KEYNOTE CAPITALS LTD. vs ECO RECYCLING LTD.

By this petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (for short “the Arbitration Actâ€), the petitioner has

impugned the arbitral award passed by the second arbitral tribunal dated 16th May 2014 and also challenged the arbitral award dated 3rd September

2013 passed by the first arbitral tribunal- the arbitral tribunal of the National Stock Exchange of India Ltd. Some of the relevant facts for the purpose

of the deciding this petition are as under:-

The petitioner is a “Trading Member†registered with the National Stock Exchange of India Ltd. and has been such a Trading Member since

30th July 1996 in the cash segment and since 5th October 2000 in the derivative segment and till date. The earlier name of the respondent was

“Infotrek Syscom Ltd.â€​ which was changed to Eco Recycling Ltd. on 25th November 2011.

On 11th December 2010, the petitioner and the respondent entered into a detailed Contract (Client Registration) and executed several

agreements/writings including Member Client Agreements in respect of the transaction to be carried out in the National Stock Exchange and Bombay

Stock Exchange.

Mr.B.K.Soni is the Chairman and Managing Director of the respondent. It is the case of the petitioner that the said Mr.Soni had actively involved in

trading in the equity shares, derivatives, futures, options and securities and was representing the respondent. The said Mr.Soni used to primarily Co-

ordinate with the employees of the petitioner namely Mr.Amit Bhanushali, Mr.Vishal Jadhav, Ms.Rimple Nagda and Mr.Purshottam Jadhav. The

respondent in the course of its trading, had a Demat account with the petitioner which had shares/ securities. The said shares/securities along with

other shares/securities of the respondent were lying in the margin Demat account maintained by the petitioner.

It is the case of the petitioner that the said 'Client Margin Stock' was to be adjusted in accordance with the Bye laws of the Exchange and the

petitioner had authority to appropriate the Client Margin Stock towards its margin obligations and/or to sell the same to set-off the shortfall, if any, in

accordance with Bye law 3.10(a) read with relevant Exchange Circulars prescribed for such mechanism and further read with Clause 5 of the

Member Client Agreement, Clauses 2, 4 and 5 of the Policies and Procedures and Clause 12 of the Contract between the petitioner and the

respondent and also under the Power of Attorney executed in favour of the petitioner by the respondent.

It is the case of the respondent that the petitioner had been carrying out unauthorised transactions in the account of the respondent since 16th

October 2012 in addition to other authorised trades on behalf of the respondent. It is the case of the respondent that on 12th February 2013, the

respondent had received an email at 17.09 p.m. from the petitioner claiming daily margin from the respondent to the extent of Rs.1, 28, 94,852.18. The

respondent replied to the said email on the same date at 18.57 p.m. alleging that the respondent had failed to understand the approach and strategy of

the petitioner and that its entire portfolio was at stake with the new incremental exposure. The respondent requested the petitioner to credit its account

with an equal amount of loss incurred.

On 13th February 2013, the said email sent by the respondent was responded to by Mr.Purshottam Jadhav by his email requesting for a meeting to

explain the position of margin utilization to the respondent. There was however no response to the email dated 13th February 2013 sent by the said

Mr.Purshottam Jadhav. It is the case of the petitioner that the said Mr.B.K. Soni of the respondent had pressurized the employees of the petitioner to

address such email to the respondent assuring that the account of the respondent would be in credit by the end of February, 2013.

It is the case of the petitioner that the said Mr.Soni further pressurized Mr.Pushottam Jadhav of the petitioner to address an email on 28th February

2013 under a threat of filing a police complaint against him thereby forcing him to admit the so called unauthorised trades allegedly carried out by the

petitioner in the account of the respondent.

On 1st March 2013, the petitioner forwarded a margin shortfall intimation to the respondent indicating a shortage in exchange margin at Rs.91,

61,325.24 as on 28th February 2013 and requested the respondent to pay the said amount. The petitioner informed the respondent that if the said

amount was not paid and if the petitioner's reports to the exchange about such short position of the respondent, the exchange would levy a penalty on

the respondent against the said shortage. The respondent sent an email dated 1st March 2013 at 1.35 p.m. to the petitioner and denied having taken

any F & O position with the petitioner in last one year except a few transactions in TTML and Reliance. The respondent disputed the margin

statement and alleged that in fact there must be some credit balance because of sale of certain stocks. The respondent called upon the petitioner to

correct the status immediately and reverse the unauthorised transactions.

It is the case of the petitioner that Mr.Soni along with one other person came to the office of the petitioner on 2nd March 2013 and again

unreasonably and arbitrarily pressurized the petitioner to settle the matter by making payment of an amount of Rs.35, 00,000/(being the approximate

amount of brokerage charged and interest thereon) and threatened that if the same was not done, he would dispute the trades as being unauthorised.

It is the case of the respondent that Mr.Pushottam Jadhav who was the Senior Officer of the petitioner met Mr.B.K.Soni and without pressure,

threat or fear offered a handwritten confessional statement inter alia accepting unauthorised trades since 10th August 2012 and enclosing a statement

dated 1st March 2013 consisting of three pages, accepting the liability of the petitioner for the alleged unauthorised trades done in the account of the

respondent. In the said confessional statement, the said Mr.Pushottam Jadhav has allegedly admitted that trades from 10th August 2012 in the account

of the respondent were unauthorised. The said confessional statement was countersigned as witness by Mr.Amit Bhanushali and Mr.Vishal Jadhav

who were also the employees of the petitioner.

On 2nd March 2013, the respondent sent an email and withdrew the Power of Attorney executed in favour of the petitioner with immediate effect.

The respondent sent another email on the same day at 4.26 p.m. enclosing a scanned copy of the letter revoking the Power of Attorney.

It is the case of the respondent that on 2nd March 2013, the petitioner sent an email at 9.55 p.m. threatening to square off all the outstanding

position of the respondent on 4th March 2013 if it was not cleared by the respondent at 10.15 a.m. The petitioner thereafter squared off the

outstanding position of 28th February 2013 between 4th March 2013 and 6th March 2013 and sold the shares between 5th March 2013 to 12th March

2013 and created an illegitimate loss by exercising the Power of Attorney which had been revoked since 2nd March 2013.

The respondent filed a complaint against the petitioner under Section 154 of the Code of Criminal Procedure on 8th March 2013 through its

advocates, to the Additional Commissioner of Police, Economic Offences Wing (EOW), Mumbai alleging unauthorised trades by the petitioner in the

account of the respondent. The respondent also filed its complaint against the petitioner to the Investor Service Cell (ISC) of the National Stock

Exchange of India Ltd. The petitioner denied the allegations made by the respondent before the ISC.

It is the case of the petitioner that on 6th March 2013, the petitioner realised that as a part of a pre-planned strategy, Mr. B.K.Soni, by exercising

undue influence and coercion, obtained written communications from Mr.Pushottam Jadhav, one of their employees which seemed to suggest that the

trades made in the account of the respondent during the period 10th August 2013 to 1st March 2013 were unauthorised. When the concerned

employees were confronted by the petitioner, they admitted that they were called to the office of the respondent by Mr.B.K.Soni on 1st March 2013

and were made to sign a document dated 1st March 2013. They also confirmed that the said Mr.Pushottam Jadhav was pressurized to issue an email

dated 28th February 2013 under a threat of filing a police complaint against him.

The said Mr.Pushottam Jadhav thereafter filed an affidavit narrating the circumstances, under which the communications dated 13th February

2013, 28th February 2013 and 1st March 2013 were made. It is the case of the petitioner that the said Mr.Pushottam Jadhav was suspended for a

month from service. Subsequently in July 2013, the Retail Broking Business of the petitioner was transferred to LKP Securities Limited and thus the

said employees had ceased to be employees of the petitioner and became an employee of LKP Securities Limited.

It is the case of the petitioner that till 28th February 2013, the value of the Client Margin Stock of the respondent was sufficient to cover the

shortfall in respect of the trades made on behalf of the respondent. However after 28th February 2013, the petitioner was constrained to make a call

for the additional margin. Since the respondent expressed its unwillingness to deposit the margin money, the petitioner was required to square off the

position in view of such default on the part of the respondent. The petitioner submitted relevant Statement of Accounts, Contract Notes for the

disputed trade date of 28th February 2013 along with proof of delivery and a compact disc containing phone recording between Mr.Soni of the

respondent and the dealers of the petitioner on 28th February 2013 with the National Stock Exchange of India Ltd. in response to the complaint made

by the respondent. The petitioner replied to all complaints made before the National Stock Exchange of India Ltd. and furnished various documents in

support of their rival contentions.

