"This is a case almost similar to a cyber crime in which someone caught hold of the password of an on-line trader and indulged in trading in shares on his behalf causing clandestinely a loss of about Rs. 20 lacs to him. As there was an involvement of a third party who was allegedly instrumental in effecting trading loss and as a cheating charge had also been leveled, perhaps it would have been a fit case for the law-enforcing Agency to uncover the truth. Nevertheless, Arbitration dwells purely on the role of the Applicant and the Respondent in the whole process and on their respective lapses, which led to the loss.
Delhi High Court
OMP 436/2005 & 9/2006 Page 11 of 22 The Himalayan blunder committed by the Respondent was that they used indiscriminately the Demat A/c. of the Applicant for the purpose of provision of the margin etc., on account of the alleged trading done on the Applicant's broking account by transferring shares from the former without keeping the Applicant informed or without giving him time to regularize any deficiency in this regard. True, the system at the Respondent's end generated a number of information and data relating to trading, margin account, contract notes, ledger statement etc. But in the absence of the "password" the Applicant did not have any means to access these for his use.
xxxx xxxx xxxx xxxx
.........Fourthly, the Respondent could not also produce any proof/ document of having sent the hard copies of the periodical "Transaction Statements" relating to the Applicant's Demat Account to him. This was all the more necessary in a situation where the Respondent knew that all transactions in the Applicant's trading account were being carried out by the Applicant's AA only (vide statements made by the Respondent in Para 11 and last sentence of Para 18 of their statement of reply received at N.S.E. on 04.06.2005) and hence all "screenshot" reports might not have been brought to his notice.
Indiabulls Securities Ltd vs Amulya Ratan Dhar on 2 December, 2009
1. Both OMP Nos. 436/2005 and 9/2006 have been filed under
Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter
referred to as "Act 1996") challenging the Arbitral Awards dated 26th
August and 30th September, 2005. Since common issues of fact and
law arise in both the proceedings and respondents in the two petitions
are husband and wife, the said two petitions with consent of parties are
being disposed of by a common order.
2. Mr. Rajeev K. Virmani, learned senior counsel for petitioner
submitted that the arbitral tribunals had failed to appreciate that the
claims filed by the respondents were barred by limitation. In this
connection, Mr. Virmani, relied upon Chapter XI of the Bye laws of the
National Stock Exchange of India Limited. The relevant portion of the
said Chapter reads as under:-
CHAPTER XI
ARBITRATION
xxxx xxxx xxxx xxxx
Limitation period for reference of claims, differences or disputes for arbitration
(3) All claims, differences or disputes referred to in Bye laws (1), (1A), (1B) and (1D) above shall be submitted to arbitration within six months from the date on which the claim, difference or dispute arose or shall be deemed to have arisen. The time taken in conciliation proceedings, if any, initiated and conducted as per the provisions of the Act and the time taken by the Relevant Authority to administratively
OMP 436/2005 & 9/2006 Page 2 of 22 resolve the claim, differences or disputes shall be excluded for the purpose of determining the period of six months.
Explanation :-
(1) In cases where the date of claim, difference or dispute is not ascertainable, it shall be deemed to have arisen on the date of expiry of six months from the date of the transaction in respect of which the claim, difference or dispute has arisen.
(emphasis supplied)
3. In support of his submission, Mr. Virmani relied upon a
judgment of the Supreme Court in HCG Stock & Share Brokers Ltd. v.
Gaggar Suresh reported in (2007) 2 SCC 279 wherein it had been held
as under:
3. .......The learned Single Judge in turn has affirmed the order of the Arbitral Tribunal whereby the Arbitral Tribunal has upheld the objection of the respondent that the claim raised by the appellant is barred by limitation as per bye- laws of the National Stock Exchange of India Limited.
