Delhi High Court
Sh. Rajnish Khosla vs M/S Fair Wealth Securities Pvt. ... on 9 October, 2018
$~10
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision: 09.10.2018
+ FAO(OS) 399/2014
SH. RAJNISH KHOSLA ..... Appellant
Through : Mr. Praveen Swarup, Adv.
along with appellant in person.
versus
M/S FAIR WEALTH SECURITIES PVT. LTD. .. Respondent
Through : Mr. Abhik Kumar and
Mr. Amit Gautam, Advs.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE A.K.CHAWLA
S.RAVINDRA BHAT, J. (ORAL)
1. This is an appeal under Section 37 of the Arbitration and
Conciliation Act. The appellant‟s grievance is with respect to the order
of learned Single Judge who rejected his petition under Section 34 of
the Act. The appellant has challenged the award by the Appellate
Tribunal constituted by virtue of Regulations framed under the
National Stock Exchange Act.
2. Shorn of the procedural history of the dispute, the brief and
conceded facts are that the appellant at the relevant time was an online
trader, who transacted business with the stock exchange by purchasing
and selling shares. He also carried on forward trading. In the course
of these transactions, it was essential - especially in respect to the
forward category of trading, that margin money had to be deposited;
undisputedly it was. Depending on the nature of the daily transactions
and the closure, notified by the stock exchange, the losses or gains, as
the case may be, were duly accounted and in the event, the trader
(such as the appellant) was in a red, he had to make good the
deficiency by depositing the balance within a stipulated period failing
which the shares standing to his credit would be exposed to auction
and sale by the stock exchange or the broker, as the case may be -
inasmuch as in certain cases, margin funding was resorted to. The
appellant also claimed to be a Consultant to the respondent broking
house (hereafter referred to as "Fair Wealth").
3. On 01.05.2008, Fair Wealth sent a letter to the appellant
demanding `36,00,000/-, as dues payable to it. The appellant by his
reply dated 14.05.2008 disputed it and claimed on the other hand that
the business association that he had entered into with Fair Wealth, had
resulted in dues payable to him. This dispute became a subject matter
of arbitration. In a first round, the Arbitral Tribunal, which adjudicated
the dispute, had to consider the claims by Fair Wealth and the counter
claims of the appellant. The resultant award rejected both the counter
claims and claims. In these circumstances, Fair Wealth approached
the Appellate Tribunal - which is provided by virtue of bye-laws of
the National Stock Exchange. The Tribunal - which was manned by
three Member panel, accepted the appellant‟s plea that there was no
credible material to disclose that the digital credit notes, were ever
sent to the appellant‟s valid e-mail identity and that the other e-mail
identities that it had relied upon, were defective or not.
4. On the basis that since the appellant was an online trader and
conducted transactions on a daily basis and furthermore, that his
account showed varied deposits at different points of time, it could
reasonably be assumed that the amounts claimed by the broking house
(Fair Wealth), were premised upon facts. The relevant findings of the
Tribunal are as follows :
"4. We have carefully examined the rival submissions and
considered facts of this matter in their totality. In the
impugned Arbitral Award the claim of the appellant Trading
Member was rejected solely on the ground (Para 4 of the
impugned Award) that there was no credible evidence of
delivering the contract notes to the respondent. The Arbitral
Tribunal had noted the discrepancy in the mail ID given in
the consent form ([email protected]) and the one
given in the account opening form
([email protected]) and after examining the
documents produced concluded that the contract notes had
not been sent on the correct e-mail ID. The object of sending
the contract notes is to inform the constituent of the trades in
his account so that he may object if he notices any
unauthorized trade or any other inaccuracy or discrepancy.
If in a case there is ample evidence to show that the
constituent was always aware of the entries of trades in his
account, and never objected to any one of them, then even if
the contract notes were not sent the claim of the Trading
Member cannot be faulted. Firstly, there is no pleading that
the constituent respondent was not aware of the trades
executed in his account since he was not supplied the
contract notes on his correct e-mail ID. Secondly, non-
supply of contract notes to a constituent may be a violation
of the terms of the MCA and the regulation of the exchange,
but it cannot be the sole ground of holding that the trades
executed were illegal and not binding on the constituent
unless the other evidence available is sufficient to hold that
the trades were without the authority of the constituent. In
the present case, the respondent was, admittedly, an on-line
trader. Admittedly, he was an expert in the Stock Market
trading (his counter-claim comprises, inter alia, of two sums
of Rs.25 lakhs and Rs.12 lakhs due to him as share of profit
and as consultancy fee. Admittedly, he has traded regularly
in his account. He has admittedly made payments in his
account to the tune of approximately Rs.26 lakhs and what is
significant is that these payments comprise of a series of
payments spread over the entire period of trading and are
not the initial lump sum payment. The respondent could not
have continued making regular payments if there were
manipulations in the account. At no point in the entire
period of trading there was any objection to any of the entry
in the account. The respondent is seen to have raised a
claim on the appellant only in his reply dated 14-02-2008 to
the demand notice dated 01-05-2008 but even in this reply
there is no claim that the demand raised by the Trading
Member arose out of unauthorized trades. This reply only
claimed from the Trading Member the sums on account of
share of profit and consultancy fee and an amount of
Rs.2,55,000/- on the ground of excess interest having been
charged for the period Dec.2007 to April, 2008, but it raised
no dispute about any manipulation in accounts. It is
important to note that this reply was given by the respondent
in response to the legal demand notice dated 01-05-2008 by
which time his collateral had been sold against the debit and
the demand had been raised about the residual debit.
Clearly, if the debit was a result of unauthorized trades and
manipulation of account, the respondent would have
objected to this in his reply."
