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2012 Supreme(Bom) 2139
High Court of Judicature at Bombay
ANOOP V. MOHTA, J.
Angel Broking Private Limited
Versus
Sunil Nagar
Arbitration Petition No. 1033 of 2009
Decided on : 19-11-2012
For the Petitioner:Parikshit Desai a/w Hiren Mehta, Advocates.
For the Respondent:Sunil Nagar, Advocate.
The main legal point established is that arbitration awards must be based on sound reasoning and consideration of all relevant factors.
Headnote:
Trading Member - Arbitration Award - Regulation 3.10(b) of Future and Option Segment, Member Client Agreement - [Regulation 3.10(b), Member Client Agreement]
Fact of the Case:
The Petitioner challenged an arbitration award passed by the Sole Arbitrator appointed by the National Stock Exchange of India Limited. The Respondent, a trading member, failed to meet margin requirements and engaged in risky trading, leading to a dispute between the parties.
Finding of the Court:
The Court found that the Arbitrator's decision was flawed as it failed to consider the practicalities of squaring off outstanding positions and did not adequately justify the awarded amount. The Court concluded that the matter should be remanded for fresh hearing on all points.
Issues: The issues revolved around the Respondent's failure to meet margin requirements, disputed trading activities, and the validity of the arbitration award.
Ratio Decidendi: The Court's decision was based on the inadequacy of the Arbitrator's reasoning and the need for a fresh hearing to consider all points.
Final Decision: The impugned award was quashed and set aside/modified, and the matter was remanded for fresh hearing on all points.
The Petitioner, a trading member, original-Respondent has challenged award dated 29 August 2009 passed by the Sole Arbitrator appointed by the National Stock Exchange of India Limited (for short, NSEIL), in the matter of Arbitration under Bye-laws, Rules and Regulations of the NSEIL.
2 The operative part of the award is as under:-
"1. For reasons stated under FINDINGS AND CONCLUSIONS, Paragraph 17, the Respondent-Trading Member, Angel Capital & Debit Market Ltd., is directed to pay a net sum of Rs.6,59,634.54 (Rupees six lacs fifty nine thousand six hundred thirty four and paise fifty four only) to the Applicant-Constituent Shri Sunil Nagar.
2. The Applicant-Constituent is liable and directed to pay to the Respondent-Trading Member interest @ 12% p.a. on the debit balance of Rs.22,646.67 in NSE Cash Segment from 16.10.2008, i.e., the date from which the debit balance is outstanding, to the date of the Award, i.e., 29.08.2009. The Respondent-Trading Member will recover the amount of interest, so arrived at, from the amount of Rs.6,59,634.54 payable to the Applicant-Constituent.
3. The cost of arbitration shall be borne by the Respondent-Trading Member.
4. The Award is signed in three originals. NSE will retain one of the stamped originals and forward one stamped original to each of the Applicant-Constituent and the Respondent-Trading Member.”
3 As per the Petitioner, the basic events are as under:-
In the month of July 2008, the Respondent approached the Petitioner to open trading account in NSEIL Cash and Future option Segments. After compilance of necessary formalities, the Respondent was allotted the client code S55381. The Respondent was net trading client of the Petitioner. The Respondent never disputed any of the contract notes/statement of account issued by the Petitioner to the Respondent.
4 On 17 October 2008, at the opening of the market the Respondent had credit balance of Rs.4,08,016.21 and margin shortage of Rs.1,92,859.52 in respect of the outstanding open positions after the accounting for the credit balance. The Respondent was continuously was in margin shortfall from 26 September 2008. The Respondent sold 195 lots of NIFTY Put Option at a strike price of Rs.4500/-and earned the premium of Rs.1,34,75,525/-and thereby exposed itself to unlimited market risk without having the requisite margin in his account. The Respondent also bought 1 lot of NIFTY Call Option at a strike price of Rs.3400/-and 3 lots of NIFTY Put option at a strike price of Rs.3200/-and paid total premium of Rs.32,425/-as a result of which net premium of Rs.1,33,56,933.47 was credited to his ledger account. The trade of the Respondent accounted for about 41% of the total NIFTY Put Option sold on the exchange. The software was having some glitches which allowed, the premium earned on options sold erroneously, being taken into account for further limits. Thus, on account of this, the limits available to the Respondent automatically increased. The Respondent, realizing that the system was permitting enhanced limits on premiums earned, went on selling options without any regard to the risk exposure and in the process sold 9750 (195 lots) Nifty Puts for Rs.1,34,75,525/-. Even after taking into account premium earned on 17 October 2008 from the sale of NIFTY Puts for margin purpose, which is not permissible, the Respondent was still liable to pay a margin of Rs.49,19,952.85 at the close of the market on 17 October 008. Against the above liability of the Respondent towards margin payment to the tune of Rs.1,86,84,902/-, the Petitioner only had an undated cheque issued by the Respondent for Rs.10 lacs. This cheque was taken from the Respondent during his trades with the Petitioner. The Respondent on request for payment of margin instructed the Petitioner to present the said cheque for Rs.10 lacs which, however, bounced on presentation. The Respondent promised to make the payment on the following day i.e. 18 October 2008 and instructed the Petiti