On 8th May 2013, the respondent filed a Statement of case before the sole arbitrator (first arbitral tribunal of the National Stock Exchange) inter

alia praying for recovery of Rs.4,48,55,092/- along with interest thereon @18% p.a. from 4th March 2013 till payment and/or realisation and applied

for reversal of unauthorised trades. The petitioner filed its Statement of Defence on 4th July 2013 denying the claim made by the petitioner. On 18th

July 2013, the respondent filed a rejoinder to the Statement of Defence filed by the petitioner. Both the parties filed further pleadings before the first

arbitral tribunal. On 3rd September 2013, the first arbitral tribunal rendered an award directing the petitioner to pay a sum of Rs.2, 35, 16,348/- to the

respondent along with interest @10% p.a. w.e.f. 4th March 2013 till date of payment.

On 3rd October 2013, the petitioner filed a Statement of Case before the second arbitral tribunal challenging the decision of the first arbitral

tribunal along with its counter claim. On 28th November 2013, the petitioner filed an application before the second arbitral tribunal for leading

evidence. On 15th January 2014, the respondent filed a reply to the Statement of Case and counter claim filed by the petitioner. The respondent filed

additional documents in the form of affidavits of Mr.B.K.Soni and other employees, photographs of Mr.Purshottam Jadhav, Mr.Amit Bhanushali and

Mr.Vishal Jadhav taken on 1st March 2013 and summary of outgoing calls along with copies of Airtel bills etc. made to the petitioner by Mr.B.K.Soni.

The petitioner was given inspection of some of the documents by the respondent. The petitioner filed its written submissions and additional written

submissions before the second arbitral tribunal. The respondent also filed written submission before the second arbitral tribunal. On 16th May 2014,

the second arbitral tribunal confirmed the decision of the first arbitral tribunal and dismissed the counter claim of the petitioner. Both these awards are

impugned by this petition filed under Section 34 of the Arbitration and Conciliation Act, 1996.

Ms.Rajni Iyer, learned senior counsel for the petitioner invited my attention to various paragraphs of the pleadings filed by both the parties along

with correspondence and compilation of documents, various findings of both the arbitral tribunals, various provisions of Regulations, Agreements

entered into between the parties and also the circulars issued by the Stock Exchange and also the authorities from time to time providing requirements

of margin money and various other provisions required to be complied with by a Trading Member and also the Constituents.

Learned senior counsel for the petitioner made the following submissions:-

(a) The respondent had entered into various agreements with the petitioner authorising the petitioner to execute the transactions on electronic platform

as per their instructions. The respondent was registered for executing online trades directly but chose to execute their trade’s offline through the

office of the petitioner. The respondent was never a client/constituent to whom Portfolio Management Services were ever offered by the petitioner. It

was not the case of the respondent before the arbitral tribunal or in the correspondence or in their pleadings that there was any Portfolio Management

Agreement executed by and between the petitioner and the respondent. The provisions of the agreement required the respondent to deposit with the

petitioner certain amount of cash/security as and by way of a margin to provide a cushion to the broker against any losses occasioned by trades

undertaken as per the instructions of the respondent. Such margin requirement may be mix of security/shares which was the only 'Portfolio' that the

respondent had deposited with the petitioner. Types of trades undertaken which are the subject matter of these proceedings were purchase/sale of

equity stocks, equity futures, equity options, index futures-nifty futures, bank nifty futures etc. and index options-nifty call/put, bank nifty call/put etc.

(b) The transactions carried out or executed through the account of the respondent by the petitioner were pursuant to and as per the instructions of the

respondent. In so far as the oral telephonic instructions from the respondent were concerned, the petitioner had recorded conversation tapes and the

CD containing such conversations along with few relevant transcripts, which were produced by the petitioner on record before the arbitral tribunal.

The respondent had knowledge of all the transactions executed through the account of the respondent by the petitioner and had not disputed them

contemporaneously and now being disputed as unauthorised or illegal. The receipt of 85 physical Contract Notes generated in respect of the

transactions executed during the period in question i.e. from 16th October 2012 to 28th February 2013 was not disputed. The daily margin statements

were electronically generated and forwarded, at the end of each trading day to the respondent during the said disputed period.

(c) Under the Power of Attorney and running account authorisation documents executed by the respondent, the petitioner was authorised to maintain

running accounts for the respondent and to debit these securities and funds from running accounts from time to time and to make payment in securities

and funds to exchanges/clearing corporations/other receiving parties to settle the trades/dealings of the respondent. The petitioner was authorised to

receive securities/funds in settlement of trades/dealings of the respondent which was allowed to be kept as the securities and monies with the

petitioner and to make credit entries for the same in running accounts of securities and funds maintained by the petitioner.

(d) The petitioner was also authorised and was given discretion and valuation to treat the securities and funds lying to the credit in running accounts as

margin/collateral for dealings and trading of the respondent. The petitioner was authorised to retain the requisite securities/funds towards such

obligations and also to retain the funds expected to be required to meet margin obligations for next trading days calculated in the manner specified by

the exchanges. Various similar powers were conferred upon the petitioner under the Power of Attorney including the power to transfer the securities

held in the account of the respondent towards recognised exchanges related margin delivery obligations arising out of trades executed by and between

the parties on the recognised exchange through the petitioner. Similar authority was conferred upon the petitioner under various agreements executed

between the parties.

(e) Reliance is placed on various provisions of the contract entered into between the parties providing for mode and manner for raising of dispute in

respect of the transaction. Power of Attorney executed by the petitioner in favour of the respondent is coupled with interest.

(f) Reliance is placed on Bye-law 3 of Chapter X of the National Stock Exchange of India Ltd. which provides for rights and obligations of the

members and constituents regarding margin. It provides that the trading member shall have right to demand an initial margin in cash and/or securities

from its constituent before executing an order and/or to stipulate that the constituent shall make a margin deposit or furnish additional margin according

to changes in market prices. The constituent shall when from time to time called upon to do so forthwith provide a margin deposit and/or furnish

additional margin as required under these Bye laws, Rules and Regulations. Reliance is also placed on clause 3.10(a) of the Regulations (F & O

Segment) framed by the National Stock Exchange of India Ltd. which provides for rights of Trading Members to demand from its constituents the

Margin Deposit which the member has to provide. Reliance is also placed on clause 3.10(b) of the Regulations (F & O Segment) framed by the

National Stock Exchange of India Ltd. which permits the Trading Member to close out transactions by selling or buying the derivatives contracts in

case of any default on the part of the constituents.

(g) Under clause 6.14 of the Regulations (F & O Segment), Every Trading Member of the F & O Segment of the Exchange is required to maintain

the records of its business including margin call made and met. Reliance is placed on the circulars issued by the National Stock Exchange of India Ltd.

on 14th December 2011 to all Trading Members and Clearing Members clarifying the requirement of margin collection and reporting by members to

SEBI circular dated 10th August 2011. All Trading Members and Clearing Members were informed that the said circular dated 14th December 2011

would supersede the circulars dated 30th June 2009 and 11th February 2008. (h) Annexures to the said circular provides for the scenarios under

which margin collected would be considered as adequate. Clause 3 of the said circular dated 14th December 2011 provides that units of mutual funds

in dematerialized form, who’s NAVs are available and which could be liquidated readily with appropriate hair cut as the case may be Government

securities and Treasury bills in electronic form with appropriate hair cut as the case may be. Clause 4 thereof provided that free and unencumbered

balances (funds and securities) available with the member of respective client in different segments of the exchange. Clause 9 provides for value of

securities (with appropriate hair cut) in dematerialized form traded on the National Exchanges, which are specifically not declared as illiquid securities.

It is further provided in the circular that in case false reporting of margins is observed, penalty would be levied on the members.

(i) Reliance is also placed on the circular dated 30th June 2009 issued by the National Stock Exchange of India Ltd., Inspection Department to all

Trading Members and Clearing Members thereby issuing clarification on Margin collection and reporting. The Members are permitted to collect the

margin i.e. liquid securities actively traded on the National Exchanges which are specifically not declared as illiquid securities. It is clarified in the said

circular that the value of such securities would be computed at the closing rate on T-1 day, reduced by the applicable haircut based on the VaR

margin rate applicable for the security in the Capital Market Segment.

(j) Reliance is also placed on the circular dated 20th February 2008 issued to the Clearing Members and Trading Members regarding Margin collection

from constituents. It was clarified that the list of approved banks for issue of bank guarantees/ fixed deposit receipts for the purpose of margin

payment by clearing members were specified by NSCCL from time to time and the same was applicable in respect of margin collection by clearing

members and trading members from trading members/constituents.

 (k) Reliance is placed on the circular dated 11th February 2008 prescribing the norms in order to ensure transparency at the client level. It was

prescribed that SEBI had made it mandatory for members to send margin related information to their clients on a daily basis which information may

include total margin deposit placed by the client upto day T-1 (with break-up in terms of cash, FDRs, BGs and securities), margin status (balance with

member/due from the client) at the end of day T. The said circular was made effective with effect from 18th February 2008. The circular dated 20th

December 2012 issued by the National Securities Clearing Corporation Limited to all Members/ Custodians/PCM was not at all applicable to the

transactions between the Trading Members and the constituents but was applicable to the transactions between the Trading Members and the

National Stock Exchange of India Ltd. The arbitral tribunal however has erroneously placed reliance on the same circular dated 20th December 2012

in the impugned award.

