09 June 2025 Arbitration Law >> Business & Commercial Law  

A recent court judgment of Jagadeesa G. Chary v/s Nirmal Bang Securities Pvt. Ltd., has upheld two arbitral awards, rejecting a petitioner's claim for a refund of approximately Rs. 14.87 lakhs from a respondent brokerage firm. The petitioner had argued that most of the trades executed on his behalf were "unauthorized," a contention the court found unsubstantiated by the evidence.

The case involved a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an Appellate Award dated October 15, 2013, which affirmed a Primary Award dated April 15, 2013. Both awards had rejected the petitioner's claims against the respondent in arbitration proceedings conducted at the National Stock Exchange (NSE). It was also noted that similar proceedings initiated by the petitioner at the Bombay Stock Exchange (BSE) had yielded a similar outcome.

The judicial journey of this case has been protracted. An initial order from a Single Judge of the Court on December 2, 2015, upheld the awards. However, a Division Bench, in a Section 37 challenge, remanded the matter for reconsideration on November 16, 2016, citing a lack of detailed reasoning in the Single Judge's order. The case has remained on the court's docket since then, highlighting the significant backlog.

Grounds of Challenge: A Closer Look

The petitioner's challenge rested on several key grounds:

• Lack of Prior Authorization: The primary argument was that there was no evidence of prior authorization for most trades, rendering them "unauthorized."
• Instructions to Stop Trading: The petitioner claimed to have repeatedly instructed the respondent to cease trading on his account, asserting that further trades required written revocation of this suspension.
• Improper Close-Out of Positions: The respondent allegedly closed out derivatives positions without providing an opportunity to cover margin shortfalls.
• Financial Disparity: The petitioner insinuated that his meager income (around Rs. 1 lakh annually) was incongruent with the high volume of trading (approximately Rs. 37 crores) conducted in his account.
• Promise of Portfolio Management: The petitioner claimed he was promised portfolio management services with guaranteed profits by a relationship manager.
• Lack of Market Knowledge: He asserted a lack of understanding regarding the difference between the NSE and BSE.
• Challenge to Arbitrator Appointment: After the Primary Award, the petitioner challenged the arbitrator's appointment, alleging conflict with NSE bye-laws.

Analysis and Findings: Evidence Trumps Claims:

The court meticulously examined the voluminous record, including both the Primary and Appellate Awards. While the petitioner's initial claims seemed compelling, especially regarding instructions to stop purchases, the material on record painted a different picture.

The court found that the petitioner actively participated in trades even after sending emails purportedly requesting a halt to further purchases. His written communications were interpreted as bargaining or protests about the scale of earnings, rather than firm injunctions to cease trading.

Crucially, telephonic recordings of conversations between the petitioner and the respondent's representatives, along with their transcripts, were presented as evidence. A "bare reading" of these transcripts revealed no protest, astonishment, or shock from the petitioner regarding trades effected after his purported suspension email.

Furthermore, voluminous corroborative evidence supported the findings of the arbitral awards: trade confirmations, bills, margin statements, and contract notes were sent via email and SMS messages for every trade. The petitioner admitted to receiving and reconciling most of these.

The court highlighted the petitioner's email of November 8, 2010, where he stated his desire for "no further buy transactions" but, "in the very same breath," also wrote, "However if Nirmalbang feels my findings and opinions are not correct, I will appreciate your frank and true assessment of my account and provide me the reasons for continuing my account with you." This, along with subsequent conversations where the petitioner acknowledged and understood arbitrage trades being reported to him, indicated that his emails were more threats to cease trading if performance didn't improve, rather than firm instructions to stop.

The court also dismissed the petitioner's claim of being a naive investor unaware of the difference between the NSE and BSE. His ability to analyze transactions, receive separate contract notes for both exchanges, and understand arbitrage trades contradicted this assertion. The court concluded that the petitioner was a "conscious and aware customer" with prior experience in portfolio management services.

Mutually Destructive Contentions and Arbitrator Appointment:

A significant point of contention was the petitioner's argument regarding the respondent closing out positions without notice of margin shortfall. The court found this mutually destructive to his primary claim that the trades were unauthorized. If no trades were considered valid, the question of providing additional margin would be moot. This inconsistency further weakened the petitioner's case.

Regarding the challenge to the arbitrator's appointment, the court found this objection untenable. The petitioner had initially suggested the arbitrator (Mr. R.V. Iyer) as his second choice and had participated throughout the primary arbitration proceedings without objection. Raising this issue only after an adverse award was deemed a "pernicious trend." The court also emphasized that the objection was not rooted in a lack of independence or impartiality but in the arbitration's outcome.

Conclusion: No Grounds for Interference:

The court concluded that the arbitral awards were "eminently plausible and defensible." It found no grounds for interference under Section 34 of the Act, noting that the petitioner had ample opportunity to present his case and that the awards did not fall outside the scope of the arbitration agreement.

The judgment highlighted that while the respondent's actions might have had regulatory repercussions for operating as a de facto discretionary portfolio manager, it did not negate the contractual reality of the parties' willing participation in the trades. The petitioner, despite incurring losses, consciously engaged in the scheme of trading, expecting returns.

Ultimately, the petition was dismissed. While costs typically follow the event in commercial disputes, the court declined to impose them, acknowledging that the matter's prolonged pendency was not due to the fault of either party but rather the "overburdened docket of this Court."

  Section 34, Arbitration and Conciliation Act - 1996  

  Arbitration and Conciliation Act, 1996