Karnataka High Court

Way2Wealth Brokers Pvt Ltd vs Mrs.Ponna Shankar on 22 July, 2022

Bench: P.S.Dinesh Kumar, C.M. Poonacha

     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

         DATED THIS THE 22ND DAY OF JULY, 2022

                       PRESENT

       THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR

                         AND

        THE HON'BLE MR. JUSTICE C.M. POONACHA

               COMAP No.209 OF 2021

BETWEEN:

WAY2WEALTH BROKERS PVT LTD
REPRESENTED BY ITS DIRECTORS,
REGISTERED OFFICE AT RUKMINI TOWERS,
3RD AND 4TH FLOOR,
NO.3/1, PLATFORM ROAD,
SHESHADRIPURAM, BANGALORE-560020
REPRESENTED HEREIN BY ITS DIRECTOR
SHRIDHAR SRIKANTIAH GARGESHWARI
                                             ...APPELLANT
(BY SRI K C SUDARSHAN, ADVOCATE)

AND:

1.   MRS.PONNA SHANKAR
     W/O LATE SRI C S SHANKAR,
     R/AT BLOCK,
     E 503, WHITE HOUSE APARTMENTS,
     6TH MAIN, 15TH CROSS,
     R T NAGAR,
     BENGALURU-560032

2.   MR R MOHAN
     MAJOR,
     C/O NATIONAL STOCK EXCHANGE OF INDIA,
     OFFICE NO.217,
     2ND FLOOR, DBS HOUSE,
                           2




     NO.26, CUNNINGHAM ROAD,
     BENGALURU-560052

3.   MR V SEKAR
     MAJOR,
     C/O NATIONAL STOCK EXCHANGE OF INDIA,
     OFFICE NO.217,
     2ND FLOOR, DBS HOUSE,
     NO.26, CUNNINGHAM ROAD,
     BENGALURU-560052

4.   MR A V MURALIDHARAN
     MAJOR,
     C/O NATIONAL STOCK EXCHANGE OF INDIA,
     OFFICE NO.217,
     2ND FLOOR, DBS HOUSE,
     NO.26, CUNNINGHAM ROAD,
     BENGALURU-560052
                                         ...RESPONDENTS
(BY SRI S R KAMALACHARAN, ADVOCATE FOR
    SRI PRADEEP S SAWKAR, ADVOCATE FOR R1
    NOTICE TO R2 & R4 IS DISPENSED WITH VIDE
    ORDER DATED 16.11.21)


      THIS COMAP IS FILED UNDER SECTION 37 OF THE
ARBITRATION AND CONCILIATION ACT, 1996 R/W SECTION
13(1) OF THE COMMERCIAL COURTS ACT R/W CHAPTER VI OF
THE KARNATAKA HIGH COURT RULES 1959, PRAYING TO SET
ASIDE THE ORDER DATED 19.04.2021 PASSED BY THE COURT
OF THE LXXXVIII ADDITIONAL CITY CIVIL AND SESSIONS
JUDGE (CCH-89), BENGALURU IN COM.A.S.NO.263/2018 AT
ANNEXURE-A AND ETC.


     THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 08.07.2022, COMING ON FOR PRONOUNCEMENT
OF JUDGMENT, THIS DAY, POONACHA J., PRONOUNCED THE
FOLLOWING:
                                     3




                             JUDGMENT

The Present appeal is filed challenging the judgment

dated 19.04.2021 passed in Com.A.S.No.263/2018 by the

LXXXVIII Additional City Civil and Sessions Judge

(Exclusive Commercial Court), Bengaluru City, (hereinafter

referred to as the 'Commercial Court' for short).

2. Brief facts of the case are as follows:

It is the case of the Appellant that it is a Brokerage

Firm registered with the Securities and Exchange Board of

India (SEBI). The first Respondent and her husband

jointly held a Demat Account with the Appellant.

Subsequent to the death of her husband, the first

Respondent had opened an individual account and the

shares held in the joint account of the first Respondent and

her husband were transferred to the said individual

account.

3. In 2017, the first Respondent, contending that

the Appellant had illegally, without authorization or

consent sold the shares and the proceeds of which were

also not paid to her, filed a complaint which was referred

to the National Stock Exchange (NSE). The Appellant

denied the allegations made by the first Respondent.