(l) The petitioner used to send daily margin statement to the respondent in accordance with the provisions of Bye laws, Regulations and Contract

entered into between the parties from time to time providing therein the details of the Exchange and the Market Segment, applicable Margin, Ledger

Balance, Approved Shares at date-1 rate, Total Deposit, Utilised Margin, Details of Excess or Shortfall in the Margin and the Calls in respect of

margin. The petitioner had also maintained the record of the dispatch in its register and also maintained the Proof of Deliveries duly acknowledged by

the respondent and issued by the courier company namely Professional Couriers who are reputed couriers carrying on their business across India. The

sample copies of margin statements forwarded by the petitioner to the respondent were tendered across the bar which was forming part of the record

before the arbitral tribunals.

(m) Reliance is placed on various emails exchanged between the parties and also the emails exchanged between the respondent and some of the

employees of the petitioner. It is admitted by the respondent that it continued to trade on a representation alleged to have been made by the employees

of the petitioner during the disputed period. The respondent had also admitted the receipt of ledger statement upto 31st December 2012. The entries in

the said ledger statement clearly showed trading in F & O by the respondent. The respondent however illegally took a stand by email that it had not

carried out any trading in F & O Segment except TTML and Reliance. In the police complaint filed before the police, the respondent contended that

the respondent had not entered into any derivative transactions and that they were not into speculative trades at all. In rejoinder filed before the

arbitral tribunal, the respondent had admitted F & O trades but falsely contended that it had never received Contract Notes for the same.

(n) The respondent had admitted the receipt of the Daily Margin Statements from the petitioner. The respondent admitted to have continued the trade

after 12th February 2013 however contended that the same was bonafide on the representation of the employee of the petitioner. The stand taken by

the CFO who filed affidavit on behalf of the respondent on 20th February 2013 before the arbitral tribunal stating that as on 30th September 2012,

there was an outstanding balance of Rs.89,16,476.97 which was cleared by payment of Rs.85,00,000/- on 5th October 2012 was false and

inconsistent. The respondent had admitted all trades in Reliance and TTML. During the relevant period i.e. 16th October 2012 to 1st March 2013,

there were only 9 trades between Reliance and TTML. The Contract Notes in respect of those 9 trades had mention of nifty and bank nifty

transactions. The respondent however never disputed those entries in the Contract Notes. The respondent through their unique ID and password had

accessed the server of the petitioner and were obtaining information relating to their trading and were well informed about the said transactions.

(o) In so far as the emails exchanged between the parties and also between the respondent and some of the employees of the petitioner are

concerned, it is submitted that emails dated 12th February 2013 and 28th February 2013 were emails of convenience sent by and to 3 employees

from/to the personal email-ids of the 3 employees and not on the office email id of the petitioner. The alleged confessions of one of the 3

employee’s post the decision of the respondent taken to terminate their agreement with the petitioner is clearly not only a self-serving exercise

planned by the respondent. All such employees were when confronted with such emails and the alleged confessional statement on 1st March 2013,

had refuted those allegations by subsequent affidavit filed by Mr.Purshottam Jadhav, Mr.Vishal Jadhav and Mr.Amit Bhanushali which were

produced on record before the arbitral tribunals. The said so called confessional statement was contrary to large number of documents such as Daily

Margin Statements, Contract Notes, Ledger Accounts, Internet access of account along with the proofs of deliveries and also the affidavit dated 6th

March 2013 filed by Mr.Pushottam Jadhav explaining the circumstances, under which, the purported confession statement was given along with his

police complaint.

(p) Three affidavits dated 22nd November 2013 of Mr.Pushottam Jadhav and Mr.Vishal Jadhav and affidavit dated 26th November 2013 of Mr.Amit

Bhanushali much after they had left the services of the petitioner clearly explained the circumstances, under which, the statements were made by

them. In support of the submission that unauthorised confessions, if any, made by any of the employees made by the petitioner were without authority

and were not binding upon the petitioner, the learned senior counsel placed reliance on the judgment of this Court in the case of Mahesh Daulatram

Chandgrani Vs. Religare Securities Ltd. (Trading Member of National Stock Exchange) reported in (2013) 1 Bom C R 188.

(q) Reliance is placed on certain averments made in the statement of claim filed by the respondent before the first arbitral tribunal and more

particularly paragraph 13 alleging that the unauthorised trades were carried on since 16th October 2012 and the consequent unauthorised selling of

shares of Rs.4,48,55,092/-. In the affidavit-in-rejoinder filed before the first arbitral tribunal, the respondent denied that the Contract Notes for F & O

trades were ever sent by the petitioner to the respondent. It was alleged that the respondent were engaged in cash market as well as F & O trades.

The physical contract notes were sent by the petitioner for cash segment but never for F & O trades and thus the courier receipts sent by the

petitioner could not be relied upon. The respondent denied that Rs.1, 69, 50,000/- was towards margin mark-to-mark and delivery purchase. The said

payment was towards pay in obligation and the contract notes for the same were also available.

(r) It is submitted that the stand taken by the respondent in the affidavit-in-rejoinder was totally contrary to the stand taken by the respondent before

the first arbitral tribunal. The respondent had also admitted the availability of the contract notes with the respondent. The petitioner in the statement of

defence had annexed large number of documents showing the huge transactions between the parties for margin money paid by the respondent from

time to time. The arbitral tribunal has totally overlooked these documents in the impugned awards.

(s) Strong reliance is placed on the Financial Statement of Annual Report of the respondent for the year 2012-13. It is stated in the said report for the

year ended 31st March 2013 of the respondent that the respondent had been dealing with the petitioner for its share transactions. It was alleged

therein that a substantial portion i.e. 20, 56,234 number of shares amounting to Rs.4, 48, 55,092/- out of the investment portfolio maintained by the

respondent in demat form with the petitioner had been appropriated by the petitioner against the loss booked by the petitioner on account of

transactions in the F & O segment carried out by the petitioner on its own without any authorisation of the respondent. (t) However, in paragraph 40

of the said report, it is clearly admitted that the respondent was in the business of E-waste Management and Recycling, Trading in stock of shares,

Derivative, Future and options and Speculation business. It is submitted that the stand taken by the respondent before the arbitral tribunal that except

Reliance and TTML, there was no other transaction for F & O trades is ex facie contrary and inconsistent with each other.

(u) The complaint made to the Additional Commissioner of Police by the respondent on 8th March 2013 alleging that the respondent did not do any

transactions of speculative nature but entered into long position with an object to take delivery of those securities as per the availability of cash is also

ex facie contrary and inconsistent with the Annual Report filed by the respondent themselves during the relevant period.

(v) The respondent had admitted in the arbitral proceedings that office of the respondent had admittedly logged into the server of the petitioner 14

times to access information regarding its account through the unique client log in ID provided to it from the computers located in the office of the

respondent. The respondent did not deny the contents of the recorded oral telephonic conversations between the respondent and the employees of the

petitioner and transcript thereof in Compilation II, Vol. I in the affidavit dated 20th Feb 201 filed by Mr.Soni before the second arbitral tribunal.

(w) My attention is invited to the findings and observations made by the arbitral tribunals that though the second arbitral tribunal recorded the finding

that the respondent was getting contract notes and receipt of the contract notes are not disputed and thus the respondent was aware that trades were

taking place in their account, on the other hand, inconsistent finding is rendered that there were about 629 contracts on the files and there was heavy

trading in nifty/bank nifty in future and option segment of 'NSE' and thus the said transactions were without authority of the respondent. The finding of

the second arbitral tribunal that to great extent the trades were in the nature of Portfolio Management Services which were carried out without

executing mandatory documents is totally perverse.

(x) It was not the case of the respondent that any trades were in the nature of Portfolio Management Services. The finding rendered by the second

arbitral tribunal is totally inconsistent, contradictory and contrary to Regulation 3.10 and the other provisions of the the bye laws and regulations

providing for rights of the Trading Member to ask for margin money and to square off transactions in case of default of constituents. The finding of

the second arbitral tribunal is also ex facie contrary to various circulars dealt by the National Stock Exchange. No penalty was ever levied against the

petitioner for not collecting or less collecting the margin money from the respondent. The second arbitral tribunal as well as the first arbital tribunal

have given weightage to the alleged confessional statements made by Mr.Pushottam Jadhav which were subsequently withdrawn by him by filing an

affidavit. The said Mr.Pushottam Jadhav could not have admitted alleged unauthorised transactions even if carried out by him, if any, on behalf of the

petitioner.

