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ARBP446.12
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 446 OF 2012
Shankarlal V.Keswani, )
302, Prashant Sagar, 'B' Flat No.301, )
3rd Floor, Near Telephone Exchange, )
Ulhasnagar - 421 001 ) ..... Petitioner
Versus
India Infoline, )
having its registered office IIFL House)
Sun Infotech Park, Road No.16 V, )
Plot No.B-23, Thane Industrial Area, )
Wagle Estate, Thane - 400 604 ) ..... Respondents
Mr.A.Davar, a/w. Ms.Prachi Pande, i/b. Chambers of Corporate Attorneys for
the Petitioner.
Mr.Pesi Mody, i/b. Ms.Sunita Sharma & Mr.Chetan Agrawal for the
Respondent.
CORAM : R.D. DHANUKA, J.
DATE : 1st OCTOBER, 2012
JUDGMENT :
By this petition under Section 34 of the Arbitration & Conciliation Act, 1996 (for short Arbitration Act, 1996) the petitioner seeks to challenge the impugned award dated 7th January, 2011 passed by the Appellate Bench of the Bombay Stock Exchange Limited allowing the appeal filed by the respondent (original applicant to the appeal and original claimant before the Arbitral Tribunal) and allowed the claims made by the respondent herein.
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2. Some of the relevant facts having bearing on the subject matter of the petition are as under :-
3. Respondent is a trading cum clearing member of the Stock Exchange, Mumbai. The petitioner was duly registered with the respondent as their client under Member Client Agreement executed on 27th November, 2006. Pursuant to the said agreement, the petitioner was duly registered with the respondent and was alloted unique client code. Pursuant to the said agreement, the respondent had been dealing with the petitioner regularly in the huge quantities and amounts. The petitioner was attached to the branch of the respondent at the Jeejeebhoy Towers Dalal Street, Fort, Mumbai. The petitioner had running account with the respondent.
4. According to the petitioner, he had deposited with the respondent 20,000 shares of Opto Circuit India Limited as collateral security. He had visited the office of the respondent on 28th February, 2008 to enquire about the status of his sister-in-law's account and met Mr.R.Venkatraman, Director of the respondent company. According to the petitioner Mr.R.Venkatraman informed the petitioner that there was a debit of approximately Rs.75 lacs in his sister-in-
law's account and accordingly instructed to the petitioner to transfer 18,000 shares to Octo Circuit India Limited to the respondent's account on 1st March, 2008. Accordingly the petitioner executed delivery instruction slip dated 1st March, 2008 transferring 18,000 shares of the company.
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5. According to the petitioner, the last instruction given by the petitioner to place trades in his account was given on 12 th February, 2008. He had received contract notes for the said transaction at the relevant time. It is the case of the petitioner that he had neither placed trade nor he had instructed the respondent to buy or sale shares on his behalf after 12th February, 2008. On 12th February, 2008, the petitioner's Bombay Stock Exchange ledger account reflects the debit of Rs.1,11,40,487.51. According to the petitioner at the relevant time he was holding 34,494 shares of Opto Circuit India Limited and 25,000 shares of IVR Prime Limited valuing at Rs.1,94,20,764.80 as per prevailing rate as on 12th February, 2008. It is the case of the petitioner that the respondent never made any demand towards the said debit balance in his account before disposal of shares in the month of October, 2008.
6. According to the petitioner, on 22nd October, 2008 and 24th October, 2008, the respondent unilaterally sold the shares of the petitioner though there was no communication or meeting between the respondent and the petitioner and no order or instruction was placed by the petitioner in any manner to deal with the said shares. On 22nd October, 2008, the petitioner received a SMS from the respondent interalia suggesting that his shares would sold by the respondent.
7. On 31st October, 2008, the respondent, sent its advocate's notice to the petitioner raising a demand of Rs.1,44,10,636.26 being the debit ledger balance ::: Downloaded on - 09/06/2013 19:12:12 ::: kvm 4 ARBP446.12 in the petitioner's account.
