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BEFORE THE SOLE ARBITRATOR SHRI S C GUPTA --------------------------------------------------------------------IN THE MATTER OF ARBITRATION UNDER THE BYELAWS, RULES &

REGULATIONS OF NATIONAL STOCK EXCHANGE OF INDIA LIMITED (NSEIL) ARBITRATION MATTER NO CM/M-0225/2009 BETWEEN MRS SABINA A. SANGHVI (CONSTITUENT) 101,NATIONAL HOUSING SOCIETY, BANER ROAD, AUNDH, PUNE-411007 (PAN CARD ADEPS6742K) AND SHAREKHAN LTD (TRADING MEMBER) A-206, PHOENIX HOUSE, PHOENIX MILLS, S B MARG, LOWER PAREL MUMBAI -400013 APPEARANCES For Applicant

APPLICANT

RESPONDENT

Ms Prachi Pande, Advocate Mr A G Kalpe, Authorised Representative

For RESPONDENT

Mr Rajesh Desai, Advocate Ms Sabah Naik, Advocate Mr Kashyap Chokhavatia, AVP

AWARD

1) The Applicant Mrs Sabina A Sanghvi, an investor, had filed the present reference for arbitration against Sharekhan limited, a member of the National Stock Exchange of India Limited praying, interalia, for reversing the entry of transfer of NSE excess credit of Rs.13,90,076.34 to her BSE debit balance and payment of that amount to her along with 18% interest from the date of transfer till realization as also the costs and legal fees valued at Rs. 75000/-.By an award dated 6th May,2010,I had held that it was not open to me, as an arbitrator appointed under the byelaws of NSE to adjudicate or decide whether the debit balance of the Applicant at BSE in the books of the Respondent was disputed or not, and therefore, I did not adjudicate the dispute between the parties for want of jurisdiction .On the matter being taken in appeal, a panel of three arbitrators, by its award dated 14th January,2011 , noted that in a given case, the objection to jurisdiction could be a mixed question of law and facts. Since there was no pleadings of the Respondent and there was no opportunity to the Applicant to meet the objection, the appellate arbitral tribunal set aside the award dated 6th May,2010 with a direction to decide the matter afresh according to law after the Respondent filed its written objection to jurisdiction and the reply by the Applicant. 2) After notice to the parties, the matter was taken up for hearing on 14th February, 2011 when a statement was made on behalf of the Respondent that it would file its written objections to the jurisdiction with in fourteen days and deliver a copy of the same to the counsel for the Applicant. Thereafter, the Respondent filed its written submissions on jurisdiction on 24th February, 2011. The Applicant filed its rejoinder on 16th March, 2011. At the next hearing on 21st March,2011, the Respondent sought