(y) The finding of the second arbitral tribunal that though the respondent had knowledge of the trade taking place but the same was without

understanding as to whether they were making profit or loss in Future and Option and thus the respondent kept mum as no money was demanded and

had relied on some assurances alleged to have been given by the members and thus is not responsible for such transaction is perverse and shows

patent illegality. Finding of the second arbitral tribunal that the petitioner had not collected cash margin required in future and option trading since

October 2012 is also perverse. This finding of the second arbitral tribunal is also contrary to the admission of the respondent on record.

(z) My attention is invited to paragraph 26 of the award of the second arbitral tribunal in support of the submission that on one hand, the arbitral

tribunal has while deciding the appeal has held that the arbitral tribunal had ignored confessional statements of the employee, police complaint and

report of the police and affidavits filed in the matter and on the other hand, has dismissed the proceedings and upholding the award made by the first

arbitral tribunal which had rendered an award in favour of the respondent mainly on the basis that there was alleged confessional statements made by

the employees of the petitioner. The award shows patent illegality and inconsistency. Various findings rendered by the second arbitral tribunal is

contrary to the admission of the respondent. The proof of deliveries of the contract notes was not denied by the respondent.

(aa) The second arbitral tribunal did not give any opportunity to the petitioner to deal with a new case made out by the arbitral tribunal that trades are

in the matter of Portfolio Management Services. None of the circulars issued by the SEBI and National Stock Exchange of India Ltd. relied upon by

the petitioner have been considered by any of the arbitral tribunals. Various authorities given to the petitioner to square off the position in case of non-

deposit of margin money has been totally overlooked by both the arbitral tribunals. The Annual Report of the respondent admitting that the respondent

was carrying on F & O transactions and Speculation business has also been overlooked by both the arbitral tribunals.

(bb) Though the arbitral tribunal has considered the alleged confessional statements made by Mr.Pushottam Jadhav, the complaint made by the

respondent before the Additional Commissioner of Police did not consider the affidavits explaining the circumstances, under which, the purported

confession statements were given by the employees of the petitioner. The Additional Commissioner of Police, Economic Offences Wing (EOW),

Mumbai has already closed the case against the petitioner. Though the petitioner had applied for an opportunity to cross-examine the respondent and

though the same was not opposed by the respondent, the second arbitral tribunal had rejected the application of the petitioner for an opportunity to

cross-examine the respondent. The second arbitral tribunal had also rejected the counter claim made by the petitioner without recording any reasons.

(cc) Several judgments relied upon by the petitioner before the arbitral tribunals have not been even referred in the impugned awards. In support of

the submission that both the arbitral awards show patent illegalities and perversity, show contradictions and inconsistencies, are in violation of the

circulars issued by the SEBI and the National Stock Exchange of India Ltd. and also in violation of contracts entered into between the parties and thus

deserve to be set aside, learned senior counsel placed reliance on the following judgments: -

i) Associate Builders Vs. Delhi Development Authority (2015) 3 SCC 49 (paragraphs 19 to 45) ; ii) Oil and Natural Gas Corporation Ltd. Vs. Western

Geco International Ltd. (2014) 9 SCC 263 (paragraphs 34, 35, 38 to 40); iii) Maharashtra State Electricity Distribution Co. Ltd. Vs. Vijal Electricals

Ltd. -2015 (3) Bom C R 2011 (paragraphs 41 to 43, 46, 55, 59 and 60); iv) Seemaben Vs. Motibhai K Patel Manguben â€" 2015 (3) Bom C R 288

(paragraphs 88, 89, 90, 92, 98 and 99);

v) Sahara Hsopitality Ltd. Vs. Hotel Co. of India Ltd. in Arbitration Petition (L) No.810 of 2011 delivered on 8th May 2011 (paragraphs 58, 80, 93,

100 and 101).

(dd) In support of the submission that the entire awards rendered by both the arbitral tribunals are based on non-appreciation of evidence/

submissions/documents produced by the parties and in support of the submission that the arbitral tribunal could not have permitted the respondent to

accept few transactions out of several transactions in such statement of accounts and that the agent cannot acknowledge the liability on behalf of the

principal under the alleged implied authority, learned senior counsel placed reliance on the judgment of this Court in the case of Kotak Securities Ltd.

Vs. Prakash S. Khanolkar and Anr. in Arbitration Petition (L) No.643 of 2002 delivered on 30th July 2013 and in particular paragraphs 14 to 18

thereof and in the case of Maheshbhai Hiralal Champneira Vs. Kotak Securities Ltd. -2016 SCC OnLine Bom 11100.

(ee) Learned senior counsel for the petitioner also placed reliance on the following judgments :-

i) Anand Rathi Share and Stock Brokers Ltd. Vs.Jayshree Sanjay Sonawane in Arbitration Petition (L) No.33 of 2009 delivered on 24th July 2009 and

in particular paragraphs 7 to 9 thereof, ii) Shilpa Stock Broker Pvt. Ltd. Vs. Shravankumar Banshraj Pandy in Arbitration Petition (L) No.342 of 2009

delivered on 20th June 2012 and in particular paragraphs 12 to 16 thereof, iii) Manjula Arvind Thakkar Vs. Sharekhan Ltd. in Arbitration Petition (L)

No.1035 of 2010 delivered on 27th February 2012 and in particular paragraph 6 thereof, iv) Kotak Securities Ltd. Vs.Gaurav Goel and Anr. in

Arbitration Petition (L) No.310 of 2007 delivered on 31st August 2012 and in particular paragraphs 21 to 28 thereof.

(ff) Since the respondent had accepted the receipt of all the contract notes and other relevant documents pertaining to the transactions and did not

raise any objection when such documents were received, the respondent could not have been permitted to raise objection in respect of such

transactions belatedly.

Mr.Makhija, learned senior counsel for the respondent, on the other hand, invited my attention to some of the pleadings, documents, findings

rendered by both the arbitral tribunals and also to some of the provisions of the contract entered into between the parties and circulars issued by the

SEBI and the National Stock Exchange of India Ltd. He relied upon the clauses 1.3.6, 1.3.26, 1.3.39, 2.2.1, 2.2.2, 2.2.6, 2.2.7, 2.2.10, 2.2.16, 3.4, 3.4.1,

3.4.2, 3.4.8, 3.6.1, 3.6A, 3.8, 3.9, 3.10, 3.10(b), 3.11, 4.2.1, 4.2.1(c), 4.4.11, 4.4.13, 4.5.2, 4.5.3, 4.5.3(d) (e) (g) and (h), 5.5, 6.1.4 and 6.1.4(xiv) of the

Regulations (F & O Segment) providing for margin requirements and rights, duties and obligations of the Trading Members.

Learned counsel for the respondent made the following submissions:-

(a) Both the arbitral tribunals after considering the pleadings, documents and the provisions of law including the circulars issued by the SEBI as well as

the National Stock Exchange of India Ltd. have rendered various findings of facts which cannot be gone into by this Court in this petition filed under

Section 34 of the Arbitration and Conciliation At, 1996. This Court cannot re-appreciate the evidence considered by both the arbitral tribunals. Though

the respondent had claimed much more amount on the basis of the loss suffered by the respondent, the first arbitral tribunal had substantially reduced

the claim of the respondent and had taken a reasonable view in the matter. The second arbitral tribunal has rightly upheld the said view taken by the

first arbitral tribunal and thus question of allowing the counter claim made by the petitioner before the second arbitral tribunal did not arise. No such

counter claim was made before the first arbitral tribunal.

(b) No margin money was demanded by the petitioner from the respondent. The shares and securities given to the petitioner by the respondent were

not towards the requirement of margin money but were kept in a demat account which was opened by the respondent to the petitioner. The entire

claim made by the respondent against the petitioner was based on the transaction dated 12th February 2013 onwards. He relied upon the emails

exchanged between the petitioner and respondent and the employees of the petitioner. He submits that all the employees of the petitioner were

authorised under the bye-laws, regulations framed by the SEBI and the National Stock Exchange of India Ltd. and were entitled to enter into

transactions on behalf of the petitioner under such authority. Such employees were authorised even to accept the emails on behalf of the petitioner.

The petitioner did not file any complaint with the Stock Exchange or with the police regarding threats alleged to have been given by Mr.B.K.Soni of

the respondent at any point of time. No such complaint was even made by such employees with any of such authorities till 6th March 2013.

(c) Mr.Pushottam Jadhav and other employees had accepted in the email exchanged with the respondent that all such transactions were on behalf of

the petitioner. Such employees had also signed confessional statements accepting the liability on behalf of the petitioner. Such statements made by the

employees were binding on the petitioner, such employees being authorised to carry out such transactions.

(d) Mr.Pushottam Jadhav had never withdrawn any such confessional statements or emails sent by him from time to time to the respondent on behalf

of the petitioner. The petitioner was thus responsible for such transactions and was liable to reimburse for the loss suffered by the respondent. The

respondent had denied the unauthorised transactions by various emails and asked the petitioner to credit the account of the respondent by equal

amount of loss incurred by the respondent. Since the respondent had not given any shares and securities towards margin money, question of exercising

any authority by the petitioner to dispose of such securities to recover the alleged shortfalls of margin money did not arise. The respondent did not take

any F & O position in last one year except few transactions with the petitioner in TTML and Reliance.

