Allowed

Kotak Securities Ltd. v. Gaurav Goel and Anr.

Bombay HC31 Aug 2012ARBP/310/2007

Case brief

AI extract

What is this about?

This court exercised jurisdiction under Section 34 of the Arbitration and Conciliation Act based on the parties' exclusive jurisdiction clause. The petition was allowed, and the arbitral award was quashed and set aside because the tribunal wrongly held advance standing instructions were binding, ignoring securities market trade practices and contract terms.

What did the court decide?

Impugned arbitral award dated 8th May 2007 is quashed and set aside; no order as to costs.

Kotak Securities Ltd. Vs Gaurav Goel and Anr. — Arbitration | Bombay HC (2012)

arbp310-07

rpa

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICION

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ARBITRATION PETITION NO. 310 OF 2007

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Kotak Securities Ltd., Nirlon House, 5^th Floor, Dr. Annie Besant Road, Near Passport Office, Worli Mumbai 400 258 .. Petitioner

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V/s.

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(1) Gaurav Goel R/OB-322, Sector B, Mahanagar, Luknow.

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(2) National Stock Exchange of India Limited, Exchange Plaza Plot No.C-1, C-1, G Block, Bandra Kurla Complex, Bandra East, Mumbai 400 051. .. Respondents

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Mr. Shyam Mehta, Senior Counsel with Zal Andhyarujina with Ms. Shivani i/b. J. Sagar & Associates for the Petitioner. Mr. Uday Warunjikar for the Respondent No.1. None for Respondent No.2.

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CORAM : ANOOP V. MOHTA, J. RESERVED ON : 23/07/2012. PRONOUNCED ON : 31/08/2012.

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JUDGMENT :-

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The Petitioner has challenged the Award dated 8^th May, 2007, passed by an Arbitral Tribunal constituted under the rules, regulations and bye laws of the National Stock Exchange of India Limited (NSEIL). The operative part of the Award is as under:

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“Resultantly we award Rs.26,16,321.00 to the claimant and if the respondent does not deposit the amount within one month the claimant shall be entitled to future interest @ 12% p.a. on the said amount till the amount is paid”

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The basic events/dates as per the Petitioner are as under :

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On 1^st November, 2004, the Petitioner and the Respondent No.1 entered into a Member Client Agreement (The agreement). The transactions/dealing took place accordingly.

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On 28^th December, 2004, Respondent No.1 allegedly

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wrote a letter with hole month standing instructions. It was handed over to Mr. Abishekh Bhargave, who was at that time, was a Relationship Manager of the Petitioner. As per the letter, as Respondent No.1 was. going to have a very busy schedule from December 29, 2004 to January 26, 2005; and would mostly be out of station during the said period; would not be able to actively trade and monitor the price movements in the securities market, therefore, a list of advance standing instructions to buy/sell specified securities at different price levels, was included in the letter. The

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Petitioner was instructed to carry out the dealings accordingly. The Petitioner has disputed the receipt and the veracity of this letter in all respect.

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On 29^th December, 2004 to 26^th January, 2005, the following trades were carried out by Respondent No.1 during this period. On 28^th December, 2004, Respondent No.1 purchased 2000 shares of Tata Investment Corporation Limited; on 30^th December, 2004, 3000 shares of Neyvelli Lignite Corporation Limited; on 4^th January, 2005, Respondent No.1 sold 3000 shares of Neyvelli Lignite Corporation Limited; on 25^th January, 2005, 250 shares of Tata Investment Corporation Limited.

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On 27^th January, 2005, Respondent No.1 wrote to the Petitioner and raised disputes alleging that the petitioner had failed to comply with the alleged written instructions. On 18^th February, 2005, Respondent No.1 wrote to the Petitioner that 2 trades were conducted on his account without his consent. On 2^nd March, 2005, another letter/reminder was allegedly handed over to Abhishekh Bhargave by Respondent No.1. On 16^th March, 2005, Respondent No.1 handed over a letter to Mr. Kulbhushan Singh, Branch Manager of the

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Petitioner alleging that there was a dispute with regard o the 10,000 shares of IFCI which were lying in the Respondent No.1's account. The reminders were also forwarded for the same.

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On 16^th May, 2005, the Petitioner wrote to Respondent No.1, enclosing the trading statements and Respondent No.1 was requested to raise objection if any, within 30 days.

