2014 (12) TMI 1291 - HC - Indian Laws

Validity of arbitrial award - unauthorized transactions and trading - transactions carried without demanding any margin money from the claimant - complaint with the grievance cell of MCX - arbitral tribunal rendered an award and directed the respondent to pay an amount of ₹ 806031.69 being the closing balance in the account of claimant with interest at 18% p.a. till payment and an amount of ₹ 78,186.70 which was deducted from the account of claimant as charges and tax due to trading unauthorizedly in her account from 5th July 2011 till 30th November 2011 with interest at 18% from 5th July 2011 till payment. Also refund the claimant an amount of ₹ 35,845.50 with interest. Held that - A perusal of record indicates that the respondents have failed to prove that any demand was made by the respondent on the claimant for deposit of any margin money, even if there was a debit balance in the account of claimant on a particular date. On the contrary, the records produced by the respondent itself indicates that the respondent has carried out large number of transactions, including purchase transactions, in the account of the claimant on the date of debit balance. It is thus clear that the claimant would not have given any such instructions to the respondent for carrying out such transactions on behalf of the claimant. The respondent has failed to produce any proof of any instructions from the claimant to carry out any such transactions or that the transactions were carried out by the claimant herself online or that she was personally present to carry out such transactions in the office of the respondent and also having failed to prove that the respondent had demanded any margin money, which the claimant had failed to deposit and, therefore, the respondent was justified in squaring off of the transactions, standing in the account of claimant. Since the respondent has carried out the transactions without demanding any margin money from the claimant and without any instructions from the claimant though there was debit balance, all such transactions carried out by the respondent, without any instructions and without any demand for margin money, were unauthorised and no such debit could have been made in the account of claimant in respect of such unauthorised transactions. A trading member who has carried out any such transactions in breach of bye-laws of MCX cannot make any claim against the constituent and/or debit any amount to the account of the claimant in respect of such unauthorised transactions. A perusal of arbitral award indicates that the arbitral tribunal has rendered a finding of fact that there was a credit balance of ₹ 20 lakhs in the account of the claimant on 10 th May 2011 and, therefore, it was reasonable to conclude that the Hold instruction was issued by the claimant to Mr.Priotosh Ghosh on or immediately after 10th may 2011. The arbitral tribunal has also rendered a finding that there was no evidence produced by the respondent and that the respondent had not questioned the entries in the telephone bills filed by the claimant for the period 20 th March 2011 to 26th June 2011, showing that there had been no record of any telephone talks between her and the respondent. It is also held by the arbitral tribunal that the respondent had expressed inability to produce any visitor s book to substantiate the allegations that the claimant used to visit its office frequently to instruct its agent Mr.Priotosh Ghosh about her trading. On the issue of margin money it is held by the arbitral tribunal that there was credit balance for the all the period, except on three dates. The respondent had admittedly not issued any call money notice to the claimant to make good the short fall on those three dates and on the other hand, had done brisk trading on those dates in her account, without any margin, which indicates that the allegations about trading in her account without her consent, can hardly be brushed aside. The arbitral tribunal also rendered a finding after perusal of the copy of the passport, showing that claimant was out of India from 5 th July 2011 till 24th August 2011 and there had been no communication between the parties and the respondent was not able to make out a case that the claimant had carried out online trading from abroad. The respondent had carried out 332 transactions during the concerned period out of which 116 were new sauda and remaining were sale of transactions, either before or after expiry date. During the said period, the turnover amount of debit was to the extent of ₹ 50,62,355 and turnover of credit was to the extent of ₹ 44,88,687.93 resulting in the net amount of ₹ 6,12,761.01, including tax alleged to be due from the claimant. It is held that the respondent was not able to show the authority of transactions on 25th November 2011 which was after the period when the claimant had formally registered her complaint about unauthorised trading in her account on 7th September 2011. In my view, the learned Counsel for the respondent could not demonstrate from various findings on record contained in paras 12 to 25 of the award as to how the same are perverse. In my view, since the findings of fact recorded by the arbitral tribunal are not perverse, this court cannot interfere with such findings of fact under section 34 of the Arbitration Act

Summary

Issues Involved:
1. Unauthorized trading allegations.
2. Margin money requirements and compliance.
3. Delivery and receipt of contract notes.
4. Arbitrability of fraud allegations.
5. Examination of witnesses and evidence.
6. Consistency of arbitral tribunal's findings.
7. Application of bye-laws and business rules.

Detailed Analysis:

1. Unauthorized Trading Allegations:
The claimant alleged that unauthorized trading was conducted in her account by the respondent, particularly by an employee named Priotosh Ghosh. The claimant stated that she had not given instructions for intra-day transactions and that these were carried out without her consent. The claimant also mentioned that she was out of the country during certain periods when these transactions took place, which further supported her claim of unauthorized trading.

2. Margin Money Requirements and Compliance:
The respondent argued that the claimant did not maintain sufficient margin money, which necessitated the squaring off of her positions. However, the claimant contended that there was always a positive ledger balance in her account, except on three specific dates. The arbitral tribunal found that the respondent did not issue any call money notice to the claimant for margin money and continued trading in her account even when there was a debit balance, indicating unauthorized transactions.

3. Delivery and Receipt of Contract Notes:
The claimant asserted that she did not receive contract notes in physical form as requested and that the respondent failed to provide proof of delivery. The business rules of MCX require that contract notes be delivered within 24 hours and proof of delivery be maintained. The respondent could not produce any ECN declaration form signed by the claimant, which would have authorized the delivery of contract notes in electronic form.

4. Arbitrability of Fraud Allegations:
The respondent argued that the arbitral tribunal could not decide on issues involving fraud. However, this argument was not raised before the tribunal and was not included in the petition. The court held that even if fraud allegations were made, the tribunal could decide on them, and thus, this argument was dismissed.

5. Examination of Witnesses and Evidence:
The respondent contended that the tribunal should have allowed the examination of witnesses, particularly Priotosh Ghosh. However, the tribunal's by-law 15.27 states that no party is entitled to insist on examining witnesses without the tribunal's permission. Since neither party requested to lead oral evidence, the tribunal did not deem it necessary to call witnesses.

6. Consistency of Arbitral Tribunal's Findings:
The claimant argued that the tribunal's findings were inconsistent, particularly in para 26 of the award, which contradicted earlier findings. The claimant sought to have the entire claim allowed or, alternatively, to have the matter remitted back to the tribunal for reconsideration of the inconsistent findings.

7. Application of Bye-Laws and Business Rules:
The tribunal found that the respondent failed to comply with the bye-laws and business rules of MCX, particularly regarding the delivery of contract notes and the demand for margin money. The tribunal concluded that the transactions carried out by the respondent without proper authorization and compliance with the rules were invalid.

Conclusion:
The court dismissed the respondent's petition (Arbitration Petition No.854 of 2012) and found no merit in the respondent's arguments. The court acknowledged the inconsistencies in the tribunal's findings and adjourned the claimant's petition (Arbitration Petition No.420 of 2013) for four months, directing the tribunal to resume proceedings and address the inconsistent findings. The tribunal was instructed to make a supplementary award within three months to eliminate the grounds for setting aside the award.