(e) The respondent had denied the allegation of the petitioner that all the contract notes and confirmation were sent to the respondent. Due to

unauthorised transactions unilaterally carried out by the petitioner or its employees, the respondent was compelled to cancel the Power of Attorney

executed in favour of the petitioner.

(f) The respondent vide email dated 2nd March 2013 had subsequently instructed the petitioner not to continue further transaction on the ground that

the earlier transactions carried out by the petitioner were unauthorised. The confessional statements dated 1st March 2013 signed by Mr.Pushottam

Jadhav was also witnessed by two other employees of the petitioner and thus it could not be said that all the employees of the petitioner were in

collusion with Mr.B.K.Soni of the respondent. The affidavit of Mr.Pushottam Jadhav alleging coercion or threat from Mr.Soni was of no significance

whatsoever. It was not the case of the petitioner that any money was due to the petitioner from the respondent and thus shares and securities of the

respondent were sold on that ground. The first arbitral tribunal had only allowed the claim on the basis of the value of the shares sold by the petitioner

illegally and not the entire amount as claimed by the respondent. The first arbitral tribunal had rightly considered the acceptance of admission of the

liability by the employees of the petitioner on behalf of the petitioner. Such findings of facts were rightly not interferred with by the second arbitral

tribunal and also cannot be interferred with by this Court under Section 34 of the Arbitration and Conciliation Act, 1996. The competency and the

authority of Mr.Pushottam Jadhav has not been challenged by the petitioner.

(g) In so far as the finding rendered by the second arbitral tribunal is concerned, the second arbitral tribunal has also considered the correspondence

exchanged between the parties and other documents relied upon by both the parties and has rightly rendered a finding that the transactions carried out

by the petitioner were unauthorised, were in the nature of Portfolio Management Services and without authority. The authorised employees of the

petitioner themselves called for a meeting with the respondent and thus no question of drawing any inference about threats given by the respondent

arises.

(h) In so far as the alleged obligation of the respondent to pay margin money or the allegation that respondent has to deposit the shares and securities

in lieu of the margin money is concerned, it is submitted that since October 2012, the petitioner had never demanded any margin money was made till

12th February 2013 when an illegal demand of margin money was made in the sum of Rs.1, 28, 94,852/-. The petitioner had illegally transferred the

shares and securities of the respondent lying in Demat account to the account of the petitioner first and thereafter sold such shares and securities

without any authority and instructions from the respondent.

(i) The second arbitral tribunal has rightly rejected the evidence collected by the petitioner after carrying out unauthorised trade in the account of the

respondent. The petitioner had no defence of any nature whatsoever on merit of the claim made by the respondent. Both the arbitral tribunals have

considered all the defences raised by the petitioner and have rendered various findings of facts which cannot be interferred with by this Court under

Section 34 of the Arbitration and Conciliation Act, 1996.

(j) The second arbitral tribunal has also considered the circulars issued by the National Securities Clearing Corporation Limited relied upon by the

respondent rightly which were applicable to the transactions carried out by the petitioner and was thus rightly considered.

(k) Learned counsel for the respondent placed reliance on the judgment of the Supreme Court in the case of National Highways Authority of India

Vs.M/s. ITD Cementation India Limited - 2015 (5) ALL MR 484 (S.C.) and in particular paragraph 20 in support of the submission that it is for the

arbitrator to decide the construction of the terms of a contract and that the Court while considering a challenge to an arbitral award does not sit in

appeal over the findings and decisions unless the arbitrator construes the contract in such a way that no fair minded or reasonable person could do.

Both the arbitral tribunals in this case, have rendered a reasoned award and have interpreted the terms of the contract. This Court cannot substitute

the possible interpretation of the arbitral tribunal by another interpretation.

(l) Reliance is placed on paragraphs 16, 17, 32 to 34 and 52 to 56 of the judgment of the Supreme Court in the case of Associate Builders (supra) in

support of the submission that the finding of fact rendered by the arbitral tribunal cannot be interferred with by the Court under Section 34 of the

Arbitration and Conciliation Act, 1996. Reliance is also placed in this Court in case of Ropa Plastics Pvt. Ltd. Vs. IPN Packaging Pvt. Ltd., 2014 (3)

Mh.L.J. 150 and in particular paragraphs 16 and 21 thereof on the same issue. Learned counsel distinguishes the judgment of the Supreme Court in

the case of Oil and Natural Gas Corporation Ltd. Vs. Western Geco International Ltd. (supra) and other judgments referred to and relied upon by the

learned senior counsel for the petitioner.

(m) Learned counsel for the respondent also placed reliance on the copies of two other arbitral awards decided by other arbitral forum against the

petitioner in support of the submission that the petitioner has not paid the constituents in those matters also and were directed to be paid by the arbitral

tribunals in those matters.

Ms.Iyer, learned senior counsel for the petitioner in rejoinder distinguishes those two awards on the ground that those awards are not binding on

this Court and also on the ground that the facts before the arbitral tribunal in those matters were totally different. The petitioner has already challenged

one of those awards referred to and relied upon by the respondent.

Learned senior counsel strongly placed reliance on the margin statements which according to the petitioner were served upon by the respondent

from time to time which would clearly indicate that the margin money was deposited by the respondent not only in the form of money but also in the

form of shares before and after 12th February 2013. The petitioner had also called upon the respondent to pay the deficit margin money which the

respondent failed. The petitioner also placed reliance on the proof of deliveries of contract notes which were duly received by the respondent from

time to time.

It is submitted that the circulars relied upon by the petitioner would clearly indicate that the margin money required to be deposited by the

respondent could not be only in cash but could be by way of shares, securities, bank guarantees and other securities. The emails sent by the

respondent after 1st March 2013 were admittedly not sent to the official Id of the petitioner but were deliberately sent to the employees of the

petitioner and without any copy to the petitioner. The respondent failed to explain in the affidavit as to why the emails were sent at the personal email

Id of the employees of the petitioner and not to the petitioner. The employees cannot bind the employer of their personal deeds which were without

authority of the petitioner or otherwise.

Learned senior counsel also placed reliance on the circular dated 26th September 2017 which is made applicable w.e.f. 1st January 2018 which

circular is issued for prevention of unauthorised trading by the stock brokers. Reliance is once again placed on clause 3.10 of the Regulations (F & O

Segment) of the National Stock Exchange of India Ltd. and the definition of the 'Authorised Person' defined under clause 1.3.6 of the said

Regulations. There is difference between the liquid and illiquid securities under the circulars issued by the National Stock Exchange of India Ltd. and

the SEBI. The margin money statements sent by the petitioner from the respondent from time to time showing the details of the securities furnished by

the respondent towards margin money, the margin money appropriated by the petitioner and shortfalls therein would also disclose the types of

securities offered by the respondent in conformity with the Bye-laws, Regulations and Contracts entered into between the parties and also the

circulars issued by the SEBI as well as the National Stock Exchange of India Ltd. Learned senior counsel distinguishes the judgments relied upon by

Mr.Makhija, learned counsel for the respondent.

REASONS & CONCLUSIONS:-

This Court shall first decide the issue as to whether the demand for margin made by the petitioner upon the respondent was in accordance with the

provisions of the Bye-laws, Regulations of the National Stock Exchange of India Limited, various circulars issued by Securities & Exchange Board of

India (SEBI) and in accordance with the agreements entered into between the parties and if the same was in conformity with those provisions. This

Court will also consider the issue as to whether under those provisions, the respondent had furnished the margin money partly by way of deposing the

shares and securities in addition to other securities with the petitioner and if so whether the petitioner could have sold those securities so as to adjust

the sale proceeds thereof towards payment of deficit margin money by the respondent.

Regulations 3.9 of the National Stock Exchange of India Limited provides for margin requirements required to be complied with by a Trading

Member / Participant and to deposit a margin with F. & O. Segment of Exchange / Clearing Corporation / Clearing Member in the manner and to the

extent specified by F & O Segment of the Exchange /

Clearing Corporation. It provides that whenever a margin is payable by a Participant, it shall pay such margins directly to the Clearing Member, unless

otherwise directed by the F & O Segment of Exchange / Clearing Corporation.

