Motilal Oswal Financial Services ... vs Rupesh Kumar
2026 Latest Caselaw 2947 Bom

Bombay High Court

Motilal Oswal Financial Services ... vs Rupesh Kumar on 24 March, 2026

2026:BHC-OS:7031

                                                                  CARBP(L)-42307-2025.odt (final).odt


                              IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                                     ORDINARY ORIGINAL CIVIL JURISDICTION


                        COMMERCIAL ARBITRATION PETITION (L) NO. 42307 OF 2025


               Motilal Oswal Financial Services Limited      ]
               A company incorporated under the Companies ]
               Act, 1956, having its                         ]
               registered office at Motilal Oswal Tower ]
               Rahimtullah Sayani Marg, Opposite Parel S. T. ]
               Depot, Prabhadevi, Muumbai - 400 025.         ]
               Through Authorised Representative,            ]
               Mr. Dwibendu Mohanty                          ] ...Petitioner

                                Versus


               Rupesh Kumar                                        ]
               Age : Unknown, Adult, Inhabitant of Mumbai          ]
               Having a residential address at                     ]
                                                                   ]
               1801, Tower 7, Runwal Greens,
                                                                   ]
               Mulund (W), Mumbai - 400 078.                       ] ...Respondent
                                                    ------------
                   Mr. Chirag Shah, Mr. Harsh Pathak i/b Durgaprasad Sabnis for Petitioner.
                   Mr. Prasanth Raju for Respondent.
                                                    ------------

                                                           Coram : Sharmila U. Deshmukh, J.

Reserved on : 13th February, 2026.

Pronounced on : 24th March, 2026.

Judgment :

1. By this Petition filed under Section 34 of the Arbitration and

Conciliation Act, 1996 [for short, "the Arbitration Act"], the challenge

is to the Award dated 18th August, 2025 and corrected Award dated

Sairaj 1 of 14 CARBP(L)-42307-2025.odt (final).odt

27th October, 2025 passed by learned Arbitral Tribunal allowing the

claim of the Respondent for sum of Rs. 39,37,498/- along with interest

and costs of litigation.

2. The Petitioner is registered stock broker with National Stock

Exchange of India Limited and Bombay Stock Exchange Limited and the

Respondent is high frequency investor in stock market registered with

the Petitioner. On 27th May, 2024, the Respondent had open trading

position in MIDCAP NIFTY options and as the ledger balance fell below

the contractual mandated 25% security cover, as claimed by the

Petitioner, the Respondent's open position was squared off on 27 th

May, 2024 at around 13:30:55 hours. The Respondent contended that

square-off was unauthorized and claimed the following amounts:

a) The total direct MTM loss ... Rs 32,29,036.50/-

b) Loss of option premium collectors from underlying MIDCAPNIFTY Option ... Rs. 6,83,383.50/-

c) Brokerage and all associated charges ... Rs. 25,078/-

Total ... Rs. 39,37,498/-

3. By the impugned Award, the claim was allowed, hence the

present Petition.

4. Learned counsel appearing for Petitioner would submit that the

Arbitral Tribunal fell in error as the Petitioner's case was not of

Sairaj 2 of 14 CARBP(L)-42307-2025.odt (final).odt

shortfall of margin amount but shortage in security cover which was

required to be maintained at 25% as per the contractual arrangement.

He submits that as per the risk management policy of the Petitioner,

squaring off could be done if safety cover falls below 25% even before

the days stipulated for clearing of dues by the client. He submits that

the Arbitral Tribunal having accepted the shortfall in the security cover

could not have held that the squaring off was unjustified. He would

further submit that vide directions issued with communication dated

23rd February, 2005, the market regulation department has issued a

comprehensive risk management framework which provides that in

case of shortfall in margin, terminals of broker shall be immediately

deactivated. He submits that the directions require the trading

member to have a prudent system of risk management to protect

themselves from client default. He submits that any shortfall in the

margin would amount to immediate deactivation of the local terminal

which would result in losses to broker and therefore, the risk

management policy has been put into place which is required to be

adhered to by the constituents. He would further submit that the

National Stock Exchange (Future and Options Segment) Trading

Regulations provides for trading members to demand from its

constituents the marginal demand and to furnish additional margin as

required under the rules. In support, he relies upon the following

Sairaj 3 of 14 CARBP(L)-42307-2025.odt (final).odt

decision :

