Madras High Court
Shri.Jeeva Ratnam Vangari vs M/S.Alice Blue Financial Services ... on 13 August, 2024
Author: M.Sundar
Bench: M.Sundar
2024:MHC:3142
O.S.A (CAD) No.36 of 2023
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 13.08.2024
CORAM
THE HONOURABLE MR.JUSTICE M.SUNDAR
and
THE HONOURABLE MRS.JUSTICE K.GOVINDARAJAN THILAKAVADI
O.S.A (CAD) No.36 of 2023
&
C.M.P.No.8138 of 2023
in
O.S.A (CAD) No.36 of 2023
Shri.Jeeva Ratnam Vangari ... Appellant
Vs.
M/s.Alice Blue Financial Services Private Limited
No.153/2, 3rd Floor, MRB Arcade
Bengalur Main Road, Dwaraka Nagar
Yelahanka, Bengaluru - 560 063 .. Respondent
Original Side Appeal filed under Order XXXVI Rule 1 of
Original Side Rules read with Section 13 (1) of Commercial Courts Act,
2015 read with Section 37 of the Arbitration and Conciliation Act, 1996
to set side the order dated 23.11.2022 passed in Arb.O.P (Comm.Div.)
No.288 of 2021.
For Appellant : Ms.Niraimathi
for Ms.K.Jamuna
For Respondent : Mr.P.Arumugarajan
https://www.mhc.tn.gov.in/judis
1/21
O.S.A (CAD) No.36 of 2023
JUDGMENT
(Judgment of the Court was delivered by M.Sundar, J.)
Captioned 'Original Side Appeal' ['OSA' for the sake of brevity]
has been filed in this 'Commercial Appellate Division' ['CAD' for the sake
of brevity] assailing an 'order dated 23.11.2022 made in Arb.O.P
(Comm.Div.) No.288 of 2021' [hereinafter 'impugned order' for the sake
of brevity, convenience and clarity]. To be noted, the impugned order
was made by Hon'ble Commercial Division of this Court which shall
henceforth be referred to as 'Section 34 Court' also for the sake of
convenience and clarity.
2. The reason for referring to the Commercial Division of this
Hon'ble Court as 'Section 34 Court' also is, the impugned order has been
made by the Hon'ble Commercial Division in a petition under Section 34
of 'The Arbitration and Conciliation Act, 1996 (Act No.26 of 1996)'
[hereinafter 'A and C Act' for the sake of brevity, convenience and
clarity]. To be noted, a petition under Section 34 of A and C Act was
filed assailing an 'award dated 16.01.2021 and corrected award dated
25.01.2021 thereat in Arbitration Matter No. MCX/ARB/5939A/20'
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[hereinafter 'impugned arbitral award' for the sake of convenience and
clarity].
3. Captioned OSA has been presented in this CAD inter alia
under Section 13 of 'the Commercial Courts Act, 2015 (Act No.4 of 2016'
[hereinafter 'CCA' for the sake of brevity] read with Section 37 of A and
C Act. Though obvious, for the purpose of specificity, we make it clear
that it is an appeal under Section 37(1)(c) of A and C Act as it is an
appeal assailing impugned order of Section 34 Court vide which
impugned arbitral award has been set aside.
4. It has been repeatedly held by this Court that Section 34 is
neither an appeal nor a revision. It is not even a full fledged judicial
review but it is a limited challenge to an arbitral award under 7 specific
grounds adumbrated under Section 34(2) and Section 34 (2A) of A and C
Act {8 specific grounds in all}. It has also been repeatedly held by this
Court that Section 34 legal drill is a delicate balance between sanctity of
finality of arbitral awards vide Section 35 of A and C Act and the
sacrosanct judicial review principle. In this regard, this Court has also
repeatedly referred to Section 5 of A and C Act which talks about
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minimum judicial interference. In other words, a Section 34 legal drill is
a delicate balance between sanctity of finality of arbitral award/minimum
judicial intervention ingrained in Sections 35 and 5 of A and C Act on
one side and sacrosanct of judicial review on the other side. Instant
appeal shall be examined in this view of the matter and this also means
that short facts shorn of granular particulars will suffice.
5. Factual matrix in a nutshell is that the subject matter of the
dispute between the parties pertains to trade in crude oil derivatives and
it specifically pertains to 200 out of 850 lots of crude oil derivatives vide
trade on intraday basis [intraday basis as on 20.02.2020 is what we are
now concerned with]; that 200 lots were not squared off on the same day
and were carried forward owing to the 'client' not infusing requisite funds
in spite of being put on notice is the case of the trading member; that on
the contrary, it is the case of the client that there was no balance and
therefore it should have been squared off on the same day and it should
not have been carried forward. To be noted, the client is the sole
appellant before us and trading member is the sole respondent before us;
that we make it clear that besides referring to the parties as 'appellant'
and 'respondent', we will be referring to them as 'client' and 'trading
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member' (respectively) also ; that the client approached the 'Grievance
Redressal Cell' ['GRC' for the sake of brevity] vide by-laws qua 'Multi
Commodity Exchange of India Limited' ['MCX' for the sake of brevity];
that the claim of the client before GRC was in a sum of Rs.18.35 lakhs
saying that the trading member should have squared off on the same day
and trading member should not have carried forward; that the trading
member resisted this claim inter alia on the ground that the Client
Registration form along with risk management/assessment policy/system
vide which the client registered with the Trading member (to be noted,
Client Registration Form is dated 04.09.2019) and this Client
Registration Form along with risk management/assessment policy/system
serve as primary contract between the client and trading member and that
a clause in the same diffuses the complaint of client qua squaring off; that
it is to be noted that there is no disputation or contestation that the Client
Registration Form along with risk management/assessment policy/system
serves as primary contract between the parties; that by way of a clause in
this 'primary contract' position/risk qua squaring off has been made clear
and client cannot complain and make a claim now was further stated
position of trading member; that GRC in and by proceedings dated
20.03.2020 upheld the client's claim in its entirety i.e., Rs.18.35 lakhs;
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that in accordance with the two tiered arbitration clause vide MCX by-
laws, the trading member carried the matter in appeal to what can be
referred to as 'Appellate Arbitral Tribunal' ['AAT' for the sake of brevity];
that it is to be noted that we will be making an observation about MCX
by-laws and multi-tiered arbitration extending the limitation by contract
elsewhere infra in this order; that AAT shall hereinafter be referred to as
'Arbitral Tribunal' ['AT'] solely for the sake of convenience; that after full
contest, in and by an award dated 16.01.2021 i.e., impugned arbitral
award sustained the proceedings of GRC dated 20.03.2020 and inter alia
directed the trading member to pay a sum of Rs.18.35 lakhs in all; that
this impugned award dated 16.01.2021 was assailed by the trading
member vide aforementioned Arb. O.P (Comm.Div.) No.288 of 2021 in
Section 34 Court; that the challenge to impugned arbitral award of
trading member was predicated on Section 34(2A) [patent illegality] read
with Section 28(3) of A and C Act; that the Section 34 Court issued
notice; that the Section 34 Court after full contest, in and by the
impugned order (order dated 23.11.2022) allowed Arb. O.P
(Comm.Div.) No.288 of 2021 setting aside the impugned arbitral award;
that aggrieved by the impugned order of Section 34 Court, the client is on
appeal before us i.e., before this CAD inter alia under Section 37 of A
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and C Act i.e., Section 37(1)(c) of A and C Act to set out with specificity;
that predecessor Hon'ble Bench made the following order on 13.04.2023:
that thereafter, the respondent i.e., trading member on being served with
notice in the captioned appeal has entered appearance; that this means
that the Hon'ble Predecessor Bench has issued 'notice regarding
admission'; that therefore, with the consent of learned counsel on both
sides, we took up the main appeal and heard out the same; that in the
appeal before us, Ms.Niraimathi, learned counsel representing
Ms.K.Jamuna, counsel on record for appellant and Mr.P.Arumugarajan,
learned counsel who has entered appearance on behalf of sole respondent
(counsel on record) were before us; that both sides were heard out in full
and that after full contest, this order is being made.
6. Ms.Niraimathi, learned counsel for appellant
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notwithstanding the myriad grounds in the memorandum of grounds of
appeal, predicated her campaign against the impugned order of the
Section 34 Court on the following points:
i) Adverting to Paragraphs 6 and 14 of the impugned
order, it was submitted that in risk management policy, the
provisions relating to squaring off on the following trading day
was not included and therefore, the policy relied on by the
trading member was not provided to the respondent is the case
of the client;
ii) Adverting to paragraph 14 of the impugned order,
it was argued that impugned arbitral award has been made by
relying on unrelated proceedings not germane to the
determination of the challenge but this has been overlooked by
Section 34 Court;
iii) Adverting to sub-clause (ix) of paragraph 4(b) of
the Section 34 petition, it was argued that even according to the
trading member's averments in the Section 34 petition, the
trading member had filed all relevant documents including
'Know Your Customer' form. It was pointedly argued that the
same was not marked as exhibits either before the GRC or
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before the AT.
7. In response to the aforementioned pointed submission of
learned counsel for appellant/client (notwithstanding myriad grounds in
the memorandum of grounds of appeal), learned counsel for respondent
made the following submission:
In answer to points 1 and 2 put together, adverting
to paragraph 10 of the impugned order, it was submitted that
the risk disclosure document has clearly highlighted the
aforementioned risk i.e., squaring off the next trading day and
therefore, the argument that the client was not in the know of
the same is untenable;
8. The third point i.e., the documents, particularly Know
Your Customer form, a Member Client Agreement, Combined Risk
Disclosure Documents and Statement of Accounts, the same was
raised in reply.
9. We carefully considered the rival submissions.
10. Having set out the narrative, we now proceed to set out the
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discussion and dispositive reasoning on each point infra and this
adumbration is as follows:
i) As regards the scope of a legal drill under Section
34 of A and C Act and obviously, a legal drill under Section 37
of A and C Act, more so in the light of Borse Brothers case law
[Government of Maharashtra (Water Resources Department)
Represented by Executive Engineer reported in (2021) 6 SCC
460], the legal perimeter is very limited and at the very outset
this Court has set out that it is a delicate balance between
sanctity of finality of awards / minimum judicial interference
vide Sections 35 and 5 of A and C Act on one side and judicial
review on the other. In this view of the matter, the test is
whether a protagonist is able to snugly fit the challenge to an
award into any one of the eight pigeon holes, if the answer is in
the affirmative, the award will be dislodged and if the answer is
in the negative, Section 34 Court will dismiss the challenge to
the award;
ii) In this backdrop, when we carefully examined
points 1 and 2 together, we find that the risk
management/assessment policy/system has clearly put the client
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on notice. It is also clear that this is a covanent as between the
parties as it is part of the primary contract between the parties
(to be noted, risk management/assessment policy/system also
forms part of the Client Registration Form) and therefore, when
the covenant is clear, the question of AT not taking into account
the terms of the contract and trade usages applicable to the
transaction is clearly a death knell to the award. This is owing
to Section 28(3) of A and C Act, which reads as follows:
'28. Rules applicable to substance of dispute:-(1)
(a)....
(b)..........
(i).........
(ii)........
(iii) ......
(2) .......
(3) While deciding and making an award, the
arbitral tribunal shall, in all cases, take into account the
terms of the contract and trade usages applicable to the
transaction'
iii) As regards the aforementioned dispositive
reasoning, we deem it appropriate to refer to Associate
Builders case [Associate Builders Vs. Delhi Development
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Authority reported in (2015) 3 SCC 49] as explained in
Ssangyong case law [Ssangyong Engineering and
Construction Company Limited Vs. National Highways
Authority of India reported in (2019) 15 SCC 131]. Law is
very clear that Section 28(3) of A and C Act needs to be
adhered to by any AT and lack of adherence to Section 28(3) of
A and C Act i.e., giving a go by to the terms of the contract /
applicable trade usage i.e., trade usage applicable to the
transaction by AT is clearly impermissible as held in Associate
Builders case law which was explained in Ssangyong case
law. The relevant paragraph in Associate Builders case is 42.1
and the same reads as follows:
'42.1. (a) A contravention of the
substantive law of India would result in the death
knell of an arbitral award. This must be
understood in the sense that such illegality must
go to the root of the matter and cannot be of a
trivial nature. This again is really a contravention
of Section 28(1)(a) of the Act ............'