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On 6^th July, 2005, Respondent No.1 filed an on line complaint with Respondent No.2. On 5^th August, 2005, the complaint was forwarded to the Petitioner by Respondent No.2. On 5^th October, 2005, the Petitioner sent a detailed reply to the complaint. On 14^th November, 2005,

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Respondent No.1 filed a rejoinder to the reply of the Petitioner. On 30^th November, 2005, Respondent No.2 referred the matter to its Arbitration Department. On 16^th January, 2006, Respondent No.1 filed its Statement of Claim.

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On 28^th February, 2006, Respondent No.2 informed the Petitioner about a a Tribunal constituting Justice V. S. Agarwal (retd.), Justice P. C. Agarwal (retd.) and Mr. Ravi Kant to arbitrate the disputes raised in the claim. The

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parties appeared, subject to objection about the jurisdiction. On 25^th April, 2006, the Petitioner filed its reply to the statement of claim. On 26^th July, 2006, Respondent No.1 filed a rejoinder to the reply filed by the Petitioner. The Petitioner filed a sur-rejoinder to the rejoinder filed by Respondent No.1

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From September 2006 to February 2007, the evidence was led by the parties before the learned Tribunal. On 2^nd April, 2007, final arguments were addressed. On April 2007, written submissions/arguments were filed by the Petitioner and Respondent No.1. The impugned Award was passed on 8^th May 2007. The Petition filed on 17^th July, 2007 in this High Court at Mumbai.

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An issue of jurisdiction was raised by the contesting Respondent including the maintainability of Section 34 of Arbitration and Conciliation Act (the Arbitration Act). The Courthas also kept the issue open for final adjudication.

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Admittedly, their exists the agreement for Member Client Agreement, which is subject to the notification, rules, regulations and guidelines issued by Security and Exchange

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Board of India (SEBI) and Stock Exchanges. Both the parties have read and referred those clauses of the agreement. The relevant clauses 32 and 33 referring to 'Dispute Resolution' and 'Jurisdiction' are as under:

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“32. DISPUTE RESOLUTION :

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Any claim, dispute or difference arising between the Parties hereto in respect of this agreement or any contracts, dealings or transactions pursuant hereto or any rights, obligations, terms or conditions as contained in this agreement or the interpretation or construction for this agreement shall be subject to the grievance redressal procedure of the concerned exchange and shall be subject to the arbitration procedure as prescribed by the applicable Exchange provisions. The MEMBER and the CLIENT are aware of the provisions of the Bye Laws, Rules and Regulations of the concerned Exchange (including those of the various segments of the concerned exchange) related to arbitration.

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33. JURISDICTION :

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All trades, transactions and contracts are subject to the rules and regulations of the respective Exchange(s) on which the trades have been executed and the parties to such trade shall be deemed to have submitted to the jurisdiction of the courts in Mumbai for the purpose of giving effect to the provisions of the Rules and Regulations of the Exchanges (s).”

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A reference is made to the bye laws of NSEIL including Chapter VII dealings by trading members. The clause of jurisdiction is as under :

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“ Jurisdiction

(1) (a) Any deal entered into through automated trading system of the Exchange or any proposal for buying or selling or any acceptance of any such proposal for buying and selling shall be deemed to have been entered at the computerised processing unit of the Exchange at Mumbai and the place of contracting as between the trading members shall be at Mumbai. The trading members of the Exchange shall expressly record on their contract note that they have excluded the jurisdiction of all other Courts save and except, Civil Courts in Mumbai in relation to any dispute arising out of or in connection with or in relation to the contract notes, and that only the Civil Courts at Mumbai have exclusive jurisdiction in claims arising out of such dispute. The provisions of this Bye laws shall not object the jurisdiction of any court deciding any dispute as between trading members and their constituents to which the exchange is not a party.

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(b) The record of the Exchange as maintained by a central processing unit or a cluster of processing units or computer processing units, whether maintained in any register, magnetic storage units,electronic storage units, optical storage units or computer storage units or in any other manner shall constitute the agreed and authentic record in relation to any transaction entered into through automated trading system. For the purposes of any dispute the record as maintained by the computer processing units by the Exchange shall constitute valid evidence in any dispute or claim between the constituents and the trading member of the Exchange or between the trading members of the Exchange inter-se.”

