This Original Petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996, (Act) to set aside the award passed by the Sole Arbitrator, dated 12.03.2009, in and by which the petitioner's claim for payment of Rs.6,00,000/- by the first respondent was rejected.
2. The facts that are necessary for the disposal of this petition are as hereunder:-
The petitioner enrolled himself as an online trading member of the ICICI Securities since March, 2003. On 16.01.2008, he bought 900 Futures Nifty-27 March 2008 at Rs.5,930/- and on 18.01.2008, he bought 100 Futures Nifty-27 March 2008 at Rs.5,740/-. Thus the Nifty bought was 1000 at an average price of Rs.5,911/-. The petitioner states that the total margin allotted at specified 12% requirement was Rs.7,09,320/-. On 29.01.2008, the stock market crashed with Nifty touching a low of 4950 and closing at 5195.9 leading to erosion on margins allotted.
3. The petitioner by refering to the Rules, which were in existence at the relevant point of time pertaining to National Securities would submit that the ISEC should have demanded additional margin from the client, which he did not do. By refering to the general terms and conditions governing the web based transactions, the ICICIDIRECT.COM-ISEC claims to have an Auto Square off mechanism that would square off open positions, to generate the required margin, when the allotted margin gets eroded. This mechanism failed on 21.01.2008, when the allotted margins were eroded. On 22.01.2008, there was a further crash in Nifty, which resulted in further erosion of margins and at that point Nifty was squared off by ISEC resulting in a loss of Rs.14,14,953/-, which is Rs.8,48,953/- more than the losses that the petitioner would have suffered, if the Nifty was squared of at 5345, when ISEC has claimed that it try to square off as margins were eroded.
4. In this factual senario the petitioner sent a legal notice dated 09.02.2008 to the first respondent demanding compensation for the losses caused, to which a reply dated 17.03.2008, was sent by the first respondent stating that there is no compensation payable. The petitioner's representation to the NSE Investors Grievance Forum did not evoke any response and therefore he sent letter to the SEBI, which tookup the matter with the National Stock Exchange, vide letter dated 09.04.2008.
5. The petitioner demanded compensation for losses under four heads viz., (a) non communication of margin requirements; (b) failure of Auto Square Off mechanism; (c) misappropriation of equity shares into shares as margin without any instruction from the petitioner; and (d) creation of losses to a tune of Rs.14,00,000/-. Though the above claims were submitted to the NSE Investors Grievance Forum, once again, the petitioner was informed that no compensations payable. Therefore, the petitioner filed an application for initiation of arbitration on 04.08.2008 with the claim for compensation of Rs.18,00,000/- with interest from the first respondent under the heads, financial losses, loss of trading income and brokerage of shares sold. The application was entertained and a Sole Arbitrator was appointed, who passed an award on 12.03.2009 directing the first respondent to pay a sum of Rs.4,00,000/- against the claim of Rs.10,00,000/- with interest.
6. Subsequently, the petitioner filed an application on 30.03.2009 for an additional award, claiming interest for the period from 22.01.2008 to the date of payment of compensation, compensation for mental trauma, legal expenses, brokerage and taxes and price appreciation loss. The said application for additional award, was rejected by order dated 06.04.2009.
7. The petitioner would contend that though the Arbitrator had come to a conclusion that the square off mechanism had failed, erronously awarded only 50% of the claim, which is arbitrary. Further, it is submitted that the Arbitrator had ignored the information, which are provided in the form of bye-laws namely National Security Clearing Corporation Limited bye-laws (F&O segment) and in particular bye-law No.3.10(b). Further, it is submitted that the claim for compensation ought to have been considered, taking note of the facts pointed out by the petitioner.