8. On 21st April, 2009 the respondent filed arbitration reference against the petitioner for recovery of Rs.78,63,658/- towards debit balance in the trading account of the petitioner. The petitioner submitted statement of defence on 16th October, 2009 and raised the issue of limitation.
9. On 19th May, 2010, the arbitral tribunal declared an award thereby rejecting the claim made by the respondent on the ground of limitation. It was held that as per bye-law 252(2) of Bombay Stock Exchange Limited, the time limit for dispute starts from the date on which the client claims to have given instruction/order for transactions and not from the date of transaction executed by the broker member for recovery. It is held that the claim of the respondent herein (original claimant) that the dispute arose when the petitioner herein raised the objection was not sustainable. If the petitioner did not make payment in respect of the purchase of transaction as on 12 th February, 2008, the broker had the right under the rules and bye-laws to sell the shares within 15 days bearing in mind that the claim of the constituent which was for the sum of Rs.1,11,40,487.51 as on 12th February, 2008. It is held that the broker had not been able to show any justifiable cause to wait till October, 2008 and then to sale shares in October, 2008. On these grounds, the aribitral tribunal rejected the claim on the ground of limitation.
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10. The respondent, preferred an appeal to the Appellate Arbitral Tribunal of the Stock Exchange on 22nd April, 2009.
11. By an award dated 7th January, 2011, passed by the Appellate Arbitral Tribunal plea of the limitation raised by the petitioner was negatived. The Appellate Arbitral Tribunal allowed the appeal and set aside the award dated 19th May 2010. The petitioner was directed to pay to the respondent Rs.
78,63,658/- with interest at the rate of 6% per annum from the date of reference till payment and/or realisation.
12. The award dated 7th January, 2011 declared by the Appellate Tribunal has been impugned by the petitioner in the present petition. Bye-law 252(2) of the Bombay Stock Exchange Limited reads thus :
252(2) The Arbitrators shall not take cognizance of any claim, complaint, difference or dispute unless the same has been received by the concerned Regional Arbitration Centre of the Exchange within six months from the date of the transaction or from the date on which the client claims to have given the instruction / order to buy or sell a security or from the date on which the client claims to have paid money or given a security, whichever is earlier. Any dispute as to whether a claim, complaint, difference or dispute falls within the ambit of this clause shall be decided by the Arbitrators.
Provided that the Governing Board or the Managing Director and Chief Executive officer may, from time to time, appoint Committees separately for each Regional Arbitration Centre to amicably settle all claims, complaints, differences and disputes that are referred to it.
::: Downloaded on - 09/06/2013 19:12:12 :::kvm 6 ARBP446.12 Provided further that when such claims, complaints, differences and disputes are referred to the aforesaid Committee, the time taken in amicable settlement of such claims, complaints, differences and disputes shall be excluded while computing the period of limitation.
Provided further that this Bye-law shall be applicable in-respect of all Arbitration Cases filled on or after the date when this Bye-Law comes into effect. Provided further that in respect of Arbitration Cases arising out of the transactions having been done prior to the date on which this Bye-law comes into effect, the limitation period of six months shall be computed from the date on which this Bye-law comes into effect.
Bye-law 247A(5) reads thus :-
(5) In case of purchases on behalf of client, Member brokers shall be at a liberty to close out the transactions by selling the securities, in case the clients fails to make the full payment to the Member Broker for the execution of the contract within two days of contract note having been delivered for cash shares and seven days for specified shares or before pay-in day (as fixed by Stock Exchange for the concerned settlement period), whichever is earlier; unless the client already has an equivalent credit with the Member. The loss incurred in this regard, if any, will be met from the margin money of that client.
13. The Learned Counsel appearing for the petitioner made the following submissions :-
(a) The last instruction given by the petitioner to the respondent to place trades in his account was on 12th February, 2008. No further instructions ::: Downloaded on - 09/06/2013 19:12:12 ::: kvm 7 ARBP446.12 were given by the petitioner to buy or sale shares on his behalf nor any trades were placed by the petitioner thereafter. The petitioner's Bombay Stock Exchange ledger balance had reflected the balance of Rs.1,11,40,487.51 as on 12th February, 2008. The respondent was holding 34,494 shares of Opto Circuit India Limited and 25,000 shares of IVR Prime Limited and as per prevailing rates on 12th February, 2008 the shares were valued at Rs.
