited was towards the other family business transactions. This is another angle which is required to be considered while dealing with the aspect of permitting the parties to enter into any transaction pending the arbitration proceeding. This is one of the cases where, admittedly, the amount was deposited towards another transaction between the Respondent and other family members, but the Arbitrator has treated that amounts towards the pending dispute between the parties. Neither the Arbitration Act nor the bye-laws provide and/or permit the Arbitrator to adjust the amount in such fashion, without considering the scope and purpose of point of reference and the dispute between the parties. 18 It is not the question of power under Section 34 of the Arbitration Act of the Court, not to interfere with the discretion so exercised by the Arbitrator but when we are dealing with the Arbitration proceedings initiated under the bye-laws of any Stock Exchange though they are the expert in the field, still we have to consider the discretion so given/provided under the bye-laws to the trading member. The agreement permits and so also the bye-laws, but still the trading member, if misuses and/or failed to apply his mind while taking decision at appropriate time, in a given situation, the Arbitrator as well as the Court, need to test the said discretion, based upon the material available on the record and the circumstances to available or prevailing at the relevant time. Therefore, the Court under Section 34, in such matter, if the learned Arbitrator accept the discretion so exercised by the trading member and that exercise of discretion itself, as recorded above, is contrary and impermissible under the bye-laws and the trade and practice in question, in my view, is entitled to consider the same basically when there are undisputed facts. 19 It is important to note, apart from the facts and circumstances so referred above, the Petitioner's background and the transactions and basically when there are material on record to show that the Petitioner acted all the time through the Intermediaries. There are no material to support that the contract notes were delivered. 19 It is important to note, apart from the facts and circumstances so referred above, the Petitioner's background and the transactions and basically when there are material on record to show that the Petitioner acted all the time through the Intermediaries. There are no material to support that the contract notes were delivered. There are even no PODs on record. There is no clear account of statement placed on record. There is nothing to show effective communication and the related aspects. The adjustment of the cheques in question which were towards the family liability, but treated as part and parcel of transaction in question. The Award, therefore, without detail and is unsustainable. 20 Admittedly, no reason whatsoever given so far as the rejection of counter claim in question. The aspect of limitation is also missing in the present case. 21 Resultantly, the following order: (I)The impugned Award dated 15 June, 2009 is quashed and set aside. (II) The matter is remanded back for early hearing. (III) The Arbitrator to reconsider and rehear the matter by giving opportunity to both the parties. (IV) The parties to take steps accordingly. (V) The arbitration proceedings are expedited. (VI) There shall be no order as to costs. (VII) Pursuance to the order dated 22.03.2010, the Petitioner has deposited Rs.5,52,164/-. That amount has been invested since then. The last maturity date is 4.12.2012. The maturity amount is Rs.6,43,191/-. As this Petition is disposed and the matter is remanded back for reconsideration, the amount so deposited required to be transferred in the account of the dispute between the parties to the National Stock Exchange of India. After maturity, the amount be transferred to the account of NSEIL, subject to praecipe, if any. The amount so deposited shall be subject to the final decision of the arbitration proceedings. The liberty is granted to the parties to apply for appropriate direction for further investment, if any.