JUDGMENT:-
1] By consent of parties, both these petitions were heard together and are being disposed of by a common judgement.
2] In both the petitions, the parties have impugned the same award. Some of the relevant facts for the purpose of deciding these two petitions are as under:-
The respondent in Arbitration Petition No. 854 of 2012 was the claimant before the learned Arbitrator. The petitioner in Arbitration Petition No. 854 of 2012 was respondent before the learned arbitrator. For sake of brevity, the respondents before the arbitral tribunal i.e Ms. Kaberi Mondal is hereinafter referred to as “Claimant” and BMA Commodities is referred to as the respondents.
3] The respondent is a registered stock broker with the Securities and Exchange Board of India and also with the Bombay Stock Exchange, National Stock Exchange of India and Multi Commodity Exchange.
4] It is the case of the respondent that the claimant approached the respondent in the month of March 2011 for the purpose of opening a trading and demat account in order to purchase and sell commodities from the Commodity market both in the Multi Commodity Exchange of India Ltd. On 10th March 2011, the parties executed an agreement for opening a trading and demat account for trading in stock market, commodity market segment and future and option market. The respondent agreed to act as an intermediary of the claimant for the purpose of purchasing and selling of commodities from the commodity market.
5] It is the case of the claimant that one Mr. Priotosh Ghosh, an employee of respondent was introduced to the claimant by her brother in law as an experienced stock market advisor and responsible and senior employee of the respondent, who represented the rosy picture of high returns and huge profits within a short time by investing money in commodities in Multi Commodity Exchange of India Limited (for short MCX) through the respondent.
6] Husband of the claimant is a seaman and was posted on ship through out the year. It is the case of the claimant that the said Priotosh Ghosh took personal details of the claimant and filled up registration form and obtained various documents from the claimant and also a cheque of Rs. 50,000/- in favour of the respondent. The said Mr. Priotosh Ghosh also demanded the e.mail address of the claimant. Since the claimant did not have any e.mail address of her own, she reluctantly provided e.mail address of her husband. It is the case of the claimant that she specifically instructed the said Priotosh Ghosh that all communications issued to her should be sent to her in physical form.
7] It is the case of the claimant that during the period between 14 March 2011 and 5 May 2011, the said Priotosh Ghosh on behalf of respondent collected an aggregate sum of Rs. 27,50,000/- from the claimant in five installments, last of such installment was on 5 May 2011. The said Priotosh Ghosh represented to the claimant that the claimant was a nett gainer from the handful trades which she had instructed him to make in her account. It is the case of the claimant that on or about 11 May 2011 to her shock and surprise the said Priotosh Ghosh informed her for the first time that there was a reduction in her account to the tune of Rs. 20 lakhs. The said Priotosh Ghosh attributed the said reduction to the fall in the global market in the aftermath of killing of Osama Bin Laden.
8] On 4 July 2011, the claimant joined her husband at Port Klang, Malaysia and returned to India on or about 25 August 2011. It is the case of the claimant that on 5 September 2011, the claimant received a telephone call from a person who refused to disclose his identity and claimed that there had been huge volume of unauthorised trading in the claimant's account as a result whereof the balance in the claimant's account had been almost reduced to nil.
9] It is the further case of the claimant that she had categorically instructed the said Priotosh Ghosh that she was not interested in any further trading after May 11, 2011. On her return she inquired with the said Priotosh Ghosh and was told that the balance had been reduced to almost NIL in her account.
10] It is the case of the claimant that the claimant and her husband, thereafter, lodged a complaint about unauthorized transactions in her account, with the Corporate office of the respondent and obtained a statement of balance amount from the respondent. The claimant came to know for the first time that there had been hundreds of transactions, all unauthorized, in her account since opening of the account in March 2011. The representative of the respondent had never shown the claimant a complete statement of account. The claimant was only shown such portions which were reflecting nett profit. The claimant also came to know that the respondent had carried out about 60 to 70 intra-day buy and sell transactions on each day and around 100 intra day transactions on certain dates. The claimant had not given any instructions for a single intra day transactions and those transactions were unauthorizedly carried out in her account.
11] It is the case of the claimant that on 14 September 2011, the claimant made several attempts to collect information from the officers of the respondent. But, they evaded her on one pretext or the other. The claimant, therefore, lodged a complaint on 14 September 2011 against the respondent at the Police Head Quarters.
12] On 8 September 2011, the said Priotosh Ghosh filed a complaint/case against the claimant and her husband before the Chief Judicial Magistrate at Alipore. The claimant received the summons from the 4 Court of Chief Judicial Magistrate at Alipore on 16 September 2011. On 29 September 2011, claimant lodged a claim with MCX regarding alleged unauthorized trading in her account by the respondent. On 24 October 2011, MCX forwarded respondent's reply to the claimant's complaint made on 29 September 2011. It is the case of the claimant that the said reply contained various false, untrue and incorrect statements.
13] On 25 November 2011, according to the claimant, there were further unauthorized transactions i.e intra day buy transactions amounting to Rs. 1132411.40 and intra day sell transactions amounting to Rs. 1096695.60 which were carried out in the account of the claimant. On 26 November 2011, the claimant informed the respondent of further unauthorized trading in her account carried out on 25 November 2011. The claimant informed about such unauthorized trading in her account also to MCX. There was no reply to the said complaint made by the claimant to the MCX by the respondent.
14] On 29 November 2011, the claimant filed her complaint with the grievance cell of MCX. The said complaint was treated as her statement of claim. The dispute was referred to the arbitration in accordance with the bye-laws and business rules of the MCX. The respondent filed its statement of defence before the arbitral tribunal on 17 November 2012, denying the claim made by the claimant on various grounds. The primary defence of the respondent in the reply was that the claimant could not run short of margin and as the claimant ran short of margin, the respondent did not have any option but to close out and cancel the claimant's position.