1,94,764.80 which was more than the debit balance in the ledger account of the petitioner.
(b) Bye-law 247A(5) of the Bombay Stock Exchange Limited obligates the member broker to close out the transactions by selling the securities, in case the client fails to make the full payment to the member broker for the actual execution of the contract within two days of the contract note having been delivered for cash shares and seven days for specified shares or before pay-in day as fixed by the stock exchange for the concerned settlement period whichever is earlier, unless the client already has an equivalent credit with the ::: Downloaded on - 09/06/2013 19:12:12 ::: kvm 8 ARBP446.12 member. Relying upon the said bye-law, it is submitted that in view of the substantial debit balance in the ledger account of the petitioner with the respondent as on 12th February, 2008, the respondent was bound to close out the transaction within the period of two days of such debit balance in the ledger account of the petitioner so as to square up the debit balance in the account of the petitioner against sale proceeds of securities. The cause of action thus arose on expiry of two days after 12th February, 2008. It is submitted that the respondent member broker could not have sold the shares in the month of October, 2008 which was after claim of the respondent having become time barred.
(c) It is submitted that the cause of action arose after expiry of time provided in Bye-law 247(A)(5) and not when respondent sold the shares in October, 2008. The sell of shares by the respondent on 22nd October, 2008 and 24th October, 2008 were illegal and would not extend time to make claim against the petitioner by the ::: Downloaded on - 09/06/2013 19:12:12 ::: kvm 9 ARBP446.12 respondent. It is submitted that thus the arbitration reference made by the respondent on 22nd April, 2009 with Stock Exchange was barred by law of limitation. The appellate tribunal was bound to reject the time barred claims made by the respondent and ought to have upheld the award passed by the arbitral tribunal.
(d) That finding of the Appellate Arbitral Tribunal that the tribunal had no reason to disbelieve the respondent broker that the petitioner had approached the broker with a request to withhold sell of shares is based on presumption and not based on any evidence. It is submitted that no such discussion was ever held in the meetings with the directors of the respondent in the months of February, May and October, 2008 requesting the director of the respondent to withhold the sell of shares. The Learned Counsel placed reliance on the judgment of the Privi Council in the case of A.K.A.S.Jamal vs. Moola Dawood Sons & Co.1 and Judgment of this court dated 25th March, 2011 1 AIR 1915 Privy Council 49 ::: Downloaded on - 09/06/2013 19:12:12 ::: kvm 10 ARBP446.12 in Arbitration Petition No. 563 of 2009 in support of the plea that the respondent ought to have sold the shares admittedly once there was debit balance in the account of the petitioner.
14. On the other hand, the learned senior counsel appearing on behalf of the respondent submits as under :-
(a) Bye-law 247A(5) does not mandate a member broker to close the transaction and sell the securities within two days of the contract note having been delivered cash shares and seven days for specified shares in case of non-payment by the client. The said provision given an option to the member broker to close out the transaction by selling the securities.
(b) Admittedly till 12th February, 2008 there was no dispute between the parties. It is the case of the petitioner also that there was debit balance of Rs.
1,11,40,487.51 in the account of the petitioner with the respondent as on 12th February, 2008. Without admitting that the value of the shares of OSIL and IVR held by the petitioner as on 12th February, ::: Downloaded on - 09/06/2013 19:12:12 ::: kvm 11 ARBP446.12 2008 lying with the respondent as security was much more than the debit balance, there was no such urgent need to sell those shares within a period of two days as submitted by the petitioner.
The petitioner neither made any demand for return of shares nor given any instruction to sell the shares. If according to the petitioner, the respondent member broker was bound to close the transaction within two days from the date of debit balance in the ledger account and had neither sold the shares nor returned the same, the petitioner would have instructed the respondent to sell the shares or to return the same after adjusting the debit account.