4. After receipt of the complaint, the NSE referred

the same to the Investors' Grievance Redressal Panel

(IGRP) in accordance with its Rules. Accordingly, the first

Respondent and the Appellant appeared before the IGRP

that was constituted and participated in the said

proceedings. The IGRP, vide its final order dated

24.11.2017 held that the Appellant had sold the shares of

the first Respondent without authority and the Appellant

was required to reinstate 3257 shares of HDFC Ltc., 1960

shares of HDFC Bank and 300 shares of Deepak Fertilizer;

in the alternative it was ordered that the Appellant was

required to pay the first Respondent the value of the said

shares as on 31.10.2017 i.e., a sum of Rs.92,47,906.80

within seven days.

5. The Appellant, being aggrieved by the said

order, dated 24.11.2017 passed by the IGRP, petitioned

the NSE and accordingly, the NSE referred the dispute to a

Panel of Arbitrators for determination of the dispute in

accordance with law, By-laws, Rules and Regulations of the

NSE. Accordingly, the parties entered appearance before

the Arbitral Tribunal and filed their respective pleadings.

The Arbitral Tribunal, after hearing the parties and

appreciating the entire factual matrix, has categorically,

inter alia, recorded following findings of fact:

      i)     The   KYC     documents      were     fraudulently

obtained;


      ii)    There has never been any "Pay-in" and "Pay-

out" made by the Appellant to Respondent No.1 as per

NSE norms;

iii) The alleged contract notes produced by the

Appellant did not correspond with the holding statement of

the first Respondent;

iv) The Phone number and e-mail address of the

first Respondent in the records of the Appellant was

changed to another number allegedly belonging to Mr.Arun

Kumar Mishra, who was admittedly an employee of the

Appellant; and

v) The Appellant, also having taken various

defences and made counter allegations against the

Respondent No.1 as well as her children before the Arbitral

Tribunal, did not produce any material in support of the

same in substantiating the said defences/allegations.

6. By recording the aforementioned findings of

fact, the Arbitral Tribunal, by its Award dated 04.05.2018

passed the following Award:

"The Applicant (Trading Member) is ordered to return to the Respondent 3257 shares of HDFC Ltd, 1960 shares of HDFC Bank and 300 Shares of Deepak Fertilizer. In the alternative, the Applicant is ordered to pay the equivalent value of these shares as on 31.10.2017 amounting to Rs.92,47, 906.80 (Rs Ninety Two Lakh forty Seven Thousand Nine hundred and Six and Eighty paise only) within 30 days of this Award."

7. Being aggrieved by the Award dated

04.05.2018 passed by the Arbitral Tribunal, the Appellant

petitioned the NSE to challenge the same and accordingly,

the NSE appointed the Appellate Panel of Arbitrators. Both

the parties appeared before the Appellate Arbitral Tribunal

and participated in the said proceedings. The Appellate

Arbitral Tribunal, vide its Award dated 14.09.2018 set

aside the Award passed by the Arbitral Tribunal.

8. Being aggrieved by the Award dated

14.09.2018 passed by the Appellate Arbitral Tribunal, the

first Respondent filed an Application under Section 34 of

the Arbitration and Conciliation Act, 1996 (hereinafter

referred to as the 'Act' for short) in Com.A.S.No.263/2018

before the Commercial Court. The Appellant entered

appearance before the Commercial Court and contested

the proceedings. The Commercial Court, upon noticing the

factual matrix and upon appreciating the legal position

with regard to the scope of interference, exercising

jurisdiction under Section 34 of the Act, inter alia, recorded

the following findings:

i) The Appellate Arbitral Tribunal, without

recording valid reasons impugned the categorical findings

of fact recorded by the Arbitral Tribunal, set aside the

Award passed by the Arbitral Tribunal, which is not in

accordance with law;

ii) The Appellate Arbitral Tribunal has not taken

into consideration the findings given and the documents

taken into consideration by the Arbitral Tribunal while

passing the Award as well as did not consider the legal

aspects;

9. By recording the aforementioned findings, the

Commercial Court has categorically held that the Award of

the Appellate Arbitral Tribunal is not in accordance with

law and hence, held to be in conflict with the public policy

of India, also the Award of the Appellate Arbitral Tribunal

amounts to violation of natural justice and is also against

the fundamental policy of Indian law. Accordingly, the

Commercial Court by its judgment dated 19.04.2021,

exercising its jurisdiction contained under Section 34 of the

Act, set aside the Award dated 14.09.2021 of the Appellate

Arbitral Tribunal and upheld the Award dated 04.05.2018

passed by the Arbitral Tribunal. Being aggrieved by the

said judgment dated 19.04.2021, the Appellant has filed

the present Appeal.