Regulation 3.10 of the National Stock Exchange of India Limited provides for margin deposit from the constituents with the Trading Members. It is

provided that the Trading Members must demand from its constituents the Margin Deposit which the member has to provide under these Trading

Regulations in respect of the business done by the Members for such constituents. The Trading Members shall buy and/or sell derivatives contracts on

behalf of the constituent only on the receipt of margin of minimum such percentage as the Relevant Authority may decide from time to time, on the

price of the derivatives contracts proposed to be purchased, unless the constituent already has an equivalent credit with the Trading Member. The

Trading member may collect higher margins from constituent, as he deems fit. The Trading Member shall obtain a written undertaking from the

constituents that the latter shall when called upon to do so forthwith from time to time provide a Margin Deposit and/or furnish additional Margin as

required under these Rules and Regulations in respect of the business done for the constituent by and/or as agreed upon by constituent with the

Trading Members concerned. The said regulation further provides that the Trading Member shall demand from his constituents the amounts arising in

respect of daily settlement in accordance with the Clearing Corporation Regulations for the business done by the Members on behalf of such

constituents or such higher amounts, as the Trading Member deems fit.

Regulation 3.10(b) provided that in case of non-payment of daily settlement by the constituents within the next trading day, the Trading Member

shall be at liberty to close out the transactions by selling or buying the derivatives contracts, as the case may be, unless the constituent already has an

equivalent credit with the Trading Member. The loss incurred in this regard, if any, shall be met from the margin money of the constituent. The said

regulation further provides that in case of open purchase position undertaken on behalf of constituents, the Trading Members shall be at liberty to close

out transactions by selling derivatives contracts, in case the constituent fails to meet the obligations in respect of the open position within next trading

day for the execution of the full contract or within next trading day of the contract note having been delivered, unless the constituent already has an

equivalent credit with the Trading Member. The loss incurred in this regard, if any, shall be met from the margin money of the constituent.

It is further provided that in case of open sale position undertaken on behalf of the constituents, the Trading Member shall be at liberty to close out

the transactions by effecting purchases of derivatives contracts if the constituent fails to meet the obligation in respect of the open position within next

trading day of the transaction having been executed on the F & O Segment of the Exchange for the concerned settlement period. Loss on the

transaction, if any, shall be deductible from the margin money of the constituent.

Regulation 3.11 empowers the Relevant Authority to prescribe the mode, method or manner in which the premium shall be collected by the trading

member from the constituent. Regulation 6.1.4 provides that every Trading Member of the F & O Segment of the Exchange shall maintain various

records relating to its business for a period of five years, including the order book of the constituent reflecting margin call made and met.

Bye-law 3 of Chapter-X provides that a trading member shall have the right to demand from its constituent the margin deposit he has to provide

under these Bye Laws, Rules and Regulations in respect of the business done by it for such constituent. A trading member shall also have the right to

demand an initial margin in cash and/or securities from its constituent before executing an order and/or to stipulate that the constituent shall make a

margin deposit or furnish additional margin according to changes in market prices. The constituent shall be called upon to do so forthwith and provide a

margin deposit and/or furnish additional margin as required under these Bye Laws,Rules land Regulations in respect of the business done for him by

and/or as agreed upon by him with the trading member concerned.

A circular dated 14th December, 2011 issued by the National Stock Exchange of India Limited to all the Trading Members and Cleaning Member

thereby issuing a clarification to the margin collection and reporting provides that by the said circular, the earlier circulars issued by the Stock

Exchange on 30th June, 2009 and 11th February, 2008 respectively were superseded. It is provided in the said circular that the constituent was

allowed to furnish the bank guarantees, fixed deposits towards margin, issued by approved banks and discharged in favour of the member, units of the

mutual funds in dematerialized form, free and unencumbered balances i.e. funds and securities available with the member of the respective clients in

different Segments of the Exchange etc., value of securities in dematerialized from traded on the National Exchanges, which are specifically not

declared as illiquid securities.

The circular dated 28th February, 2008 issued by the National Stock Exchange of India Limited provided a list of approved securities and

applicable haircut and also the list of approved banks for issue of the bank guarantees / bank deposit receipts for the purpose of margin payment of the

Cleaning Members.

Insofar as the circular dated 20th December, 2012 issued by the National Securities Cleaning Corporation Limited relied upon by the respondent is

concerned, such circular is issued by the Stock Exchange to all the members/custodial/PCOM applicable to the members of the Stock Exchange

providing for permissible limits for securities as collaterals which circular was relied upon by the second arbitral tribunal while rejecting the appeal filed

by the petitioner and rejecting the counter claim. A perusal of the aforesaid circulars and also various provisions of the agreements entered into

between the parties clearly indicates that the respondent who was the constituent, was permitted to provide various shares, securities, fixed deposits,

bank guarantees as set out in various circulars issued by the National Stock Exchange of India Limited towards its obligation to deposit margin money

with the petitioner who is a trading member.

A perusal of the record clearly indicates that the respondent had furnished various securities with the petitioner towards its obligation to deposit

sufficient margin money. The petitioner had furnished such margin money statement from time to time to the respondent. Some of such margin money

statements have been produced on record by the petitioner before this Court, which were also forming part of the record of the arbitral proceedings

before the two arbitral tribunals. Mr.Makhija, learned counsel appearing for the respondent could not dispute the contents of such margin money

statement showing the amount of the margin money by way of securities deposited by the respondent with the petitioner and after appropriating those

securities, the remaining amount payable by the respondent to the petitioner.

It is not the case of the respondent that the respondent had paid any other amount towards the margin money for any transaction carried out by

the petitioner on behalf of the respondent at any point of time. It is also not the case of the respondent that the respondent had deposited any other

amount other than what was reflected in those margin money statements produced by the petitioner for consideration before the arbitral tribunal and

before this Court. I am thus not inclined to accept the submission of Mr.Makhija, learned counsel for the respondent that the respondent had never

furnished or deposited any margin money with the petitioner by way of shares, securities reflected in the margin money statements.

The second arbitral tribunal however, has erroneously placed reliance on the circular dated 20th December, 2012 issued by the National Securities

Cleaning Corporation Limited which provided for the obligation of the trading members towards the National Securities Cleaning Corporation Limited

for deposit of the margin money. The said circular was ex-facie not applicable in respect of the requirement of the deposit of margin money by the

constituent with the trading member. The impugned award of the second arbitral tribunal placing reliance on such circular dated 20th December, 2012

which was applicable only to the trading members qua their obligation to deposit the margin money with the National Securities Clearing Corporation

Limited shows nonapplication of mind and is totally illegal. Both the arbitral tribunals had totally over looked and ignored various circulars produced by

the petitioner for its consideration and also various provisions of the agreements entered into between the petitioner and the respondent providing

clearly an obligation of the respondent to deposit the margin money in cash or any securities etc while allowing the claims made by the respondent.

The circulars issued by the National Stock Exchange of India Limited from time to time were binding not only on the parties to the arbitration but also

upon the arbitral tribunals. In my view, both the arbitral awards are passed disregarding the provisions of the contract and various circulars issued by

the Stock Exchange which were binding and are thus in conflict with the public policy.

It is not disputed by the respondent that if there was any shortfall in depositing the margin money by the respondent with the petitioner in

compliance with the agreements entered into between the parties and also in compliance with the Regulations, Bye-laws and various circulars issued

by the National Stock Exchange of India Limited prescribing for such requirement, the petitioner had right to square off the transactions and to realize

the shortfall in the margin money. In my view, the petitioner was thus justified in dealing with those shares and securities which were kept as margin

money by the respondent in favour of the petitioner when the respondent had committed default in depositing the shortfall of the margin money with

the petitioner when demanded.

The question that now arises for consideration of this Court Court is whether there is any merit in the allegations of the respondent that large

number of transactions from 12th August, 2013 onwards carried out by the petitioner or its employees in the account of the respondent were totally

unauthorized and without any instructions from the respondent. This Court shall also consider as to whether any of the emails exchanged between the

employees of the petitioner with the respondent regarding the alleged unauthorized transaction or the alleged confessional statements made by few

employees of the petitioner admitting the alleged unauthorized transactions and also the alleged liability of the petitioner towards the respondent were

binding on the petitioner or not.

Mr.Makhija, learned counsel for the respondent led emphasis and pressed strong reliance on few emails sent by Mr.P.M. Jadhav and also on the

alleged confessional statements sent by Mr.P.M. Jadhav and witnessed by two other employees of the petitioner allegedly admitting the liability of the

petitioner in favour of the respondent.

In support of the submission that the employees who had exchanged various emails with the respondent were also authorized to carry on

transactions with the respondent to admit and acknowledge the transaction and the liability on behalf of petitioner, Mr.Makhija, placed reliance on

some of the Regulations and Bye-laws issued by the Stock Exchange. Regulation 1.3.6 of Regulations (F & O Segment) provided that the authorized

person means a person being an individual, registered partnership firm or company as defined under the Companies Act, 1956 who is recognized as

such by the Exchange and who is employed whether through a contract of employment or otherwise by a Trading member/Participant for

remuneration expressed in terms of money or capable of being so expressed and gets such remuneration directly or indirectly from the trading

member or a Participant for any activity relating to the trades done and executed on the F & O Segment of the Exchange.

