Tuesday 25 May 2021

Whether court can refer the dispute to arbitration if there is a settlement before the conciliator?

That, in turn, brings the IGRC order entirely within the meanings of Sections 73 and 74 of the Arbitration and Conciliation Act 1996. Those Section read thus:

“73.Settlement agreement.― (1) When it appears to the conciliator that there exist elements of a settlement which may be acceptable to the parties, he shall formulate the terms of a possible settlement and submit them to the parties for their observations. After receiving the observations of the parties, the conciliator may reformulate the terms of a possible settlement in the light of such observations.

(2)If the parties reach agreement on a settlement of the dispute, they may draw up and sign a written settlement. If requested by the parties, the conciliator may draw up, or assist the parties in drawing up, the settlement agreement.

(3)When the parties sign the settlement agreement, it shall be final and binding on the parties and persons claiming under them respectively.

(4)The conciliator shall authenticate the settlement agreement and furnish a copy thereof to each of the parties.

74.Status and effect of settlement agreement. The― settlement agreement shall have the same status and effect as if it is an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal under section 30.”

(Emphasis added) {Para 17}

18.The IGRC order must, therefore, be construed as a settlement agreement within the meaning of Sections 73 and 74 of the Arbitration Act. No other view is possible, because if this is not to be seen as a settlement agreement that can be enforced, then any IGRC order in favour of the investor would remained on paper only. It would be entirely toothless. It would entirely defeat the purpose of having an IGRC at all. In fact, this is the reason why, if the Trading Member does not find the IGRC order palatable, a recourse is made available to him in the bye-laws itself to adopt what the bye-law call ‘the second level of dispute resolution, i.e. arbitration’. The tiered dispute resolution contemplated is, thus: (a) conciliation (and, as noted above, the bye-laws refer to the first step precisely as that); and (b) if conciliation fails, then arbitration (with its later in-house appeal provision).

19.The IGRC order can be said to have attained finality. The question is how is it to be made enforceable against the party that admitted liability? As I noted there is now no question of an arbitration. There is nothing to arbitrate. Karvy, which could have invoked arbitration, has not done so. On the contrary, it has accepted the claim. Titan does not need to go to arbitration or to have its claim adjudicated: it has got an admission of its claim before the IGRC. 

20.The upshot of this is that Titan now holds in its hands an order of the IGRC that is perfectly enforceable and has the same status and efect as an arbitral Award within the meaning of Sections 30 and 36 of the Arbitration Act. Section 74 puts a settlement agreement in conciliation on par with a settlement award under Section 30. Sub-section (4) of Section 30 makes any such settlement award on agreed terms enforceable as any other Award. Therefore, it logically follows that the IGRC order is fully enforceable under Section 36 of the Arbitration Act, as if it were a decree of the Court.

REPORTABLE

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

IN ITS COMMERCIAL DIVISION

COMM ARBITRATION PETITION (L) NO. 10013 OF 2020

Titan Co Ltd Vs  Karvy Comtrade Ltd & Ors

CORAM:

G.S. PATEL, J

DATED: 19th March 2021


1.This order will dispose of the present Section 9 Petition. 


2.For the reasons that follow, I have returned a finding that the Petitioner already holds against its principal opponent, the 1st Respondent, an order of a properly constituted Tribunal that is enforceable under the Arbitration and Conciliation Act 1996. As against the other Respondents, or at least some of them, this Petition will not lie and the Petitioner will have to adopt appropriate civil proceedings against them for suitable relief. I have reserved the Petitioner’s liberty to that extent.

3.The 1st Respondent is absent, though served.

4.In view of the order that I propose to make, it will be necessary to set out at least briefly some of the background facts that led to the filing of this Section 9 Petition, consider some of the provisions of the applicable bye-laws of the 5th Respondent and one particular order of the Investor Grievances Redressal Committee (“IGRC”) set up under those bye-laws. I will attempt to condense the factual narrative as much as possible.

5.The Petitioner (“Titan”) is a well-known Indian company. It manufactures and sells luxury watches, and also deals in jewellery and other high-end lifestyle products. The 1st Respondent is Karvy Comtrade Ltd (“Karvy”), a commodities broker. It is a member of the 5th Respondent, the Multi Commodity Exchange of India Ltd (“MCX”). Respondents Nos. 2 and 3 are both banks, respectively HDFC and IndusInd. Respondent No. 4 (“GloCo”) is a clearing member of Respondent No. 6, the Multi Commodity Exchange 

Clearing Corporation Ltd (“MCXCCL”), a wholly-owned subsidiary of MCX.

