Motilal Oswal Securities Ltd. vs Sandeep Paul
2009 Latest Caselaw 3255 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                  OMP No.407/2009

%                             Date of decision: 19th August, 2009

      Motilal Oswal Securities Ltd.                  ....Petitioner

                          Through: Mr. Neeraj Malhotra, Advocate

                                    Versus

      Sandeep Paul                                   .... Respondent

                            Through: None.


CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1.    Whether reporters of Local papers may
      be allowed to see the judgment?                   No

2.    To be referred to the reporter or not?            No

3.    Whether the judgment should be reported           No
      in the Digest?


RAJIV SAHAI ENDLAW, J.

1 The petition under Section 34 of the Arbitration Act, 1996 with

respect to the arbitral award dated 22nd January, 2009 in so far as it

directs the petitioner to pay a sum of Rs.92,35,914/- to the

respondent is for admission.

2 The petitioner is a Stock Broker Member of the National Stock

Exchange of India Limited (NSE). The respondent was a

client/constituent of the petitioner. According to the petitioner, a

sum of Rs.28,63,727.45 p. was due from the respondent. The

respondent denied the said claims. This led to the disputes being

referred to arbitration in accordance with the byelaws of NSE. The

respondent, before the arbitral tribunal, while denying the claim of

the petitioner also contended that the petitioner had without

authorization and unlawfully retained his shares valued on 4th

January, 2008 at Rs.2.3 Crores; the respondent thus besides seeking

the return of the said shares, also made a counter claim against the

petitioner for total sum of Rs.2,92,556.91 p. including on account of

unauthorized trades, illegal transaction charges, wrongful losses

created due to unauthorized trades and excess brokerage charges.

3 The arbitral award holds the sum of Rs.28,63,727.45 p. to be

due from the respondent to the petitioner. The arbitral tribunal has

also rejected the counter claim of the respondent for unauthorized

trades, illegal transaction charges, wrongful losses created due to

unauthorized trades and excess brokerage charges.

4 The arbitral tribunal however found merit in the contention of

the respondent that even if according to the petitioner the sums

aforesaid were due to it from the respondent, the petitioner could

have sold of the shares of the respondent to the extent necessary to

realise the outstanding and returned the rest of the shares to the

respondent on 4th January, 2008, being the date when the disputes

arose. The respondent contended before the arbitral tribunal that

the value of the shares had gone down since 4th January, 2008 and he

was entitled to the value of the shares as on 4th January, 2008, from

the petitioner.

5 The arbitral tribunal found that the respondent had on 4th

January, 2008 not asked the petitioner for return of the shares; it

was further found that the said claim was made for the first time on

5th August, 2008 while making the counter claim. The arbitral

tribunal thus held that the respondent could at best claim the value

of the shares as on 5th August, 2008, whereafter inspite of the

counter claim of the respondent for return thereof the petitioner

continued to hold the said shares.

6 The arbitral tribunal in Para 11 of the award further applied

itself as to the differential of the value from 5th August, 2008 should

be qua which date; it was observed that the other date would have to

be the date on which the shares are ultimately returned by the

petitioner to the respondent. The arbitral tribunal however to avoid

any confusion calculated the differential between 5th August, 2008

and 14th January, 2009. Though in the award it is not recorded as to

how the date of 14th January, 2009 has been arrived at but since the

award is dated 22nd January, 2009, it appears that 14th January, 2009

was the date when the hearing was concluded before the arbitral

tribunal.

7 Having held so, the arbitral tribunal found the differential in

value between the two dates to be of the value of Rs.92,35,914/- and

after allowing the petitioner to deduct Rs.28,63,727.45 p. due from

the respondent, directed the petitioner to pay the balance amount

with interest to the respondent.

8 The counsel for the petitioner had at the time of hearing on

27th July, 2009 contended that the shares of the respondent so held

by the petitioner and the differential in value whereof has been

allowed to the respondent, were held by petitioner as collateral and

the petitioner could not have sold the said shares on 4th January,

2008 so as to realise the amount approximately of Rs.28 lacs due to

it. On this contention, the hearing was adjourned on that day for

today to enable the petitioner to file before this court the agreement

regarding the deposit of the shares by the respondent with the

petitioner as collateral security.

9 The petitioner has filed a copy of the agreement dated 12 th

February, 2007 with the respondent. However since the court was

unable to find any reference therein of the shares deposited as

collateral, query was made from the counsel for the petitioner in this

regard. The counsel states that this agreement does not pertain to

the shares deposited as collateral i.e. the shares with respect to the

differential value whereof the award against the petitioner has been

made. It is stated that the agreement with respect to the said shares

deposited as collateral/security was separate and distinct from the

agreement copy whereof has been filed before this court and that the

said agreement was oral. The counsel for the petitioner has further

relied upon Sections 148 and 152 of the Contract Act and Section 47

of the Sale of Goods Act to content that the petitioner could not have

sold the said shares which were with it by way of bailment without

instructions of the respondent and that the petitioner as bailee, in

the absence of any special contract, is not responsible for the loss,

deterioration of the things i.e. the shares bailed. It is also argued

that since monies have admittedly been found due from the

respondent to the petitioner and which the respondent was earlier

disputing, the petitioner had a lien with respect to the aforesaid

shares.