10. Sri K.C.Sudarshan, the learned Counsel

appearing for the Appellant, vehemently contended as

follows:

a) The complaint lodged by the first Respondent

is barred by law of limitation, inasmuch as the trades were

carried out in the year 2011 and the complaint was lodged

for the first time in the year 2016;

b) The first Respondent has categorically

admitted that she has signed the KYC Forms. Hence, it is

not open to her to subsequently contend that she has not

been intimated of the transactions in her account;

c) The complaint was lodged against one

Smt.Jayashree Ramapriyan, who was the Sub-Broker and

not against the officials of the Appellant; and

d) A request was made under Sections 26 and 27

of the Act for recording of the evidence before the Arbitral

Tribunal, which was refused.

11. Sri S.R.Kamalacharan, the learned Counsel

appearing for the first Respondent, countering the

contentions put forth by the Appellant, made the following

submissions;

a) The Appellant has not produced any material

before the Arbitral Tribunal with regard to the defences

taken by it as well as the contentions put forth by it;

b) Sufficient opportunity was given to the

Appellant before the Arbitral Tribunal to produce all

necessary materials available with it. Despite the same,

the Appellant though produced voluminous documentary

material before the Arbitral Tribunal, the necessary

documentary material to justify its defences/contentions

have not been produced before the Arbitral Tribunal;

c) The Commercial Court has rightly exercised its

jurisdiction under Section 34 of the Act to set aside the

Award of the Appellate Arbitral Tribunal and upheld the

Award passed by the Arbitral Tribunal;

d) Having regard to limitation, no specific ground

has been taken by the Appellant before the Commercial

Court. In the absence of the same, it is not open to the

Appellant to urge the said contention before this Court; in

any event, in view of the allegation of fraud, as per Section

17 of the Limitation Act, the complaint lodged by the first

Respondent is within time;

e) The contention put forth by the Appellant with

regard to its Application under Sections 26 and 27 of the

Act cannot be put forth in the present Appeal, as no

specific ground has been urged with regard to the same;

f) This Court in exercise of its jurisdiction under

Section 37 of the Act is not required to go into the facts of

the case, but it is merely required to adjudicate as to

whether proper procedure has been followed by the

Appellate Arbitral Tribunal.

12. The learned Counsel for the first Respondent

placed reliance on the following judgments in support of

his contentions:

       i)             Haryana Tourism Limited v. Kandhari
                      Beverages Limited1;

       ii)            State Trading Corporation of India
                      Ltd., v. M/s.Toepfer International
                      Asia Pte Ltd.,2; and

       iii)           Gail Gas    Limited   v.   Balkishan
                      Agarwal Glass Industries Limited3

13. Having regard to the contentions put forth by

the learned Counsel for the parties, the question that falls

for our consideration is, "Whether the judgment dated

19.04.2021 passed in Com.A.S.No.263/2018 by the

Commercial Court, under Section 34 of the Act, is liable to

be interfered with by this Court with under Section 37 of

the Act?"

14. It is not in dispute that the first Respondent is

a constituent of the Appellant, wherein, she held Demat

(2022) 3 SCC 237

2014 SCC OnLine Del 3426

Manu/DE/1364/2019 - FAO (OS) (COMM) 291/2018

Account in respect of the shares held by her. It is the

specific case of the first Respondent that after the demise

of her husband, the Appellant through their

employee/agent Mr.Arun Kumar Mishra and a Sub-Broker

Smt.Jayashree Ramapriyan proposed her to close the joint

account and open an individual account. It is the further

case of the first Respondent that she has no knowledge of

the Stock Market Trading and denied receiving any SMS on

her mobile number or to her registered e-mail address; the

Appellant through its employee/agent Sri.Arun Kumar

Mishra and Sub-Broker Smt.Jayashree Ramapriyan

changed the KYC details and have been sending SMSs and

e-mails to the phone number and e-mail ID respectively

mentioned in the said Form, which belonged to the agent

i.e., Mr.Arun Kumar Mishra; and the employee/agent and

Sub-Broker of the Appellant have conspired and

misappropriated all the stocks held by her.