6.The entire dispute relates to two amounts of Rs. 12,17,00,000/- and Rs. 20 crores. Titan was trading through Karvy on the MCX in commodities, principally, as I understand it, gold. There were both hedge and futures transaction. It is not necessary to get into a detailed explanation of the specifc transactions. This much, as is commonly known, must sufice for the present purposes. “Margin” is a critical concept for people trading commodity futures. A futures margin is a good-faith deposit or an amount of capital one needs to post or deposit to control a futures contract. Margins in the futures markets are not down payments like stock margins. Instead, they are like performance bonds designed to ensure that traders can meet their financial obligations. In the futures markets, margin refers to the minimum amount of capital that must be available in a person’s account for it to trade futures contracts. Margin might be thought of as collateral that allows the person to participate in the futures markets. An initial margin is the minimum amount of capital needed in the account to trade futures contracts. A maintenance margin is the subsequent amount of capital a person must contribute to his or her account to maintain the minimum margin requirements. “Margin Calls” are triggered when the value of an account drops below the maintenance level. Margin is fundamental to futures markets — it ensures that people can trade with confidence, knowing that others will meet all obligations at all times. Futures contracts can also be used to ‘hedge’ against risk. In essence, hedging with futures effectively locks in a 

commodity price at present, even if it will actually be bought or sold in physical form in future.

7.With Titan in the futures/hedged commodities market, it needed to place margin money with the commodities broker or, to use the terminology consistent with these documents, the Trading Member. Titan paid margin money to Karvy totalling to Rs. 12.17 crores. Karvy placed an amount of about Rs. 23 crores in a fxed deposit with IndusInd Bank. Of this, a little over Rs. 12 crores equated to the margin money that Titan gave Karvy. The exact amount is Rs. 12.17 crores. Then there was another amount of Rs. 20 crores as margin money, which, similarly, was placed by Karvy in the form of a fxed deposit with HDFC Bank.

8.Cutting a very long story short, Titan says that the amounts that it had with Karvy as cash margin (Rs. 20 crores and Rs. 12.17 crores) were utilized — for the present order it does not really matter how — not in relation to any Titan trades or any shortfall in maintenance margin, but to settle Karvy’s liabilities to various third parties and to square of Karvy’s own position vis-à-vis GloCo and MCX. Whether or not this is a fully accurate assertion by Titan is, as we shall see, entirely immaterial.

9.Mr Ardeshir for Titan points out that these amounts were utilized by Karvy without there being a corresponding reconciliation of the margin money position as between Titan and Karvy. Mr Ardeshir maintains that no part of this aggregate amount was actually usable by Karvy in the facts of the case. Mr Sen for MCX 

has an answer on the structure of this transaction. He maintains that under the relevant regulatory scheme, a margin deposit, once placed, is unrelated to any actual trades in futures by an investor or market participant. Karvy might have had several thousand clients like Titan. It may have collected margin from each. But Karvy was the Trading Member. It had to place the amounts it collected as collateral with GloCo. When MCX made a margin call through GloCo, those deposits (lying with banks, and marked with a GloCo lien) could be called up. There was and could be no nexus with any individual Karvy-client’s trades.

10.This may not matter very much today, for one simple reason. Titan took its grievances against Karvy — specifcally, Karvy allowing Titan’s deposits to be used like this — to the Investor Grievance Redressal Committee (“IGRC”) of MCX. Titan sought directions that Karvy and GloCo should refund the settled positions, now crystallized to be Rs. 20 crores and Rs. 12,40,49,124/-, i.e. an aggregate of Rs. 32,40,49,124/-.

11.The IGRC is constituted under a separate section of the MCX bye-laws. Bye-law 14C.2 speaks of investor grievance and allows an investor to submit a complaint against any MCX Member, (i.e. Trading Member) through a dedicated redressal system through email or in writing. Bye-law 14C.3 relates to the constitution and establishment of the IGRC. The grievance redressal procedure is set out in Bye-law 14C.4. Of these various regulations, 14C4.1 to 14C4.6 are important for us today. This is how they read:


“14C.4.1 Investor Grievance Redressal Committee (IGRC) shall be allowed a time of 15 days to amicably resolve the Investors/Client complaint.