15] Both the parties filed written arguments before the arbitral tribunal. None of the parties led any oral evidence in the arbitration proceedings.
16] In the meeting held on 30 April 2012 before the arbitral tribunal, the learned tribunal directed the respondents to produce various documents such as (i) SMS log statement and (ii) margin statement from May 7, 2011 to November 25, 2011.
17] The respondent also filed extract of the account of claimant on 25 November 2011 to 7 may 2011 reflecting margin money. It is the case of the claimant that even according to the said statement of account, filed by the respondent, it was clear that the ledger balance in the account of the claimant was always positive and that there was sufficient margin at all times in her account. It is the case of the claimant that in the fourth and final sitting of the reference before the arbitral tribunal which was held on 11 May 2012, in the minutes of the said meeting, the arbitral tribunal wrongfully recorded that the claimant did not have any grievance regarding the transactions in her account till 11 May 2012, though, it was her case all through out that the tradings in her account were illegal, specially the intra day transactions between March 2011 and May 2011, which were without the consent and knowledge of the claimant. The claimant by her letter dated 19 May 2011 addressed to the arbitral tribunal requested to correct the said error in the minutes of the hearing held on 11 May 2012.
18] On 18/27 June 2012, the arbitral tribunal rendered an award and directed the respondent to pay an amount of Rs. 806031.69 being the closing balance in the account of claimant as on 14 July 2011 with interest at 18% p.a from 5 July 2011 till payment. The respondent was also directed to pay to the claimant an amount of Rs. 78,186.70 which was deducted from the account of claimant as charges and tax due to trading unauthorizedly in her account from 5 July 2011 till 30 November 2011 with interest at 18% from 5 July 2011 till payment. The respondent was also directed to refund the claimant an amount of Rs. 35,845.50 with interest.
19] Since the claim made by the claimant was for larger amount and only part of the claim was allowed, the claimant has impugned the part of the award by filing Arbitration Petition No. 420 of 2013. The respondent has impugned the award of the arbitral tribunal directing respondent to pay various amounts by filing Arbitration Petition No. 854 of 2012.
20] The learned Counsel appearing for respondent submits that though there was no statement of claim filed by the claimant and there was no money claim made before the arbitral tribunal, the arbitral tribunal has allowed the money claim in favour of the claimant. Since there was no statement of claim filed by the claimant, respondent could not file any proper written statement, being not aware of the claim made by the claimant. It is submitted that the impugned award is, therefore, liable to be set aside on this ground alone.
21] In support of this submission, the learned Counsel has invited my attention to the complaint made by the claimant against the respondent before the grievance cell on 29 November 2011. It is submitted that the said complaint made by the respondent could not have been considered as a statement of claim on behalf of the claimant by the arbitral tribunal. There was no separate statement of claim filed by the claimant.
22] The learned Counsel has invited my attention to the criminal complaint filed by the said Priotosh Ghosh against the claimant and her husband and submits that the claimant made a complaint against the respondent only after the summons in the said complaint filed by Mr. Priotosh Ghosh against the claimant and her husband, came to be received by them. It is submitted by the learned Counsel that the said Priotosh Ghosh ought to have been impleaded as party in the arbitration proceedings or in any event ought to have been examined as witness in the arbitration proceedings.
23] It is submitted by the learned Counsel that the arbitral tribunal ought to have rendered an opportunity to the respondent to lead oral evidence or ought to have directed the respondent to examine Mr. Priotosh Ghosh as one of the witness, as the same was necessary. Reliance is also placed on by-law 15.27 of MCX, which is extracted as under:-
“15.27 Permission Necessary for Witness or Evidence: No party shall be entitled without the permission of the arbitral tribunal, to insist on a request to the arbitral tribunal to hear or examine witness or receive oral or documentary evidence, other than what is deemed necessary by the arbitral tribunal.”
24] The learned Counsel for the respondent submits that the claimant had received all the contract notes and the statement of account from time to time and have never disputed that the same were not received by the respondent at any point of time. It is submitted that the claimant herself had disclosed the e-mail address of her husband for the purpose of delivery of contract notes and other information by e-mail which were sent by respondent from time to time. The claimant thus, could not have made any grievance for the first time before the arbitral tribunal that no such contract notes or information came to be received by her from the respondent.
25] The learned Counsel submits that the claimant had committed fraud upon the respondent and not the respondent, as is clear from the complaint made by the said Priotosh Ghosh against the claimant and her husband which is pending. It is submitted that in view of the allegations of fraud, the learned arbitral tribunal could not have decided such issue in arbitration proceedings. In support of these submissions, the learned Counsel for the petitioner places reliance upon the judgement of Supreme Court in the case of Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd., reported in A.I.R 2011 S.C 2507 and in particular para 21, which reads thus:-
“21. The term ‘arbitrability’ has different meanings in different contexts. The three facets of arbitrability, relating to the jurisdiction of the arbitral tribunal, are as under: (i) whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the arbitral tribunal) or whether they would exclusively fall within the domain of public fora (courts). (ii) Whether the disputes are covered by the arbitration agreement? That is, whether the disputes are enumerated or described in the arbitration agreement as matters to be decided by arbitration or whether the disputes fall under the ‘excepted matters’ excluded from the purview of the arbitration agreement. (iii) Whether the parties have referred the disputes to arbitration? That is, whether the disputes fall under the scope of the submission to the arbitral tribunal, or whether they do not arise out of the statement of claim and the counter claim filed before the arbitral tribunal. A dispute, even if it is capable of being decided by arbitration and falling within the scope of arbitration agreement, will not be ‘arbitrable’ if it is not enumerated in the joint list of disputes referred to arbitration, or in the absence of such joint list of disputes, does not form part of the disputes raised in the pleadings before the arbitral tribunal.”