xxxx xxxx xxxx xxxx
5. In regular course of business the appellant maintained an account of the respondent in its books of accounts and from time to time the appellant forwarded to the respondent the extracts of the said account, which was received, retained and accepted by the respondent and at no point of time the respondent raised any dispute regarding the extract of the accounts. At the foot of the said account of the respondent so maintained by the appellant a sum of Rs 49,79,388.17 paise remained due and payable by the respondent to the appellant as on 31-12-1999. The appellant also sent confirmation letter to the respondent along with a copy of the statement of accounts and the respondent never raised any query nor did the respondent raise any objection and on the contrary, the respondent kept on promising to pay the outstanding dues in his accounts. The respondent sought some time for making the payment because of financial difficulties. However, after some time the appellant became suspicious and lodged a complaint against the respondent with the Economic Offences Wing on 21-3-2003. The appellant submitted that the cause of action has arisen when it filed the complaint against the respondent with the Economic Offences Wing on 21-3-2003
OMP 436/2005 & 9/2006 Page 3 of 22 and, therefore, the claim was within time and the same is not barred by limitation. The respondent filed his reply and raised an objection that the claim is barred by time. Apart from other objections which have been raised by the respondent, the respondent raised the plea of limitation and submitted that the time prescribed for filing any complaint arising out of a dispute, redressal of which can be sought from the panel of arbitrators by National Stock Exchange of India Limited is six months from the date of dispute. In the present dispute the time started running from the date on which the dispute has arisen. The last date on which the appellant has carried out a transaction on behalf of the respondent was 1-7-1999. The respondent submitted that the arbitration proceedings must be terminated since prima facie the dispute is not established as it is hopelessly barred by time. The bye-laws of National Stock Exchange of India Limited provide six months' period for filing of such complaint and the relevant portion of the bye-laws reads as under:
"All claims, differences or disputes referred to in Bye-laws (1), (1-A), (1-B) and (1-D) above shall be submitted to arbitration within six months from the date on which the claim, difference or dispute arose or shall be deemed to have arisen. The time taken in conciliation proceedings, if any, initiated and conducted as per the provisions of the Act and the time taken by the relevant authority to
administratively resolve the claim, differences or disputes shall be excluded for the purpose of determining the period of six months."
xxxx xxxx xxxx xxxx
7.......Reference to this communication leaves no manner of doubt that the dispute had already arisen on 8-2-2001 and the last date for resolving the dispute was 19-3-2001. Therefore, even if we take the last cut off date to be 19-3-2001 then too the last date of filing the complaint would be September 2003. Therefore, the complaint was hopelessly barred by time."
4. Mr. Virmani further submitted that the arbitral tribunals had not
found the petitioner responsible for any breach of contract. He stated
that Mr. Debjyoti Gupta who had specifically been authorized by the
respondents to operate the securities trading/depository account, was an
agent of the respondents. In this connection, Mr. Virmani referred to
OMP 436/2005 & 9/2006 Page 4 of 22 two undated letters written by the respondents to the petitioner as well
as the Memorandum of Understanding executed between the
respondents and their agent Mr. Debjyoti Gupta. The two undated
letters written by the respondents which according to Mr. Virmani had
been written in October, 2002 are reproduced hereinbelow:
A) Authorization letter issued by respondents in favour of their agent
Mr. Debjyoti Gupta.
"M/s. Orbis Securities Pvt. Ltd.
F-60, Malhotra Building,
Connaught Circus
New Delhi - 110001
Subject : Authorization
I hereby authorize Mr. Debjyoti Gupta S/o Sh. Satyaki Gupta Resident of 1/1, Dover Lane Kolkata-29, to deal/ execute all transactions in my broking account with M/s. Orbis Securities Pvt. Ltd.
Mr. Debjyoti Gupta is also authorized to receive all documents and other communications from M/s. Orbis Securities Pvt. Ltd. and to do all other Acts necessary for operations in my broking account. All transactions done by him with M/s. Orbis Securities Pvt. Ltd. shall be always binding upon me and I shall remain liable for the same.
I/We further attest the photograph of Mr. Debjyoti Gupta which is affixed herewith and as also his signatures appended below..."
xxxx xxxx xxxx xxxx
B) Authorization letter issued by respondents in favour of petitioner.
M/s. Orbis Securities Pvt. Ltd.