(c) In the months of February, May and October, there were meetings between the petitioner and the vice-president and director of the respondent. The petitioner had requested the respondent not to sell the shares as he expected the market to recover and price of said shares to rise. The petitioner had also contended that as per annual report of Opto Circuit Ltd., a buy back offer was to be made at Rs.360/-
::: Downloaded on - 09/06/2013 19:12:12 :::kvm 12 ARBP446.12 per share and price of those shares would rise. The petitioner also requested not to commence any recovery on the ground that his father was severally ill who ultimately expired. The respondent gave sufficient indulgence to the petitioner by accepting his request and did not sell the shares till 21st October, 2008. The respondent thereafter sold the shares on 22nd October, 2008 and 24th October, 2008 and raised the demand on the petitioner on 31st October, 2008 which was not met with by the petitioner. The claim was thus crystalized when the shares were sold and after adjusting the sale proceeds, still there was debit balance in the account of the petitioner.
(d) The petitioner had not disputed the factum of the meeting having been held but only disputed what transpired in the meetings.
(e) Under bye-law 247A(5) right accrued to the broker after two days to close the transaction and sell the shares, however there was no compulsion on the respondent to close the transactions. In view ::: Downloaded on - 09/06/2013 19:12:12 ::: kvm 13 ARBP446.12 of the long-standing relations with the petitioner and huge amount of trading of the petitioner with the respondent and in view of the request of the petitioner to postpone the sell in view of the personal difficulty, the respondent had accommodated the petitioner. If the petitioner would have given instruction to sell the shares and if respondent would not have complied with such instruction, grievance of the petitioner could have been justified. It is not in dispute that no instructions were given by the petitioner for sell of the securities.
(f) The counter claim made by the petitioner on the ground that the securities ought to have been sold for recovering the debit balance in the account of the petitioner in the month of February 2008 but sold in the month of October causing loss to the petitioner came to be rejected by the arbitral tribunal. That part of the arbitral award has not been challenged by the petitioner. The petitioner having accepted the finding in respect of the counter claim. Petitioner could not have pleaded ::: Downloaded on - 09/06/2013 19:12:12 ::: kvm 14 ARBP446.12 that the respondent broker ought to have close the transaction within two days after 12th February, 2008.
(g) The Appellate Bench of the Bombay Stock Exchange Limited has given various findings of the facts based on the documents, pleadings and the evidence laid and this court shall not interfere with the finding of facts given by the Appellate Bench.
15. I have heard the learned counsel for the parties and have given my anxious consideration to the rival submissions made by the learned counsel.
16. It is not in dispute that on 12th February, 2008, there was a debit balance of more than Rs.1 crores in the account of the petitioner with the respondent.
The said position continued till 21st October, 2008. Even according to the petitioner, the securities deposited by the petitioner with the respondent, were of the value much higher than the debit balance of the petitioner as on 12th February, 2008. It is not in dispute that the petitioner did not give any instruction to the respondent to close out the transaction and sell the shares so as to recover amount due by the petitioner to the respondent. In my view, if according to the petitioner, the respondent ought to have close the transaction and sold the securities within two days w.e.f. 12th February, 2008 not having done so, the petitioner could have instructed the respondent to close out the ::: Downloaded on - 09/06/2013 19:12:12 ::: kvm 15 ARBP446.12 account by squaring of the transaction and settle the account after appropriating the sale proceeds and adjust the same against the debit balance.
The petitioner himself had filed counter claim on the basis of cause of action due to the sale effected by the respondent in the month of October 2008.