8. The first respondent has filed counter affidavit and in paragraph 6 and 7 therein, the respondent has pointed out as to the nature of transaction done by a constituent in an online trading portal. Further, it is submitted that the first respondent had bought 900 futures Nifty on 16.01.2008 and 100 Future Nifty on 18.01.2008 and both expiring on 27.03.2008. It is further submitted that the petitioner incurred mark to market losses on 16, 17 and 18th January 2008 and the available balance as on 21.01.2008 was R.5,67,829/- against the initial margin requirement of Rs.5,16,600/-. On 21.01.2008, Sensex as well as Nifty had fallen heavily and the petitioner's open position had suffered mark to market losses to the extent of Rs.3,95,150/- before the square off process was initiated by the first respondent. That the mark to market lossess of the petitioner eroded the margin available with the first respondent and it fell short of the required minimum marin levels. On 22.01.2008, the Sensex/Nifty hit the 10% lower band of the market wide circuit breaker and as per the SEBI regulations, the stock exchanges had kept the market altered for one hour and thereafter, trading had against resumed. By refering to the records maintained by the first respondent, it is stated that all orders placed on 21st and 22nd January 2008, were placed only by Risk Management Department of the first respondent on a best effort basis. That the petitioner has not placed any orders on the disputed dates. Further, the constituents have been provided with necessary tools on the site to continuously monitor their position and initiate necessary action to safeguard the same. This process has been elaborated in paragraph 9 of the counter affidavit. It is further submitted that the responsibility of the petitioner is to access the facilities provided to him update and keep himself updated and take necessary actions in order to safeguard his individual interest based on market conditions.
9. The petitioner being an experienced investor should have at least logged into his trading account during market hours to monitor his open position and take corrective measures as providing necessary margin or squaring off his position voluntarily, but the petitioner did not initiate any such action namely deposited the required margins nor made a single attempt to liquidate his position and rather chose to wait for the first respondent to take necessary action. Further, it is submitted that in online trading account, the constituent is the sole person having the primary right over his investor and he has the foremost discretion to act and if such online investor has left over his right and not taken necessary action by logging into his online account or by not giving any express and clear instructions to the first respondent, it would be unjust to hold the first respondent's responsibility. The respondent has referred to the risk disclosure document in this regard.
10. With regard to the allegation pertaining to squaring off, the first respondent would state that in case of short fall margin, ICICI Web Trade will check for availability of additional limits in client's accounts to see whether adequate additional limits are available to restore the margin level and if no such limits are available then the client's open position may be squared off by ICICI web trade at its discretion.
11. By refering to the expression may used in the said clause, it is submitted that the same is not mandatory and this is exemplified from the use of the word discretion. Further, it is submitted that they made repeated attempts to square off the open positions of all its constituents including the petitioner. However, due to presence of heavy loads of orders, all orders could not be executed and if the petitioner had given instructions to close his open positions and in spite of such instructions, the first respondent had not acted on the same and if the petitioner had incurred losses then only an express liability would be created against the first respondent. However, the first respondent would have still not be liably in disputed transactions for the express liability created due to the presence of Force Majeure Event. Thus, it is submitted that the petitioner was guilty of gross negligence and the first respondent is not responsible for the negligence of the petitioner.
12. After referring to the contentions raised in the application for additional award and pointing out as to how they are not tenable, it is submitted that the Arbitrator taking into consideration all the aspects held that the petitioner cannot absolve himself by putting the entire blame on the first respondent and in the absence of any biase as alleged by the petitioner, no case has been made out warranting interference by this court under
section 34 of the Act.
13. Mr.D.Prabhu Mukunth Arunkumar, learned counsel for the petitioner after reiterating the factual position as set out in the preceeding paragraphs referred to the findings rendered given by the learned arbitrator in pages 7 and 8 of the award with regard to F & O trading and failure of auto squaring off mechanism and submitted that if the auto square off mechanism had worked, the loss would have been restricted to the initial margin amount and since mechanism did not work and the next days trading initiated, the losses extended to over Rs.14,00,000/-. Further, it is submitted there are no reasons, logic or legal reasons for the arbitrator to further reduce the award by 50%, after finding the mechanism to be faulty.
14. It is further submitted that the petitioner only requested the amount taken illegally beyond the initial margin deposit to be repaid, which was not properly appreciated by the learned Arbitrator. Further, the learned Arbitrator ought to have considered that the petitioner was an individual investor and ought to have granted the claim amount when there is a categorical finding that the loss was due to the first respondent. The learned counsel has drawn the attention of this Court to the extract from the NSE (F&O segments) and the other relevant regulations to demonstrate as to what are margin requirements and the margin from the constituents and with regard to the constituents in default. On the above grounds, the learned counsel seeks for setting aside the impugned award.
