Bonanza Commodities Brokers ... vs Mrs. Roshanara Bhinder
2016 Latest Caselaw 1829 Bom

    sg                                         1/5                                  app317-15.doc

                  IN THE HIGH COURT OF JUDICATURE AT BOMBAY

                       ORDINARY ORIGINAL CIVIL JURISDICTION




                                                                                      
                               APPEAL NO.317 OF 2015
                                         IN




                                                              
                        ARBITRATION PETITION NO.195 OF 2015 

    Bonanza Commodities Brokers Pvt. Ltd.                 )
    a company incorporated under the provisions           )   




                                                             
    of Companies Act 1956, having its office at           )
    Bonanza House, Plot No. M-2, Cama                     )
    Industrial Estate, Walbhat Road, Behind               )
    'The Hub', Goregaon East, Mumbai 400 063.             )...Appellant




                                                
                                                               /Original Petitioner
          Versus                   
    Mrs. Roshanara Bhinder                                     )
    An Indian Inhabitant of Mumbai,                            )
                                  
    Residing at 2-C, Flat No.93, Windermere,                   )
    Opp. Shantivan Mahada Oshiwara, Andheri                    )
    Link Road, Andheri (West), Mumbai 400 053                  )...Respondent
                                                                    /Original Respondent
                                        .....
           


    Mr. Rajiv Narula, i/b. Jhangiani Narula & Associates, for the Appellant.
        



    Mr. Akash Rebello, i/b. Rahul Karnik, for the Respondent.
                                                  .....
                                                CORAM : ANOOP V. MOHTA &





                                                                S.C.GUPTE, JJ.

RESERVED ON: MARCH 15, 2016 PRONOUNCED ON: APRIL 26, 2016

Judgment (Per S.C. Gupte, J.) :

. This appeal, under Section 37 of the Arbitration and Conciliation Act, 1996, challenges an order passed by a learned Single

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Judge under Section 34 of that Act dismissing an arbitration petition challenging an arbitral award.

2. The Appellant is a trading member of Multi Commodity

Exchange of India Ltd. ('MCX'), carrying on business as a commodity broker. The Respondent is a constituent of the Appellant, carrying on business of sale and purchase of commodities, under a Member Client

Agreement ("MCA") with the Appellant. The Respondent executed transactions on the Exchange by using internet trading facility provided by the Appellant. The disputes between the parties arose on account of

margin shortfall and failure of the Respondent to replenish MTM (Mark to

Market) losses on real time basis. When the market opened on 30 March 2013, the price of silver, in which the Respondent had an open position

(110 lots of the lot size of 30 kg. each) of the value of about Rs.17.67 crores, crashed by a substantial margin, resulting into a loss, showing the Respondent's account in a huge debit. The Respondent had a net debit of

over Rs.33 lacs. It is the Appellant's case that it had intimated the

Respondent for replenishing the losses by sending an SMS, but since no payment was forthcoming, in exercise of its rights under the MCA, the Appellant closed the open position of the Respondent in 110 lots of silver,

which resulted into a loss of over Rs.69.33 lacs in the account of the Respondent. The Appellant claims to have sent electronic contract note for the debit of this amount. The Respondent contested the closure

transaction. Her case was that the action of squaring up her account without any intimation to her was illegal and arbitrary; that she should have been given T+1 day to make the payment. The Arbitral Tribunal found that the open positions are marked to market based on the closing

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price; if the closing price goes against the client, he has to deposit the amount of notional loss generally before the commencement of trading the

next day. The Arbitral Tribunal held that the Appellant could not have squared off the Respondent's open position due to mark to market loss the

same day (in any case before demanding additional funds). The Tribunal accordingly, rejected the Appellant's claim.

3. The learned Single Judge, in his impugned order, found the finding of the Arbitral Tribunal to be in consonance with the provisions and bye-laws of MCX and the MCA. The learned Judge held that no case for

interference with the award under Section 34 was made out.

4. The main contention of the Appellant in this appeal is that the

MCX Rules and Bye-laws require a trading member to collect from his constituents margins specified from time to time, against open positions. It is submitted that for the purpose of such collection the Bye-laws permit the

trading member to close out an open position of a client when the call for

further margin or other dues is not complied with by the client. It is submitted that the statement of account duly forwarded showing the debit balance and margin deficit of the client, amounts to a demand to replenish

the deficit of margin money. It is submitted that after all, there can be no reason for sending such statement except to require the client to pay the deficit in accordance with the Rules and Bye-laws of the Exchange and the

MCA. Learned Counsel relies upon the judgment of this Court in Pankaj Goshar vs. Fortune Equity Brokers (I) Ltd.1 in this behalf.

1 Arbp368-03, dated 28 March 2005, Cora: D.K. Deshmukh, J.

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5. Whether there was a demand for payment on account of margin shortfall and whether such demand was met, are pure questions of

fact. The last transaction in the Respondent's account before 30 March 2013 was the admitted payment of Rs.20 lacs by the Respondent. On 28

March 2013, the Respondent admittedly had a ledger credit of Rs.35,53,150=63. Admittedly, no call was made on the Respondent on 28 March 2013. The next day, i.e. 29 March 2013, was a holiday and thus, a

no trading day. On the following day, i.e. 30 March 2013, when the market opened, there was a sudden downfall in the price of silver, in which the Respondent had an open position. There is no record to show that the

margin shortfall in the Respondent's account due to this downfall in the

price was actually communicated to the Respondent before squaring off his open position on 30 March 2013 itself. The finding of fact of the arbitral

tribunal that there was no such communication, though the Appellant claims to have sent such communication by SMS, cannot be faulted as perverse. Besides, under the applicable provisions, the open positions are

marked to market based on the closing price on that day and if the

movement of the closing price results into any margin shortfall, it has to be paid by the client generally before commencement of trading on the next day (see, Risk Disclosure Document forming part of MCA, Cl. 2 b). That

means the (notional) loss as a result of price movement on the trading day of 30 March 2013 could have been marked to market only at the closing of the market on that day, based on the closing price, and thereafter the

constituent would have to be put to notice of such (notional) loss and allowed to pay the margin deficit before the commencement of trading the next day. In the present case, admittedly during the day of trading itself, i.e. on 30 March 2013, the open position of the Respondent was squared

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up. The debit balance of Rs.33,80,103=86 arose on that day as a result of such squaring up, the Respondent suffering in the process a loss of

Rs.69,33,254=99. In the premises, the squaring up was clearly unauthorized and contrary to the MCA. The Appellant has no case to

recover any dues from the Respondent.

6. The case of Pankaj Ghoshar (supra) was on a totally different

footing. There, the statement of account showing the constituent's debit balance was admittedly forwarded along with a covering letter. What was argued there was that there was no formal demand for payment of margin

money. The Court held that there could be no other reason for sending the

statement of account except to call for margin payment. These facts and the conclusion of the Court based thereon have no bearing on the facts of

our case. In our case, the margin requirement itself is improperly assessed and there is admittedly no record of demand for margin payment or even furnishing of a statement of account.

7. Thus, there is no merit in the challenge to the arbitral award. The impugned order of the learned Single Judge inasmuch as it rejects the challenge does not suffer from any infirmity.

8. The appeal is, accordingly, dismissed. No order as to costs.

    (S.C. Gupte, J.)                                                        (Anoop V. Mohta, J.)