Oral Judgment: (Dr. D.Y. Chandrachud, J.)
The appeal arises from a judgment of the Learned Single Judge dated 17 April 2012 on a Petition under Section 34 of the Arbitration and Conciliation Act, 1996.
2. The Appellant and the Respondent entered into a member-client agreement on 4 December 2008 in pursuance of which the Respondent became a client of the Appellant. The Appellant carries on business of stock broking both on the National Stock Exchange and the Bombay Stock Exchange. Between 9 April 2008 and 29 August 2008, the Appellant transacted on behalf of the Respondent by the purchase of 50,000 shares of a Company by the name of Refex Refrigerants. There was a debit of Rs.1.52 crores in the account of the Respondent. On 4 September 2008, the Respondent made a part payment of Rs.15 lakhs. There was a debit of Rs.77.15 lakhs On 8 September 2008 and 17 October 2008 the Appellant addressed letters of demand for the payment of the outstanding dues and eventually on 28 November 2008 addressed an Advocate's notice demanding the payment of an amount of Rs.80.34 lakhs. The Respondent by a letter dated 13 December 2008 disputed its liability inter alia on the ground that on 23 September 2008, it had provided a further 15,000 shares of Refex Refrigerants consequent upon which the Appellant held 65,000 shares of the Company. The case of the Respondent was that it had issued oral instructions to the Appellant to effect the sale of 65,000 shares in order that the debit balance could be squared off and that the Respondent was orally informed on 23 September 2008 of the sale of the 65,000 shares resulting in a credit of Rs.17.35 lakhs. The Appellant made a claim before the arbitral tribunal of the Bombay Stock Exchange in the amount of Rs.81.24 lakhs. The Respondent filed its written statement and submitted a counter claim.
3. The arbitral tribunal by its award dated 17 March 2010 awarded to the Appellant an amount of Rs.12.79 lakhs together with interest at 9% per annum from the date of the filing of the reference. The award was challenged by the Appellant since the arbitral tribunal had not awarded the entirety of the claim. By the impugned order, the Learned Single Judge has dismissed the Petition under Section 34 to challenge the arbitral award.
4. Three submissions have been urged in support of the appeal: (i) The arbitral tribunal has held that the Appellant ought to have mitigated the damages by taking steps within a reasonable period of a fortnight from 23 September 2008 to liquidate the 65,000 shares of the Respondent though there was no such pleading of mitigation by the Respondent; hence, there was no question of the tribunal exercising jurisdiction to apply the principle of mitigation of damages; (ii) The provisions of Bye-law 238(a) confer a discretion on a member of the Stock Exchange to close out the account of the constituent on the failure of the constituent to pay the loss or damage either forthwith or at any time thereafter and the Tribunal was in error in importing the requirement of the exercise of that power within a reasonable period; and (iii) Unlike Bye-law 244 which deals with a default of a member (in which case, the constituent is required to close out the contract within fifteen days) no such time limit is specified in Bye-law 238(a) which deals with a default of a constituent and the provision of time in Bye-law 244 cannot be read into Bye-law 238.
5. At the outset, it must be noted that in the statement of claim that was filed by the Appellant, the case of the Appellant was to the following effect :
âThe Respondent failed to honour his commitment and on account of debit in his account and MTM losses. However, the Applicant was unable to square off the positions of the Respondent as there was no liquidity in the REFEX Refrigerants (REFEX) shares on BSE as the stock was in continuous downward circuit.â
Hence, the statement of claim proceeded on the basis that the Appellant herein had been unable to square off the positions of the Respondent on the ground that there was no liquidity in the shares of Refex Refrigerants as the stock was in a continuous downward circuit. The Tribunal has found, as a matter of fact, that from the analysis of the stock price movement provided by the Appellant (down loaded from the website of the Bombay Stock Exchange) it was evident that until 8 October 2008, there was a substantial volume of trading in the shares of Refex Refrigerants. There is also a finding of fact that the purchase of 50,000 shares by the Respondent from 29 August 2008 was a singular transaction prior to which there was a single transaction of the purchase and sale of one thousand shares of Reliance on 6 April 2008. This factual foundation the Tribunal has recorded as an admitted position. The Tribunal has relied on the Bye-laws of the Stock Exchange and held that though an absolute power is conferred upon the Appellant to close out the transaction, where the constituent has failed to make payment, the Appellant ought to have used his discretion as a prudent person acting with reasonable diligence. The Tribunal in this case held that applying this principle, the Appellant ought to have liquidated the shares of the Respondent within a maximum period of a fortnight from 23 September 2008 and if this was done, the value of the shares of the Refex Refrigerants on 7 October 2008 was of a weighted average of Rs.101/-. The Appellant would have, therefore, realized an amount of Rs.65.65 lakhs if the 65,000 shares of Refex Refrigerants were sold around 7 October 2008.
6. We do not find any merit in the contention that there was no plea of mitigation before the arbitral tribunal. As a matter of fact, from the statement of claim which has been extracted earlier, it is clear that the contention of the Appellant was that it was unable to liquidate the shares which were held by it because of the absence of liquidity in the shares of Refex Refrigerants and the downward circuit. This contention has been found to be factually incorrect on the basis of the evidence which was produced before the Tribunal and accepted. The claim of the Appellant was essentially for loss and damages suffered as a result of a breach on the part of the Respondent of the agreement with the Appellant. In view of the explanation to Section 73 of the Indian Contract Act, 1872, the Tribunal was justified in considering, while estimating the loss or damages from a breach of contract, the means which existed of remedying the inconvenience caused by the nonperformance of the contract. The explanation to Section 73 reads as follows :
âExplanation.- In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.â
The issue as to whether the Appellant had acted as a person of reasonable prudence was, therefore, within the jurisdiction of the Tribunal to determine and was expressly a matter which arose from the contention of the Appellant in the statement of claim.
7. The Tribunal has referred to the Bye-laws of the Stock Exchange. The Learned Single Judge has adverted to both Bye-law 238(a) and Bye-Law 244. Bye-law 238(a) deals with a situation where there is a failure on the part of the constituent to pay the loss or damages sustained on closing out effected against him by the member or a failure to pay differences in due time. Bye-law 244 deals with a failure of a member of the Stock Exchange to complete the performance of a contract. As contended on behalf of the Appellant, Bye-law 238(a) does not expressly specify a particular limit of time within which the member is required to close out the account. However, Byelaw 238(a) states that âthe member may close out his account either forthwith or at any time thereafter in his discretionâ. 'Forthwith' obviously means immediately on the thing or event occurring. The expression, 'at any time thereafter' has to be construed in a reasonable manner which is what the Tribunal has done. The period of fifteen days has been considered by the Tribunal to be a reasonable period. This clearly is a matter of interpretation of Bye-law 238(a). The Tribunal has committed no perversity in interpreting Bye law 238(a) to mean that the exercise of the discretion must be within a reasonable period. Though a statutory bye law does not mention a specified period of time for the completion of a particular task or act, the delegate of the legislature can reasonably be presumed to require that the exercise of a power conferred must be within a reasonable period. In any event, such an interpretation by the Arbitrator of Bye law 238(a) is a reasonable interpretation which falls within the domain of the arbitral tribunal. This would also be consistent with the provisions of the explanation to Section 73 of the Contract Act.
8. In the circumstances, the Learned Single Judge was not in error in declining to interfere with the arbitral award. No case was made out for interference within the ambit of Section 34 of the Arbitration and Conciliation Act, 1996. The appeal shall accordingly stand dismissed. There shall be no order as to costs.