An obligation to provide notice prior to squaring off is fundamental in arbitration proceedings, and any failure renders such actions illegal.

ORDER :

N.ANAND VENKATESH, J.

The petitioner assails the award passed by the sole Arbitrator dated 10.6.2023 by filing this petition under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, the Act).

2. Heard both.

3. The case of the petitioner is as follows:

(i) The respondent was the claimant before the sole Arbitrator. The respondent was a client of the petitioner for trading in the securities market. The petitioner is a stock broking company and the respondent availed the services of the petitioner from August 2013 onwards.

(ii) In the course of dealing between the parties, the respondent had availed the facility of margin trading whereby he was allowed to trade to the extent of value of shares and securities available in his account. The actual dispute arose between the parties when the petitioner squared off the account of the respondent by selling the securities from the respondent’s account on the ground of margin shortfall and adjusted the same against the shortfall.

(iii) According to the respondent, such a squaring off done by the petitioner was illegal and as a result, the respondent sustained loss to the tune of Rs.48,77,111/-. Initially, the dispute was referred to an Arbitrator of National Stock Exchange of India Limited. Pursuant to that, an order came to be passed on 19.10.2016. Aggrieved by that, the petitioner filed O.P.No.84 of 2017 before this Court, which, by an order dated 27.8.2021, set aside the award passed by the earlier Arbitrator and on consent given by both sides, appointed the sole Arbitrator to adjudicate the dispute between the parties.

(iv) The sole Arbitrator, based on the pleadings, framed the following issues:

“a. Whether the squaring off done by the respondent on 06.11.2015 and 21.01.2016 are proper? and b. Whether the order of the IG or IC

10.05.2016 is sustainable?

c. Whether the claimant is entitled to make additional claims not taken in the earlier arbitration proceedings?

d. Whether the claimant is entitled to a sum of Rs.48,77,000/- as prayed for in paragraph (a) of the statement of claim?

e. Whether the claimant is entitled to the relief of declaration declaring the squaring off done by the respondent on 21.01.2016 as illegal, as prayed for in paragraph (b) of the statement of claim?

f. Whether the claimant has incurred any loss? If so, to what amount he is entitled to be compensated? And

g. To what other reliefs are the parties entitled to?”

(v) Before the sole Arbitrator, on the side of the respondent/claimant, C.W.1 and C.W.2 were examined besides marking Ex.C.1 to Ex.C.25. On the side of the petitioner, R.W.1 was examined and Ex.R.1 to Ex.R.6 were marked through the claimant/respondent’s witnesses and Ex.R.7 to Ex.R.12 were marked through R.W.1.

(vi) On considering the pleadings, the evidence available on record and the facts and circumstances of the case, the sole Arbitrator came to the conclusion that the squaring off done by the petitioner on 21.1.2016 was illegal and accordingly directed the petitioner to compensate the respondent/claimant to the tune of Rs.48,77,111/- along with interest at the rate of 9% per annum from 21.1.2016 till the date of realization. Aggrieved by that, the present petition has been filed.

4. The learned counsel for the petitioner submitted that the notice of the respondent/claimant was drawn regarding the margin shortfall, which would be evident from Ex.C.10, that in view of the same, a specific right was available to the petitioner for squaring off as per Clause 5 of the agreement and that therefore, this right was exercised by the petitioner.

5. It was further contended on the side of the petitioner that the sole Arb