15. Mr.A.Elangovan, learned counsel appearing for the first respondent submitted that the petitioner has not raised any ground warranting the setting aside of the award and mere use of the expression illegality, bias etc., will not vitiate the award. It is submitted that broadly the petitioner seeks to set aside the award under four heads, namely non communication of margin requirements, failure of auto square off mechanism, misappropriation of equity shares into shares as margin without any instruction from the petitioner; and creation of losses to a tune of Rs.14,00,000/-.
16. With regard to the first ground it is submitted that as per the regulation of the NSE, there is no need on the part of the first respondent to communicate the margin requirements and the same has been clearly set out in the letter of confirmation executed by the petitioner and as mentioned in pages 56 to 57, which the petitioner is very well aware as he has referred to the same in his statement of case filed before the National Stock Exchange. With regard to the second contention, the petitioner has signed the member client agreement, in which it is stated that trading member will not be liable for any losses for non execution of orders, due to system failure. Further, this malfunction is covered under the force major clause as mentioned in the letter of confirmation executed by the petitioner. With regard to the third contention, it is submitted by the counsel that the petitioner has the primary duty to keep close watch and his open posisition and bring in additional margin by bringing in additional funds/securities to safeguard the positions or square off the open posititon. With regard to the fourth contention, reference was made to the SEBI mandated risk disclosures document, which was signed by the petitioner and the conditions clearly stated that the squaring off by the first respondent is not mandatory, it is only at his discretion. Thus, it is submitted the petitioner being the sole person having primary rights over his investment/open position has the foremost discretion to take action and cannot blame the first respondent.
17. It is further submitted that the petitioner has been trading online since 2003 and is fully aware of the tools provided to monitor his position in the website and well-vershed with online transactions, more particularly in future and option segment. Thus, the petitioner having failed to perform his primary obligation by being vigilent .cannot shift blame on the first respondent. It is further submitted that though the first respondent had a viable legal option to challenge the award, by considering the fact that the petitioner is doing business with the first respondent from the year 2003, in order to give quitous to issue, the award has not been challenged by the first respondent. In support of his contentions, the learned counsel referred to the decision of the Hon'ble Supreme Court in the case PR.Shah,Shares and Stock Brokers Pvt., Ltd., vs. B.H.H.Securities Pvt., Ltd., & Ors., reported in (2012) 1 SCC 594.
18. I have elaborately heard the learned counsels on either side and carefully perused the materials placed on record.
19. Before, the Court proceeds to consider the factual submissions placed by either side, it will be first necessary to examine as to what is the scope of interference that can be made by this Court while exercising power under
Section 34 of the Act. The Hon'ble Supreme Court in a long line of decisions has held that the grounds of challenge to an arbitral award under
Section 34 is very limited. It has been further held if the award runs into considerable details, and it it is a speaking award, the Court should not substitute its own view for the view taken by the Arbitrator while dealing with the proceedings for setting aside the award. Further, where the Arbitrator acts within the jurisdiction, the reasonableness of the reasons given by the arbitrator is not open to scrutiny by Courts. However, if the reasons are such as no person of ordinary prudence can ever approve of them or if the reasons are so outrageous in their defiance of logic, that they shock the conscience of the Court, then it is a different situation and in an appropriate case, the Court may interfere. However, the degree of such unreasonableness must be greater than the standard in a certiorari proceedings (Union of India vs. Tecco Trichy Engineers and Contractors (2005) 4 SCC 239).
20. Equally settled is the legal position that the award of the @rbitrator is ordinarily final and conclusive as long as the Arbitrator has acted within his authority and according to the principles of fair play.