14C.4.2 IGRC shall adopt a two-fold approach i.e. for proceedings leading to direction to the Member to render required service related complaints and proceedings leading to an order concluding admissibility of the complaint or otherwise in case of trade related complaints.

14C.2.3 In case the matter is not resolved through the conciliation process, IGRC would ascertain the claim value admissible to the Investor/Client.

14C.4.4 Upon conclusion of the proceedings of IGRC and in cases where claim is admissible to the Investor / Client, the Exchange shall block the admissible claim value from the deposit of the Member concerned.

14C.4.5 The Exchange shall give a time of 7 days to the Member from the date of signing of IGRC directions as mentioned under Bye-law 14A.4.2 to inform the Exchange whether the Member intends to pursue the next level of resolution i.e. Arbitration.

14C.4.6 In case, the Member does not opt for arbitration, the Exchange shall, release the blocked amount to the investor/client after the aforementioned 7 days.”

(Emphasis added)

12.Here, “member” means a Trading Member; and in this case, it means Karvy.

13.Now this is obviously a multi-tiered dispute resolution mechanism. First, there is a complaint to the IGRC. If the Trading 

Member finds the resultant IGRC order to be adverse, it can opt for arbitration. The arbitration itself, as later clauses show, includes the provision for an in-house appeal. Then, obviously, all this is subject to the discipline of the Arbitration and Conciliation Act 1996 and its statutory provisions.

14.What actually happened in this case was that the IGRC took up Titan’s complaint on 17th January 2020. Karvy was represented by two persons. Karvy admitted Titan’s claim in full. Its tendered statements of account, and it acknowledged that a total amount of Rs 32,40,49,124.10 with interest was due from Karvy to Titan. There is absolutely no doubt about this order. That Karvy did not object to the the claim — it could not, because it had consented and admitted it — is also not in doubt. There was, therefore, no question of approaching the next tier of dispute resolution and going in for an arbitration.

15.This actually complicates Mr Ardeshir’s brief much more than he would like. Rather than giving him a solution, it is now possibly a problem. The reason is that he has come to this Court in a Petition under Section 9 and the relief that he seeks is pending an arbitral Award. That obviously raises the questions, “What arbitration?” and “against whom?”. Karvy, which submitted to an order by the IGRC, has not invoked the second tier of dispute resolution, viz., arbitration, under the bye-laws. Titan has got what it went to the IGRC for in the first place. It seems to me wholly absurd that a party that has got relief should not be able to realize it, and should be forced into another adjudicatory process all over again for precisely the same relief. That would render the IGRC entirely efete and purposeless. In a situation where the IGRC successfully effects a conciliation settlement (as specifcally contemplated by the bye-laws), such a settlement counts for precisely nothing, forcing the claimant to re-instate the very same claim all over again, then one might as well not have the IGRC at all.

16.The answer to me seems to lie in appreciating or understanding what such an IGRC order actually is. To appreciate this one must look more closely at the IGRC order for what it does, and how. What the IGRC order does is clear from the foregoing narrative. It records the admission by Karvy and notes it. But what is critical is the form this order takes, because on the last page of it we see that this is not just an admissible claim of Rs. 32,40,49,124.10 with interest signed by the three Members of the IGRC, but is also acknowledged and countersigned by Titan and Karvy. The caption above their signatures is “acknowledgement of parties on receipt of IGRC order.” The hearing was on 17th January 2020. This is not merely an acknowledgement of receipt of the order. Both representatives who were present at the hearing signed on behalf of Karvy. This is an acceptance of that order as made by the IGRC. This is further established by the fact that Karvy did not avail of the next tier of dispute resolution provided in the bye-laws, i.e., arbitration. Therefore: Karvy admitted Titan’s claim. It produced accounts. Its officers or representatives were present before the IGRC. They acknowledged and counter-signed the order copy in confirmation. And they did not pursue the matter to the next available level. In other words, the dispute before the IGRC was settled, and between the two parties, the IGRC achieved a conciliation. The IGRC order is thus in the form of a settlement 

agreement in conciliation, with Karvy admitting and accepting that it must pay the stated amount of Rs. 32,40,49,124.10 (and applicable interest) to Titan. This puts the IGRC order within the frame of Bye-law 14C 2.3, which specifcally speaks of ‘the conciliation process’.