26] The learned Counsel further places reliance on the judgement of the Supreme Court in the case of Anil Kumar v. B.S Neelkanta, reported in A.I.R 2010 S.C 2715 and in particular para 15 thereof, which reads thus;-“15. Having examined the whole matter in the light of afore-noted principles, I am of the opinion that the petition deserves to be allowed. From the material placed on record by the parties, it appears to me that:
(i) there are disputes between the parties on the issues/claim raised by the petitioner and countered by the respondents, including whether the claim still subsists or has been extinguished as alleged by the respondents, which cannot be resolved without evidence; (ii) there is an Arbitration Agreement in Clause 41 of agreement dated 19 January 2004, to which the petitioner is a party along with the respondents. The Arbitration Agreement is in clear terms and brings within its ambit the disputes sought to be raised by the petitioner: whether there was a breach of the terms of agreement dated 19 January 2004, in as much as the petitioner failed to pump in the requisite funds in Varsha either by way of equity or otherwise, as alleged, in Varsha's letter dated 22nd August 2005, would be a matter in the realm of arbitration and this Court cannot go into that question;
(iii) the issues/claim raised by the petitioner, on a mere assertion cannot be said to be a dead one without evidence to be produced by the parties in support of and rebuttal thereto, on their respective stands, regarding rights and obligations of the parties under agreements dated 19 January 2004 and 23rd January 2004, on allotment of 74% of equity in favour of IICL and petitioner's right to nominate or being himself on the Board of Directors of Varsha; and (iv) the arbitral tribunal is competent under Section 16 of the Act to rule on its own jurisdiction, including rule on any objections with respect to existence or validity of the Arbitration Agreement, on a plea being raised before him that he has no jurisdiction.”
27] The learned Counsel also places reliance upon the judgement of the Supreme Court in the case of Venture Global Engineer v. Satyam Computer Services Ltd., reported in A.I.R 2010 S.C 3371 and in particular para 51 thereof which reads thus:-
“51. Therefore, this court is unable to accept the contention of the learned Counsel for the respondent that the expression “fraud in the making of the award” has to be narrowly construed. This court cannot do so primarily because fraud being of “infinite variety” may take many forms, and secondly, the expression “the making of the award” will have to be read in conjunction with whether the award “was induced or affected by fraud.”
28] The learned Counsel for the respondent then submits that since the claimant had not kept sufficient margin as required under the bye-laws of MCX, the respondent was entitled to square up the transactions in her account and thus, no grievance could be made by the claimant for such transactions. It is submitted that though the claimant may have been out of India during the period 4 July 2011 and 25 August 2011, she used to carry out transactions on telephone. Some of the transactions were carried out by the claimant, according to the respondent herself giving instructions in the office of the respondent. It is therefore, submitted that the award of the arbitral tribunal thus deserves to be set aside in toto.
29] The learned Counsel appearing for the claimant on the other hand submits that there could be only three ways of carrying out the trading by the claimant, i.e (i) online trading, (ii) by giving instructions on telephone to the remissier and (iii) by personal visit. The learned Counsel invited my attention to the complaint made by the claimant before the investor grievance cell and the reply of the respondent to the said complaint. It is submitted by the learned counsel that the said complaint made to the investor grievance cell by the claimant was treated as statement of facts before the arbitral tribunal. The respondents have dealt with the said complaint by treating the said complaint as statement of fact before the arbitral tribunal. The respondent, therefore, cannot be allowed to now urge that there was no statement of fact/claim before the arbitral tribunal. No such issue was even raised before the arbitral tribunal by the respondent.
30] It is submitted that in the written statement/reply filed by the respondent before the arbitral tribunal, it was pleaded by the respondent that the claimant used to give instructions on phone to the remissier or used to carry out trading by visiting the office of the respondent personally. The arbitral tribunal has rendered a finding that the respondent has not produced any record or register, though directed by the arbitral tribunal and if the same would have been produced, it would have indicated that the claimant had not visited the office of the respondent for the purpose of carrying out trading. It is submitted that similarly the respondent could have carried out the instructions of the claimant on phone only if the identification of the claimant was complete before carrying out such instructions. The respondent, however, did not produce any call records before the arbitral tribunal in support of their plea that the trading was carried out by the claimant on phone. The respondent did not produce any voice proof record of the claimant nor produced any proof to show visit of the claimant to the office of the respondent during the period March 2011 to November 2011.
31] The learned Counsel for the claimant submits that in the written statement/reply filed by the respondent before the arbitral tribunal, the respondent had placed reliance on 11 contract notes in support of the plea that the claimant had carried out such trading. It is also pleaded by the respondent that the account of the claimant was squared off in view of the claimant not paying margin money sufficiently.
32] The learned Counsel further placed reliance on bye-laws 8.4, 8.6.5 and 8.6.6 of the MCX which provide for payment of margin money and the right of the broker to close out open position of a constituent member in case of failure on the part of the constituent to comply with the call for further margin or if any payment is due by the constituent to the clearing member. By law 8.4, 8.6.5 and 8.6.6 of MCX are extracted as under:-
“8.4 Members of the Exchange shall deposit initial margin in cash or may furnish Fixed deposit or bank guarantees or such other instruments as maybe specified by the Exchange from time to time to fulfill the initial margin requirement in respect of open positions. Variation margin shall be paid only in cash or cheque, or by electronically debiting the account of the member of the exchange with the designated Clearing bank of the Exchange.”