Vishal Tiwari vs. Union of India and Others1

5. Per contra, learned counsel appearing for Respondent submits

that the issue is whether the broker's internal concept of safety cover

can override the statutory mechanism prescribed under regulation 3.10

of the National Stock Exchange Regulations (NSE Regulations) which

requires valid margin demand and only upon failure to pay within next

trading day confers right to square-off. He submits that the Learned

Arbitral Tribunal has rightly answered the issue by holding that there

was no valid margin call and that safety cover is inapplicable to F&O

trading and square-off was unjustified. He submits that the admitted

position is that there is no margin call issued and there was a margin

surplus of Rs. 1.08 crores and therefore, no requirement of squaring-

off. He submits that there was no serious objection raised by the

Petitioner to the quantification of losses. He submits that safety cover

pertains only to margin quantum under Regulation 3.10(a) and right to

square off is governed exclusively by Regulation 3.10(b) and one

cannot be used to defeat the other. He submits that the concept of

safety cover does not find mention in any of the SEBI circular or NSE

Regulations and is inapplicable to future and options trading as future

and option trades are marked to market daily and governed by SPAN

1 2024 INSC 3

Sairaj 4 of 14 CARBP(L)-42307-2025.odt (final).odt

margin plus exposure margin which are SEBI prescribed. He submits

that safety cover is applicable to SEBI approved MTFs, pledge-based

facility and not derivatives. He submits that safety cover even if existed

contractually cannot override statutory regulation 3.10. He submits

that there is violation of natural justice as there was no time given to

cure the breach. In support, he relies upon the following decisions :

Kritika Nagpal vs. Geojit Financial Services Ltd.2

Vinod Kumar Sharma vs. yes Securities (India) Pvt. Ltd.3

Jagannath Parmeshwar Mills Pvt. Ltd. vs. Agility Logistics Pvt. Ltd.4

Rashmi Aditya Gupta vs. Mangal Keshav Securities Ltd.5

Rajasthan State Mines & Minerals vs. Eastern Engineering Enterprises6

UHL Power Company vs. State of HP7

Hindustan Construction Company vs. NHAI8

Dyna Technologies vs. Crompton Greaves9

6. Rival contentions now fall for determination.

7. The core issue which arose for determination before the learned

Arbitral Tribunal was whether the Petitioner was justifying in squaring

2 2016 SCC OnLine Bom 4854.

3 2020(3) Mah LJ 756 Bom.

4 2022 SCC OnLine Bom 1462.

5 2022 SCC OnLine Bom 1415.

6 (1999) 9 SCC 283.

7 (2022) 4 SCC 116.

8 (2024) 2 SCC 613.

9 (2019) 20 SCC 1.

Sairaj 5 of 14 CARBP(L)-42307-2025.odt (final).odt

off the Respondent's position in the manner done. The findings of the

learned Arbitral Tribunal is that squaring off was not justified for the

reason that (a) there was sufficient margin in the Respondent's account

which would have covered the maximum loss which could have

occurred (b) the falling of security cover below 25% did not justify the

action of squaring off and (c) no effective intimation given to the

Respondent as the position was squared off just after 55 seconds of

automated e-mail being sent.

8. The undisputed position is that the available margin in the

Respondent's account was Rs 4.50 crores and the required margin was

Rs 3.42 crores and hence there was surplus of Rs 1.08 crores.

9. The Petitioner has justified the action of squaring off as being in

accordance with the risk management policy framed by the Petitioner

and applicable to the constituents. The Respondent is high frequency

investor and was aware of the Petitioner's risk management

policy(RMS). In the statement of claim, the Respondent has dealt with

the regulatory framework governing the RMS of stock brokers and has

reviewed the Petitioner's RMS policy. The Respondent has not

disputed the existence of RMS policy but has questioned the

applicability of RMS policy against the trading segment and the NSE

Regulation 3.10. The contention is that criteria 2 of Clause 6 of RMS

applies to stock based facilities and not derivative like MIDCAPNIFTY

Sairaj 6 of 14 CARBP(L)-42307-2025.odt (final).odt

options.

10. Clause 6 of RMS policy governs the right to sell client's securities

(RMS selling) or close client's position on account of non payment of

client dues. The clause stipulates the days for clearing of obligations by

the constituents and sets out the broad two parameters for RMS

selling (a) selling on basis of aging debit and (b) selling on the basis of

margin cover. Parameter (a) provides for clearance of client obligations

within T+1+2 working days from the date of transaction in cash and

derivative segment and Parameter (b) provides that where the client

has taken positions in either derivative segment or MTF/Cash segment

or any other segment where margins have to be maintained, the client

has to maintain margin (Exchange specified/internal norms of MOFSL)

whichever is higher. In case the margin available goes below the

required margin, the client's positions will have margin shortage and in

event the shortages are not made good, the positions may be

liquidated.