15. While it is the consistent case of the Appellant

that the first Respondent has been intimated of the

transactions made in her account and all the transactions

have been made on the instructions of the first

Respondent, the Appellant has not disputed the fact that

Sri.Arun Kumar Mishra is their employee/agent and

Smt.Jayashree Ramapriyan is their Sub-Broker. The

Appellant has not been able to produce material like voice

recording, etc., before the Arbitral Tribunal to justify its

contention that all the instructions for the transactions that

were done in respect of the shares of the first Respondent

were in fact given by the first Respondent. The Appellant

has also not been able to demonstrate by producing

sufficient documentary material either before the Arbitral

Tribunal or before the Appellate Arbitral Tribunal with

regard to the aspect that the Appellant has paid the first

Respondent after the sale of the shares which were in her

account.

16. The relevant factual aspect of the matter was

initially put forth before the IGRP and subsequently before

the Arbitral Tribunal. The Arbitral Tribunal has, upon

detailed appreciation of all the necessary facts and taking

into consideration the documents produced before it, has

specifically recorded findings of fact, the necessary

portions of which have been noticed hereinabove.

17. The Appellate Arbitral Tribunal, merely on

surmises and conjectures without any discussion nor

setting out any reasons, has while vaguely referring to

certain facts, set aside the Award passed by the Arbitral

Tribunal, thereby setting aside the categorical findings of

fact made by the Arbitral Tribunal.

18. It is pertinent to note herein that the Appellate

Arbitral Tribunal has also recorded certain findings and

observations to demonstrate that the Appellant, had

without following the mandatory norms carried out trades

in respect of the shares held by the first Respondent. The

said findings and observations are, inter alia, summarised

as follows:

i) During the period August 2009 to September

2019 though many trades were carried in the first

Respondent's account, there was no "Pay-in" and "Pay-

out" in the entire seven years period, except the

settlement of Rs.60,000/- in July 2012 on account of sale

of 100 shares of HDFC Bank; and

ii) To the specific stand of the first Respondent

that the e-mail address and mobile number mentioned in

the Form was forged, inasmuch as, there was a change

and the said details mentioned in the Form were that of

the employee/agent of the Appellant i.e., Sri.Arun Kumar

Mishra, there was no dispute to the same;

19. It is clear from a bare perusal of the Award of

the Appellate Arbitral Tribunal that various aspects

extraneous to the matter in issue was noticed by the

Appellate Arbitral Tribunal and the well considered findings

of fact recorded by the Arbitral Tribunal have been set

aside without recording any reasons.

20. The Commercial Court, while deciding the

Application under Section 34 of the Act filed by the first

Respondent, has in detail perused the Award passed by the

Arbitral Tribunal as well as that of the Appellate Arbitral

Tribunal and upon a re-appreciation has noticed the patent

illegality committed by the Appellate Arbitral Tribunal in

setting aside, without assigning any reasons the Award

passed by the Arbitral Tribunal, which is not in accordance

with law. The Commercial Court has also noticed that the

Appellate Arbitral Tribunal has not considered the legal

aspects and the conclusion arrived at by it are in conflict

with the public policy of India. While recording the said

finding, the Commercial Court has also noticed the

relevant legal provisions with regard to the scope of

interference under Section 34 of the Act and has rightly set

aside the Award dated 14.09.2018 of the Appellate Arbitral

Tribunal and upheld the Award dated 04.05.2018 passed

by the Arbitral Tribunal.

21. The Apex Court in the case of Mcdermott

International Inc. v. Burn Standard Co.Ltd., and

Others4 has held that the jurisdiction under Section 37 of

the Act is only supervisory for review of the Arbitral Award

only to ensure fairness. The said role is to be at a

(2006) 11 SCC 181

minimum and is to be exercised only in cases of fraud or

bias or arbitrary, violation of natural justice, etc.

22. In the case of MMTC Ltd., v. Vedanta Ltd.,5

the Apex Court held that:

"14. .................. interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision.