2014 (6) TMI 1083 - HC - Indian Laws

Challenge to Arbitral Award - rejection of claim of the petitioner and grant of costs - whether the Arbitrators acted in accordance with the Law of Limitation in respect of both the claims and then consider whether it affected the Award on merits and if so to what extent? - HELD THAT - The transactions for the purchase and sale of shares were upon the oral instructions of the petitioner. The learned Arbitrators have relied upon the contract notes sent by the respondent to the petitioner and the acknowledgments of the petitioner from time to time thereto. It may be mentioned that these contract notes are in electronic form showing the date as also the time of the order alongside the order number which was sent to the petitioner and shown to be received. This is the correct basis for considering those contracts. The acknowledgments of the contract notes were considered by the learned Arbitrators. They have been produced by the respondents in this Court also. They are seen to be addressed to the petitioner and received on behalf of the petitioner on the very next date of the transactions for each of the contract notes sent by courier. The petitioner's contention that the acknowledgments are not of the petitioner or his representatives cannot be countenanced and is not substantiated by the petitioner. The rejection of the claim of Rs. 82.04 lakhs under 4 entries of purchase and sale of shares is made upon correct considerations and parameters and cannot be interfered with. The claim with regard to the purchase and sale of shares evidenced by 4 contract notes made out and served upon the petitioner by the respondent and accepted on behalf of the petitioner would seal the fate of the petitioner. The rejection of the petitioner's claim only to the extent of Rs. 5 lakhs under the aforesaid JE left unreversed is set aside - Petition disposed off.

Issues:
Challenge to arbitration award, unauthorized transactions, limitation period, SEBI circulars, acknowledgment of liability, jurisdiction of arbitrators, forged signature, rejection of claim, contract notes.

Analysis:

1. The petitioner, a constituent of the respondent who is a member of the Bombay Stock Exchange (BSE), challenged an arbitration award rejecting the claim and awarding costs. The petitioner claimed Rs. 87.04 lakhs for unauthorized transactions and loss of profit opportunity. The claim was based on unauthorized journal voucher entries and unauthorized purchase and sale of shares by the respondent without authority.

2. The petitioner alleged that certain entries were erroneously made in his account, including a Rs. 5 lakh journal voucher transfer to a third party and Rs. 82.04 lakhs from unauthorized share transactions. The petitioner also claimed Rs. 69.01 lakhs for loss of profit opportunity and interest.

3. The petitioner claimed that the Rs. 5 lakh unauthorized entry was made under a forged letter signed by him for group adjustments. Similar entries were made in the NSE account, which were deemed wrongful in another award.

4. The claim of Rs. 82.04 lakhs for unauthorized share transactions was disputed based on acknowledgments produced by the respondent, showing transactions were made on oral instructions of the petitioner.

5. The petitioner's claim was held to be time-barred under the law of limitation, and the claim on merits was rejected.

6. The court examined whether the arbitrators adhered to the law of limitation and if it affected the award on merits.

7. Transactions between the parties were without dispute until a certain date, after which the petitioner objected to entries and lodged a claim.

8. The petitioner argued that SEBI circulars extended the limitation period to three years, contrary to the arbitrators' decision based on a six-month limitation period.

9. Previous judgments highlighted the binding nature of SEBI circulars and the extended limitation period of three years for claims.

10. The petitioner contended that the arbitrators exceeded their jurisdiction by considering the claim on merits after ruling it time-barred.

11. The rejection of the claim was based on the petitioner's awareness of account entries, contrary to the petitioner's argument of incorrect or incomplete information provided.

12. The rejection of the claim for unauthorized transactions was upheld based on contract notes and acknowledgments sent to the petitioner.

13. The rejection of the claim for Rs. 82.04 lakhs under unauthorized share transactions was deemed correct, while the rejection of the claim for Rs. 5 lakhs under the journal voucher was set aside.

14. The petition was disposed of accordingly, with the court ruling in favor of the petitioner for the Rs. 5 lakh claim but upholding the rejection of the larger claim for unauthorized share transactions.

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