Tarun Gupta vs.m/s First Global Stock Broking Pvt Ltd - Court Judgment

SooperKanoon Citationsooperkanoon.com/1219876
CourtDelhi High Court
Decided OnDec-10-2018
AppellantTarun Gupta
RespondentM/S First Global Stock Broking Pvt Ltd
Excerpt:
$~17 * + o.m.p. 686/2012 in the high court of delhi at new delhi date of decision :10. h december, 2018 tarun gupta ........ petitioner through: ms.aastha dhawan, ms.shaini bhardwaj and ms.diksha mathur, advs. m/s first global stock broking pvt ltd versus through: mr.rajshekhar .... respondent and rao mr.raghav kachar, advs. coram: hon'ble mr. justice navin chawla navin chawla, j.(oral) 1. this petition has been filed under section 34 of the arbitration and conciliation act, 1996 (hereinafter referred to as the ‘act’) challenging the arbitral award dated 31.01.2011 passed by the arbitral tribunal constituted by the national stock exchange of india limited (nseil) for adjudicating the disputes between the parties, as also the appellate arbitral award dated 30.01.2012 passed by the appellate arbitral tribunal appointed by the nseil.2. it is the case of the petitioner that in august 2008 the respondent had entered into a contract with the petitioner for making investment on behalf of the petitioner. the petitioner alleges that the contract was a discretionary trading account and the respondent had to trade in the petitioner’s account following trade strategies of omp6862012 page 1 respondent’s strategies product, where trades are hedged to protect the capital. based on the above, the petitioner invested a sum of rs.28,82,030.80 with the respondent.3. it is further averred that initially the account was giving positive return, however, since the petitioner noted certain fluctuations in the cash balance in the account, he made enquiries about the reason for the same and was assured that this was as a result of trade settlements and margin requirements and the petitioner need not worry about the same. later, the petitioner was assured by one mr. sorabh gupta of the respondent company that he would personally handle the trading account of the petitioner and make recoveries of the losses for him. in spite of this assurance, the petitioner suffered further losses and by the letter dated 14.09.2009, the respondent denied its liability thereby leading to a dispute between the parties.4. on the other hand, the respondent asserted that the petitioner’s trading account was a simple trading account and not a discretionary account nor any assurance was given by the respondent as alleged by the petitioner. it was further asserted by the respondent that mr. rajesh chauhan was a sub-broker engaged by the petitioner and all trades were done on the basis of the instructions received through mr. rajesh chauhan. later assurances given by mr. sorabh gupta were denied by the respondent.5. the arbitral tribunal and the appellate tribunal have disbelieved the case of the petitioner that the account opened by the petitioner was a discretionary account or based on the specific hedging omp6862012 page 2 instruction. at the same time, they have also disbelieved the defence of the respondent that mr. rajesh chauhan acted as a sub-broker in the transaction. it was held that it was only on 23.10.2009 that for the first time the respondent disputed that mr. rajesh chauhan was acting as a business development manager (bdm) of the respondent but was only a sub-broker.6. at this stage it would be relevant to note that the respondent had relied upon and filed a tripartite agreement dated 19.08.2008 purportedly executed between the petitioner, the respondent and mr. rajesh gupta, with mr. rajesh gupta acting as a sub-broker. the petitioner had denied his signature on the said document. both the parties led evidence of handwriting expert to prove their respective assertion, however, the arbitral tribunal refused to take note of this question of forgery of the document. its findings were based purely on the conduct of the respondent for not denying the status of mr. rajesh chauhan as the bdm or informing petitioner of existence of sub-broker in correspondences exchanged for almost one year.7. despite the above finding, the arbitral tribunal held that the petitioner was not entitled to the claim as he had not protested against the transactions on receipt of the contract notes. the same is the basis of the finding of the appellate arbitral tribunal as well.8. learned counsel for the petitioner submits that even if it is accepted that the present was not a case of discretionary account or based on the instruction of hedging as claimed by the petitioner, and was a simple trading account as asserted by the respondent, the omp6862012 page 3 respondent, in terms of regulation 3.4.1 of the regulation (f & o segment) of nseil was to ensure that the appropriate confirmation order/instructions are obtained by the respondent from the petitioner before placement of an order. the onus of proving the receipt of said order/instructions was on the respondent, which the respondent failed to discharge and in fact, the arbitral tribunal did not even call for the same. she further submits that the account had been opened by the petitioner on 19.08.2008. the petitioner received ledger statement only on 17.09.2008 and immediately protested against the same, though alleging discretionary account as a reason for protest. the present is therefore, not a case where the petitioner had accepted the transaction and only later as an afterthought protested against the same. in