F-60, Malhotra Building,
Connaught Circus,
New Delhi-110001
OMP 436/2005 & 9/2006 Page 5 of 22 SUBJECT : AUTHORISATION OF GROUP/FAMILY
DEALINGS
_________________________________________________ Name of Family Constituent Code _________________________________________________ Member/Authorised person
Amullya Ratan Dhar 12724 Adhiraj Dhar 12724 Arati Dhar 12726 Aparajita Dhar 12726 Dhee Rahjah Sehgupta 11454 Suprova Sengupta 11454 Debjyoti Gupta 11454 Debjyoti Gupta 10839 _________________________________________________
I do hereby solemnly affirm and declare as under :-
1. That the abovementioned authorised person/members of my family are regularly trading/investing through you on National Stock Exchange of India Ltd. (NSE) and/or any stock exchange(s). For all purposes of operations of my account with you, the above account shall be termed as Group Account.
2. That I hereby authorise you to sell shares standing in my account and to transfer the proceeds of the sale of such shares to the abovementioned accounts to set off outstanding debit amounts in their respective accounts.
3. That I hereby authorise you to set off all outstanding debit amounts in the above mentioned accounts maintained by you in any segment of any stock exchange(s), against the amount standing to the credit of Constituent's/Family/Group account maintained by you in respect of any segment of any stock exchange(s).
4. That I have given the above authority to Orbis Securities Private Limited with my free consent and without any pressure, threat or coercion from any corner whatsoever.
5. That in future I shall not make any claim from Orbis Securities Private Limited in any manner whatsoever of any amount adjusted from the credit in my account to set off the outstanding debit amounts in the abovementioned accounts and I further state that if anybody on my behalf claims the above said adjusted amount, the said act shall be null and void and shall be ineffective from all corners.
OMP 436/2005 & 9/2006 Page 6 of 22
6. That this is my true irrevocable statement and shall remain binding on me.
7. That I hereby undertake to intimate you from time to time of any additions of the Constituents to the said Group Account for the purpose of either allowing them to trade on my behalf or for the purpose adjustment of balance inter se."
(emphasis supplied)
5. The relevant portion of the undated Memorandum of
Understanding between the respondents and their agent is also
reproduced hereinbelow:
MEMORANDUM OF UNDERSTANDING (MOU)
This Memorandum of Understanding (MOU) is between Mrs. Arati Dhar, herein after referred to as Client and Mr. Debjyoti Gupta for the purposes of share trading process as agreed upon mutually by both the parties.
xxxx xxxx xxxx xxxx
5. This deal is between Mrs. Arati Dhar and Mr. Debjyoti Gupta and Orbis Securities Pvt. Ltd. is in no way connected with this.
(emphasis supplied)
6. Mr. Virmani further pointed out that Mr. Debjyoti Gupta was an
agent of the respondents and if the respondents were aggrieved by any
action of their agent, they should take action against him. In this
connection, Mr. Virmani relied upon Sections 226 and 238 of Indian
Contract Act which read as under:-
226. Enforcement and consequences of agent's contracts.- Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal consequences, as
OMP 436/2005 & 9/2006 Page 7 of 22 if the contracts had been entered into and the acts done by the principal in person.
238. Effect on agreement, of misrepresentation of fraud, by agent.-Misrepresentation made, or frauds committed, by agents acting in the course of their business for their principals, have the same effect on agreements made by such agents as if such misrepresentations or frauds had been made or committed by the principals; but misrepresentations made, or frauds committed, by agents, in matters which do not fall within their authority, do not affect their principals.
7. Mr. Virmani lastly submitted that the concept of apportionment
was unknown to law. He submitted that the concept of contributory
negligence could not be applied to a contractual matter.
8. On the other hand, Mr. Abhijeet Chatterjee, learned counsel for
respondents submitted that petitioner had traded in the shares of the
respondents without their knowledge and/or instructions. He submitted
that the claims were within limitation as the time taken to
administratively resolve the claims had to be excluded under Chapter
XI of the National Stock Exchange of India bye laws. In this
connection, he drew my attention to the correspondence exchanged
between the respondents and National Stock Exchange and in particular
to the letter dated 30th March, 2005 issued by the National Stock
Exchange wherein the it had been specifically stated that as the
National Stock Exchange could not resolve the grievances
administratively with the trading member, respondents may, if they so
desire take recourse to arbitration. The relevant portion of the said
letter dated 30th March, 2005 is reproduced hereinebelow:-
OMP 436/2005 & 9/2006 Page 8 of 22 March 30, 2005
Amullya Ratan Dhar & Adhiraj Dhar,
Nayabad, 110, Jadavpur Co-op,
P.O. Kalikapur,
Kolkata 700 099
Dear Sir,
This has reference to your complaint against M/s. Indiabulls Securities Ltd. for manipulations in the trading account.
