Case Note & Summary
The petitioner filed an Arbitration Petition under Section 34 of the Arbitration and Conciliation Act, 1996 before the High Court of Judicature at Bombay, challenging an Arbitral Award dated 12 September 2008 and an additional Award dated 31 March 2012. The dispute arose from a member-client agreement dated 16 October 2007 between the petitioner and M/s Indira Securities, a partnership firm later corporatised as the respondent company, for transactions in shares and securities on the National Stock Exchange (NSE) cash market and Futures and Options (F&O) segments. The respondent maintained separate accounts for the petitioner for cash and F&O segments. During the period 18 January to 22 January 2008, the stock market experienced high volatility and a steep fall, causing mark-to-market losses and margin shortfalls in the petitioner’s account. The respondent claimed that despite informing the petitioner, he failed to arrange funds for daily margin requirements. On 21 January 2008, the petitioner issued cheques totalling Rs.8,00,000, which were dishonoured due to insufficient funds. The respondent squared off the outstanding positions on 22 January 2008 after the petitioner expressed inability to pay further. After selling collateral securities and transferring credits from other accounts, a sum of Rs.9,28,188.45 remained due from the petitioner as on 28 January 2008. The respondent referred the matter to arbitration, and the Arbitral Tribunal allowed the claim with interest and rejected the petitioner’s counter claim. The petitioner challenged the award on grounds that the agreement violated NSE Bye-laws and SEBI regulations, that the respondent acted without proper authorization, and that under NSE Trading Regulations the petitioner should have been given until the next trading day to fund margin losses. The judgment excerpt does not include the court’s analysis or final decision.
Issue of Consideration
ARBITRATION PETITION NO.147 OF 2009
Case Details
2014 LawText (BOM) (10) 58
ARBITRATION PETITION NO.147 OF 2009
Mr. Harish Pandya i/b Mr. Ashok Khandkar with Mr. Ashok Varma & Mr. Rajendra Kookuda for Petitioner; Mr. Simil Purohit i/b M/s. Purohit & Co. for Respondent
Indira Securities Private Limited
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Nature of Litigation
Arbitration Petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an arbitral award.
Remedy Sought
The Petitioner sought to set aside the arbitral award dated 12.09.2008 and the additional award dated 31.03.2012.
Filing Reason
The Petitioner contended that the Agreement was invalid and violated NSE Bye Laws, Rules and Regulations and SEBI Circulars/Notifications, and that the Respondent squared off positions without proper authorization.
Previous Decisions
The Arbitral Tribunal passed an Award dated 12.09.2008 allowing the Respondent’s claim of Rs.9,28,188.45 with interest and rejecting the Petitioner’s counter claim. An additional Award under section 34(4) was passed on 31.03.2012.
Issues
Whether the Arbitral Award is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996
Whether the Member-Client Agreement was valid and in compliance with NSE Bye-laws and SEBI Regulations
Whether the Respondent was entitled to square off the Petitioner’s outstanding positions without further notice
Whether the Petitioner is liable to pay the claimed amount of Rs.9,28,188.45
Submissions/Arguments
Respondent argued that the Petitioner owed Rs.9,28,188.45 after squaring off due to margin shortfall and MTM losses; the Petitioner failed to meet margin requirements; the Respondent was entitled to square off positions as per authorizations; after selling collateral and transferring credits, the amount remained due.
Petitioner argued that the Agreement was invalid; the Respondent violated NSE Trading Regulations by not giving the Petitioner until the next trading day for margin funding; cheques were given on understanding not to deposit without prior nod; the Respondent liquidated positions at lowest price without notice.
Judgment Excerpts
By this Petition under Section 34 of the Arbitration and Conciliation Act 1996, the Petitioner has impugned the Award dated 12.09.2008 passed by the Arbitral Tribunal under the Bye laws, Rules and Regulations of the National Stock Exchange India Limited.
According to the Respondent, during the relevant period, the mark to market (MTM) losses and the margin shortfall had increased in the account of the Petitioner and inspite of the Respondent informing him, the Petitioner could not arrange for the funds to fulfill the daily margin requirements.
The Petitioner has relied upon Regulation 3.10(b) of NSE (F&O segment) Trading Regulations 2000 to contend that for the losses which occurred on 22.01.2008 morning, the Respondent could have expected funding from him only the next trading day i.e. 23.01.2008.
Procedural History
Member-client Agreement dated 16.10.2007 was executed between the Petitioner and M/s Indira Securities (a partnership firm), which later corporatised into the Respondent company with effect from 05.11.2007. Dispute arose over transactions during the period 18.01.2008 to 22.01.2008. The Respondent referred the matter for arbitration under NSE Bye-laws. The Arbitral Tribunal passed an Award on 12.09.2008 directing the Petitioner to pay Rs.9,28,188.45 with interest, and rejected the Petitioner’s counter claim. An additional Award was made under Section 34(4) on 31.03.2012. The Petitioner then filed Arbitration Petition No.147 of 2009 under Section 34 of the Arbitration and Conciliation Act, 1996 before the High Court of Bombay, challenging both awards.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 34, Section 34(4)
- Negotiable Instruments Act, 1881: Section 138
- National Stock Exchange (Futures and Options Segment) Trading Regulations, 2000: Regulation 3.10(b)