Regulation 2.2.1 provides that the trading members and the participants shall be entitled to appoint, with the approval of the F & O Segment of the

Exchange, authorized persons and approved users to operate the trading workstations. Regulation 2.2.2 provides that the authorized person cannot

collect any commission or any amount directly from the Clients, he introduces to the trading member, who appoint him.

However, he may receive a commission or any such amount from the Trading Member who appointed him as provided under Regulation 1.3.6. Each

approved user has to be given a unique identification number through which he shall have access to the NEAT system.

Regulation 2.2.10(a) provides that only persons who are registered as Trading Members and Participants in accordance with provisions of the

Bye-laws, Rules and Regulations of the Exchange or are agents of Trading Members, for whom an application has been made to the Exchange by the

Trading Members in accordance with the format specified by the Relevant Authority of the Exchange from time to time, may be approved as Users.

A perusal of the award rendered by the second arbitral tribunal (Appellate Bench) indicates that the second arbitral tribunal has held that the

respondent had admitted that they had indulged in F & O trades only in TTML and Reliance and that too few in numbers. It is further held that

however looking either way of sheer numbers or volumes/turnover in the account, it was crystal clear that the same were not done by the respondent.

There were about 629 contracts on the files. If one goes to the contracts then one finds that there was heavy trading in Nifty/Bank Nifty in Future and

Option Segment of the National Stock Exchange. All the trades were in the Nifty and Bank Nifty and trades in TTML and Reliance were stray trades

and 99% trades were in Nifty and Bank Nifty.

Though the arbitral tribunal has held that there was no dispute that the respondent had received contract notes and receipt of the contract notes

were not in dispute and that the respondent was thus aware that the trades had taken place in their account, it is held that to great extent the trades

were in the nature of Portfolio Management Services and the same were rendered without executing mandatory documents as per requirement of

SEBI. Though it was not the case of the respondent that there was any trade in the nature of Portfolio Management Services nor the same was part

of the agreement between the parties, the second arbitral tribunal has rendered such finding beyond the pleadings and contrary to the agreement

entered into between the parties. The award shows patent illegalities.

Though on one hand the second arbitral tribunal has held that the respondent was fully aware of trade taking place in their account and had full

knowledge thereof, on the other hand, a finding is rendered that the said transactions were without understanding as to whether they were making

profit or loss in Future and Option and thus the respondent kept mum as no money was demanded and had relied on some assurances given by the

member that there will be return on investment and thus in this scenario, the trades would remain unauthorised. In my view, this finding of the second

arbitral tribunal is totally perverse. Since the respondent was fully aware of the transactions carried out by the petitioner in their account and did not

raise any objection at any point of time and at least within a reasonable period, when such transactions were carried out, the arbitral tribunals could not

have considered such transactions as unauthorised on the premises that the transactions were without understanding of the respondent as to whether

they were making profit or loss in Future and Option.

A perusal of the award rendered by the second arbitral tribunal indicates that the arbitral tribunal has rendered a finding that since October 2012,

the petitioner had not asked for cash margin required in Future and Option trading and if such cash margin would have been demanded, the constituent

would have come to know as to what was in effect their liability or risk to what extent they were exposed. This finding of the arbitral tribunal is ex

facie perverse and contrary to the admitted facts on record. The petitioner had produced large number of margin money statements before the arbitral

tribunals and also before this Court followed by emails demanding margin money. The respondent had not disputed before this Court or before the

arbitral tribunals that no such margin money statement was served upon respondent by the petitioner.

Such margin money statement admittedly reflected the deposit of various securities furnished by the respondent to the petitioner in lieu of the

margin money. The petitioner had given credit of all such amount of margin money given by way of securities by the respondent and had demanded

shortfalls after giving credit of the said amount to the respondent. The arbitral tribunal has totally overlooked and ignored the regulations, bye-laws and

the provisions of the agreement entered into between the parties clearly providing that the constituent was permitted to deposit the margin money not

only in cash but also by way of shares and securities.

Reliance placed by the second arbitral tribunal on the circular which provided for obligation to deposit margin money by the trading members with

the National Securities Clearing Corporation Limited shows total non-application of mind on the part of the second arbitral tribunal.

A perusal of the record indicates that the respondent had claimed different period of disputed transactions from time to time. In the original

proceedings filed by the respondent, it was alleged that the disputed transactions were pertaining to the period from 11th October 2012 to 28th

February 2013 and at another stage, it was alleged that the disputed trades were from 16th October 2012 to 12th February 2013 and once again the

period was changed between 12th February 2013 and 28th February 2013. Despite such inconsistencies and contradictions in the stand taken by the

respondent, both the arbitral tribunals allowed the claims made by the respondent.

In so far as few emails exchanged between the employees of the petitioner and the respondent are concerned, it is clear that these emails were

sent after the disputed transactions were carried out. None of those emails were sent by the employees of the petitioner from the official email ID of

the petitioner but were sent from their personal email ID. The respondent also had admittedly sent those emails to the employees of the petitioner at

their personal email ID address. Even copies of those emails sent by the respondent to the employees of the petitioner were not sent to the petitioner

at its official email ID.

Both the arbitral tribunal placed heavy reliance on these emails sent by the employees. Though those employees were admittedly in the

employment of the petitioner during the period when the transactions were carried out and the securities of the respondent were sold to recover the

deficit margin money, the respondent could not point out any authority alleged to have been granted in favour of those employees by the petitioner to

admit any of the disputed transactions or the alleged liability of the petitioner in favour of the respondent towards the alleged losses suffered by the

respondent arising out of those transactions. Admittedly Mr.Pushottam Jadhav had when confronted with the demand made by the respondent based

on such emails sent by him and the alleged confessional statements signed by him and countersigned by two other employees as witnesses,

Mr.Pushottam Jadhav had filed an affidavit placing the facts on record alleging that the said emails and the alleged confessional statements were

signed by him due to coercion and threats of Mr.B.K.Soni of the respondent.

The second arbitral tribunal though in paragraph 26 of the impugned award has recorded that the said tribunal had ignored the confessional

statements of the employees, police complaint and the report of the police and affidavit filed in the matter, both the arbitral tribunals had considered the

alleged confessional statements made by the employees of the petitioner and also the emails sent by such employees allegedly admitting the

unauthorised transaction and the alleged liability of the petitioner towards the respondent. The award shows total nonapplication of mind and

perversity.

Both the arbitral tribunal have totally ignored the contents of the Financial Statement of Annual Report of the respondent for the year 2012-13

stating that the respondent had been dealing with the petitioner for its share transactions. The respondent was in the business of E-waste Management

and Recycling, Trading in stock of shares, Derivative, Future and options and Speculation business. Both the arbitral tribunal however rendered

contrary and perverse finding that the respondent was carrying on the F & O trades only in TTML and Reliance and no other transaction in F & O

trades.

This Court in the case of Mahesh Daulatram Changrani (supra) has held that the confession of employee filmed on a national holiday, displays

undue influence and pressure on the employees of the petitioner. Any material collected after the transaction cannot be used to challenge the said

transaction. In this case also admittedly the alleged confessional statements made by the employees and the emails sent from the personal ID of the

employees of the petitioner to the respondent authorising unauthorized transaction and acknowledgement of the liability of the petitioner was after

carrying out those transactions to the knowledge of the respondent and thus the same could not have been relied upon by the arbitral tribunals or the

respondent. The principles of law laid down by this Court in the case of Mahesh Daulatram Changrani (supra) apply to the facts of this case. I am

respectfully bound by the said judgment.

This Court in the case of Kotak Securities Ltd. Vs. Prakash S. Khanolkar & Anr. (supra) has held that acknowledgement of liability cannot be

made under alleged implied authority given to the agent on behalf of the principal. This Court adverted to the judgment of the Supreme Court in the

case of Lakshmirattan Cotton Mills Company

Limited Vs. Aluminium Corporation of India Limited, reported in AIR 1971 SC 1482 in the said judgment. This Court has held that the arbitral tribunal

could not have permitted the constituent to accept few transactions out of several transactions reflected in the statement of accounts. If the arbitral

award is based on non-appreciation of evidence, submissions and documents produced by the parties, the same can be set aside under Section 34 of

the Arbitration and Conciliation Act, 1996.

In my view, the arbitral tribunals thus could not have allowed the claim of the respondent based on such alleged confessional statements obtained

by the respondent without proving the authority of such employee to send such emails and to sign such confessional statements thereby acknowledging

the alleged liability of the principal. The principles of law laid down in the said judgment would squarely apply to the facts of this case. I am

respectfully bound by the said judgment.

It is not in dispute that the respondent had given power of attorney in favour of the petitioner empowering them to do all transactions and in case

of failure on the part of the client to discharge its liability as per the ledger, the petitioner was authorised to recover the debit balance by selling the

stock and/or squaring off the position. This Court in the case of Manjula Arvind Thakkar Vs.Sharekhan Ltd. (supra) has accepted such arguments on

the part of the trading member and has interferred with the award. The principles of law laid down in the said judgment would apply to the facts of

this Court.