The Exchange had taken up the grievance with the trading member for resolving the same administratively. However on account of conflicting claims and counter claims made by the constituent and the trading member, you may, if you so desire, take recourse to arbitration by filing an Application for Arbitration against the trading member M/s. Indiabulls Securities Ltd. Accordingly, kindly submit the application for arbitration along with the following documents.
xxxx xxxx xxxx xxxx
Please note that the Arbitration is subject to the Bye laws. Rules and Regulations of the Exchange. The Arbitration Application form that may be submitted by the client should be complete in all respects and the Exchange reserves the right to reject the Application for Arbitration, if any of the documents/formalities are not complied with as per the provisions of the Bye Laws, Rules and Regulations of the Exchange and return the same in original along with other relevant documents submitted by you.
Further, please note to ensure that the Arbitration Application is submitted within six months from the date on which the claim, difference or dispute arose or is deemed to have arisen, otherwise the Arbitrator may dismiss the arbitration application as time barred under the Byelaws of the Exchange.
(emphasis supplied)
9. Mr. Abhijeet, also drew my attention to the findings of the
arbitral tribunals wherein they had pointed out specific breaches on the
part of the petitioner. Mr. Abhijeet further stated that the entire holding
OMP 436/2005 & 9/2006 Page 9 of 22 of the respondents had been fraudulently transferred to the petitioner
without any payment being credited to the bank accounts of the
respondents. In this connection, Mr. Abhijeet referred to one of the
transaction statement of one of the respondents which reads as under:
Cut off Date 01-April-2003 TRANSACTION STATEMENT Print Date : 26-May-2005 07:01 PM
National Securities Depository Limited
DP : INDIABULLS SECURITIES LTD.[ IN302236] IA, 1ST FLOOR, HAMILTON HOUSE, CONNAUGHT
PLACE NEW DELHI, 110001
Selection Criteria : Transactions from Date : To Date: 01/04/2003
Client ID 10035909 Category Non House Status Active Name AMULYA RATAN DHAR, ADHIRAJ DHAR Beneficiary Address FLAT NO. E-11
B-2, 426
PRINCE ANWAR SHAH ROAD
CALCUTTA
Pin Code 700045
Bkg. Date Trans. No. Description Credit Debit Balance
AVAYA GLOBALCON LTD.
ISIN INE676A01019 EQ
Opening
Beneficiary Balance 0 By INDIABULLS
27/11/2002 509154 SECURITIES LTD 200 200 /10000226
To INDIABULLS
17/03/2003 618858 SECURITIES LTD 200 0 /10000226
Closing
Balance 0
ISIN INE486A01013 CESC EQUITY 0 Opening
Beneficiary Balance 0 By INDIABULLS
27/11/2002 509147 SECURITIES LTD 1600 1600 /10000226
To INDIABULLS
03/02/2003 581132 SECURITIES LTD 1600 0 /10000226
Closing
Balance 0
ISIN INE964A01019 DSQ BIOTECH LTD. EQ Opening
Beneficiary Balance 0 By INDIABULLS
27/11/2002 509153 SECURITIES LTD 200 0 200 /10000226
To INDIABULLS
17/03/2003 618851 SECURITIES LTD 200 0
OMP 436/2005 & 9/2006 Page 10 of 22 /10000226
Closing
Balance 0
ISIN INE286A01017 DSQ SOFTWARE EQ Opening
Beneficiary Balance 0 By INDIABULLS
27/11/2002 509157 SECURITIES LTD 200 200 /10000226
To INDIABULLS
17/03/2003 618852 SECURITIES LTD 200 0 Closing
/10000226 Balance 0
10. Mr. Abhijeet further submitted that no understanding between the
respondents and their agent could override the responsibilities of the
petitioner under the Member Constituent Agreement. He emphasized
that the arbitral tribunals had come to the conclusion that the password
had been wrongly sent by the petitioner to the respondents at the
incorrect address and that too by U.P.C. instead of courier.
