JUDGMENT : 1. This petition has been filed by the petitioner against the award of the Arbitrator dated 16.8.2007. 2. The petitioner had entered into an agreement with the first respondent on 29.8.2005 and became a client/constituent for the first respondent. The first respondent is a trading member of the National Stock Exchange of India Limited. The petitioner had started trading by purchase and sale of shares with the first respondent in cash as well as future and option segment. 3. The petitioner was trading with the first respondent till 19.5.2006. On 22.5.2006, the petitioner received a contract note bearing No.11620 from the first respondent and a dispute arose between them in respect of the said contract note, which referred to the sale of all positions held by the petitioner as on 19.5.2006 leaving a debit balance of Rs.4,66,432.44. 4. Admittedly, as on 19.5.2006, the petitioner had a credit balance of Rs.4,94,680.06 besides collateral security to the tune of Rs.3,37,490.00 and a credit balance in the cash segment of Rs.7,161.09 totaling Rs.8,39,331.15 as per the bill/margin statement issued by the first respondent as on 19.5.2006. 5. As on the evening of 19.5.2006, the petitioner held positions in his future and option account requiring a total margin of Rs.18,03,227/-. After taking into consideration, the aforesaid credit balances in the petitioner's account including the collateral held by the first respondent, the deficit in the margin account on the closing of 19.5.2006 was Rs.5,47,821.68. 6. The settlement period in respect of the said margin amount became due and payable on 23.5.2006, i.e., trading plus one day, that too, after a demand having made on the petitioner by the respondent. However, the petitioner was shocked and surprised to receive a contract note, dated 22.5.2006, on 22.5.2006 selling all his positions without his knowledge and consent. Hence, the present petition. 7. Heard both sides. 8. The learned Counsel for the petitioner has submitted that the learned Arbitrator had failed to appreciate that the first respondent has not made any demand nor issued any notice as per Clauses 3.10(a) of the National Stock Exchange Regulation (future and options segment) to the petitioner before squaring off all his positions, especially, since the petitioner had furnished his address and two telephone numbers through which he could be reached. 9. 9. The learned Counsel has also submitted that the learned Arbitrator had failed to appreciate the documentary evidence produced by the petitioner, whereas, he has completely relied on the documents produced by the first respondent. 10. The learned Counsel has argued that the learned Arbitrator had failed to appreciate that as per the member client agreement, dated 29.8.2005, the first respondent even assuming, but without admitting, was not in a position to contact the petitioner, had the authority to square off the positions held by the petitioner only to the extent of the shortfall in the margin money, i.e., to the tune of Rs.5,47,821.69 and did not have the right to square off all the positions without notice to the petitioner resulting in a loss to the petitioner. 11. Further, the learned Counsel has contended that the learned Arbitrator had failed to appreciate that Clause 5 of the above said agreement could be invoked by the first respondent only for the non-payment of the margin money to the extent required and not otherwise. 12. The learned Counsel has vehemently contended that the marked to market losses on 22.5.2006 should be as per the closing value as on 22.5.2006, whereas the first respondent had squared off the position of the petitioner on 22.5.2006 during the trading session and therefore, the first respondent erred in law in squaring of the positions of the petitioner in the middle of the trading session. 13. In support of her contentions, the learned Counsel has relied on the following decisions:- a. The Apex Court in Steel Authority of India Ltd., vs. J.C. Budharaja, Government and Mining Contractor ( (1999) 8 SCC 122 ), has observed as under:- "Further, the Arbitration Act does not give any power to the arbitrator to act arbitrarily or capriciously. His existence depends upon the agreement and his function is to act within the limits of the said agreement. In Continental Construction Co. Ltd. vs. State of Madhya Pradesh [ (1988) 3 SCC 82 ], this Court considered the clauses of the contract which stipulated that contractor had to complete the work in spite of rise in the prices of materials and also rise in labour charges at the rates stipulated in the contract. Despite this, the arbitrator partly allowed contractors claim. Ltd. vs. State of Madhya Pradesh [ (1988) 3 SCC 82 ], this Court considered the clauses of the contract which stipulated that contractor had to complete the work in spite of rise in the prices of materials and also rise in labour charges at the rates stipulated in the contract. Despite this, the arbitrator partly allowed contractors claim. That was set aside by the court and the appeal filed against that was dismissed by this Court by holding that it was not open to the contractor to claim extra costs towards rise in prices of material and labour and that arbitrator misconducted himself in not deciding the specific objection regarding the legality of extra claim. In that case, the Court referred to the various decisions and succinctly observed: - If no specific question of law is referred, the decision of the arbitrator on that question is not final however much it may be within his jurisdiction and indeed essential for him to decide the question incidentally. The arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks is just and reasonable. The arbitrator is a tribunal selected by the parties to decide their disputes