17. On reading of bye-law 247A(5) I am of the view that it gives a discretion to the member broker to close out the transaction by selling the securities within two days or seven days as the case may be in case of the purchaser's committed default in making full payment to the member broker. The said bye-law is not mandatory. There may be a situation where a client may assure the broker of payment at the earliest with a request not to close the transaction or may be in genuine difficulty. In this case, the respondent has been able to demonstrate before the Appellate arbitral tribunal that there were three meetings held between the petitioner and office bearers of the respondent in which the request was made by the petitioner not to close the transaction and the assurance was made to pay the balance amount shortly. It is not in dispute that father of the petitioner was sick and later on expired. Considering these facts and evidence on record, the appellate arbitral tribunal has given finding of facts holding that there was no reason to disbelieve the respondent broker that the petitioner had approached the broker with a request to withhold the sell of the shares and that entry was taken into consideration only as justification for the time selected by the broker to dispose of shares and not with a view to extend limitation. Similarly after interpreting the bye-law 247A(5) the ::: Downloaded on - 09/06/2013 19:12:12 ::: kvm 16 ARBP446.12 Appellate Bench has given a finding that it would be business of the broker to select time of sell of shares. In my view if the member broker does not close the account and sell the securities so as to mitigate the loss that would be caused to the client, under bye-law of the Stock Exchange, the client is not prevented from giving instruction to the member broker to close the transaction and sell the securities so as to mitigate the loss if any. In absence of any such instruction from the client to close the transaction and if the broker has accommodated the client on his request by postponing rights to close the transaction by sell of securities for sometime, no fault can be found with the member broker in not closing the transaction forthwith on there being debit balance in the account of the client/constituent.
18. In my view, since there was no dispute between the parties till October, 2010, the respondent would not sold the shares and close the transaction. In this situation, cause of action had not commenced till October 2010 so as to refer the dispute to arbitration. The claim thus made by the respondent was rightly allowed by the arbitral tribunal and award thus cannot be faulted.
19. I am, therefore, not inclined to accept the submission made by the learned counsel for the petitioner that the dispute has arisen within two days w.e.f. 12th February, 2010 when there was debit balance in the account of the petitioner in view of the subsequent events proved by the respondents before the arbitral tribunal.
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20. In case of A.K.A.S.Jamal (supra) relied upon by the petitioner, it has been held that the plaintiff who sue for damages owes the duty of taking all reasonable steps to mitigate the loss consequent upon the breach and cannot claim as damage any sum which is due to his own neglect. But the loss to be ascertained is the loss at the date of the breach. It is held that if at the date the plaintiff could do something or did something which mitigated the damage, the defendant is entitled to the benefit of it. In my view, the facts of that case are clearly distinguishable with the facts of this case. As on 12th February, 2010 even according to the petitioner value of the securities was much more than the debit balance. In my view thus the respondent was not expected to close the transaction and sell the securities immediately. In my view, the petitioner was no prevented from giving the instructions to the respondent to close the transaction and sell the securities so as to mitigate its alleged loss. In my view reliance placed by the petitioner on the judgment in case of A.K.A.S.Jamal (supra) is misplaced. In case of Amit Bharadwaj (supra) this court has held that the statutory regulations have been framed by Stock Exchange for protecting the system under which the Stock Exchange operates, the requirement has been included in the regulations for taking margin money from the constituent to protect the system and the brokers from any loss that may be suffered on account of the transactions that may be undertaken. It is held that regulation are to be followed by the constituents and the stock broker.
The action of the broker of commencing transaction without taking margin ::: Downloaded on - 09/06/2013 19:12:12 ::: kvm 18 ARBP446.12 money was not only contrary to the statutory regulations framed by the Stock Exchange. In my view member broker in this case has not acted contrary to the bye-laws in accommodating the member and closing the transaction at a later date.
21. In my view, in the facts of this case, the respondent member broker has given sufficient reasons as to why it accommodated the petitioner and postponed the closure of transaction which explanation has been accepted by the arbitral tribunal and has recorded a finding of fact. No interference is warranted with these findings of facts.
22. In my view to the Appellate Bench has interpreted the bye-laws of the Stock Exchange and such interpretation of the Appellate Bench is a possible interpretation and thus this court cannot substitute the interpretation of this court with the interpretation of the arbitral appellate bench.
23. The petition is thus devoid of merits. Petition does no fall under any of the ground under Section 34 of the Arbitration and Conciliation Act, 1996.
The petition is, therefore, dismissed.
24. There shall be no order as to costs.
(R.D. DHANUKA, J.) ::: Downloaded on - 09/06/2013 19:12:12 :::