11. Mr. Abhijeet further stated that none of the transaction statements
had been placed by the petitioner before the arbitral tribunals. In this
connection, Mr. Abhijeet referred to the finding of the arbitral tribunal
in the award dated 26th August, 2005 which reads as under:-
"This is a case almost similar to a cyber crime in which someone caught hold of the password of an on-line trader and indulged in trading in shares on his behalf causing clandestinely a loss of about Rs. 20 lacs to him. As there was an involvement of a third party who was allegedly instrumental in effecting trading loss and as a cheating charge had also been leveled, perhaps it would have been a fit case for the law-enforcing Agency to uncover the truth. Nevertheless, Arbitration dwells purely on the role of the Applicant and the Respondent in the whole process and on their respective lapses, which led to the loss.
xxxx xxxx xxxx xxxx
OMP 436/2005 & 9/2006 Page 11 of 22 The Himalayan blunder committed by the Respondent was that they used indiscriminately the Demat A/c. of the Applicant for the purpose of provision of the margin etc., on account of the alleged trading done on the Applicant's broking account by transferring shares from the former without keeping the Applicant informed or without giving him time to regularize any deficiency in this regard. True, the system at the Respondent's end generated a number of information and data relating to trading, margin account, contract notes, ledger statement etc. But in the absence of the "password" the Applicant did not have any means to access these for his use.
xxxx xxxx xxxx xxxx
.........Fourthly, the Respondent could not also produce any proof/ document of having sent the hard copies of the periodical "Transaction Statements" relating to the Applicant's Demat Account to him. This was all the more necessary in a situation where the Respondent knew that all transactions in the Applicant's trading account were being carried out by the Applicant's AA only (vide statements made by the Respondent in Para 11 and last sentence of Para 18 of their statement of reply received at N.S.E. on 04.06.2005) and hence all "screenshot" reports might not have been brought to his notice.
(emphasis supplied)
12. In rejoinder, Mr. Virmani stated that in one of the arbitral awards
dated 26th August, 2005, the arbitral tribunal had not even dealt with the
petitioner's submissions with regard to limitation. He further stated that
as soon as the respondents had requested for change of password, the
said change had been carried out by the petitioner. He further pointed
out that it was only on 04th May, 2004 that the petitioner's received a
letter from the respondents requesting them not to allow Mr. Debjyoti
Gupta to carry out any transaction on their behalf. He stated that
immediately after receipt of said instructions on 04th May, 2004, the
OMP 436/2005 & 9/2006 Page 12 of 22 petitioner had not permitted Mr. Debjyoti Gupta to carry out any
transaction in the petitioner's account. The respondents' letter dated
15th March, 2004 received by the petitioner on 04th May, 2004 is
reproduced hereinbelow:
Date : 15.3.04
To
The Relationship Manager, Nayabad Jadavpur Orbis Securities/India Bull, Co-Op PO Kalikapur, Branch Office, 7A/1A, Kolkata-700099 Middle Ten Street, Calcutta-71 Ph: 2432:2886
Sub: Cancellation or Freeze of e-trading business of A/C No. ID 127/26 by Sri Debjoti Gupta with immediate effect i.e. from 15.03.04.
Dear Sir,
We the Accounts holder of user Id-12726 are requesting you not to allow Mr. Debjyoti Gupta (authorised person) for e-trading business/transaction on our behalf from today i.e. from 15.03.04 because of the following reasons.
1. Violation of MOU
2. Failure of regular payment of monthly- renumerated amount.
3. We have been kept in the dark about the trading till date.
So, the e-trading business done by Sri Debjyoti Gupta is no longer valid till further notice. Hence, you are requested to furnish the details of the entire port folio are sold/unsold/purchased shares and liquid cash balance etc. at your earliest.
(emphasis supplied)
13. Mr. Virmani also referred to letter dated 31st March, 2004 written
by Debjyoti Gupta to the petitioner wherein he had acknowledged in
writing that he had received all the contract notices and transaction
summary for all transactions done till 31st March, 2004.