according to law and so is bound to follow and apply the law, and if he does not he can be set right by the court provided his error appears on the face of the award. It is to be reiterated that to find out whether the arbitrator has travelled beyond his jurisdiction and acted beyond the terms of the agreement between the parties, agreement is required to be looked into. It is true that interpretation of a particular condition in the agreement would be within the jurisdiction of the arbitrator. However, in cases where there is no question of interpretation of any term of the contract, but of solely reading the same as it is and still the arbitrator ignores it and awards the amount despite the prohibition in the agreement, the award would be arbitrary, capricious and without jurisdiction. Whether the arbitrator has acted beyond the terms of the contract or has travelled beyond his jurisdiction would depend upon facts, which however would be jurisdictional facts, and are required to be gone into by the court. Whether the arbitrator has acted beyond the terms of the contract or has travelled beyond his jurisdiction would depend upon facts, which however would be jurisdictional facts, and are required to be gone into by the court. Arbitrator may have jurisdiction to entertain claim and yet he may not have jurisdiction to pass award for particular items in view of the prohibition contained in the contract and, in such cases, it would be a jurisdictional error. For this limited purpose reference to the terms of the contract is a must. Dealing with similar question this Court in New India Civil Erectors (P) Ltd. Vs. Oil and Natural Gas Corporation [ (1997) 11 SCC 75 ] held thus:- It is axiomatic that the arbitrator being a creature of the agreement, must operate within the four corners of the agreement and cannot travel beyond it. More particularly, he cannot award any amount which is ruled out or prohibited by the terms of the agreement. In this case, the agreement between the parties clearly says that in measuring the built-up area, the balcony areas should be excluded. The arbitrators could not have acted contrary to the said stipulation and awarded any amount to the appellant on that account." b. The Bombay High Courtin G.R. Didwania vs. A.C. Choksey (2004 Company Cases Vol.14 page 744), has held as follows:- "(iii) That even though under bye-law 226 contracts are subject among others to "usage", special delivery has to satisfy two things: the date must be entered into the contract and it must be permitted by the governing board or the president. It could not be said that usage would amount to general permission. The finding of the tribunal that usage saved such transaction was clearly contrary to bye-law 354(a)(4) and other bye-laws. The arbitrators, therefore, had no jurisdiction to pass the award based on the void contract or in passing the award had acted arbitrarily. 14. Per contra, the learned Counsel for the first respondent has submitted that the petitioner is bound by Clause 5 of the Member Client Agreement, dated 29.8.2005 and the same is not denied by the petitioner and therefore, the action of the first respondent cannot be said to be illegal. 15. 14. Per contra, the learned Counsel for the first respondent has submitted that the petitioner is bound by Clause 5 of the Member Client Agreement, dated 29.8.2005 and the same is not denied by the petitioner and therefore, the action of the first respondent cannot be said to be illegal. 15. The learned Counsel has further submitted that the Margin account of the petitioner from 15.5.2006 to 19.5.2006 except on 17th showed only a debit balance and he had admitted that he had not taken any position on the said dates and his margin account was in debit as evidenced by the Margin Analysis Statement filed before the Arbitrator. 16. The learned Counsel has argued that the petitioner in his own written submission admitted that he had future position on 19.5.2006 for which, the margin requirement was Rs.18.03 lakhs and he was well aware that he was in deficit and therefore, the petitioner himself should have taken due care to see that the margin was paid before Trading hour on 22.5.2006. 17. The learned Counsel has contended that on 19.5.2006 the petitioner's account showed a margin of deficit of Rs.13.08 lakhs after adjusting the credit balance of 4.95 lakhs and on 22.5.2006 due to the steep fall in the stock market, it went upto 27 lakhs and hence, the argument of the petitioner that margin is to be paid on trading +1 day basis, is untenable. 18. I have considered the aforesaid submissions and perused the materials available on record. 19. Now the only question to be decided is, whether the action of the first respondent in liquidating all his positions without the consent of the petitioner, is correct or not? 20. It is the case of the petitioner that on 19.5.2006, his closing balance in the ledger of the first respondent was Rs.5,01,841.16. The credit balance was arrived at after debiting Rs.4,63,925/-. As per by-law 13 of Part B of Chapter VI of the by-laws and Chapter 3 of Regulation Marked to Market (MTM) settling, are effected on T +1 day basis. Hence, the MTM of 19.5.2006 should have been debited on 23.5.2006, because 20th and 21st are holidays. So, in effect, the closing balance on 19.5.2006 should have been Rs.9,65,766/- (Rs.5,01,841.16 + 4,63,925). The value of the collateral security as per the valuation of the first respondent is Rs.2,34,329.66. Hence, the MTM of 19.5.2006 should have been debited on 23.5.2006, because 20th and 21st are holidays. So, in effect, the closing balance on 19.5.2006 should have been Rs.9,65,766/- (Rs.5,01,841.16 + 4,63,925). The value of the collateral security as per the valuation of the first respondent is Rs.2,34,329.66. In addition, some more collateral security as shares had been given to the first respondent on 15.5.2006 and the value of the same was Rs.55309.5. Therefore, the total amount to his credit on the closing of 19.5.2006 was Rs.9,65,766.16 + 2,34,329.66 + 55,309.50 = Rs.12,55,405.32. 