10 However the agreement dated 12th February, 2007 permits the

petitioner to sell the shares of the respondent. The counsel for the

petitioner also admits that in exercise of power under the said

agreement the petitioner has been selling shares of respondent;

however distinction is sought to be made between those shares and

shares held as collateral. The written agreement between the

parties does not permit such distinction. The counsel for petitioner

has drawn attention to the reply filed by the petitioner before the

arbitral tribunal, to the counter claim of the respondent where

expression "collateral" has been used.

11 I find that the petitioner in para H (i) at internal pages 10 and

11 of its rejoinder cum reply dated 29th September, 2008 to the

counter claim of the respondent, filed before the arbitral tribunal

(and copy whereof is filed along with the petition) has unequivocally

admitted that the petitioner under the MCA (which the counsel for

the petitioner agrees refers to the agreement dated 12th February,

2007 Supra) had all rights to sell the shares of the respondent held

by the petitioner as collateral and further that it is only in good faith

and with a view to avoid any dispute from the respondent with

regard to the same that the petitioner had restrained itself from

selling the shares available with it as collateral and chose to file the

arbitration claim against the respondent; the petitioner on this

ground justified the holding back of the shares. I also find that the

petitioner has in its additional submissions dated 29th September,

2008 before the arbitral tribunal and copy whereof is filed as

Annexure P-4 to the petition also justified the holding back of the

said share only for the reason of a debit balance in the account of the

respondent and not for the reason of not being able to sell the said

shares as is now being contended before this court. Attention of the

counsel for the petitioner has been drawn during the hearing to the

said admissions on the part of the petitioner before the arbitral

tribunal.

12 The aforesaid admissions show that the case set up before the

arbitral tribunal was not as is made out before this court. Not only is

the petitioner not entitled to urge new points in a proceedings under

Section 34 of the Act but this also takes care of the grievance of the

petitioner in this petition of the arbitral tribunal having not dealt

with the aforesaid aspect of the case.

13 In this regard it may also be noticed that the petitioner had

filed an application under Section 33 of the Act before the arbitral

tribunal in which plea was raised that inspite of the petitioner

seeking consent of the respondent for sale of the shares, the

respondent had denied the said consent. The said application was

rejected by the arbitral tribunal vide order dated 9th April, 2009 inter

alia on the ground that the points raised therein were outside the

ambit of the Section 33. The arbitral tribunal while disposing of the

said application also recorded that the issues raised in the

application had been considered by the arbitral tribunal in its award.

14 The counsel for the petitioner has next contended that there is

no sanctity whatsoever for the date of 14th January, 2009 with

reference whereto the differential in value of the shares has been

calculated. I have already noted above that the same appears to be

the day of conclusion of hearing before the arbitral tribunal.

Nothing contrary to substantial or procedural law or public policy is

found in the arbitral tribunal choosing the date of 14th January, 2009

in this regard. Had the arbitral tribunal left the said date to be the

date on which the shares are finally returned by the petitioner to the

respondent, the same would have created an ambiguity in the award

and left a vagueness as to the date with respect whereto the

differential in price had to be calculated.

15 It has also to be remembered that the arbitration aforesaid is

under the byelaws of NSE. The arbitral tribunal comprised of three

member brokers of the NSE. The statutory byelaws of the NSE

provide for arbitration to enable expeditious disposal of disputes by

experts who have knowledge of the trade and business in the said

shares. The parties having agreed to the arbitration of such expert

panel, unless it is perverse or shocks the judicial conscience of this

court, this court even if of a different opinion, cannot interfere with

the award.

16 The counsel for the petitioner has lastly argued that the award

is highly unjust against the petitioner in as much as the petitioner

has not earned / gained anything from the said shares, the

differential in value whereof it has been directed to pay to the

respondent. Though that position may be factually correct but is

intenable in law. The test is not whether the petitioner has gained

anything or not but as to whether the petitioner has caused any loss

to the respondent or not. Here the arbitral tribunal has found and in

the opinion of this court rightly that the petitioner instead of on the

date of the disputes selling the shares of the value of its claim, as the

petitioner was entitled to do under the agreement with the

respondent and returning the balance shares to the respondent,

continued to hold on to the entire shares. The volitality in the prices

of such stocks and shares cannot be known better to anybody than to

the petitioner itself. The petitioner is deemed to know that if acting

contrary to the agreement with the respondent or not exercising any

right, even if in good faith, as the case of the petitioner itself was

before the arbitral tribunal, the petitioner would be liable for the loss

if any caused to the respondent by such an action in contravention of

the agreement. Had the petitioner in accordance with the

agreement sold the shares worth its claims and returned the

remaining shares to the respondent, the respondent could have sold

those shares. The value of shares has in the interregnum fallen the

arbitral tribunal has found the petitioner liable to compensate such

loss to the respondent. The fact remain that the petitioner by being

too careful has caused loss to the respondent; a loss cannot be

without a remedy and the said remedy has been allowed by the

arbitral tribunal against the petitioner.

17 In the aforesaid circumstances no merit is found in the

petition. The same is dismissed in limine.

RAJIV SAHAI ENDLAW (JUDGE) August 19, 2009 J