OMP 436/2005 & 9/2006 Page 13 of 22
14. Having heard the parties at length and having perused the
impugned awards, I am of the view that it would be appropriate to first
outline the circumstances in which a Court can interfere in arbitration
awards passed under the Act, 1996. The Supreme Court in Delhi
Development Authority vs. R.S. Sharma and Company, New Delhi
reported in (2008) 13 SCC 80 after referring to a catena of cases has
held that an arbitration award is open to interference by a court under
Section 34(2) of the Act, 1996 if it is either contrary to a statutory
provision or contractual provision or is opposed to public policy or
justice and morality.
15. As far as the issue of limitation is concerned, I am of the view
that immediately on coming to know of misuse of their shares, the
respondents had taken steps to administratively resolve the matter. In
fact, from the findings arrived at by the Arbitrators, it is apparent that
respondents first came to know in the month of May, 2004 of alleged
embezzlement of their shares. I am also of the view that the six months
period of limitation can only be counted from the date when the
respondents became first aware that transactions had taken place in
their account and not from the date when the actual transactions as
alleged are stated to have taken place.
16. In fact on 21st May, 2004, respondents lodged an FIR and also
wrote a letter to the Investor Grievance Cell of the National Stock
Exchange. Thereafter, a number of letters were exchanged between the
OMP 436/2005 & 9/2006 Page 14 of 22 respondents and Investor Grievance Cell and it was only when the
National Stock Exchange of India Limited intimated to respondents that
it was not possible to administratively resolve the matter, that the
respondents immediately invoked the arbitration clause and filed their
claim on 05th April, 2005.
17. I also find that the arbitral tribunal in the award dated 30 th
September, 2005 has given reasons for rejecting petitioner's plea with
regard to limitation. The reasoning of the arbitral tribunal as contained
in the award dated 30th September, 2005 reads as under:
"On the point of limitation raised by the Respondent, it is noted that the Applicant has denied having received the password and undertaken any transactions on the net or having given any instructions to Mr. Debjyoti Gupta (AA) for dispose of any of the shares deposited to ISL before January/February 2004 when they claim to have asked Mr. Debjyoti Gupta (AA) to sell off their certain shares and give them the proceeds thereof amounting to Rs.20 lacs but despite repeated reminders Mr. Gupta failed to give them the said amount. Thereupon the applicant sent their letter dated 10.03.2004 to the Respondent (who claimed to have received it on 04.05.2004) for selling shares of value of Rs. 20 lacs and giving them the sale proceeds thereof. ISL's reply to this letter is dated 12.05.2004 stating there was not sufficient balance in the account and they were unable to accede to the Applicant's request. The dispute between the Applicant and Respondent really arose at this point whereupon the applicant wrote to NSE on 26.05.2004 alleging of their being cheated and when the matter was not resolved administratively, the Applicant filed the application for adjudication by arbitration on 05.04.2005. The contention of the Respondent that the matter is barred by limitation is not accepted."
(emphasis supplied)
OMP 436/2005 & 9/2006 Page 15 of 22
18. Consequently, in my view, the claim raised by the respondents
were within the limitation inasmuch as the claims were filed within a
period of six months of failure to resolve the disputes administratively.
It is pertinent to mention that the said disputes had been
administratively raised by the respondents immediately on coming to
know of alleged embezzlement of their shares. There is nothing on the
arbitral record to show that respondents had knowledge prior to May,
2004 of the transactions that had been taken place.
19. I am further of the view that petitioner's argument that arbitral
tribunals had not found the petitioner liable for breach of contract is not
correct. In both the awards, the arbitral tribunals have given
categorical findings as to why and how the petitioner herein and
respondent before the arbitral tribunals had breached the contract and
its obligations as a Share Broking House. For instance, in the award
dated 30th September, 2005, arbitrators have concluded as under:
......The Respondent has also claimed that as a diligent broker they acted as per the instructions of the Applicant or the authorized representative of the Applicant. However, in the matter of the aforesaid Applicant Constituent, the respondent's functioning as well as the role played by its Relationship Manager, Mr. Prasenjit Mukherjee, and its DSA, Mr. Debjyoti Gupta, lacked proper diligence and concern for protection of the interest of the client as is the apparent from the several serious anomalies found in the documentation and the lack of care, caution, vigilance and prudence as called for in this type of business for protecting the interests of all concerned on their part, some instances of the which are given below:
OMP 436/2005 & 9/2006 Page 16 of 22 - The Constituent Registration Account opening Form is undated. That this important detail has been overlooked at all levels including the Relationship Manager and the DSA, and other lapses discussed below do not at all corroborate the backing to the client of a human face in the form of the Relationship Manager as professed by the Respondent.