21. The petitioner had also agreed that he had future position, for which, the margin requirement was Rs.18,03,227.00. Hence, the net deficit in the margin account on the closing of 19.5.2006 was Rs.5,47,821.68 ( 18,03,227 – 12,55, 405.32). 22. It is also the case of the petitioner that the closing settlement price is carried forward as opening price in the next trading day and therefore, the action taken by the respondent on 22.5.2006 was illegal. 23. A perusal of the contract note shows that on 22.5.2006 at 9.22 a.m., the transactions have been done. At the top of the contract note, it is stated as under:- "Sir/Madam, We have this day done by your order and on your account the following transactions." 24. It is the strong case of the petitioner that when the market itself opens at 9.30, how the transactions were carried out on behalf of the petitioner, even without informing him or getting consent from him, that too, at about 9.22 a.m. 25. Though this issue has been raised by the learned Arbitrator, the reply of the first respondent was that the issue was already seized of and found that the actual transaction timing was between 13.01.37 and 13.40.16. Thereafter, the learned Arbitrator has informed both the parties that he would seek the information from NSE on this issue. However, without getting any information or discussing this issue, the award has been passed in favour of the first respondent, which is incorrect, in the opinion of this Court. This aspect has not been clearly explained by the first respondent. Thereafter, the learned Arbitrator has informed both the parties that he would seek the information from NSE on this issue. However, without getting any information or discussing this issue, the award has been passed in favour of the first respondent, which is incorrect, in the opinion of this Court. This aspect has not been clearly explained by the first respondent. Even in the top of the Note itself, it is stated that the transaction is being carried out according to the order of the account holder, whereas, the first respondent either without informing the petitioner or getting consent from him, made transactions even at 9.22 a.m. well before the starting of trading hour, which clearly shows that the act of the first respondent is improper and incorrect and in violation of the agreement. 26. Further, it is also the case of the petitioner that without giving any notice or demand for payment on 22.5.2006, the liquidation of all his positions is not valid. 27. At this juncture, it is pertinent to see Clause 5 of the Member-Client Agreement, which reads as under:- "Without prejudice to the stock broker's other rights (including the right to refer a matter to arbitration) the stock broker shall be entitled to liquidate/close out all or any of the client's position for non payment of margins or other amounts, outstanding debts, etc., and adjust the proceeds of such liquidation/close out, if any, against the client's liabilities/obligations. Any and all losses and financial charges on account of such liquidation/closing out shall be charged to and borne by the client". 28. Even in Clause 5 of the said agreement, it is stated that only in the event of non-payment of margins or any other amounts, the first respondent can adjust the proceeds of such liquidation/close out, if any, against the client's liabilities/obligations and not all his positions. 29. In this regard, the petitioner, in his letter, dated 2.7.2007 addressed to the Arbitration, National Stock Exchange of India Limited, Chennai-4, has stated as under:- "Now as far as Clause 5 of member-constituent agreement, "the stock broker shall be entitled to liquidate/close out all or any of the positions for non-payment of margin or other amounts," ... 29. In this regard, the petitioner, in his letter, dated 2.7.2007 addressed to the Arbitration, National Stock Exchange of India Limited, Chennai-4, has stated as under:- "Now as far as Clause 5 of member-constituent agreement, "the stock broker shall be entitled to liquidate/close out all or any of the positions for non-payment of margin or other amounts," ... Here, non payment of margin only is involved as all other charges are debited to my account till the close of 18.5.2006 and "MTM" of 19.5.2006 can be collected only on closing of 22.5.2006. So the non payment of margin amounts to Rs.5,47,821.68. The Clause 5 is a Clause which give power to the broker to recover the non payment of margin and other amount. So they should use this power just to recover the non payment of margin and other amount which can be established as non payment. In this case Rs.5,47,821.68 only could have been recovered under the strength of this clause. This clause is not meant for punishing the constituent so that even a small deficiency of payment the broker get the power to the broker to take action for the amount for which they are entitled to take action. Here, when I have positions on which margin requirement is Rs.18,03,227/- and recoverable amount is Rs.5,47,821.68 . There was no reason to close out all the positions. Hence, legally, they have done a breach of contract and all the consequences of which they only are responsible. 30. From the above, it is clear that the first respondent could close the positions of the petitioner to the extent of Rs. 5,47,821.68 and not more than that and therefore, the action of the first respondent is a clear case of breach of contract. 