11. The Respondent claims applicability of Parameter (a) in case of

derivatives and the Petitioner's case is that there was shortage as per

the internal norms of Petitioner as the safety cover had fallen below

the required percentage according to Parameter (b).

12. There are further two criteria for RMS selling before the

stipulated days. Criteria 1 provides that where stock valuation falls

Sairaj 7 of 14 CARBP(L)-42307-2025.odt (final).odt

below 20% or exchange VAR whichever is higher of the total ledger

debit, square off can be done even before above stipulated days and

Criteria 2 provides that where the safety cover (excess of stocks over

debits) is below 25% of deposit/available margin, RMS selling can be

done even before above stipulated days.

13. The Respondent's case is that neither Parameter (b) applied as

there was no margin shortfall nor Criteria 2 applied as safety cover did

not apply in case of derivatives.

14. The dispute raised between the parties demanded interpretation

of RMS Policy to ascertain whether :

(a) requirement of safety cover of 25% was applicable to derivatives like MIDCAPNIFTY Options and;

(b) Whether the Petitioner's internal concept of 25% safety cover can override NSE Regulation 3.10.

15. The learned Arbitral Tribunal failed to conduct the exercise

necessary to conclude whether the squaring off was unjustified. The

finding of the Arbitral Tribunal in paragraph 5 is as under:

"The crucial and important point is as to whether the respondent was justified in squaring off the position in the way it has been done. In this context, the claimant has clarified that he had more than enough margin in his account with the respondent. Even if we assume hypotehcitcally, the maximum loss which could have occurred if the position had not been squared off, would be Rupees One Crore and Nine Lakh only whereas the actual loss at the relevant point of time was only to Rupees Nine Lakh. As the balance in the account of the claimant was more than the said loss, the squaring off the position was not jusitified from any angle. On the other

Sairaj 8 of 14 CARBP(L)-42307-2025.odt (final).odt

hand it is stated that the security had fallen below the range of 25%. therefore the respondent was justified to square of the position. The respondent has also argued that there was volatility in the stock market and on the particular day the market had fallen to 3% which is a big fall so it was incumbent to square off the position. This argument does not bear any force as the claimant has maintained sufficient amount in his account. There was no hurry to square off the position. Simply because the so-called security cover has fallen below the range of 25% that too marginally. It is not justified to square off the position. It is also pertinent to mention that the claimant is a high-frequency investor, and he carries business on day to day basis. Therefore, it was also incumbent upon the respondent as a principle of natural justice, at least to give prior intimation to the claimant who was available, however, no effective and intimation was given to the claimant. One email is said to have been sent at 1:30 PM through automated service and the position was squared off just after 55 seconds. It cannot be said to be proper and effective notice. It is also pointed out by the claimant that the rule of security is not applicable to Future and Option Segment. Under the above set of circumstances, we hold that the squaring off the position by the respondent was not justified. It was totally uncalled for and unjustified."

16. The learned Arbitral Tribunal has accepted that the security

cover had fallen below the range of 25%. The acceptance of falling to

security cover below 25% gave rise to the subsequent issue of the

consequence of the shortfall in security cover by interpreting the terms

of the risk management policy particularly considering the dispute

raised as regards the applicability of the safety cover to derivatives

segment. It was the specific case of the Petitioner that it was not the

shortfall of margin amount which led to squaring off the Respodent's

position but falling of the safety cover apart from the margin amount,

Sairaj 9 of 14 CARBP(L)-42307-2025.odt (final).odt

which was mandated to be maintained at 25%. It was the specific case

of the Respondent that safety cover was inapplicable to derivatives

trading. It is only upon arriving at a finding that the requirement of

25% safety cover is inapplicable to derivative segment that the Arbitral

Tribunal could have concluded that the squaring off was unjustified.

The right of the Petitioner to square off the Respondent's position was

dependent on the terms of the contract between the parties and the

Learned Arbitral Tribunal could not have adjudicated the issue by

considering whether the maximum losses were covered by the margin

amount. The RMS policy of the Petitioner imposed an additional

obligation of maintaining 25% security cover and conferred right on

stock broker to square off the position even before stipulated days.

The Arbitral Tribunal has conflated the issues of margin cover and

safety cover. It has only noted the case of the Respondent that rule of

security is not applicable to F&O segment and has failed to provide any

reasoning to accept the case.