iv) We also remind ourselves that Section 34(2)(b)
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[public policy] was elucidated in Associate Builders and
subsequently explained in Ssangyong case law but we are not
going into that as in the case on hand, the challenge is only vide
Section 34(2A) of A and C Act. In this regard, it will suffice to
say that patent illegality was originally not a ground available
under Section 34 and that it was included as a ground of
challenge to an arbitral award by Saw Pipes case law [Oil and
Natural Gas Corporation Ltd. Vs. Saw Pipes Ltd., reported in
(2003) 5 SCC 705]. Subsequently in and by 23.10.2015
amendment to the A and C Act, patent illegality was codified
and brought in as a ground vide Section 34(2A) but with a
proviso which clearly forbids two exercises. One is that an
award shall not be set aside merely on the ground of an
erroneous application of law and that there shall not be re-
appreciation of evidence. As regards patent illegality itself, if
there is illegality appearing on the face of the award, the Court
will interfere and in the case on hand, Section 34 Court has
found that Section 28(3) of A and C Act has been given a go by
and therefore, it is a patent illegality appearing on the face of
the award and violation of Section 28(3) is death knell if
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aforementioned Associate Builders principle in this regard is
applied. In this perspective, Section 34 Court has interfered
with the impugned arbitral award i.e., set aside the impugned
arbitral award.
v)The discussion and dispositive reasoning supra,
makes it clear that we are unable to persuade ourselves to
believe that Section 34 Court has fallen in error in coming to
the conclusion that the impugned award deserves to be
dislodged on the ground of patent illegality vide Section
34(2A) read with Section 28(3) of A and C Act. This answers
points 1 and 2 raised by the learned counsel for appellant/client.
vi) This takes this Court to the third point i.e., the
documents were filed but the same were not marked as exhibits.
In this regard, as already alluded to supra, learned counsel for
appellant drew our attention to clause (ix) of sub-paragraph (b)
of Paragraph 4 of the Section 34 petition, which reads as
follows:
'ix. The petitioner submit that aggrieved by
the order of the GRC member they had chosen to refer
the dispute to the settled by Arbitration as per the bye
laws and business Rules of MCX and the same was taken
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up on file in Arbitration Matter No.MCX/ARB/5239A/20.
The petitioner had challenged the order of GRC Member
dated 20.03.2020 and by a rejoinder claimed an account
of Rs.4,47,614.23/- from the respondent being the
balance amount due inclusive of late payment charges
on the disputes trades on 20.02.2020. The petitioner
had filed all relevant documents including Know Your
Customer Form, a Member Client Agreement, and
Combined Risk Disclosure Documents, and statement of
accounts, e-mails and Logs and the respondent had filed
his counter to the claim petition. The arbitration
proceedings were conducted through virtual hearing.'
(Underlining made by this Court for
ease of reference)
vii) The pointed submission made by learned
counsel for appellant is that the aforementioned documents
though filed before the AT have not been marked as exhibits.
We are of the considered view that this argument is a non-
starter and the reason is sub-section (1) of Section 19, which
reads as follows:
'19. Determination of rules of
procedure.- (1) The arbitral tribunal shall not be
bound by the Code of Civil Procedure, 1908 (5 of
1908) or the Indian Evidence Act, 1872 (1 of
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1872).'
Sub-section (1) of Section 19 makes it clear that AT will
not be bound either by 'the Code of Civil Procedure, 1908
(5 of 1908)' ['CPC' for the sake of brevity] or by 'Indian
Evidence Act, 1872 (1 of 1872)' ['Evidence Act' for the
sake of brevity]. If the AT is not bound either by CPC or
by the Evidence Act, the question of the documents that
were filed before GRC and considered by the AT need not
necessarily be marked as exhibits. In this regard, we have
also carefully noticed that the documents have not been
subjected to any disputation by the client. This means that
the argument that the documents were not marked as
exhibits pales into insignificance and that is the reason
why we opened by writing that this argument is a non-
starter. The documents were placed before the Tribunal
but the Tribunal has given a go by to the covenant is what
the Section 34 Court has observed in paragraph 11. In this
regard, we deem it appropriate to extract and reproduce
Paragraphs 10 and 11 of Section 34 Court order i.e.,
impugned order which read as follows:
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'10. The petitioner also placed on record the
risk management/assessment policy/system. The said
document contains the following note:
“*Note:
Intraday square off timings can change based
on the discretion of our risk management department. A
Call & Trade charge of ?20+GST Charges will be
applicable for all positions squared off by our RMS desk,
including auto square off.