seven days time to file its Sur-Rejoinder which was granted and the matter was fixed for arguments on 7th April,2011 The Respondents Sur-Rejoinder dated 31st March, 2011was received in NSE on 1st April, 2011. On 7th April, 2011, the parties advanced their respective arguments on the question of jurisdiction. The learned counsel for the Respondent stated that he will file its written submissions on jurisdiction by 21stApril, 2011 and furnish a copy of the same to the counsel for the Applicant. The learned counsel for the Applicant stated that she will file her written submissions by 2nd May, 2011. The matter was fixed for further hearing on 11 May, 2011. On that date, both the parties advanced their respective arguments on the question of jurisdiction. The learned counsels for the Respondent stated that he would file his written submissions on the subject matter of jurisdiction. The learned counsel for the Applicant agreed to make her written submissions on jurisdiction under the Arbitration & Conciliation Act,1996 ( hereinafter referred to as the Act) and the matter was fixed for arguments on merits on 17th June,2011. 3) When the matter was taken for final hearing on 17th June, 2011, the learned counsel for the Applicant requested for the adjournment of the hearing of the present reference for arbitration on the ground that certain developments had taken place in view of the judgment of the Bombay High Court on 16th June 2011 and the Applicant was yet to decide her future course of action. Therefore, further hearing of the reference was adjourned to 2nd August, 2011. On that day, the learned counsel for the Applicant stated that she proposed to prefer an appeal against the order dated 16th June, 2011 by the single judge of the Bombay High Court to seek appropriate directions from the High Court regarding the present reference for arbitration. With the consent of both the parties, the order dated 16th June, 2011 passed by Justice D K Deshmukh of the Bombay High Court was taken on record. On 4th November, 2011, after the parties had made extensive oral submissions, the hearing was closed for making the award. 4) I will first deal, in brief, with the question of jurisdiction of the arbitrator in the present case. The Applicant .in her rejoinder dated 16th March, 2011, submitted that even though a number of hearings had taken place, the Respondent took the objection only at the time of final arguments which was also noted by the arbitrator in its earlier award. This, according to the Applicant ,was contrary to Section 16(2) of the Act ,which inter alia provides that the plea that the arbitral tribunal does not have jurisdiction shall be raised no later than the submission of the statement of the defence. Thus, the Respondent having failed to raise the plea of jurisdiction is precluded from raising such an objection during the final hearing of the arbitration proceedings. The Respondent, in its reply dated 31st March, 2011 contested the submission made by the Applicant and stated that the requirement of Section 16(2) of the Act was not mandatory and that under Section 16(4) of the Act, the objection to jurisdiction can be admitted by the arbitrator even at the later stage if it considers the delay as justified At the time of hearing on 11th May,2011, both the parties had agreed to submit their written argument on jurisdiction. The Applicant, in her written submissions, contended that it is settled law that no party is allowed to travel beyond its pleadings and that all material facts should be pleaded by the party in support of its case. Since the written pleadings of the Respondent were silent on the aspect of jurisdiction, it was estopped from raising it so belatedly. The Applicant has also made a reference to case of Gas Authority of India Limited versus Keti Constructions (2007) 5 SCC Page 38 wherein it has been held by their lordships of the Supreme Court that the plea regarding jurisdiction must be raised right at the beginning so that remedial measures may be immediately taken and time and expenses involved in the arbitration may be saved on the proper constitution or lacking in jurisdiction at the earliest. The Applicant has also referred to Section 4 of the Act which deals with the waiver of the right to the objection and has submitted that if the Respondent was of the view that the Applicants claim was not within the jurisdiction of NSEs arbitral forum, it ought to have objected to the same within the time frame stipulated by Section 16(2) of the Act. By failing to do so, the Respondent has waived its right and conceded jurisdiction to the Arbitrator. 5) The Respondent, in its written submissions , has taken a stand that the provisions of Section 16(2) of the Act were not applicable in the present case as the objection was

not on the validity or the existence of the arbitration agreement but on the jurisdiction of the Exchange. The Respondent has annexed a copy of the order dated 1st February, 2010 made by Justice Anoop Mohta of the Bombay High Court regarding transfer or adjustment of funds of the customers from the accounts of one exchange to another exchange. The Respondent has also submitted a copy of judgments of the Delhi High Court in OPM No 462OF 2003 and of the Bombay High Court in LPA Nos 212 &213 of 2008. 6) It is clear from the submissions made by the parties that no objection was taken by the Respondent on the question of the jurisdiction of the arbitral tribunal except at the time of the final arguments. I am inclined to agree with the submission made by the Applicant that by not raising the objection on the jurisdiction as required under Section 16(2) read with Section 4 of the Act, the Respondent is deemed to have waived the objection regarding the jurisdiction and ,therefore, decide the question in favour of the Applicant that is to say that this arbitrator has jurisdiction to adjudicate the dispute between the parties. In any case, even the Respondent has conceded that the present arbitrator would have jurisdiction on matters covered under the bye-laws of NSE. 7) Now I will deal the submissions made by the parties on merit. It is the case of the Applicant that she had been having her dealings in shares through the Pune branch of the Respondent. She had executed Member-Client Agreement with the Respondent in June 2006. The Applicant has alleged that the Respondent had on 24th November, 2008 sold Applicants shares at NSE worth Rs. 2808053.64 . It is the submission of the Applicant that the Respondent did not furnish her with NSE ledger account and therefore, she was not certain about her debit balance at the time of sale of her shares. A merged ledger account prepared by the Respondent showed that the Respondent had transferred Rs1390076.34 on 17th February, 2009 to her BSE ledger account. Based on the limited knowledge, it appeared that there was a debit balance of Rs 1417977.30 in her ledger account The Applicant has stated that selling the shares in November, 2008 when the market had nose dived caused grave and irreparable loss to her. The Applicant has submitted that the unilateral transfer of NSE excess credit balance and appropriating the same towards the disputed BSE debit balance would have been permissible if the debit balance was crystalized and undisputed. She has, therefore, prayed that the transfer entry of excess credit of Rs 1390076.34 to BSE be reversed and same amount be paid to her along with 18% interest from the date of transfer till realization as also the costs and legal fees. 8) The Respondent, in its Written Statement, has submitted that the statement of the Applicants case is not supported by proper documentary evidence justifying the claim. It has also denied that it had unilaterally sold the shares at NSE worth Rs. 2808053.64. It has further denied that it had wrongly transferred NSE credit balance to BSE debit. The Respondent has referred to the Member-Client Agreement (MCA) which, interalia, provided for adjustment in different segments and exchanges and authorized the Respondent to transfer, make adjustment or set off the securities placed as margin or any surplus funds in any of the accounts of the Applicant maintained with the Respondent against any dues payable. According to the Respondent, it had filed a claim before BSE for an amount of Rs 46,31,386.70 along with interest at 18% p.a. for delayed payment and a panel of three Arbitrators of BSE had granted the claim of the Respondent. It has also termed the claim of the Applicant as being vague, concocted and not based on merit which deserves to be dismissed.In the Rejoinder, the Applicant repeated her averments in her statement of case and denied the averments made by the Respondent. In the Sur Rejoinder dated 8th March, 2010, the Respondent reiterated and reaffirmed the contentions made in its Written Statement and termed the averments of the Applicant as false and frivolous. 9) Now I will briefly deal with the oral submissions made by the parties during the course of their arguments. Opening the argument on behalf of the Applicant, the Learned Counsel Ms Prachi Pande, after, referring to the Statement of Case, submitted that on 28th February,2008, the Applicant had a debit balance of Rs 14,29,199.05. She drew my attention to para 3.11of Part A (Capital Market Segment)