21. Further the Court while considering the question whether the award should be set aside does not examine the question as an appellate Court. The Court cannot re-appreciate all the materials on record for the purpose of recording a finding whether in the facts and circumstances of a particular case, the award in question could have been made. Further, vague and indefinite pleas advanced without there being any factual foundation cannot be a ground to interfere with the award. Further, as pointed out by the Hon'ble Supreme Court in the case of Narayan Prasad Lohia vs. Nikunj Kumar Lohia & Ors., reported in (2002) 3 SCC 572, the objects of the Act was to minimise the role of Courts in the arbitration process and so far as
section 34 of the Act was concerned, it was indicated that the said section categorically provide that the award could be set aside by the Court only on the grounds mentioned therein. With the above legal principle in mind, we have to examine as to whether the impugned award would fall within any one of the gounds as mentioned in
section 34 of Act requiring interference.
22. Sub-section (2) of section 34 enumarates the grounds on which an arbitral award could be set aside as set out in clauses (i) to (v), thereunder. The petitioner has not brought his case under section 34 (2) (i) (ii) (iii). If the petitioner claims that the award requires interference under clause (iv) of section 34(2), he has to establish that the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of arbitration. However, it appears that it is not the case of the petitioner that the award deals with a dispute not contemplated or falling beyond the scope of arbitration. To challenge the award invoking
Section 34(2)(v), the petitioner should raise a contention with regard to the composition of the Tribunal and that it was not in accordance with the agreement of parties etc, and this also appears to be not the case of the petitioner. In such circumstances, this court would be fully just in rejecting the application outrightly.
23. Neverthless, this Court having heard the Counsels elaborately on merits, is inclined to examine as to whether the reasons assigned by the learned Arbitrator suffers from any illegality that goes to the root of the matter and shocks the conscience of this Court. At this stage, this Court would have to reiterate that the tests laid down for exercising certiorari jurisdiction cannot be applied while testing the correctness of an award under
section 34 of the Act.
24. The primary grievance of the petitioner is that the Arbitrator having rendered a finding against the first respondent with regard to the squaring off, ought to have awarded the entire compensation. It has to be seen as to whether the reasons assigned by the Arbitrator are germane to the factual matrix which was availabe before him. A word of caution at this juncture, there cannot be re-appreciation of the materials, which were before the Arbitrator nor can this court examine the impugned award as an appellate Court.
25. The Arbitrator after referring to the auto square off mechanism as mentioned in condition 11 of the terms and conditions in F&O segment, has referred to the discretion, which vests with the first respondent, has observed that using the discretion partially only for one lot and putting the responsibility for the rest of the lots does not stand to reason or justifiable, whatever may be the reasons for not doing the squaring off in full whether it is mechanical malfunction or force major.
26. Therefore, the Arbitrator rightly came to the conclusion that the petitioner should not be put to loss due to inability of the first respondent. Thus, the Arbitrator was inclined to entertain the claim of the petitioner. Next the Arbitrator has proceeded to examine as to what would be the claim that can be awarded and took into consideration not only the fact that the petitioner is a regular online trader with the respondent from 2003 and examining the terms of the contract agreement between the parties, held that the petitioner failed in his primary responsibility as an online trader and was not vigilant and did not monitor his position to take appropriate action at the time of crises. Therefore, the Arbitrator held that the reciprocal responsibility cannot absolve the petitioner by putting the entire blame of the first respondent. Accordingly, the Arbitrator awarded compensation of Rs.4,00,000/- in full settlement of the claim.
27. As pointed out by the Supreme Court in the case of PR.Shah,Shares and Stock Brokers Pvt., Ltd., (supra) this Court cannot sit in appeal over the award of the Arbitrator by reassigning and reappreciating the evidence and the fact that the petitioner has been regularly trading with the first respondent since 2003, has not been disputed. Apart from the fact that the terms and conditions of the agreement provide for certain duties and responsibilities to be performed by the constituent. Therefore, the award of compensation of Rs.4,00,000/- to the petitioner in full settlement of his claim is just and fair award. Equally the reasons assigned for rejecting the other claims made by the petitioner are just and reasonable and cannot be interfered, as the petitioner has not been in a position to estabilish that the award calls for interference and under any one of the contingencies as mentioned under
section 34 (2) of the Act.
For all the above reasons, the petitioner has not made out any case for interference with the impugned award. Accordingly the petition fails and it is dismissed.