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2015 Supreme(Bom) 539
High Court of Judicature at Bombay
R.D. DHANUKA, J.
Bonanza Commodities Brokers Pvt. Ltd. – Appellant
Versus
Roshanara Bhinder – Respondent
Arbitration Petition No. 195 of 2015
Decided On : 16-04-2015
For the Petitioner:Rajiv Narula, i/b. Jhangiani Narula & Associates, Advocates.
For the Respondent:Rahul Karnik, Advocate.
The court emphasized the mandatory nature of the Multi Commodity Exchange bye-laws, which required the petitioner to demand additional funds from the respondent before closing out the position, and held that the unauthorized transactions precluded the petitioner from making any claim against the respondent.
Headnote:
Arbitration Act - Impugned arbitral award dated 25th February, 2014 - Multi Commodity Exchange of India Ltd. - 34
Fact of the Case:
The petitioner impugned the arbitral award rejecting their claim against the respondent for closing out an open position of 110 lots of silver, resulting in a loss of Rs. 69,33,254.49, due to margin shortfall and market volatility.
Finding of the Court:
The arbitral tribunal found that the petitioner was not justified in squaring off the respondent's position without first demanding additional funds within a stipulated time frame, as required by the Multi Commodity Exchange bye-laws.
Issues: The main issue was whether the petitioner was entitled to close out the respondent's open position due to margin shortfall and market volatility without first demanding additional funds.
Ratio Decidendi: The court held that the petitioner's failure to demand additional funds from the respondent before closing out the position, as required by the Multi Commodity Exchange bye-laws, rendered the transactions unauthorized and precluded the petitioner from making any claim against the respondent.
Final Decision: The petition was dismissed, and no costs were awarded.
1. By this petition filed under section 34 of the Arbitration and Conciliation Act, 1996, (for short the said Arbitration Act), the petitioner has impugned the arbitral award dated 25th February, 2014 rendered by the arbitral tribunal rejecting the claims made by the petitioner. Some of the relevant facts for the purpose of deciding this petition are as under:-
2. The petitioner was the original claimant in the arbitral proceedings whereas the respondent herein was the original respondent. The petitioner is a member of Multi Commodity Exchange of India Ltd. (for short the said MCX) and carries on business as commodity brokers. The respondent was registered with the petitioner as the constituent and was executing transactions for sale and purchase of various commodities by using internet trading facility provided by the petitioner.
3. On 14th August, 2012, the petitioner and the respondent executed 'Know Your Client' form and Member Client Agreement thereby the respondent appointing the petitioner as her commodity broker for execution of transactions for sale and purchase of commodities listed for trading at the said MCX. It is the case of the petitioner that in the said Member Client Agreement, the respondent had given mandate to the petitioner for sending her Electronic Contract Notes on her e-mail id roshanbhinder@hotmail.com and had given authority to maintain her ledger account with the petitioner on running account basis. It is also the case of the petitioner that the respondent had also given to the petitioner authority for sending her SMS for providing her bill summary, her ledger balance and applicable margin by providing mobile no.9819190786. The respondent had executed a letter/undertaking and authorised the petitioner for adjustment of debit and credit balance of the respondent between different segments of the Exchange and between different exchanges in her ledger account amongst respondent group which includes the petitioner and BPL.
4. It is the case of the petitioner that the respondent issued a cheque dated 14th August, 2012 in favour of the respondent for a sum of Rs. 3 lacs towards the margin deposit. The petitioner gave credit of the said amount in the ledger account of the respondent. The respondent thereafter started execution of transactions for sale and purchase of various commodities w.e.f. 16th August, 2012 by using internet trading facility provided by the petitioner. It is the case of the petitioner that during the said period of transaction, the respondent had made another three payments for an aggregate amount of Rs.95 lacs on different dates as per her obligations towards the margin and MTM losses.
5. According to the petitioner as on 30th March, 2013 the ledger account of the respondent in the books of the petitioner was showing a credit balance of Rs.35,53,150.63 and her margin ledger was showing debit balance of Rs.88,38,060/- and thereby the respondent had net debit of Rs.52,82,909.40 in MCX and there was margin shortfall. It is the case of the petitioner that the respondent had opened position of purchase of 110 lots of silver F040513. On the previous trading date i.e. 28th March, 2013 the closing rate of silver was 53,560/- per KG. According to the petitioner, the value of the respondent's open position of 110 lot of silver was Rs.17,67,61,200/-. It is the case of the petitioner that on 30th March, 2013 against the said open position there was margin shortfall upto the extent of Rs.52,82,909.40 which the respondent was under an obligation to meet with the said margin shortfall.
6. It is the case of the petitioner that when the market opened on 30th March, 2013 there was high volatility in the market price of silver in the first 8 minutes and the market was down by Rs.42/- for silver and thereafter within few minutes, the market price was down by Rs.2100/- per KG and as a result thereof, there was a huge loss of Rs.69,30,000/-. The respondent failed to deposit Rs.52,82,909.40 towards ma