17.That, in turn, brings the IGRC order entirely within the meanings of Sections 73 and 74 of the Arbitration and Conciliation Act 1996. Those Section read thus:

“73.Settlement agreement.― (1) When it appears to the conciliator that there exist elements of a settlement which may be acceptable to the parties, he shall formulate the terms of a possible settlement and submit them to the parties for their observations. After receiving the observations of the parties, the conciliator may reformulate the terms of a possible settlement in the light of such observations.

(2)If the parties reach agreement on a settlement of the dispute, they may draw up and sign a written settlement. If requested by the parties, the conciliator may draw up, or assist the parties in drawing up, the settlement agreement.

(3)When the parties sign the settlement agreement, it shall be final and binding on the parties and persons claiming under them respectively.

(4)The conciliator shall authenticate the settlement agreement and furnish a copy thereof to each of the parties.

74.Status and effect of settlement agreement. The― settlement agreement shall have the same status and effect as if it is an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal under section 30.”

(Emphasis added)

18.The IGRC order must, therefore, be construed as a settlement agreement within the meaning of Sections 73 and 74 of the Arbitration Act. No other view is possible, because if this is not to be seen as a settlement agreement that can be enforced, then any IGRC order in favour of the investor would remained on paper only. It would be entirely toothless. It would entirely defeat the purpose of having an IGRC at all. In fact, this is the reason why, if the Trading Member does not find the IGRC order palatable, a recourse is made available to him in the bye-laws itself to adopt what the bye-law call ‘the second level of dispute resolution, i.e. arbitration’. The tiered dispute resolution contemplated is, thus: (a) conciliation (and, as noted above, the bye-laws refer to the frst step precisely as that); and (b) if conciliation fails, then arbitration (with its later in-house appeal provision).

19.The IGRC order can be said to have attained finality. The question is how is it to be made enforceable against the party that admitted liability? As I noted there is now no question of an arbitration. There is nothing to arbitrate. Karvy, which could have invoked arbitration, has not done so. On the contrary, it has accepted the claim. Titan does not need to go to arbitration or to have its claim adjudicated: it has got an admission of its claim before the IGRC. 

20.The upshot of this is that Titan now holds in its hands an order of the IGRC that is perfectly enforceable and has the same status and efect as an arbitral Award within the meaning of Sections 30 and 36 of the Arbitration Act. Section 74 puts a settlement agreement in conciliation on par with a settlement award under Section 30. Sub-section (4) of Section 30 makes any such settlement award on agreed terms enforceable as any other Award. Therefore, it logically follows that the IGRC order is fully enforceable under Section 36 of the Arbitration Act, as if it were a decree of the Court.

21.The relief that Mr Ardeshir seek may thus be sought in execution of the IGRC Award; or even invoking the provisions of Section 9, in a petition pending enforcement, for appropriate relief. But that will have to be in an appropriately filed Petition. Those reliefs cannot be sought in a Petition that seeks relief pending an arbitration. There can be no fresh arbitration by Titan against Karvy for this very claim. There is simply nothing to arbitrate. That dispute is concluded and has resulted in an order that has attained finality. Therefore, no order is possible “pending arbitration” in this Section 9 Petition. Titan must take the necessary steps to enforce its IGRC conciliation order / settlement agreement. Mr Ardeshir says on instructions that his client will do so.

22.Mr Ardeshir maintains that, notwithstanding his remedies against Karvy, he still wants to go after MCX or GloCo or both. While I admire Mr Ardeshir’s verve and derring-do, in pursuit of that enterprise he must use a very different vessel: He must file a civil suit against those parties. And this, as very good luck would have it, will need to be taken to another Court. In any such civil 

proceeding, all contentions will be kept open as between Titan and MCX/GloCo. I have not assessed their rival contentions on merits (Titan’s case against MCX/GloCo and vice versa).

23.The present Section 9 Petition is disposed of in these terms. There will be no order as to costs.

24.This order will be digitally signed by the Private Secretary of this Court. All concerned will act on production of a digitally signed copy of this order.

(G. S. PATEL, J)

19th March 2021

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