“8.6.5 An Exchange member may close out an open position of a client when the call for further margin or any other payment due is not complied with by the client;”
“8.6.6 A clearing member may close out an open position of a constituent member when the call for further margin or any other payment due is not complied with by the constituent member;”
33] It is submitted by the learned Counsel that no a single call was made by the respondent for payment of any margin money. Pursuant to the directions of the arbitral tribunal, the respondent had filed statement showing the account of the claimant before the arbitral tribunal. Learned counsel invited my attention to the said statement which was on record before the arbitral tribunal for the period 7 March 2009 to 26 November 2011. It is submitted that there was credit balance in the account of the claimant, except on 3 dates i.e 13 July 2011, 19 July 2011 and 1 August 2011, when the claimant was admittedly out of India. The respondent was not in a position to produce any record before the arbitral tribunal as to when the respondent had made any calls for deposit of margin money, as mandatory under clause 8.6.5 and 8.6.6 of the by laws of MCX. The learned Counsel invited my attention to clause 8 of the member - constituent agreement entered into between the claimant and the respondent which also provides for payment of margin money and the right of trading member to call for margin money which provides in the event of the constituent not making any deposit of the margin money, the trading member is not allowed to make any individual trading on behalf of the constituent. Clause 8 of the member constituent agreement entered into between parties is extracted as under:-
“8. Payment of Margins: The daily margin requirement can be adjusted against the collateral maintained by the Constituter with the Member. The Member shall accept from the Constituent further order, which, if executed, will add to the open positions, only if the balance collateral is adequate to meet the initial margin on such new positions. If the balance collateral is not adequate for adjusting the daily margin requirement, the Constituent shall deposit the additional margin as required by the Member. The Constituent shall also be obliged to pay the shortfall of the daily margin, if any, on the immediate succeeding business day when the Member raises such additional margin requirement. The Constituent shall not be permitted to create any new open positions, until receipt of such additional margin.
If the Constituent defaults in paying the daily margin, the Member shall be entitled to liquidate/close out all or any of the Constituent's positions, without prejudice to the Member's right to refer the matter to arbitration. Any and all losses and financial charges on account of such liquidation/closing out shall be charged to and borne by the Constituent. The Member is permitted in its sole and absolute discretion to impose additional margin (even though not imposed by the Exchanges, the Clearing Corporation/Clearing House) and the constituent shall be obliged to fulfill such additional margin requirements.”
34] The learned Counsel has invited my attention to the contract notes produced by the respondent themselves before the arbitral tribunal and would submit that even after 13 July 2011, 19 July 2011 and 1 August 2011, the respondent had carried out large number of transactions of purchase in the account of claimant. It is submitted that if according to the respondent there was short fall of margin money and the same was not paid by the claimant in spite of calls made by the respondent, the respondent would not have carried out large number of transactions of purchase in the account of the claimant. It is submitted that on 14 July 2011, which was the first day after first alleged short fall of margin, the contract notes would indicate that there were 40 transactions of purchase and 40 transactions of sales in the account of claimant. The learned Counsel submits that the claimant did not give any instructions to carry out any such tradings in the account of the claimant. The respondent did not produce any proof of any oral instructions to show that the claimant was personally present in the office of the respondent and had carried out such transactions. The claimant had produced immigration details from the passport of the claimant before the arbitral tribunal to show that the claimant was out of India during the period from 4 July 2011 to 25 August 2011. All such transactions were, therefore, unauthorizedly carried out by the respondent and could not have been entered in the account of the claimant.
35] Insofar as the issuance of contract notes and delivery thereof raised by the respondent is concerned, the learned Counsel invited my attention to the business rules and it is submitted that the contract notes have to be not only issued by the trading member but has to be delivered within 24 hours. The trading member has to maintain the proof of delivery. The respondent, however, did not disclose any proof of delivery of any of the contract notes. The claimant had collected some of such contract notes only after the dispute arose between the parties. It is submitted that under clause 27(2) of the business rules of MCX, the trading member is under an obligation to issue contract notes in physical form unless instructed by the claimant, otherwise. The constituent can file ECN declaration. Every year two such declarations are required to be filed. The trading member has to submit a statement of account every month. The respondent has failed to produce the proof of delivery of not only the contract notes but also the statement of account. It is submitted that the claimant never submitted any ECN declaration requesting the respondent to deliver the contract notes by e.mail The respondent could not produce any such ECN declaration alleged to have been submitted by the claimant.
36] In so far as e-mail address given on the client's registration form is concerned, it is submitted by the learned Counsel that the claimant had given correspondence address in the said form. The e.mail address of the husband of the claimant was given for the purpose of correspondence and not for delivery of any contract notes. The husband of the claimant was all through out on voyage. It is the case of the claimant that the claimant had specifically requested the representative of the respondent to send all the contract notes in physical form and not on the e.mail address of her husband.
37] The learned Counsel invited my attention to the various findings of the arbitral tribunal in the impugned award. It is submitted that the respondent never applied for leading any oral or documentary evidence before the arbitral tribunal to examine any witness including Mr. Priotosh Ghosh.
38] Insofar as the rejection of substantial part of the claim made by the claimant is concerned, my attention is invited to para 26 of the impugned award in which the arbitral tribunal has rendered a finding that the claimant could not absolve herself of the knowledge of trading in her account during the period under consideration. To this extent, the respondent's allegations that the claimant did not have contact with its agent during the relevant period from 11 May 2011 to 4 July 2011 appears believable. It is submitted that the said finding of the arbitral tribunal rendered in para 26 of the award is contrary and inconsistent with the findings of the arbitral tribunal rendered in para 16 of the impugned award. On one hand the arbitral tribunal has held that the respondent had not led evidence of Mr. Priotosh Ghosh for negating the plea of the claimant and has rendered a finding by negating the submission of the respondent that the claimant did not give any written instructions for holding transactions and that the respondent had failed to prove any such instructions by her does not have legal force and appears to be without merit and on the other hand has accepted the submissions of the respondent insofar as the period from 11 May 2011 to 4 July 2011 is concerned. The learned Counsel submits that the arbitral tribunal thus, ought to have allowed the entire claim of the claimant made before the arbitral tribunal and not any part thereof.