This Court in the case of Shilpa Stock Broker Pvt. Ltd. Vs. Shravankumar Banshraj Pandey (supra) has held that the client/ constituent cannot be

permitted to accept few transactions out of several transactions reflected in the statement of account and to reject the remaining transactions. Though

both the arbitral tribunals have rendered a finding that the respondent had received all the contract notes, bills and ledger account from the petitioner

from time to time, the respondent had not raised any objection, the arbitral tribunals have illegally allowed the claim made by the respondent. The

award is contrary to the law laid down by this Court in the case of Anand Rathi Share and Stock Brokers Ltd. Vs. Jayshree Sanjay Sonawane

(supra).

Division bench of this Court in the case of Maheshbhai Hiralal Champneira Vs. Kotak Securities Ltd. (supra) had considered the rules and

regulations of the National Stock Exchange providing that the dispute, if any, regarding any contract has to be raised within a couple of days failing

which the transaction is deemed to have been carried out. Division Bench of this Court accepted the contention of the trading member and rejected

the claim made by the constituent in view of the constituent not having raised objection within the time prescribed under the Rules and Regulations of

the National Stock Exchange. The principles of law laid down by this Court in the case of Maheshbhai Hiralal Champneira Vs. Kotak Securities Ltd.

(supra) would squarely apply to the facts of this case. I am respectfully bound by the said judgment.

Supreme Court in the case of Associate Builders Vs. Delhi Development Authority (supra), in the case of Oil and Natural Gas Corporation Ltd.

Vs. Western Geco International Ltd. (supra), this Court in the case of Maharashtra State Electricity Distribution Co. ltd. Vs. Vijal Electricals Ltd.

(supra), in the case of Seemaben Vs. Motibhai K. Patel Manguben (supra) and in the case of Sahara Hospitality Ltd. Vs. Hotel Co. of India (supra)

has held that if the arbitral award is contrary to the terms of the contract and if the finding rendered by the arbitral tribunal is perverse, the award

shows patent illegality, shows contradictions and inconsistencies, overlooking the evidence produced by the parties and the finding contrary to the

evidence on record, the Court has power to set aside such arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996. The

principles of law laid down by the Supreme Court and the High Court in the catena of decisions which are referred to aforesaid apply to the facts of

this case. I am respectfully bound by the said judgment. In my view, the findings of both the arbitral tribunals are totally perverse and shows patent

illegality and thus deserves to be set aside.

In so far as the judgment of the Supreme Court in the case of National Highways Authority of India Vs. M/s. ITD Cementation India Limited

(supra) relied upon by Mr.Makhija, learned counsel for the respondent is concerned, Supreme Court in the said judgment also has held that the Court

while considering the challenge to an arbitral award does not sit in appeal over findings and decisions unless arbitrator construes contract in such a

way that no fair minded or reasonable person could do. In my view, both these awards fall under exception carved out in the said judgment and thus

deserve to be set aside. The said judgment would not assist the case of the respondent.

In so far as the judgment of this Court in the case of Ropa Plastics Pvt. Ltd. Vs. IPN Packaging Pvt. Ltd. (supra) relied upon by the learned

counsel for the respondent is concerned, this Court has held that unless finding of the learned arbitrator is perverse, the Court cannot interfere with the

said finding. In my view, since in this case the findings rendered by both the arbitral tribunals are totally perverse, this Court has ample power to set

aside those findings. The judgment of the Supreme Court in the case of Ropa Plastics Pvt. Ltd. Vs. IPN Packaging Pvt. Ltd. (supra) thus would not

assist the case of the respondent.

In so far as the reliance placed by the learned counsel for the respondent on the arbitral awards rendered by the learned arbitrator of the National

Stock Exchange in other matters are concerned, it is the case of the petitioner that one of the arbitral award i.e. the arbitral award rendered in CM/M-

0023/2013 has been reversed by the appellate arbitration bench of the National Stock Exchange of India Ltd. Be that as it may, the arbitral awards in

other matter between the petitioner and other constituent cannot be relied upon as precedent in this Court. Reliance placed on those arbitral awards by

the learned counsel for the respondent is thus misplaced.

A perusal of the impugned awards clearly indicates that the respondent had not denied the receipt of the contract notes from the petitioner from

time to time and also connected documents. The petitioner was authorised to retain securities/funds towards the obligations of the respondent to

deposit requisite amount of margin money in accordance with bye-laws, regulations and various provisions of the agreements entered into between the

parties and also in accordance with the circulars issued by the National Stock Exchange from time to time. Relevant circulars issued by the National

Stock Exchange of India Ltd. are already highlighted in the earlier paragraphs of this judgment which were applicable to the parties and were required

to be considered by the arbitral tribunal.

Both the arbitral tribunals totally failed to consider the crucial aspect in the matter that the respondent itself had admitted in the arbitration

proceedings that office of the respondent had admittedly logged into the server of the petitioner 14 times to access information regarding its account

through the unique client log in ID provided to it from the computers located in the office of the respondent. The respondent had also not denied the

contents of the recorded oral telephonic conversations between the respondent and the employees of the petitioner and transcript thereof which was

filed by the respondent itself before the second arbitral tribunal.

I am inclined to accept the submission of Ms.Iyer, learned senior counsel for the petitioner that the second arbitral tribunal could not have rendered

a finding that most of the trades were in the nature of the Portfolio Management Services in absence of any such plea raised by the respondent and

that also without giving an opportunity to the petitioner to deal with such a new case made out by the second arbitral tribunal in the impugned award.

The award rendered by the second arbitral tribunal is thus in gross violation of principles of natural justice and deserves to be set aside on this ground

also. The Additional Commissioner of Police, Economic Offence Wings, and Mumbai had already closed the case against the petitioner.

In so far as the submission of Mr.Makhija, learned counsel for the respondent that Mr.Pushottam Jadhav and other employees of the petitioner

had accepted in the emails exchanged with the respondent that all the transactions were on behalf of the petitioner and had signed the confessional

statements accepting the liability of the respondent on behalf of the petitioner is concerned, in my view, since the respondent failed to prove that such

employees were authorised by the petitioner to acknowledge such alleged liability on behalf of the petitioner or to admit the alleged unauthorized

transactions on behalf of the petitioner. No reliance on such emails and such alleged confessional statements could be thus made by the arbitral

tribunal or by the respondent.

In so far as the submission of Mr.Makhija, learned counsel for the respondent that it was not the case of the petitioner that any money was due to

the petitioner from the respondent and thus shares and securities of the respondent were sold on that ground is concerned, in my view, in this

submission of the learned counsel is based on wrong premise and contrary to the record before both the arbitral tribunals.

In so far as the submission of the learned counsel for the respondent that since October 2012, the petitioner had never demanded any margin

money was made till 12th February 2013 when an illegal demand of margin money was made is concerned, this submission is also contrary to the

documents on record produced by the petitioner before the arbitral tribunal as well as before this Court.

In so far as the submission of the learned counsel for the petitioner that the second arbitral tribunal has wrongly rejected the counter claim is

concerned, it is an admitted position that the petitioner though had filed written statement before the first arbitral tribunal had not filed any counter

claim at that stage. The petitioner had impugned the arbitral award rendered by the first arbitral tribunal before the second arbitral tribunal and had

filed counter claim at that stage. In my view, the said counter claim thus even otherwise could not have been entertained on merit for the first time by

the second arbitral tribunal. In my view, that part of the award thus cannot be interferred with by this Court in this petition.

In my view, since both the impugned awards rendered by the arbitral tribunals record various perverse findings and show patent illegality, in so far

as the claims made by the respondent have been allowed is concerned, the same deserves to be set aside.

I therefore pass the following order:-

(i) The impugned award rendered by the first arbitral tribunal on 3rd September 2013 is set aside. The impugned award rendered by the second

arbitral tribunal on 16th May 2014 is set aside to the extent the same rejects the appeal filed by the petitioner against the impugned award dated 3rd

September 2013 rendered by the first arbitral tribunal.

(ii) The impugned award of the second arbitral tribunal dated 16th May 2014 thereby rejecting the counter claim made by the petitioner is upheld.

(iii) The arbitration petition is partly allowed in aforesaid terms.

(iv) There shall be no order as to costs.

. Mr.Wadi, learned counsel appearing for the respondent prays that the petitioner shall not be allowed to withdraw the amount deposited by the

petitioner with the National Stock Exchange relating to subject matter of the arbitral awards which are the subject matter of this petition for a period

of six weeks from today.

. The petitioner is directed not to withdraw the amount deposited by the petitioner with the National Stock Exchange for a period of six weeks from

today. If any appeal is preferred by the respondent against this judgment, papers and proceedings thereof shall be served upon the advocate

representing the petitioner in advance.