31. Moreover, it is the definite case of the petitioner that without informing or getting his consent, the closing of all his positions by the first respondent without any demand or notice would amount to breach of contract. 32. In this regard, in the said letter, it is stated as under:- "The entire story written is from imagination without any facts and truth. I am a constituent who attended their Tirupur office M/s.Tirupur Investors Paradise during every trading session. The letter written by Mr. Ramanathan of their Tirupur office is a good proof for that. 32. In this regard, in the said letter, it is stated as under:- "The entire story written is from imagination without any facts and truth. I am a constituent who attended their Tirupur office M/s.Tirupur Investors Paradise during every trading session. The letter written by Mr. Ramanathan of their Tirupur office is a good proof for that. Here they have admitted that I have informed them that I will not be available on 19.5.2006 and 22.5.2006 in Tirupur. That time they have neither asked my address nor my any other contact number for emergency. I had informed at the same time I will be attending the trading session on 23.5.2006. As I informed I did come to their office before trading session start. So as a sincere constituent I did inform my absence in advance and did attend their office on 23.5.2006 as informed. The fact that I informed in advance itself shows that I have done with good intentions and there is nothing to hide." 33. Further, the said letter reads as under:- “They say on 19.5.2006 they have tried to contact me over my mobile phone number 9894620421. They did not mention what message they got. They say they could not get connection and they also say, “No Response.” No response means they got connection and the party was not responded by picking up phone. Here they say both that they did not get connection and no response also. From this anybody can understand that they did not even dial the number. So the first paragraph of Point No.4 is lie and based on imagination without any facts or truth. In second paragraph on Point No.4 they say that they have again tried and there was no response. If no response I would have got missed call message. I did not get any missed call message so what they have mentioned “No Response” is a lie. They again say they have tried my residence number 2247993 and again say that there was no response as I was out of station. Another big lie. My telephone number had been changed and the number was not existing that time. Had they dialed the number they would have got the message “Dialed number does not exist”. But they say that they did not get any response as I was not there. Another big lie. My telephone number had been changed and the number was not existing that time. Had they dialed the number they would have got the message “Dialed number does not exist”. But they say that they did not get any response as I was not there. From this itself it is clear that what they stated is a lie and they did not even dialed the number. Then they have written that they have tried my office number is not 2470398. They further write that staff took the phone and informed that I was out of station and they do not have any contact number. They further add to give colour and flavour to the lie that they have left a message. That they are calling from share office and I should contact them. How can the staff of my office take the phone and inform that Vijayakumaran is not available when the number they dialed is wrong and that is not my office number. This clearly illustrate that whatever they have stated is just lie and only lie and in fact they have not made any effort not even dialed my mobile number or any of the wrong number they themselves have mentioned. All this has been written out of imagination as they know that I was out of station, which I informed them in advance.” 34. From the above, it is clear that the petitioner, being the sincere constituent, had informed that he would be out of station from 19.5.2006 to 22.5.2006. However, the first respondent, when the margin account showed deficiency, they did not take any effort to contact the petitioner or inform him about the same, instead, they had closed all the positions of the petitioner. On the side of the first respondent, there is no explanation for not contacting or informing the petitioner. Further, the first respondent ought to have taken any action only after demand or notice to the petitioner. 35. In the above context, this Court is of view that though the margin account showed deficiency of fund on 19.5.2006 to the tune of Rs.5,47,821.68, the next day, the first respondent without contacting or informing the position to the petitioner, closing of all his positions is against the agreement, which amounts to breach of contract. 35. In the above context, this Court is of view that though the margin account showed deficiency of fund on 19.5.2006 to the tune of Rs.5,47,821.68, the next day, the first respondent without contacting or informing the position to the petitioner, closing of all his positions is against the agreement, which amounts to breach of contract. In fact, if the first respondent had wanted to close the position of the petitioner, they should have closed only to the extent of Rs.5,47,821.68, whereas, the first respondent had closed all the positions of the petitioner without any demand or notice and it would amount to breach of agreement and the act of the first respondent cannot be accepted as it is against the principle of natural justice. However, the learned Arbitrator has not considered these aspects while passing the Award. For the foregoing reasons, this Court is of the view that the Award is liable to be set aside and accordingly, the petition is allowed setting aside the Award. However, there will be no order as to costs.