39] The learned Counsel places reliance upon the Judgement of the Full Bench of this Court in the case of R.S Jiwani (M/S.), Mumbai… v. Ircon International Ltd., Mumbai…., reported in 2010 (1) Bom.C.R 529 and in particular 35 thereof and would submit that if this court cannot allow the claim which is rejected by the arbitral tribunal under section 34 of the Arbitration Act, this Court can pass an appropriate order under section 34(4) of the Arbitration Act by issuing directions to the arbitral tribunal to resume hearing and make an additional award insofar as inconsistent findings rendered by the arbitral tribunal in para 26 is concerned so as to eliminate the ground of challenge. In this behalf the the learned Counsel placed reliance upon para 35 of the Full Bench judgment of this Court (supra).
40] The learned Counsel for the claimant also places reliance upon the judgement of the Supreme Court in case of Som Datt Builders Limited v. State Of Kerala, reported in (2009) 10 SCC 259, in support of the plea that the court has ample powers under section 34(4) of the Arbitration Act to postpone the hearing of the arbitration petition and to direct the arbitral tribunal to resume the hearing and record reasons so as to eliminate the grounds of challenge. Reliance is also placed by the learned Counsel on paras 26 to 28 of the said judgment, which read thus:-
“26. In what we have discussed above, it cannot be said that the High Court was wrong in observing that no reasons have been assigned by the arbitral tribunal as to whether the period of completion extended by the employer for 18 ½ months was due to reasons not attributable to the claimant. However, in our view, the High Court ought to have given the arbitral tribunal an opportunity to give reasons. This course is available under Section 34(4) of the Act which reads thus:
“34. (1)-(3) * * *
(4) On receipt of an application under sub-section
(1), the court may, where ti is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.”
27. We are informed by the learned Senior Counsel for the claimant that all the three persons constituting the arbitral tribunal are available and if award is remitted to them for recording reasons, there should not be any impediment in their doing so. This course appears to us to be fair and reasonable.
28. The award under Claim 5 is interrelated to Claim
1. Objections to Claim 6 may also be re-examined by the Additional District Judge now since the petition under Section 34 is being restored to the file of that court. We, accordingly, dispose of these two appeals by the following order:
(i) The judgment of the High Court dated 3.6.2005 and the judgment dated 23.2.2005 passed by the IInd Additional District Judge, Ernakulam are set aside.
(ii) The petition (OP Arb. No. 71 of 2004) filed by the State of Kerala against the award dated 20.12.2003 is restored to the file of the IInd Additional District Judge, Ernakulam for fresh hearing and consideration of the objections in respect of Claims 1, 4-B, 5 and 6.
(iii) However, the IInd Additional District Judge, Ernakulam shall first remit the award to the arbitral tribunal for stating their reasons in support of Claims 1 and 4-B and after receipt of the reasons from the arbitral tribunal proceed with the hearing and disposal of objections.
41] The learned Counsel for the claimant distinguished the judgement of this court delivered on 21 March 2006 in the case of Gammon India v. Municipal Corporation of Gr. Bombay in Arbitration Petition No. 1 of 2006 on the ground that this court has not considered the issue whether the order under section 34(4) of the Arbitration Act can be passed also at the instance of the petitioner, who has impugned the arbitral award and on the ground that the said judgment is contrary to the judgment of Full Bench of this court.
42] The learned Counsel appearing for the respondent in rejoinder submits that the claimant ought to have examined Mr. Priotosh Ghosh or in the alternative the arbitral tribunal ought to have directed Mr. Priotosh Ghosh to remain present for the purpose of leading oral evidence.
43] It is submitted that the claimant did not dispute that the claimant had given instructions to Mr. Priotosh Ghosh or that she did not receive any contract notes. The claimant had received profits on the transactions carried out by her but had deliberately refused to bear the loss, though such transactions were carried out by the claimant. It is submitted that the claimant herself has infused further amount for the purpose of carrying out trading.
REASONS AND CONCLUSION:
44] Insofar as the submissions of the learned Counsel for the respondent that Mr. Priotosh Ghosh was a necessary party in the arbitration proceedings and without adding him, the arbitration could not be concluded is concerned, it is not in dispute that the said Priotosh Ghosh was not a party to the arbitration agreement. In my view, the said Priotosh Ghosh thus could not have been impleaded as a party to the arbitration proceedings, as necessary party or a proper party at all. There is no merit in this submission of the learned Counsel for the respondent.
45] Insofar as the learned Counsel's submission that the arbitral tribunal did not give any liberty to the respondent to cross examine the claimant and witnesses is concerned, it is matter of record that none of the parties led any oral evidence before the arbitral tribunal. Be that as it may, since the claimant did not examine any witness, including herself, there was no question of giving any opportunity to the respondent to cross examine the claimant or any witnesses.
46] Insofar as the submission of the learned Counsel that the arbitral tribunal ought to have directed the parties to lead oral evidence before the conclusion of hearing is concerned, a perusal of by-law 15.27 of MCX clearly indicates that no party is entitled, without permission of the arbitral tribunal, to insist or request to the arbitral tribunal to hear or examine the witness or receive oral or documentary evidence, other than what is deemed necessary by the tribunal. It is the matter of record that neither any party requested the tribunal to permit any of them to lead oral or documentary evidence, nor requested the tribunal to call any of the parties to lead oral evidence. The arbitral tribunal did not deem it necessary to call any of the parties to lead oral evidence. Section 19(2) and (3) of the Arbitration Act clearly provide that subject to Part I of the Act, the parties are free to agree on the procedure to be followed by the tribunal in conducting its proceedings, failing which the arbitral tribunal may subject to the said Part, conduct the proceedings in the manner it considers appropriate.
47] In my view, since the parties were governed by the bye-laws of MCX and had agreed that none of the parties shall be entitled without the permission of the tribunal to insist or request the tribunal to hear and examine witness or receive oral or documentary evidence, it cannot be urged that the arbitral tribunal did not give any opportunity to the respondent to cross examine the claimant or her witnesses.