17. It is well settled that the Arbitral Tribunal is creature of contract

and has to enforce the terms of the contract. In Rajasthan State Mines

and Minerals Ltd vs Eastern Engineering Enterprises (supra), the

Hon'ble Apex Court has succulently summarized the position in law. It

has held that the arbitrator could not act arbitrarily, irrationally,

capriciously or independently of the contract. A deliberate departure

Sairaj 10 of 14 CARBP(L)-42307-2025.odt (final).odt

or conscious disregard of the contract not only manifests the disregard

of his authority or misconduct on his part but it may amount to mala

fide action.

18. In UHL Power Company Limited vs State of Himachal Pradesh

(supra), the Hon'ble Apex Court held that interpretation of terms of

contract by the arbitrator being possible and plausible view needs to

be accepted and the Award cannot be interfered with merely because

another view could have been taken. The decision of Hindustan

Construction Company vs National Highways Authority of India

(supra), reiterates the well settled principles that an error in

interpretation of a contract by arbitrator is an error within his

jurisdiction.

19. In present case, the Arbitral Tribunal has fallen in error in

disregarding the terms of the RMS policy. It is not a case of

interpretation of terms of the policy but complete disregard to the

same as fails to notice the additional requirement of safety cover to

the extent of 25% apart from the margin amount under the RMS

policy. The Arbitral Tribunal has held that there was no hurry to square

off the position, whereas the determination contemplated was as

regards inapplicability of safety cover of 25%. As the risk management

policy permitted squaring off the position even before the stipulated

days, the terms of the contract were required to be enforced unless it

Sairaj 11 of 14 CARBP(L)-42307-2025.odt (final).odt

was found that the safety cover was inapplicable to F&O Options. This

Court in exercise of jurisdiction under Section 34 of Arbitration Act

cannot act as appellate authority and interpret the terms of the

contract, when the impugned Award fails to do so. There is no

discussion on the authority of Petitioner to square off the position vis-

a-vis Regulation 3.10(b) of NSE Regulation. There is no finding that the

risk management policy of Petitioner permitting squaring of the

client's position before stipulated days falls foul of Regulation 3.10(b).

In the absence of rendering any such finding, the learned Arbitral

Tribunal was bound to enforce the RMS policy.

20. In Kritika Nagpal vs Geojit Financial Services Ltd (supra), the

Learned Single Judge considered the conflict between Clause 29 of the

stock broker-client agreement and Regulation 3.10 of NSE Regulations

to hold that in view of the inconsistency between the agreement and

regulation, the latter would prevail. There is no dispute with the said

proposition. The factual scenario in the present case is different as

there is no consideration by the Learned Arbitral Tribunal either of the

Regulation or of the RMS policy.

21. The decision of Vinod Kumar Sharma vs Yes Securities (India)

Limited (supra), follows the decision of Kritika Nagpal (supra). The

decisions were rendered in the context of shortfall of margin amount

and in these cases, there was no additional requirement of safety cover

Sairaj 12 of 14 CARBP(L)-42307-2025.odt (final).odt

imposed by the trading member, which required consideration.

22. In Jagannath Parmeshwar Mills Pvt Ltd vs Agility Logistics Pvt

Ltd (supra), the Hon'ble Division Bench noted the well settled

jurisdictional contours under Section 34 of Arbitration Act, with which

there is no quarrel.

23. In Dyna Technologies Private Limited vs Crompton Greaves

Limited (supra), the Hon'ble Apex Court was dealing with the aspect of

necessity of passing of reasoned award. The application of the ratio of

the said decision to the present factual scenario is doubtful.

24. The Learned Arbitral Tribunal while allowing the claim has not

interpreted the imposed obligation of maintaining 25% safety cover

under the risk management policy or to render any finding that the

same is not applicable to the future and option segments or is in

violation of Regulation 3.10(b) in which case, it would be an issue of

interpretation of terms of contract and would be an error within

jurisdiction incapable of being corrected under Section 34 of the

Arbitration Act, unless there was error apparent. In absence of any

such finding, the terms of RMS policy were required to be enforced and

by failing to enforce the terms of the risk management policy, which

was binding upon the Respondent, the Learned Arbitral Tribunal has

traveled beyond the terms of RMS policy and has committed patent

illegality.

Sairaj 13 of 14 CARBP(L)-42307-2025.odt (final).odt

25. In light of the above discussion, Petition succeeds. The impugned

Award 27th October, 2025 suffers from patent illegality and is hereby

quashed and set aside.

                                              [Sharmila U. Deshmukh, J.]




Sairaj                            14 of 14