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Reference was also made to the circulars referring to

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“Redressal of Complaints”. It is provided therein in case of dispute against the trading member/registered broker of company, a complaint can be lodged in the state in which dealing office of the trading member is located and where trading is executed. In the present case, as alleged, the trading took place in Lucknow i.e. dealing office of the trading member was at Lucknow (Utter Pradesh). The parties, therefore, in view of the dispute arose between them invoking arbitration clause and after due constitution of the arbitration Tribunal appeared before the same to redress their respective grievances. The Tribunal gave opportunity to the parties. The parties led evidence also.

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Importantly, the Respondents admitted that as part of cause of action also arose in Mumbai and the transaction took place through the NSEIL, they agreed to resolve their dispute and submitted to the jurisdiction of the Court in Mumbai for the purposes of giving effect to the provisions of the rules and regulations. The relevant clauses are reproduced above. The statement of their dispute as referred and relied in respective state forum, for the convenience of the parties, in no way takes away and/or override the agreed clauses between the parties so far as the jurisdiction of the

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Court in Mumbai. The Petitioner, therefore, referring to those clauses 32 and 33 by making necessary averments in the Petition preferred and file Section 34 Petition on 17^th July, 2007, in this Court having agreed for exclusive jurisdiction.

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The necessary averments in the petition are as under:

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“28. It is stated that Clause 33 of the Member Client agreement executed between the Petitioner and the Respondent No.1, it was mutually agreed that Courts at Mumbai shall have exclusive jurisdiction. All trades, transactions and contracts have been carried out on the Respondent No.2, which has its registered office at Mumbai. This court has the exclusive jurisdiction to entertain the present petition.”

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The learned counsel appearing for the Respondents has

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relied on various Judgments that this Court has no jurisdiction to entertain the present petition. The reliance and argument were also made referring to Sections 9, 16 to 20 of the Code of Civil Procedure (CPC) read with Section 28 of the Contract Act. Admittedly, in all those matters there was no issue about such admitted jurisdiction clause as involved in the present case.

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17. In Kotak Securities Limited V/s. Chetan Bhandary

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Arbitration Petition No.13 of 2008, dated 25th November

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2008, though the matter was of the Bombay Stock Exchange and the National Stock Exchange pertaining to the security, and such transaction facilities, the agreed clause as reproduced was not considered and not referred. I have already observed and I am inclined to observe again in view of the admitted position on record that the parties are bound by their own jurisdiction clause in such type of arbitration agreement. Admittedly, part of the cause of action arose in Mumbai. The parties acted upon the same. Therefore, this Court has jurisdiction to entertain the Petition under Section 34 of the Arbitration Act. There is no total bar. The parties, in fact agreed and submitted to this Court's jurisdiction. Because of availability of redressal forum at their respective place and/or state, the parties are entitled to proceed with the arbitration before the Arbitral Tribunal so constituted, as per the agreed venue/clauses, but, having once agreed for the exclusive jurisdiction for the purposes of Court proceedings and jurisdiction, they are bound by the same.

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The choice of the Court jurisdiction as agreed and/or restricted to resolve the dispute, sufficient to reject the preliminary objection so raised by the learned counsel appearing for Respondent No.1. The law so settled in no way

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need further discussion. But, the same law permits the parties to enter into such type of agreement restricting the Court jurisdiction, out of choices available, as part of the cause of action arose in Mumbai. The Petition, therefore, so filed is maintainable and entertainable in this Court only. No other Court, in view of the agreed clauses, has jurisdiction to entertain such Petition. The submissions, therefore, with regard to the territorial jurisdiction, or of the Delhi Court for exclusive jurisdiction and that the agreements are contrary to public policy and contrary to law are unacceptable in view of the agreed clauses even based upon the citation so referred and relied by the respective parties.

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Respondent No.1 requested the Petitioner through the branch manager to execute his trade as per the instructions. The relevant part of the letter dated 28^th December, 2004 is as under:

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“Sub: Execution of Trades as per given instructions.