48] Insofar as the submission of the learned Counsel for the respondent that claimant had collected and/or was delivered contract notes for all the trading carried out by her is concerned, the directives dated 30 September 2009 issued by the MCX in terms of the provisions of the Rules, bye-laws and business rules of the said exchange, informing the members about the directives issued by the Commission, makes it clear that the members shall execute the trade online only after keeping evidence of the client placing such order, which may be in the form of sound recording and shall keep evidence of having dispatched the contract notes to the client. The members are also required to keep evidence of making the payment to the client on account of the mark to market gains made by the clients.
49] The business rules of the MCX and in particular 27(2) provides that the contract notes must be delivered within 24 hours of the transaction made by and on behalf of the clients and proof of delivery of the same needs to be preserved by the member. The delivery of contract note to client must be in physical form only unless a client specifically indicates his preference for contract notes in electronic form. If any client needs electronic contract notes, he has to be provided with ECN declaration form via e.mail as per the format and procedure given at Annexure XXVII. It is further provided that such declaration has to be obtained from the client afresh before first April of every financial year by following the same procedure and the same shall be valid for that financial year only. A client can revoke the ECN facility and opt for the contract note in the physical form only by giving seven working day's notice to the member. It further provides that a detailed statement must be sent every month and proof of delivery of the same should be preserved by the member.
50] It is the case of the claimant that the claimant had not signed any such ECN form and had not made any requisition for supply of contract notes in electronic form. The claimant had collected the hard copies of some of the contract notes when the dispute arose between the parties. A perusal of the record indicates that the respondent could not produce any proof of delivery of the contract note or that the claimant had submitted any ECN form requesting the respondent to deliver contract notes in electronic form. Since the respondent broker has no complied with the directives issued by the Forward Markets Commission and also the business rules issued by the MCX and its bye-laws, the arbitral tribunal ought to have considered these mandatory provisions required to be followed by the broker and could not have accepted such transactions as valid in the account of the claimant. Since the respondent had failed to produce the proof of delivery of the contract notes and also the copy of the ECN form, no cognizance of the copies of such contract notes could have been taken by the arbitral tribunal.
51] Insofar as the submission of the learned Counsel of the respondent that there was no money claim made by the claimant or that there was no statement of facts/claim filed by the claimant and thus, there was no opportunity to deal with such claim by the respondent, is concerned, a perusal of the record indicates that the claimant had filed a complaint before the investor grievance cell against the respondent. The respondent had replied to the said complaint made by the claimant. The claimant, thereafter, filed the claim with the arbitration division of the MCX in Form No. I i.e arbitration application. In the said arbitration application, the claimant had made a claim of Rs. 27,50,000 against the respondent. Various documents were annexed to the said arbitration application.
52] A perusal of the record indicates that the claimant thereafter filed various documents such as facts date wise, evidence in support of her claim, copy of call list and several other documents for perusal of the arbitral tribunal. A perusal of the reply filed by the respondent before the arbitral tribunal clearly indicates that the respondent has considered such arbitration application filed by the claimant as the statement of facts and has dealt with the allegations made therein on merits. I am thus not inclined to accept the submissions of the learned Counsel for the respondent that there were no money claim made by the claim before the arbitral tribunal or that there was no statement of claim filed by the claimant or that the respondent could not deal with the claim properly in the arbitration proceedings and on that ground the award should be set aside.
53] A perusal of the statement of defence filed by the respondent before the arbitral tribunal indicates that it was the case of the respondent that the claimant had never disputed any trading and/or transaction in her account till 6 September 2011. According to the respondent, the account of the claimant had been running short of margin and she never made any endeavour to clear her margin, though demanded from time to time by the respondent and, therefore, the respondent had to liquidate/close out all positions of the claimant due to huge market requirement in the trading account of the claimant. In para 13 of the statement of defence it is alleged that the claimant always used to keep margin in the nature of shares and also in cash and upon satisfaction of the margin in the account, the claimant was given exposure to trade in the stock market. No unlimited exposure was given to the claimant at any point of time.
54] Pursuant to the directions issued by the arbitral tribunal, the respondent filed margin statement. The learned Counsel for the claimant invited my attention to the said statement and submitted that even if the said statement is considered, there was all through out credit balance in the account of the claimant except on three days i.e 13 July 2011, 19 July 2011 and 1 August 2011. It is the case of the claimant that the claimant was out of India during the period between 4 July 2011 and 25 August 2011. The claimant was not issued any demand for deposit and/or payment of any margin money during the said period. A perusal of the said statement of account and also the contract notes, which were brought on record by the respondent before the arbitral tribunal, clearly indicates that even if there was debit balance on 3 dates during the period between 4 July 2011 and 25 August 2011, the respondent has carried out large number of not only sale transactions but also purchase transactions allegedly on behalf of the claimant. The respondent failed before the tribunal to produce any proof of delivery of contract notes or any proof of demand of any margin money. The respondent also did not produce any proof of voice record during the period between March 2011 and November 2011 in support of the plea that the claimant had given any oral instructions to carry out any transactions from abroad. The claimant had produced copies of the passport along with the immigration record for the said period. The respondent however, could not produce any record of the personal visits of the claimant to its office for the purpose of carrying out any transaction in the office of the respondent.
55] Bye-law 8.2.2 clearly provides that every member of the Exchange executing transactions on behalf of the client shall collect from the clients the margins specified from time to time, against their open positions within such time as may be prescribed by the Relevant authority. By-law 8.5 provides that failure to pay any variation margin may lead to the exchange members being deactivated/suspended and declared as defaulters by the exchange. The relevant authority may also take such other measures including disciplinary actions, against the defaulting members as it may deem fit. Bye-law 8.6.1 provides that no clearing member shall directly or indirectly enter into any arrangement or adopt any procedure for the purpose of evading or assisting in the evasion of the margin requirements prescribed under the bye-laws, rules and regulations or any orders issued thereunder. The clearing member has to account for the margin deposits received from the constituent.
