Case Note & Summary
The petitioner, M/s. Ventura Securities Limited, a trading member of the National Stock Exchange of India Ltd. (NSEIL), challenged an arbitral award dated 2nd September 2008 under Section 34 of the Arbitration and Conciliation Act, 1996. The respondent, Ms. Apeksha Rajendra Bothra, a constituent, had filed a claim for Rs.7,76,576/- alleging loss due to the petitioner's arbitrary sale and purchase of securities. The petitioner had squared off the respondent's open position after she failed to meet her obligations. The arbitral tribunal awarded Rs.4,76,246/- to the respondent, including damages for the difference between the squaring off rate and the highest rate reported after squaring off. The petitioner contended that the award was contrary to NSEIL Bye-laws, particularly Bye-law 3.10(b), which permits a trading member to close out transactions of a defaulting constituent and requires any loss to be met from margin money. The court agreed, holding that the award was contrary to the express provisions of the Bye-laws and thus violative of public policy. The court set aside the award, noting that the trading member was not liable for any loss of opportunity to the constituent for not selling at the highest price after squaring off. The petition was allowed, and the award was quashed.
Headnote
A) Arbitration - Section 34 of the Arbitration and Conciliation Act, 1996 - Public Policy - Challenge to Arbitral Award - The court examined whether an award granting damages for loss of opportunity to sell at a higher price after squaring off due to default is contrary to NSEIL Bye-laws and public policy. Held that the award was contrary to the express provisions of the Bye-laws and thus liable to be set aside (Paras 1-10).
B) Stock Exchange - NSEIL Bye-laws - Trading Member's Right to Square Off - Bye-law 3.10(b) permits a trading member to close out transactions of a defaulting constituent. The court held that the trading member is not liable for any loss of opportunity to the constituent for not selling at the highest price after squaring off, as the bye-law only requires the loss to be met from margin money. Held that the award granting damages for such loss was contrary to the bye-laws (Paras 5-8).
C) Damages - Mitigation of Loss - Stock Market - The court held that a constituent who defaults cannot claim damages for loss of opportunity to sell at a higher price after the trading member has lawfully squared off the position. The trading member is not obligated to wait for a higher price. Held that the award was perverse and against the public policy of India (Paras 9-10).
Issue of Consideration
Whether the arbitral award granting damages to the respondent (constituent) for loss of opportunity to sell at a higher price, after the petitioner (trading member) squared off the position due to default, is contrary to the NSEIL Bye-laws and thus violative of public policy under Section 34 of the Arbitration and Conciliation Act, 1996.
Final Decision
The court allowed the petition and set aside the arbitral award dated 2nd September 2008.
Law Points
- Arbitration and Conciliation Act
- 1996
- Section 34
- Public Policy
- NSEIL Bye-laws
- Trading Member
- Constituent Default
- Squaring Off
- Damages
- Mitigation of Loss
- Market Price
- Highest Rate
- Arbitral Award
- Setting Aside
Case Details
2010 LawText (BOM) (03) 54
Arbitration Petition No.392 of 2009
Mr. Simil Purohit i/b. Purohit & Co. for the petitioner, Mr. P. P. Chavan i/by Mr. R.J. Nathani for the respondent
M/s. Ventura Securities Limited
Ms. Apeksha Rajendra Bothra
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Nature of Litigation
Challenge to an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996.
Remedy Sought
The petitioner sought to set aside the arbitral award dated 2nd September 2008 passed by the Arbitral Tribunal constituted under the Byelaws of NSEIL.
Filing Reason
The petitioner contended that the award was contrary to the NSEIL Bye-laws and public policy.
Previous Decisions
The arbitral tribunal had awarded Rs.4,76,246/- in favor of the respondent and against the petitioner.
Issues
Whether the arbitral award granting damages for loss of opportunity to sell at a higher price after squaring off due to default is contrary to NSEIL Bye-laws and public policy under Section 34 of the Arbitration and Conciliation Act, 1996.
Submissions/Arguments
The petitioner argued that the award was contrary to NSEIL Bye-law 3.10(b), which permits a trading member to close out transactions of a defaulting constituent and requires any loss to be met from margin money. The trading member is not liable for any loss of opportunity to the constituent.
The respondent argued that the trading member should have sold at a higher price and that the award was justified.
Ratio Decidendi
The arbitral award granting damages for loss of opportunity to sell at a higher price after squaring off due to default is contrary to NSEIL Bye-law 3.10(b), which permits a trading member to close out transactions of a defaulting constituent. The trading member is not liable for any loss of opportunity to the constituent for not selling at the highest price after squaring off. Such an award is contrary to the public policy of India and liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996.
Judgment Excerpts
The Petition is under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, the Act), whereby challenge is made to the Award dated 2nd September, 2008 passed by the learned Arbitral Tribunal constituted under the Byelaws, Rules and Regulations of National Stock Exchange of India Ltd. (F & O Segment) (for short, NSEIL).
The relevant NSEIL Rules are as under: 3.10 (b) Constituent in Default 'In case of nonpayment of daily settlement by the constituents within the next trading day, the Trading Member shall be at liberty to close out transaction 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 constituents.'
Procedural History
The respondent filed a claim before the Arbitral Tribunal constituted under NSEIL Bye-laws. The petitioner filed a written statement and counterclaim. On 2nd September 2008, the Arbitral Tribunal passed an award in favor of the respondent for Rs.4,76,246/-. The petitioner challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 before the Bombay High Court.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 34