of the National Stock of India which, interalia, requires the Trading Member to sell the equivalent securities not later date than fifth day from the day of pay in. The Applicants shares lying with the Respondent were worth Rs 22000000 as on 31st March, 2008. Had the Respondent settled the Applicants account as on the close of the financial year 31 March, the debit balance could have been cleared and substantial number of shares the Applicant could have been saved. However, the Respondent arbitrarily sold the shares in November, 2008 when the capital market had crashed causing grave and irreparable loss to the Applicant and thereby defeating the very purpose for which this Regulation was framed, namely to protect the interest of both the investor and the broker. According to her, the Respondent had unilaterally transferred Rs 1390076.34 on 17th February, 2009 to the Applicants BSE ledger account. She has argued that such transfer of excess credit from her NSE account to BSE account would have been permissible if the debit balance at BSE had crystalised and undisputed. 10) Initiating the argument on behalf of the Respondent, the Learned Counsel Mr Rajesh Desai submitted that the claim of the Applicant was not supported by proper documentary evidence. The Learned Counsel referred to the MCA dated 14th June, 2006 between the Applicant and the Respondent under which the Applicant had, inter alia, agreed to adjustment in different segments and exchanges and expressly authorized the Respondent to transfer, make adjustments or set off a part or whole of the securities placed as margin or any surplus funds in any of the Applicants account. The Learned Counsel also submitted that the Respondent had filed a claim before BSE for an amount of Rs 46,31,386.70 along with interest at the rate of 18% for delayed payment. After hearing both the parties, a BSE panel of three Arbitrators was pleased to accept the validity of the Respondents claim .The Applicant had preferred an appeal before the Bombay High Court against the award of the arbitrators. He stated that on 16TH June, 2011, Honble Justice DK Deshmukh of the Bombay High Court was pleased to dismiss the appeal preferred by the Applicant .Mr Desai also submitted a copy of the order dated 16th June,2011 passed by the High Court. In view of the said judgment of the High Court, the Learned Counsel has submitted that the claim of the Applicant be dismissed and the costs of arbitration be provided to the Respondent. 11) A reading of the Bombay High Court makes it amply clear that the Honble Court had, after going into the facts of the case , rejected the appeal preferred by the Applicant. Thus, by the judgment of the Bombay High Court, the present dispute between the parties also stands adjudicated. The Honble High Court has affirmed the award dated 18th November, 2009.made by the arbitral panel of BSE upholding the Respondents claim against the Applicant. Accordingly, it is not necessary for me to go into the submissions made by the Applicant once again. Therefore, I have no hesitation in rejecting the claim made by the Applicant and I pass my award as under; (a) This arbitrator has jurisdiction to adjudicate the dispute between the parties; (b) The claim of the Applicant against the Respondent is dismissed. (c) The parties will bear their cost of arbitration. This stamped award is made in three originals; one each for the parties and one to be retained by NSEIL for its records.

Mumbai 16th December, 2011

S C Gupta Sole Arbitrator