56] Bye-law 8.6.5 clearly provides that an exchange broker may close out an open position of a client when the call for further margin or any other payment due is not complied with by the client. Byelaw 8.6.6 provides that a clearing member may close out an open position of a constituent member when the call for further margin or any other payment due is not complied with by the constituent member. Bye-law 8.7 provides that every clearing member shall collect from constituent members, with whom he has an agreement to provide clearing and settlement services as per these bye-laws, all such margins as specified by the relevant authority on the transactions executed by constituent members for clearing and settlement.
57] A perusal of record indicates that the respondents have failed to prove that any demand was made by the respondent on the claimant for deposit of any margin money, even if there was a debit balance in the account of claimant on a particular date. On the contrary, the records produced by the respondent itself indicates that the respondent has carried out large number of transactions, including purchase transactions, in the account of the claimant on the date of debit balance. It is thus clear that the claimant would not have given any such instructions to the respondent for carrying out such transactions on behalf of the claimant.
58] In my view the respondent has failed to produce any proof of any instructions from the claimant to carry out any such transactions or that the transactions were carried out by the claimant herself online or that she was personally present to carry out such transactions in the office of the respondent and also having failed to prove that the respondent had demanded any margin money, which the claimant had failed to deposit and, therefore, the respondent was justified in squaring off of the transactions, standing in the account of claimant. In my view, since the respondent has carried out the transactions without demanding any margin money from the claimant and without any instructions from the claimant though there was debit balance, all such transactions carried out by the respondent, without any instructions and without any demand for margin money, were unauthorised and no such debit could have been made in the account of claimant in respect of such unauthorised transactions. A trading member who has carried out any such transactions in breach of bye-laws of MCX cannot make any claim against the constituent and/or debit any amount to the account of the claimant in respect of such unauthorised transactions.
59] A perusal of arbitral award indicates that the arbitral tribunal has rendered a finding of fact that there was a credit balance of Rs. 20 lakhs in the account of the claimant on 10 May 2011 and, therefore, it was reasonable to conclude that the “Hold” instruction was issued by the claimant to Mr. Priotosh Ghosh on or immediately after 10 may 2011. The arbitral tribunal has also rendered a finding that there was no evidence produced by the respondent and that the respondent had not questioned the entries in the telephone bills filed by the claimant for the period 20 March 2011 to 26 June 2011, showing that there had been no record of any telephone talks between her and the respondent. It is also held by the arbitral tribunal that the respondent had expressed inability to produce any visitor's book to substantiate the allegations that the claimant used to visit its office frequently to instruct its agent Mr. Priotosh Ghosh about her trading.
60] Insofar as the issue of margin money is concerned, it is held by the arbitral tribunal that there was credit balance for the all the period, except on three dates. The respondent had admittedly not issued any call money notice to the claimant to make good the short fall on those three dates and on the other hand, had done brisk trading on those dates in her account, without any margin, which indicates that the allegations about trading in her account without her consent, can hardly be brushed aside. The arbitral tribunal also rendered a finding after perusal of the copy of the passport, showing that claimant was out of India from 5 July 2011 till 24 August 2011 and there had been no communication between the parties and the respondent was not able to make out a case that the claimant had carried out online trading from abroad. The respondent had carried out 332 transactions during the concerned period out of which 116 were new sauda and remaining were sale of transactions, either before or after expiry date.
61] During the said period, the turnover amount of debit was to the extent of Rs. 50,62,355 and turnover of credit was to the extent of Rs. 44,88,687.93 resulting in the net amount of Rs. 6,12,761.01, including tax alleged to be due from the claimant. It is held that the respondent was not able to show the authority of transactions on 25 November 2011 which was after the period when the claimant had formally registered her complaint about unauthorised trading in her account on 7 September 2011.
62] In my view, the learned Counsel for the respondent could not demonstrate from various findings on record contained in paras 12 to 25 of the award as to how the same are perverse. In my view, since the findings of fact recorded by the arbitral tribunal are not perverse, this court cannot interfere with such findings of fact under section 34 of the Arbitration Act.
63] Insofar as the judgement of the Supreme Court in the case of Venture Global (supra) relied upon by the learned Counsel for the respondent on the issue that the tribunal could not have gone into the allegations of fraud in the arbitration proceedings, is concerned, in my view, the respondent cannot be allowed to urge this plea for the first time in these proceedings. The issue of arbitrability on this ground was not raised by the respondent before the tribunal nor any such ground is raised in the petition. In my view, even if an allegation of fraud would have been made by the respondent before the arbitral tribunal, there would not be any bar against the arbitral tribunal from deciding the issue of fraud in the arbitration proceedings. Therefore, the reliance placed upon the judgement of Supreme Court in the case of Venture Global (supra) by the learned Counsel appearing for respondent is misplaced.
64] Insofar as the judgement of the Supreme Court in the case of Anil Kumar (supra) relied upon by the learned Counsel for the respondent is concerned, even the said judgement is of no assistance to the respondent at all.
65] Insofar as the judgement of the Supreme Court in case of Booz Allen and Hamilton (supra) relied upon by the learned Counsel for respondent on the issue of fraud alleged by the claimant is concerned, in my view the said judgement does not lay down any law that even if there are any allegations of fraud, the arbitral tribunal cannot decide any such allegations of fraud. Be that as it may, the respondent not having raised any such issue before the arbitral tribunal and in this petition, the respondent cannot be allowed to urge this plea across the bar. The said judgement thus, is of no assistance to the respondent.
66] In my view, there is thus no merit in any of the submissions made by the learned Counsel for the respondent insofar as Arbitration Petition No. 854 of 2012 filed by the respondent is concerned.