If any intraday position or an MIS trade is not
squared off on the same day due to any link or system
failure or any risks associated with Internet/wireless based
trading which may occur at the end of the Client,
ALICEBLUE or the respective Exchange, it shall be treated
as a Cash and Carry (“CNC”) or carried forward to the
next trading day. In case of such a situation arising, the
onus of squaring off the position will be on the Client. Our
RMS desk shall square off any such position, without the
requirement of a margin call, if the necessary cash/required
margin is not available in the Client's account.”
11. On examining the arbitration application of
the petitioner, it is evident that the petitioner has drawn
reference to the risk disclosure document and, in fact,
reproduced the relevant clause with regard to the uncertainty
involved in IBT. The petitioner also referred expressly to the
risk management/assessment policy/system and, in particular,
to the note in respect of squaring off of intraday products and
open positions relating thereto. In spite of these documents
being placed before the arbitral tribunal, reference to these
documents is conspicuous by its absence on perusal of the
Award.'
viii) This takes us back to the point that Section
28(3) of A and C has been given a go by.
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11. As all the three points raised by the appellant/client do not
find favour with us, the sequitur or inevitable conclusion is that the
Section 37 appeal fails.
12. Before concluding, we make it clear that this order shall not
serve as an endorsement of MCX Rules as it is a set of Rules made by a
Company and the shareholding pattern of the Company is not before this
Court. Though it is referred to as by-laws, at the end of the day it is only
by-laws of a Company. We are informed that it provides for a multi-
tiered arbitration. Multi-tiered arbitration necessarily means that on a
dispute erupting (in this case between client and Trading Member), they
approach the GRC first, on the GRC making proceedings, the same is
appealable to a sole Arbitrator in this case. This means that the time
frame provided for arbitral proceedings (it is now codified vide Section
29A of A and C Act) stands enlarged. This is the reason why we make it
clear that this order shall not serve as an endorsement of MCX Rules and
multi-tiered arbitration but we are not going into that aspect of the matter
in the case on hand as that is not a point of disputation or contesation as
between the parties. Therefore, for the sake of specificity, we make it
clear that this question as regards MCX Rules, multi-tiered arbitration
therein and the same providing for a more extensive time frame on the
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teeth of Section 29A of the A and C Act, this question is left open in this
order but with a caveat that it will be decided in another matter where a
legal tussle in this regard becomes imperative or inevitable for answering
the appeal.
13. This Court having made it clear that the question is left
open i.e., with a caveat, proceeds to write the operative portion of this
order in the light of the narrative, discussion and dispositive reasoning set
out supra.
14. Ergo/apropos, the sequitur is, captioned CAD appeal fails
and the same is dismissed. When we say dismissed, as notice regarding
admission has been issued, after hearing both sides, we make it clear that
the captioned appeal does not pass muster in the Section 37 Court
Admission Board. However, in deference to the predecessor Bench
having issued notice to respondent, we heard both sides regarding notice
regarding admission. In this regard, we say that captioned OSA is
dismissed. Consequently, captioned CMP also perishes with the OSA. In
other words, captioned CMP is also dismissed. Considering the nature of
the matter, facts and circumstances of the case and the kind of
submissions made before this Court, there shall be no order as to costs.
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(M.S.J.) (K.G.T.J.)
13.08.2024
Index:Yes/No
Neutral Citation: Yes/No
gpa
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M.SUNDAR.J.,
and
K.GOVINDARAJAN THILAKAVADI, J.,
gpa
&
13.08.2024
https://www.mhc.tn.gov.in/judis
