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2013 DIGILAW 437 (BOM)

Nidhi Verma v. Prabhudas Lilladher Pvt. Ltd.

2013-02-25

A.A.SAYED, D.Y.CHANDRACHUD

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JUDGMENT (Dr. D.Y. Chandrachud, J.) Admit. With the consent of learned Counsel for the Appellant and the Respondent, the appeal is taken up for final hearing. Counsel for the Respondent waives service. 2. This appeal arises from an order of a learned single Judge on a Petition under section 34 of the Arbitration and Conciliation Act, 1996 filed by the Respondent. The arbitral proceedings took place before an arbitral tribunal constituted by the National Stock Exchange. The Respondent is a Member of the National Stock Exchange who had entered into transactions on behalf of the Appellant. The claim of the Respondent was allowed by the arbitral tribunal in an Award dated 14 October 2009 in the sum of Rs.3,25,597/- on which interest was allowed at 12% per annum from 26 September 2008. There was a Counter Claim of the Appellant which was dismissed on the ground that it was barred by limitation. The dismissal of the Counter Claim was not challenged by the Appellant. However, the Respondent filed an Arbitration Petition under section 34 since the claim of the Respondent was allowed in the amount of Rs.3,25,597/- as against a claim of Rs.24,43,064/-. The learned single Judge while allowing the Arbitration Petition filed by the Respondent did so only on the ground that the rejection of the Counter Claim filed by the Appellant on the ground of limitation “needs to be considered in view of the latest circular whereby the period of limitation has been extended to 3 years instead of 6 months.” Hence, without expressing any opinion on merits, and keeping all points open, the Arbitration Petition which was filed by the Respondent has been allowed and the arbitral Award has been set aside only on the ground that rejection of the Counter Claim of the Appellant was not in order. 3. Having heard the learned Counsel appearing on behalf of the contesting parties, we find that the ground of challenge in the Appeal is unanswerable and it was impossible in an Arbitration Petition under section 34 of the Arbitration and Conciliation Act, 1996 for the Court to set aside an arbitral Award on the ground of rejection of a Counter Claim though there was no challenge whatsoever by the original Respondent whose Counter Claim had been rejected. The challenge to the arbitral Award was at the behest of the Respondent who was aggrieved by the fact that as opposed to an arbitral claim of Rs.24.43 lakhs, the Arbitrator had awarded an amount of Rs.6.71 lakhs; and after giving due credit for an amount of Rs.3.45 which had been realised, directed the Appellant to pay an amount of Rs.3.25 lakhs. It was that challenge to the arbitral Award that fell for consideration. The rejection of the Counter Claim was not an issue at all since the Appellant whose Counter Claim had been dismissed had not challenged the rejection of the Counter Claim and had accepted the arbitral Award. 4. In this view of the matter, we are of the view that the order passed by the learned single Judge setting aside the arbitral Award without going into the merits of challenge and keeping all the points open while remanding the proceedings back to the arbitral tribunal is totally unsustainable. 5. That leaves the Court to deal with the merits of the arbitral Award which was challenged by the Respondent in proceedings under section 34 of the Arbitration and Conciliation Act, 1996. The Appellant was a constituent of the Respondent. There was no short-fall in the margins relating to the transaction between the parties until 2 June 2008. From 3 June 2008 there was a debit balance until 19 June 2008, as noted in the arbitral Award. Thereafter, the Appellant made payment in her account to take care of the short-fall of margin and requested the Respondent to roll over the open position to the July 2008 series. On 24 June 2008 the position was corrected and there was a credit balance in the account of the Appellant which continued until 13 September 2008. From 15 September 2008 there was a short-fall of margin in respect of the open position of the Appellant. The settlement for September 2008 had to be closed on 25 September 2008. On 25 September 2008, an e-mail was addressed by the Appellant to the Respondent stating that funds were being arranged in October 2008 and seeking a roll over. From 15 September 2008 there was a short-fall of margin in respect of the open position of the Appellant. The settlement for September 2008 had to be closed on 25 September 2008. On 25 September 2008, an e-mail was addressed by the Appellant to the Respondent stating that funds were being arranged in October 2008 and seeking a roll over. On 25 September 2008 an email was sent by the Respondent to the Appellant at 2.10 p.m. stating that the Appellant had been allowed to roll over the position only for that month on the representation that the debit shall be paid in October 2008 and for the next month, post-dated cheques for the full amount would be recovered. By a further e-mail which was sent at 2.44 p.m. on 25 September 2008, the Appellant was informed by the Respondent that cheques should reach the Respondent on that very day, failing which action would be taken. The Respondent thereafter proceeded to roll over the outstanding position of the Appellant to the month of October 2008 and again thereafter till November 2008. 6. On these facts, the Sole Arbitrator adverted to the provisions of regulation 3.10 of the National Stock Exchange (Futures & Options Segment) Trading Regulations. Regulation 3.10 provides as follows:- “3.10 MARGIN FROM THE CONSTITUENTS (a) The Trading Members must demand from its constituents the Margin Deposit which the member has to provide under these Trading Regulations in respect of the business done by the Members for such constituents. The Trading Members shall buy and/or sell derivatives contracts on behalf of the constituent only on the receipt of margin of minimum such percentage as the Relevant Authority may decide from time to time, on the price of the derivatives contracts proposed to be purchased, unless the constituent already has an equivalent credit with the Trading Member. The Trading member may collect higher margins from constituents, as he deems fit. The Trading Member shall obtain a written undertaking from the constituents that the later shall when called upon to do so forthwith from time to time provide a Margin Deposit and/or furnish additional Margin as required under these Rules and Regulations in respect of the business done for the constituent by and/or as agreed upon by constituent with the Trading Member concerned. The Trading Member shall demand from his constituents the amounts arising in respect of daily settlement in accordance with the Clearing Corporation Regulations for business done by the Members on behalf of such constituents or such higher amounts, as the Trading Member deems fit. The Trading Member may, if so desire, for administrative convenience maintain the daily settlement margin balance upto a pre-agreed balance level to avoid collecting and paying daily settlement amount on a daily basis, which may be referred to as maintenance margin. The trading member may keep the unutilized margin deposits of its Constituents in bank deposits and pay interest 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 by the 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 shall be at liberty to close out transactions by effecting purchases of derivatives contracts if the constituent fails to meet the obligation in respect of the open position within next trading day of the transaction having been executed on the F&O Segment of the Exchange for the concerned settlement period. Loss on the transaction, if any, shall be deductible from the margin money of the constituent.” 7. Loss on the transaction, if any, shall be deductible from the margin money of the constituent.” 7. The Arbitrator held that the short-fall commenced from 15 September 2008 and except for making a promise to make payment and requesting for a roll over, no positive steps were taken by the Appellant to reduce the short-fall in the margin or reduction in the open position. The arbitral tribunal held that in the circumstances, the Respondent should have immediately taken action to square off the position at least by 25 September 2008 which was the expiry date of the settlement for the month, instead of rolling over the position for the months of October and November 2008. According to the Tribunal, the Respondent was not entitled merely on the ground of a previous relationship between the parties to wait indefinitely and to continue to carry forward the open position without getting the short-fall in the margin. There was, in the view of the Arbitrator, no justification in the action of the Respondent in rolling over the position during the months of September and October 2008 and finally squaring off the position much later, only in the month of November 2008. The Arbitrator held that if the open position was squared off on the expiry date of 25 September 2008, a loss amounting to Rs.6,71,434/- would have been sustained being the difference between the bought out price as on 26 August 2008 and the sale price on 25 September 2008. After taking due note of the amount of Rs.3.45 lakhs realized by the Respondent, the Appellant was called upon to pay the balance of Rs.3.25 lakhs together with interest. 8. The view which has been taken by the arbitral tribunal is consistent with the provisions contained in regulation 3.10 of the Regulations noted earlier. Regulation 3.10 (b) provides that in the event of non-payment of daily settlement by the constituent within the next trading day, the trading member is at liberty to close out the transaction by selling or buying derivative contracts unless the constituent has an equivalent credit. An element of discretion is, therefore, conferred upon the trading member by regulation 3.10(b). However, clause (a) of regulation 3.10 stipulates that the trading member must demand from its constituents the margin deposit which the member has to provide under the Trading Regulations. An element of discretion is, therefore, conferred upon the trading member by regulation 3.10(b). However, clause (a) of regulation 3.10 stipulates that the trading member must demand from its constituents the margin deposit which the member has to provide under the Trading Regulations. Moreover, it stipulates that the trading member shall buy and/or sell derivatives contracts on behalf of the constituent only on receipt of a margin of a minimum of such percentage as the Relevant Authority may decide from time to time. In the circumstances, between 15 September 2008 and 25 September 2008, an element of discretion vested in the Respondent. However, on the expiry of the period of settlement for the month of September 2008 on 25 September 2008, and when a new contract would have come into existence for the subsequent period, the Respondent was duty bound under regulation 3.10(a) to ensure that it was placed with sufficient margin and failing that to square off the position. The arbitral tribunal was justified in holding that it is not open to a trading member to wait indefinitely on the assurance that the position would be corrected. As a matter of fact, in this case, the last e-mail which was sent by the Respondent to the Appellant on 25 September 2008 required the Appellant to furnish cheques on that very date, failing which it was stated that the Respondent would take recourse to necessary measures. In these circumstances, consistent with the provisions of the regulations, the arbitral tribunal was justified in computing the loss sustained as on 25 September 2008 and by directing the Appellant to pay over to the Respondent an amount of Rs.3.25 lakhs after taking into account an amount of Rs.3.45 lakhs which was realised in the meantime. The view of the Arbitrator who constituted an expert arbitral tribunal of the Stock Exchange was a plausible view which did not merit interference under section 34 of the Arbitration and Conciliation Act, 1996. 9. In the circumstances, we allow the Appeal and set aside the impugned order of the learned single Judge. The Arbitration Petition filed by the Respondent shall in the circumstances stand dismissed. There shall be no order as to costs. 10. In view of the disposal of the Appeal, the Notice of Motion in the Appeal does not survive and the same stands disposed of.