67] The learned Counsel for the claimant invited my attention to the various findings rendered by the arbitral tribunal in favour of the claimant and also to the finding rendered in para 26 of the impugned award and would submit that the findings rendered by the arbitral tribunal in paras 12 to 25, though are rendered in favour of the claimant, the tribunal has rendered a findings which is inconsistent and contrary to the findings in para 26 of the impugned award. It is submitted that based on such perverse finding, the arbitral tribunal has rejected substantial part of the claim made by the claimant. It is submitted that thus there is non application of mind on the part of the tribunal in rendering such inconsistent finding in respect of part of the award and consequently rejecting substantial part of the claim made by the claimant. The learned Counsel submits that this Court in the Arbitration Petition No. 420 of 2013 filed by the claimant impugning that part of the award shall set aside that part of the award rejecting the claim made by the claimant and shall allow the entire claim.
68] In the alternative, the learned Counsel for the claimant submits that since the tribunal has not considered the relevant bye-laws, business rules and directives in the impugned award while rejecting the substantial part of the claim and since the findings rendered by the tribunal in para 26 are inconsistent with the findings rendered in the earlier paras 12 to 25 of the award, this court has ample power under section 34(4) of the Arbitration Act to pass an order to direct the arbitral tribunal to resume the arbitral proceedings and to give an opportunity with a view to eliminate the grounds of challenge under section 34 of the Arbitration Act. He submitted that no separate application is required to be made by the claimant for remitting the matter back for this limited purpose under section 34(4) of the Arbitration Act. In support of these submissions, he placed reliance on the judgment of the Full Bench of this Court in case of R.S Jiwani (supra) and in particular para 35 thereof which reads thus;-
“35. The Supreme Court was primarily stating the principles which have been kept in mind by the courts while interfering with the award of the arbitral tribunal that it was to outline the supervisory role of the courts within the ambit and scope of Section 34. It is true that the court like a court of appeal cannot correct the errors of arbitral tribunal. It can set aside the award wholly or partially in its discretion depending on the facts of a given case and can even invoke its power under Section 34. It is not expected of a party to make a separate application under Section 34(4) as the provisions open with the language “on receipt of application under Sub-section (1), the court may…” which obviously means that application would be one for setting aside the arbitral award to be made under Section 34(1) on the grounds of reasons stated in Section 34(2) and has to be filed within the period of limitation as stated as reply under Section 34(3). The court may if it deems appropriate can pass orders as required under Section 34(4). In other words, the provisions of Section 34(4) have to be read with section 34(1) and 34(2) to enlarge the jurisdiction of the court in order to do justice between the parties and to ensure that the proceedings before the arbitral tribunal or before the award are not prolonged for unnecessarily. In our humble view, the Division Bench appears to have placed entire reliance on para 52 by reading the same out of the context and findings which have been recorded by the Supreme Court in subsequent paragraphs. It is also true that there are no pari materia provisions like Sections 15 and 16 of the Act of 1940 in the 1996 Act but still the provisions of section 34 read together, sufficiently indicate vesting of vast powers in the court to set aside an award and even to adjourn a matter and such acts and deeds by the arbitral tribunal at the instance of the party which would help in removing the grounds of attack for setting aside the arbitral award. We see no reason as to why these powers vested in the court should be construed so strictly which it would practically frustrate the very object of the Act. Thus, in our view, the principle of law stated by the Division Bench is not in line with the legislative intent which seeks to achieve the object of the Act and also not in line with accepted norms of interpretation of statute.”
69] Insofar as the submission of the learned Counsel for the claimant that this Court shall allow the claim rejected by the arbitral tribunal is concerned, it is held by the Supreme Court that under section 34 of the Arbitration Act, the court cannot correct the errors of the arbitral tribunal. It can set aside the award wholly or partly. In my view, the court cannot correct an error and cannot make an award under section 34 of the Arbitration Act. This court has no power to allow the claims made by the claimant which were rejected by the arbitral tribunal. I am thus not inclined to accept the submissions of the learned Counsel for the claimant that this court can grant the claims which were rejected by the arbitral tribunal.
70] Insofar as the submission of the learned Counsel for the claimant that, the tribunal having ignored the bye-laws, business rules and the provisions of law while rejecting part of claim is concerned and that the tribunal has rendered an inconsistent finding, in my view, the claimant is entitled to invoke the provisions of Section 34(4) of the Act for remission of the part of the award, insofar as the claim is rejected by the tribunal ignoring bye-laws, business rules and provisions of the Act and having rendered inconsistent findings and the arbitral tribunal after hearing parties, shall make a supplementary award to that effect.
71] In my view, the petitioner is not required to make any separate application for invoking the provisions of Section 34(4) of the Act. The application filed under section 34(1) of the Arbitration Act by the petitioner for setting aside the award itself is sufficient to pass an appropriate order under section 34(4) of the Arbitration Act by this Court.
72] In my view, the arbitral tribunal is entitled to take such steps in the light of the provisions of sub-section 4 of section 34 as may be necessary to eliminate the grounds for setting aside the award insofar as rejection of the part of the claim made by the claimant is concerned. I consider it appropriate to adjourn the proceedings in Arbitration Petition No. 420 of 2013 for a period of four months to enable the arbitral tribunal to resume the proceedings and to proceed with the matter in accordance with law. I, therefore, pass the following order:-
(i) The Arbitration Petition No. 854 of 2012 is dismissed. No orders as to costs;
(ii) The Arbitration Petition No. 420 of 2013 is adjourned for a period of four months to enable the arbitral tribunal to resume the proceedings and to proceed with the matter in accordance with law in so far as rejection of the part of the claim made by the claimant is concerned.
(iii) The arbitral tribunal may make a supplementary award within three months from the date of communication of this order by way of an authenticated copy of this order by any of the parties to the proceedings.
(iv) If supplementary award is made early by the arbitral tribunal, parties would be at liberty to apply for early hearing of the Arbitration Petition No. 420 of 2013.
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