this regard, she places reliance on the arbitral award which noted that the petitioner had written different e-mails to the respondent and the respondent uptill august 2009 had replied stating that they were investigating the matter. she submits that the finding of the arbitral tribunal that the petitioner had not protested against the transaction is therefore contrary to its own finding on the question of limitation raised by the respondent.9. she further places reliance on the judgment of the bombay high court in sytematix shares & stocks (india) ltd. v. vimal agarwal, 2010 scc online bom 3, wherein the court upheld the award directing refund of money to the investor as the petitioner therein had failed to file any material on record to show that the trade was ordered by the respondent therein. she submits that it is for the omp6862012 page 4 respondent to file documents on record to show that the transactions were carried out on specific order/instructions of the petitioner.10. on the other hand, the learned counsel for the respondent relying upon the e-mail dated 19.09.2009 addressed by the petitioner to the respondent submits that a bare reading of this would show that the petitioner was not only aware of the transaction carried out in his account, but later, instead of protesting against the same, had purportedly allowed mr.sourabh gupta to carry out further transactions in his account so as to recover the loss suffered by him. merely because mr.sourabh gupta or the respondent was unable to recover the loss due to market condition, the respondent cannot be held liable for the same. he further submits that the petitioner did not deny that he had received the contract notes for the transactions and did not protest against the same. this clearly shows that all transactions were done on the basis of the petitioner’s authorisation / instructions and to his knowledge and the petitioner is merely raising this dispute as an afterthought on account of losses suffered due to market fluctuation.11. i have considered the submissions made by the learned counsels for the parties. it is not disputed that the petitioner had entered into an agreement with the respondent on 18.08.2008. though the petitioner had claimed that the account was a discretionary portfolio based on the hedge fund strategy of the respondent, the arbitral tribunal has disbelieved the same. the tribunal, in fact, believed the stand of the respondent that this was a simple trading account wherein all omp6862012 page 5 transactions were done by the petitioner on his behest and his own risk and consequences. once the stand of the respondent was believed by the arbitral tribunal, the necessary compliance of aforementioned regulation 3.4.1 by the respondent became necessary to be considered by the arbitral tribunal. in the award or the appellate order there is no discussion on this aspect. regulation 3.4.1 is quoted hereinbelow:-"trading members shall ensure that appropriate “3.4.1 confirmed order instructions are obtained from the constituents before placement of an order on the neat system and shall keep relevant records or documents of the same and of the completion or otherwise of these orders thereof.” 12. the stand of the respondent that these transactions had been conducted on the basis of instructions received from mr. rajesh chauhan who had acted as a sub-broker, was also disbelieved by the arbitral tribunal and the appellate arbitral tribunal. therefore, the sole basis of the award was the issuance of the contract notes by the respondent and purported non-protest against the same by the petitioner. on the question of the protest, the arbitral tribunal failed to consider the plea of the petitioner that it received the first ledger statement only on 17.09.2008 and had thereafter protested against the same. the arbitral tribunal itself found that on the said protest, it was the respondent who stated that they are investigating the matter and would report back to the petitioner on the same. therefore, the emphasis put by the arbitral tribunal on petitioner’s lack of protest to the contract notes, in my opinion cannot be accepted. omp6862012 page 6 13. in any case, in the absence of instructions/authorization being proved on record by the respondent, whether the petitioner is entitled to its claim and whether an adverse inference has to be drawn against the petitioner were questions, to be determined by the arbitral tribunal. the arbitral tribunal and the appellate arbitral tribunal seem to have take a highly simplistic view on this issue without making any reference to the correspondences exchanged between the parties for the period starting from 17.09.2008 to 14.09.2009 and 23.10.2009, when letters were addressed by the respondent to the petitioner denying their liability, and also the effect of the letter dated 25.10.2009 addressed by the petitioner to the respondent. these were vital documents to be considered by the arbitral tribunal.14. as the award and the appellate order have been passed without considering the above documents, the award and the appellate order cannot be sustained and are set aside. the petitioner shall be at liberty to initiate appropriate proceedings for making its claim against the respondent. in such proceedings the petitioner shall be entitled to claim the benefit of limitation under section 43(4) of the act.15. the petition is allowed in the above terms, with no order as to cost. navin chawla, j december10 2018/arya omp6862012 page 7
Judgment:

$~17 * + O.M.P. 686/2012 IN THE HIGH COURT OF DELHI AT NEW DELHI Date of Decision :

10. h December, 2018 TARUN GUPTA ........ Petitioner

Through: Ms.Aastha Dhawan, Ms.Shaini Bhardwaj and Ms.Diksha Mathur, Advs. M/S FIRST GLOBAL STOCK BROKING PVT LTD versus Through: Mr.Rajshekhar .... Respondent and Rao Mr.Raghav Kachar, Advs. CORAM: HON'BLE MR. JUSTICE NAVIN CHAWLA NAVIN CHAWLA, J.

(Oral) 1. This petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Act’) challenging the Arbitral Award dated 31.01.2011 passed by the Arbitral Tribunal constituted by the National Stock Exchange of India Limited (NSEIL) for adjudicating the disputes between the parties, as also the Appellate Arbitral Award dated 30.01.2012 passed by the Appellate Arbitral Tribunal appointed by the NSEIL.

2. It is the case of the petitioner that in August 2008 the respondent had entered into a Contract with the petitioner for making investment on behalf of the petitioner. The petitioner alleges that the Contract was a discretionary trading account and the respondent had to trade in the petitioner’s account following trade strategies of OMP6862012 Page 1 respondent’s strategies product, where trades are hedged to protect the capital. Based on the above, the petitioner invested a sum of Rs.28,82,030.80 with the respondent.

3. It is further averred that initially the account was giving positive return, however, since the petitioner noted certain fluctuations in the cash balance in the account, he made enquiries about the reason for the same and was assured that this was as a result of trade settlements and margin requirements and the petitioner need not worry about the same. Later, the petitioner was assured by one Mr. Sorabh Gupta of the respondent company that he would personally handle the trading account of the petitioner and make recoveries of the losses for him. In spite of this assurance, the petitioner suffered further losses and by the letter dated 14.09.2009, the respondent denied its liability thereby leading to a dispute between the parties.

4. On the other hand, the respondent asserted that the petitioner’s trading account was a simple trading account and not a discretionary account nor any assurance was given by the respondent as alleged by the petitioner. It was further asserted by the respondent that Mr. Rajesh Chauhan was a sub-broker engaged by the petitioner and all trades were done on the basis of the instructions received through Mr. Rajesh Chauhan. Later assurances given by Mr. Sorabh Gupta were denied by the respondent.

5. The Arbitral Tribunal and the Appellate Tribunal have disbelieved the case of the petitioner that the account opened by the petitioner was a discretionary account or based on the specific hedging OMP6862012 Page 2 instruction. At the same time, they have also disbelieved the defence of the respondent that Mr. Rajesh Chauhan acted as a sub-broker in the transaction. It was held that it was only on 23.10.2009 that for the first time the respondent disputed that Mr. Rajesh Chauhan was acting as a Business Development Manager (BDM) of the respondent but was only a sub-broker.

6. At this stage it would be relevant to note that the respondent had relied upon and filed a Tripartite Agreement dated 19.08.2008 purportedly executed between the petitioner, the respondent and Mr. Rajesh Gupta, with Mr. Rajesh Gupta acting as a Sub-Broker. The petitioner had denied his signature on the said document. Both the parties led evidence of Handwriting Expert to prove their respective assertion, however, the Arbitral Tribunal refused to take note of this question of forgery of the document. Its findings were based purely on the conduct of the respondent for not denying the status of Mr. Rajesh Chauhan as the BDM or informing petitioner of existence of sub-broker in correspondences exchanged for almost one year.

7. Despite the above finding, the Arbitral Tribunal held that the petitioner was not entitled to the claim as he had not protested against the transactions on receipt of the Contract Notes. The same is the basis of the finding of the Appellate Arbitral Tribunal as well.

8. Learned counsel for the petitioner submits that even if it is accepted that the present was not a case of discretionary account or based on the instruction of hedging as claimed by the petitioner, and was a simple trading account as asserted by the respondent, the OMP6862012 Page 3 respondent, in terms of Regulation 3.4.1 of the Regulation (F & O Segment) of NSEIL was to ensure that the appropriate confirmation order/instructions are obtained by the respondent from the petitioner before placement of an order. The onus of proving the receipt of said order/instructions was on the respondent, which the respondent failed to discharge and in fact, the Arbitral Tribunal did not even call for the same. She further submits that the account had been opened by the petitioner on 19.08.2008. The petitioner received Ledger Statement only on 17.09.2008 and immediately protested against the same, though alleging discretionary account as a reason for protest. The present is therefore, not a case where the petitioner had accepted the transaction and only later as an afterthought protested against the same. In this regard, she places reliance on the Arbitral Award which noted that the petitioner had written different e-mails to the respondent and the respondent uptill August 2009 had replied stating that they were investigating the matter. She submits that the finding of the Arbitral Tribunal that the petitioner had not protested against the transaction is therefore contrary to its own finding on the question of limitation raised by the respondent.