- The email sent by the Respondent to the Applicant is dated 05.10.2002 whereas the account was opened on 07.10.2002 - this anomaly remains unexplained - the explanation given by the Respondent that the welcome letter on 7th October 2002 had the previous working day i.e. 5th October 2002 due to a time stamp error in the system software is not acceptable in a real time environment.
- The pre 23rd November 1999 address of the Applicant as given in the Constituent Registration Account Opening Form was apparently on the basis of the address given in the Voter's Identity Cards issued by the Election Commission of India, copies of which were taken by the Respondent as the Applicant's photo identity for proof of address. It is intriguing that the DSA, who was stated to be known to the Applicant and used to go to their residence frequently and provoked/insisted to open Demat account with ISL and to earn some money from the idle share worth Rs. 20 - 30 lacs at that time, and the Relationship Manager, who is stated to be the primary link of the Company with the constituent, failed to take on record the current address of the Applicant and made sure that they used the same for all purposes including for correspondence and dispatch of documents, especially when the address of the Applicant as given in the Authorisation letter in favour of Mr. Debjyoti Gupta was found to be different from that given in the Constituent Registration Account Opening Form. The Applicant has also claimed to have given to ISL two Xerox copies of Statement of their Account with ICICI Bank Demat Services A/c No. 12300112 and Statement of account of HDFC Bank No. 0221330000712 as proof of their residential address. The carelessness, negligence or purposeful disregard of this important information on the part of ISL including their DSA cannot be but viewed extremely seriously.
- In spite of expressly stating in the welcome letter to the client that the password would be sent to them by courier, dispatch of the password to the Applicant by ordinary post under certificate of posting is a gross irregularity on the part of the Respondent and in any case dispatch by post under certificate
OMP 436/2005 & 9/2006 Page 17 of 22 of posting does not permit obtaining acknowledgement receipt from the recipient of the password which is considered as an essential risk management measure to safeguard against the password falling into wrong hands, and the said action of the Respondent has exposed the entire arrangement to grave risks.
- The content of the letter of Mr. Debjyoti Gupta to the Respondent dated 31/3/04 referred to by the Respondent is found to differ significantly from what is stated in his letter to NSE dated 07/02/2005, copy of which was furnished by the Applicant. While the latter letter is clearly in reply to NSE's letter dated 14.01.05, the context in which the earlier letter dated 31/3/2004 was addressed by Shri Debjyoti Gupta to the Respondent could not be explained by the Respondent when this pointed was pointedly put to the Respondent in the hearing before the arbitrators. The anomaly in these two letters is noteworthy.
- The letter of authorization addressed to the Respondent in favour of Mr. Debjyoti Gupta is undated.
- Execution of a separate MOU by the DSA of the Respondent with the Applicant and stating therein that the Respondent was in no way connected with deal and the Respondent accepting the same without raising doubts in their mind about the bonafides of the said DSA is found to be rather unusual.
- The arrangement stated in the MOU for which Mr. Debjyoti Gupta, DSA of the Respondent, agreed to pay the Applicant Rs. 5000/- every month, was not clearly spelt out therein nor did the Respondent who were in possession of a copy of the MOU raised any question over the same. This does reflect well on the Respondent and their risk management policies and measures for protection of the interest of their client and all concerned.
- On the pointed requisition of the arbitrators in the hearing held on 10.08.2005, the Respondent under cover of his letter dated 22.08.2005 (received at NSE on 30.08.2005) has furnished a copy of the Investigation Report dated 31.05.2004 of one R.S.D. Uppal, Manager. The investigation was undertaken apparently in the light of the Complaint made by the Applicant by letter dated 18.05.2005 sent to SEBI. It is surprising that the investigator did not find any of the above referred short comings and declared that there was no
OMP 436/2005 & 9/2006 Page 18 of 22 substance in the complaint. However, as stated by the Respondent in their submissions to the arbitrators, Mr. Debjyoti Gupta, DSA, was stopped from introducing any client from 31.03.2004 but the reason for taking this action against the DSA has not been furnished by the Respondent.