5. The learned Single Judge before whom the appellant preferred a
proceeding under Section 34, was of the opinion that there was
sufficient evidence disclosing that the constituent i.e. the appellant
was aware of the trading accounts and that he never objected to them
and that even arguendo non dispatch of contract notes, the claim of
Fair Wealth could not be faulted. The ld. Single Judge was of the
opinion that as a proposition of law, the liability of the constituent on
account of the trades undertaken by him regardless of whether the
contract note was dispatched has to be accepted. The ld. Single Judge
therefore, rejected the petition stating that the view of the Appellate
Tribunal was a plausible one.
6. It is argued on behalf of the appellant by Mr. Swarup, ld.
counsel that the Single Judge - as well as the Appellate Tribunal
faulted in rendering the adverse factual findings without any basis at
all. In this regard, he has highlighted that the demands made through
the letter dated 05.01.2008, did not disclose any much less relevant
particulars with respect to the scripts in issue, the dates of the
transactions, etc. Naturally, the appellant disputed his liability. The
theory put forward by the Fair Wealth i.e. that the contract notes were
e-mailed, was found to be incorrect - even by the Appellate Tribunal
which conceded that the two e-mail identities attributed to him, were
inaccurate and that it could be reasonably inferred that the digital
contract notes were not delivered to him. It is therefore, urged that in
the absence of any material, factual finding based on assumptions
could not have been entered into.
7. Counsel for the respondent highlighted that the Tribunal in this
case among other things was influenced by the fact that the appellant
had placed undue emphasis upon not receiving digital copies of the
contract notes. It was pointed out that in the pleadings, especially in
the reply to the claim, the appellant neither anywhere stated that the
transactions had not been conducted nor denied the copy of the
contract note annexed along with the claim. In this regard, the
pleadings of the parties were relied upon.
8. It was submitted that the findings of the Tribunal are based
upon its analysis of the facts appearing on the record and normal
course of the human conduct having regard to the circumstance that
the appellant was an online trader. His plea that the amount of
`37,00,000/- was payable to him was rejected; it is underlined that the
inaccuracy of the claim is evidenced by the fact that no appeal was
preferred against the rejection of the counter claim. Given the limited
and narrow supervision of the court under Section 34, the inference
drawn from the findings of the Appellate Tribunal is that they did not
constitute patent error of law or perverse decision warranting
interference under Section 34.
9. This court has the benefit of considering the record of
Arbitration which is a part of the digital file. The appellant has
produced a copy of the claim made before the Arbitral Tribunal.
Para 6 of the claim reads as follows :
"6. Further we wish to state that all the contract notes
were duly dispatched to him on regular basis and were also
issuing the digital contract notes for which we had duly
obtained the written consent from him as mentioned in
„Annexure G‟ of the account opening form which is attached
as Annexure no.A and the log of the same is attached as
Annexure no.C. Further we wish to highlight that we are
completely law abiding broker and for us professional code
of conduct and ethics are most important. As a philosophy,
we are committed to complete fairness of our dealings with
our clients as well as with the market and we stands
committed to be fully law abiding corporate citizen of India
and complying with the requirement of the exchange
circulars and regulations."
10. The reply to this pleading is to be found in the following
extract:
"6. That the contents of the Para No. 6 of the facts of the
Case are patently false and hence vehemently denied. It is
further denied that the Applicant has ever sent the Contract
Notes to the email id of the Respondent. It is reiterated that
all the Applications and Agreements have been filled up by
the Applicant itself. It is also surprising to note that the
email id in the application form is mentioned as
"[email protected] ''Annexure A"" submitted
by the applicant, whereas at the time of the submitting the
said application on 28.11.2007 the "Client Code CFFR-781"
was never informed to the Respondent then how the
Respondent could create the said email id before receiving
the Client Code. It is further submitted that the email id
mentioned in the Annexure G of Annexure A is
[email protected], which has never been created or
used by the Respondent. The rest of the contents of the para
under reply are also denied and the Applicant is put to strict
proof thereof. The correct and true facts have been stated in
the Preliminary Objections herein above and the contents of
the same are reiterated and are not repeated herein for the
sake of brevity. Allegations to the contrary are denied and
the Applicant is put to strict proof thereof."
11. It is evident from a plain juxtaposition of the pleadings i.e. the
relevant averments in the claim and the reply that the emphasis placed
by the appellant was on the omission of the broking house (Fair
Wealth) to forward digital copies of the credit notes. There is no
specific denial with respect to the Annexure „D‟. That apart, the
aspect that cannot be lost sight of is that as an online trader, the
appellant had an online trading account quite apart from the e-mail
identities that became the subject matter of controversy. No attempt
was made during the arbitration proceedings - or even in the appeal,
to substantiate this argument that the scripts, towards which the claim
was made by Fair Wealth, were never traded. On the other hand, the
Tribunal took into account the other evidence such as the periodic
payments made into the account to fill the gaps - a total sum of
`26,00,000/- approximately was made by the appellant.
12. It is quite apparent from the above discussion that the subject
matter of the present controversy relates to a pure analysis of facts. It
is now settled law by various authorities that unless the award
discloses an unreasonable or implausible approach of the Tribunal -
findings of fact based upon the materials on record, falls within the
exclusive domain of an Arbitrator. The other ground of review under
Section 34 - if that may be termed to be so - is if the Tribunal returns
a patently erroneous finding - i.e. erroneous in the sense that it is
contrary to positive law in a fundamental manner. Neither of these
elements have been demonstrated to this court, calling for no
interference in exercise of appellate jurisdiction under Section 37.
13. For the above reasons, this court is of the opinion that there is
no merit in the appeal which is consequently dismissed.
S. RAVINDRA BHAT, J
A. K. CHAWLA, J
OCTOBER 09, 2018/aj