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Dear Sir,

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This is to inform you that from tomorrow i.e. 29^th Dec 2004 till 26^th Jan 2005, I will be on a very Busy Schedule (mostly out of station) and willnot be able to actively trade and monitor price movement so you are requested to execute my F & O and Cash Trades as per the instructions given

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below:-

S.No	Sell/ Buy	Contract	Strike	Con.Month	No.of Lot	Trade Price
1	Sell	Syndicate	Future	12^th Dec	3(22800)	61.75
		Bank		2004
2	---	------	-----	-------	-----	----

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You are again requested to execute these trades (Cash & F & O) as per the above given instructions and inform me accordingly, as my view about this market is Bearish now. It is expected that the rates of the Put Options shall be available in the next week i.e. the first week of January 05. Kindly punch these orders on daily basis from tomorrow so that the trades may get executed when the target prices are reaches and the rates are not missed. It is further requested that in the trade orders where both buy and sell options are given, kindly first buy and then sell (Instruction No.9 to 12) with stop Losses.

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I am hereby annexing a cheque of Rs.500000/- (Rupees Five Lac Only) dated 11.01.2005 bearing Ch.No.679504, S.B.I. Branch – Personal Banking. Vipul Khand, Gomti Nagar Lucknow for payment in case the cash sale orders are not materialized. I am giving a post-dated cheque as I am expected to receive a payment on 10.01.2005. In case the target prices for cash trades are reached, you are requested not to bank this cheque.

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I will be back to normal work by 27.01.2005 and will meet you there after to resume my active trading.

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Hoping for your Co-operation.”

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As per the alleged instructions, the Petitioner branch incharge officer directed to do the transaction of particular shares at stated price. The contract prices were also

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mentioned. It was directed to proceed accordingly throughout the month.

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The Respondents as alleged on 26^th January, 2005 noted that the transaction was not executed by the Petitioner branch manager and/or official as per the written instructions so given except few. The allegations were also made that some of the transactions were done without his knowledge and consent. Therefore, on 27^th January, 2005, a written objections were raised and thereby objected to certain trades. The claim was made to the tune of Rs.16,50,000/- for the alleged loses for the trade not done as per instructions. Rs.86,500/- were claimed for the trade is not done as per instructions and purchase of 10,000 shares of Arie, loss of Rs.7,75,000/- because of trade without his consent. Ultimately, by referring to another transaction dated 16^th February, 2005 and 17^th February, 2005, he lodged complaint and raised various claims including for appropriate loses, litigation expenses and mental harassment. The same was contested by the Petitioner. The preliminary objection was also raised about the jurisdiction of the Tribunal to proceed with the matter. The same was rejected. The issue of limitation was also raised as the cause of action arose on

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27^th January, 2005, and the claim admittedly filed after six months from the date of cause of action. The authorization of the letter dated 27^th December, 2004 and its validity was also challenged stating it to be bogus and even deny the existence of the said letter.

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Admittedly, there is no such trade practice and the procedure to submit and/or give such written instructions in advance in such fashion. Neither the Bye Laws nor the agreement provides and/or permits them to do so. The mutual understanding and/or oral understanding even, if any, in no way can be stated to be trade practice to execute and do the transactions in such fashion. There is no material whatsoever placed on record by the Respondents. The Arbitral Tribunal has no way dealt with this aspect as not specifically raised. The expertise tribunal needs to take note of the special contracts, business and rule and its practice also. Considering the scope and purpose of such movemental tradings and/or dealing of share transactions in all categories unless provided and permitted, the parties cannot claim damages and compensation for loss or profits in such fashion.

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Admittedly, the Respondents led their evidence of one

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Abhishekh Bhargave. The Petitioner examined one Mr. Amol V. Vyawahare. The Petitioner unable to examine Kulbhushan Singh though his affidavit was filed, he was not available for cross-examination. The learned Arbitrator rejected the submission on the ground of limitation and proceeded to pass Award.

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24 . It is relevant to note that the alleged letter of instructions dated 28 December 2004 itself was quite vague and uncleared. It was not as per any settled practice, procedure, usage and/or agreed terms and conditions between the parties. Everything is based upon the future action and contingencies, even beyond the period of one day or one week and/or one month. The cheque was also of dated 10 January 2005 supposed to be utilized in case of requirement of margin. There is nothing pointed out and/or referred and/or relied upon to show that such type of letter of instructions is recognized and permissible mode to do such type of moment to moment daily transactions. In such type of volatile or uncertain market, which changes from morning to

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evening and from evening to morning, nothing is certain except for the moment when party want to do the business based upon the experience, and the market of that particular

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date and the time. Therefore, daily and timely oral instructions and/or telephonic instructions and/or such communication are possible and recognized mode. There is no bar that no written instructions can be given to do the transaction, but to give such instructions in question for one month by putting everything in writing including the rate, date without assessment and without verifying the position of the day and/or of the week is quite impracticable and impossible. This casts unnecessary burden upon the trader to keep unnecessary watch and restrict even to exercise his discretion and/or commercial sense in case of change of circumstances. In the present case, as noted, that claim therefore, so filed, was not only for the instructions not complied with but also for the losses incurred because of alleged unauthorized trading. The Petitioner has, in fact, even denied the existence of such letter and the authorization by anybody from their office to accept and/or proceed on the basis of the said instructions.