(emphasis supplied)
20. In the other Award dated 26th August, 2005, the arbitral tribunal
has clearly highlighted the following breaches on the part of the
petitioner herein, who was the respondent before the arbitral tribunal:
b. On account of the Respondent
i. In the Respondent's e-mail message dated 05.10.2002, the Applicant was advised that the "Password" would be sent by "courier" whereas it was allegedly sent by post under certificate of Posting without the latter's knowledge. There was no explanation from the Respondent as to why this was done.
ii. Although the broking account was reported to have been opened on 07.10.2002, the e-mail was dated 05.10.2002. There is also no convincing reason from the Respondent as to how this inconsistency and anomaly crept into the record.
iii. In the Applicant's letter of authorization (which is not dated), addressed to Orbit Securities (the predecessor organization of the Respondent) in terms of which AA was given the authority to trade on his behalf and receive all connected documents, the "client address" mentioned was different from his address recorded with the Respondent, who failed to take notice of this change. Besides, the Respondent admitted that the address could be amended only after receipt of a formal letter dated 4th May 2004 from the Applicant. The Respondent seemed to be inconsistent in this
OMP 436/2005 & 9/2006 Page 19 of 22 regard as some of "contract notes" issued in the year 2003 seemed to bear the new address. Had the Respondent taken necessary steps to modify the records, the confusion of the receipt of the password could have been avoided. This inertia on their part perhaps gave opportunities to another to gain access to password unauthorisedly.
iv. No evidence was produced by the Respondent showing that the receipt of the Password sent by them was actually acknowledged by the Respondent. It does not stand to reason as to how trading could have been allowed to be started without ensuring the receipt of acknowledgement of a password from a newly introduced client. The Respondent's system in this regard is considered to be faulty.
v. The transactions in the "Demat Account" of the Applicant were unilaterally done by the Respondent without the formers' specific approval/ instruction and hence in an unauthorized manner as the Power of Attorney given by the Applicant does not provide for it. This was the Respondent's biggest default, which facilitated the withdrawals of shares for trading without the knowledge of the Applicant thereby catalyzing the occurrence of the huge loss to the latter.
vi. The Respondent helped the aggressive trading being done by the Applicant's AA by encouraging him access to the AA's demat account.
(emphasis supplied)
21. I am also of the opinion that in view of the contract executed
between the petitioner and respondents, even if, the respondents had
appointed an agent, then also, the petitioner would still be responsible
under the Member Constituent Agreement for security of the shares of
OMP 436/2005 & 9/2006 Page 20 of 22 the respondents, lodged with them. In fact, the petitioner by permitting
its Direct Sales Agent, Mr. Debjyoti Gupta to be respondent's agent
has, to my mind, breached its duty as a Share Broking House.
Moreover, existence of two undated authorisation letters, one in favour
of the agent and the other in favour of the petitioner is a contradiction in
terms. Clauses of indemnity in petitioner's favour in the two undated
authorisation letters and MOU, as pointed by the arbitral tribunal also
arouse suspicion.
22. In fact, both the arbitral tribunals have arrived at the conclusion
that respondents' agent was not entitled to the password of the
respondents and that the said document had landed up with the
respondents' agent only on account of breach of obligations by the
petitioner. Also the admitted position is that without the password the
agent could not have traded with the shares of the respondents or
transacted any business.
23. In any event, both the arbitral tribunals have taken a view on
facts and law which cannot certainly be said to be implausible and
consequently, I find no ground to interfere in Section 34 proceedings.
24. In fact, in view of the findings of breaches and lapses on part of
the petitioner, I am of the view that the arbitral tribunals should not
have apportioned the compensation and should have awarded the entire
OMP 436/2005 & 9/2006 Page 21 of 22 compensation to the respondents. But as before me the said
apportionment of award has not been challenged by the respondents and
in fact the learned counsel for respondents had made a categorical
statement that he does not wish to challenge the apportionment of the
award due to old age of the respondents, I do not deem it appropriate to
interfere with the impugned awards to that extent.
25. Accordingly, the present objection petitions and pending
applications being devoid of merits are dismissed but with no orders as
to costs.
MANMOHAN,J
DECEMBER 02, 2009
js
OMP 436/2005 & 9/2006 Page 22 of 22
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