9. She further places reliance on the judgment of the Bombay High Court in Sytematix Shares & Stocks (India) Ltd. v. Vimal Agarwal, 2010 SCC OnLine Bom 3, wherein the Court upheld the Award directing refund of money to the investor as the petitioner therein had failed to file any material on record to show that the trade was ordered by the respondent therein. She submits that it is for the OMP6862012 Page 4 respondent to file documents on record to show that the transactions were carried out on specific order/instructions of the petitioner.

10. On the other hand, the learned counsel for the respondent relying upon the e-mail dated 19.09.2009 addressed by the petitioner to the respondent submits that a bare reading of this would show that the petitioner was not only aware of the transaction carried out in his account, but later, instead of protesting against the same, had purportedly allowed Mr.Sourabh Gupta to carry out further transactions in his account so as to recover the loss suffered by him. Merely because Mr.Sourabh Gupta or the respondent was unable to recover the loss due to market condition, the respondent cannot be held liable for the same. He further submits that the petitioner did not deny that he had received the Contract Notes for the transactions and did not protest against the same. This clearly shows that all transactions were done on the basis of the petitioner’s authorisation / instructions and to his knowledge and the petitioner is merely raising this dispute as an afterthought on account of losses suffered due to market fluctuation.

11. I have considered the submissions made by the learned counsels for the parties. It is not disputed that the petitioner had entered into an Agreement with the respondent on 18.08.2008. Though the petitioner had claimed that the account was a discretionary portfolio based on the hedge fund strategy of the respondent, the Arbitral Tribunal has disbelieved the same. The Tribunal, in fact, believed the stand of the respondent that this was a simple trading account wherein all OMP6862012 Page 5 transactions were done by the petitioner on his behest and his own risk and consequences. Once the stand of the respondent was believed by the Arbitral Tribunal, the necessary compliance of aforementioned Regulation 3.4.1 by the respondent became necessary to be considered by the Arbitral Tribunal. In the Award or the Appellate Order there is no discussion on this aspect. Regulation 3.4.1 is quoted hereinbelow:-

"Trading Members shall ensure that appropriate “3.4.1 confirmed order instructions are obtained from the constituents before placement of an order on the NEAT system and shall keep relevant records or documents of the same and of the completion or otherwise of these orders thereof.” 12. The stand of the respondent that these transactions had been conducted on the basis of instructions received from Mr. Rajesh Chauhan who had acted as a sub-broker, was also disbelieved by the Arbitral Tribunal and the Appellate Arbitral Tribunal. Therefore, the sole basis of the Award was the issuance of the Contract Notes by the respondent and purported non-protest against the same by the petitioner. On the question of the protest, the Arbitral Tribunal failed to consider the plea of the petitioner that it received the first Ledger Statement only on 17.09.2008 and had thereafter protested against the same. The Arbitral Tribunal itself found that on the said protest, it was the respondent who stated that they are investigating the matter and would report back to the petitioner on the same. Therefore, the emphasis put by the Arbitral Tribunal on petitioner’s lack of protest to the Contract Notes, in my opinion cannot be accepted. OMP6862012 Page 6 13. In any case, in the absence of instructions/authorization being proved on record by the respondent, whether the petitioner is entitled to its claim and whether an adverse inference has to be drawn against the petitioner were questions, to be determined by the Arbitral Tribunal. The Arbitral Tribunal and the Appellate Arbitral Tribunal seem to have take a highly simplistic view on this issue without making any reference to the correspondences exchanged between the parties for the period starting from 17.09.2008 to 14.09.2009 and 23.10.2009, when letters were addressed by the respondent to the petitioner denying their liability, and also the effect of the letter dated 25.10.2009 addressed by the petitioner to the respondent. These were vital documents to be considered by the Arbitral Tribunal.

14. As the Award and the Appellate Order have been passed without considering the above documents, the Award and the Appellate Order cannot be sustained and are set aside. The petitioner shall be at liberty to initiate appropriate proceedings for making its claim against the respondent. In such proceedings the petitioner shall be entitled to claim the benefit of limitation under Section 43(4) of the Act.

15. The petition is allowed in the above terms, with no order as to cost. NAVIN CHAWLA, J DECEMBER10 2018/Arya OMP6862012 Page 7