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There is ample material on record to show that there were transactions on cash segment during the period from 29 December 2004 to 26 January 2005 on telephonic instructions. There were other transactions, not only as per

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the alleged letter, but others also. (Amol Vyavhare Affidavit). The contract notes were duly served and received by the Respondent who disputed only some transactions and not all.

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It is relevant to note the pleadings and the affidavit of the claimant as under:

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“ Between 28.12.2004 and 26.1.2005 I was for some time in Lucknow and at time out of Lucknow. I will not be able to say the precised dates when during this period I was in Lucknow or out of Lucknow. VOL – because lot of time has passed. For the above said period for most of the time I was out of Lucknow. However it is correct for the short duration during the above said period I was in Lucknow.

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In case of personal visit I would placed the order by signing the order confirmation report, otherwise the order would also be placed through telephone on recorded lines with the other company.

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The transcription for the tape recording given to me earlier are correct. The confirmation of the orders when placed on telephone was made by respondent No.1 or telephone itself. When I personally visited the confirmation were given there and then contract notes from Respondent No.1 were always received by post. I never accessed the email account provided by the Respondent No.1. I have been seen my bank accounts regularly. Because Abhishek Bhargava was my Customer Relationship Manager therefore I gave another letter despite no action having been taken of my allegedly letters dated 28.12.2004 and 27.1.2005. The letter dated 16.3.2005 was delivered in the office of respondent No.1 at Lucknow. In Code GGF-44 I dealt with Respondent No.1 in February, March and April, 2005. I closed the account

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No.GGR 69 in last week of March or first week of April 2005.”

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It is also relevant to note that the obligation as required

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under the Byelaws and considering the nature of business/transaction, such type of written advance instructions for month, in my view, is just not permissible mode to do the transactions. There are various obligations of both the parties which need to be considered, in a given case from moment to moment, from day to day and in every case where the market is volatile and uncertain or even otherwise. The so-called written instructions will of no use and/or assistance and not binding. It is always create complication to do the business based upon such instructions. If the obligation of margin, notice of such requirement in case of short-fall, unnecessary delay or balance and/or respective obligation based upon such type of transactions, are just acceptable mode and/or workable, such disputed written instructions letter is no way create any right, in favour of the Respondent No.1. It is no way binds the Petitioner. The claim therefore so raised is liable to be rejected. No timely objections were raised. The letter goes to the root and if it goes so also the claims based upon it.

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It is not the case of possible view of the matter or a case of possible interpretation of the clause or acted within the terms of the contract and the laws or a question of reassessment or re-appreciation of the evidence. The reasons and the basis, therefore, so given by the learned Arbitral Tribunal by overlooking the bye-laws, terms and conditions of the contract, usage, trade practice and nature of type of business in question, even if we consider the provisions of Arbitration Act under Sections 23,24,26, 28 and 34 and the expertized and/or special knowledge of such expertized Tribunal, still the award so granted, in my view, is illegal, without jurisdiction and liable to be set aside (J.G. Engineers 1 Private Limited Vs. Union of India & Anr.) . Therefore, taking overall view of the matter, I am inclined to set aside the impugned award.

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The limitation issue, even if any, I would have decided in view of change of circumstances basically the circular issued by the SEBI, extending the period from 6 months to 3 years. The aspect could have been different, but, in view of above, I am not deciding the issue of limitation also.

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There is no question of grant of interest. So far as the

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1 (2011) 5 SCC 758

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costs is concerned, as recorded, I am not inclined to interfere with the same.

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Resultantly, the Petition is allowed. The impugned Award is quashed and set aside, except the aspect of costs. There shall be no order as to costs.

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(ANOOP V. MOHTA, J.)

Kotak Securities Ltd. v. Gaurav Goel and Anr.

Case brief

What is this about?

What did the court decide?

Kotak Securities Ltd. v. Gaurav Goel and Anr.

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

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Parties & counsel

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