BEFORE JUSTICE (Retd) MAHMOOD All KHAN, SOLE
ARBITRATOR
Arb. Case No. D-004/2012
IN THE MATTER OF:
Kundan Lal Khattar 40,
Gangotri Apartments
Vikaspuri, New Delhi
Pan no – AAGPU1496B
.. .Applicant / Constituent
Versus
India Infoline Ltd.
Vikaspuri / Kirti Nagar
Mumbai
AWARD
... Respondent / Trading Member
I. The applicant - Constituent has filed arbitration application claiming Rs. 5, 05,000/- from the respondent Trading Member. NSE has referred the dispute relating to the claim for adjudication by arbitration.
2. The first grievance of the applicant is that on 4th, 6th and 7th April, 2011 through his trade terminal he made a
request to the respondent - Trading Member for payout but the payment was not made although he was assured
again and again that he would soon receive payment of more than Rs. 2,00,000/-. The applicant's second grievance
is that the shares, which were purchased by him, were kept in pool by the respondent for months together although
his positions were even in cash positive and further interest on over due amount was continued to be charged.
Thirdly, the applicant has alleged that the respondent sold or squared of his open position in F&O on 27.4.2011
wrongfully. He received SMS in the night at 10:30 PM on 26.4.2011 from the respondent that his margin was short
and he should deposit money before 8AM next morning, otherwise the positions would be squared off. He requested
not to do so as had promised to make the payment in the morning as soon as the bank open or he himself would sell
his shares from his holding to replenish the margin or would square off one of many open positions in F&O. He did
not receive any response. When the market opened, he tried to sell the securities in cash from his holdings from 9: 16
to 9:24 hrs. and also tried to square of one of the open F&O position but it :vas rejected by the terminal. When
contacted, the Branch Manager Shri Harsh Monga, he was told that all his positions of F&O were squared off.
Fourthly, it is alleged that he was not satisfied with the services provided by the respondent
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Trading
Member. They were not following the rules of SEBI and the trading member's actions amounted to a crime
committed for cheating and defrauding the client.
3. The respondent controverted the allegations of the applicant in the statement of defence. It is stated that if the
applicant was so much aggrieved, he could not have continued trading through the
respondent - Trading Member. It is submitted that the applicant opened an on-line trading account and the Demat account in
November, 2007 by executing Broker Client Agreement
_
NSE 1 BSE, account opening form and other related
documents. He also made himself conversant with the contents of Combined Risk Disclosure document. Being an
on-line' client. the applicant could access to all the infonnations pertaining to his trading activity at any time
without depending upon the respondent. He had been carrying out trades and transactions regularly initially in
cash segment between 29.11.2007 and 7.2.2011. During this period he had been making pay-in regularly as
many as 41 times making a total payment of Rs. 9,56,540/-. The pay-in were mainly against the outstanding
debit balance in order to carry out trades. The applicant's problem started when he shifted over trading
activity from cash segment to F&O segment from 8.2.2011. He continued trading in F&O segment till date inspite of
heavy losses incurred by him. The applicant has given in the form of table the pay in and payout in the F&O
segment taken by the applicant from February, 2011. He made pay in of total sum of Rs. 40,000/ and had taken
payout of Rs. 1,71,700/-. The pay in were against the debit balance in the account and payout were against the credit
balance. He executed trades on 214 days and had debit balance on 199 days and credit balance on 15 days.
4. As regards the request for pay out made on 4.4.2011 and 6.4.2011 the respondent stated that his
request could not be processed due to technical failure as entire working of all the companies
and banks etc. had been computerized and further some time services stopped working or
worked slowly resulting in such problem. In terms of KYC the respondent cannot be held
responsible for such technical failure. The request of the applicant dated 7.4.2011 was processed
on 8.4.2011 but by that time the applicant had created a debit balance of Rs. 35,684.67 so the
payout could not be given. As to the second grievance. his shares. were kept in pool account
and squaring of the shares from the Demat account. The respondent referred to clause (a) of
the running account letter and clause titled as "default in payment'
which was part of KYC. It is a complete answer to the case pleaded by him. With regard to
the allegations of wrongful squaring off the open position for insufficient margin, the
respondent stated that the applicant had admitted that he had received the SMS at 10.30 PM to
clear his debit balance which he failed to do. So the risk management squared of his position,.
The applicant was trading aggressively in the F&O segment and the conditions prevailing in
share market were always .volatile. so it was the obligation of the applicant to clear his debit
balance and mark to mark loss on day to day basis. He is an on-line trader and can view his
trading activity / details at any time after the closure of the Exchange at 3.30P.M.. As a
matter of practice the respondent does block the terminal of the client whose position are to
be squared off in order to avoid the double sale of positions of the client both by the respondent as
well as the client. There was heavy debit balance in his account and there was still
outstanding debit balance at the end of the trading day, so all his positions had to be squared
off. The risk involved always being of highest degree in F&O segment. Other allegations
were also denied by the respondent.
5. In the rejoinder filed by the applicant, the applicant reiterated that the intention of t9employees and the senior
managerial staff of the respondent was to cheat and commit fraud with the applicant which is clear from the fact that
they deliberately kept him in for trade till February, 2012 am continued to promise to resolve his complaint so that
the applicant does not go to other broker. He had always been trading in F&O segment within norms and the margin
requirement. He had tried to close F&O trades but the request was ignored, so the respondent is responsible for the
losses. The applicant submitted that for any technical failure in the system, the respondent would be liable as his
request remained unresolved for 20 days. The applicant also submitted that the respondent had been violating the
Rules, Regulations and norms fixed by the SEBI by withholding the funds and, therefore, the respondent is liable for
the offence committed. As regards the demand by SMS at 10.30PM the respondent had failed to give proper
opportunity to the applicant to clear the fund requirements and positions which amount to playing fraud and
committing offence of cheating upon the applicant. According to him, margin was available as some positions were
again taken on the same day and of the same scrip. The cash balance was also available even after positions were
cleared and he himself had told the respondent to Email that he would make payment. Still his positions were squared
off. The respondent had alleged in the NSE earlier that the applicant had tried to execute trades on Sunday and now
some other reason has been given.
6. I have heard the applicant and the representative of the respondent and have also carefully gone through the record.
7. The first question that arises for consideration is the allegation of the applicant that his request for payout made on
4th, 6th and 7'h April, 2011 was not processed and the payment was withheld for over 15 days and ultimately it was
declined. The material fact relating to these complaints are not in controversy. According to the applicant, he made
request on 23rd March, 2011 and pressed it again on 4th, 6th and 7th April, 2011 but he as deprived of the payout
wrongfully on 8th April, 2011. The respondent did deny that such request for payout was made on 23.3.2011 but
receiving request for a pay out on 4th, 6th and 7th April, 20 II have not been denied. As per respondent, this request
could not be processed b cause of some technical fault in the system of the respondent and that on 8th April, 2011
when it was the applicant had already created debit balance in his account by then, so the pay out was out of question.
The applicant does not deny that there was a debit balance in his account on 8th April, 2011 and he was disentitled to a
payout. He also does not deny that he continued to trade even after making the request for payout. The applicant is an
on-line trader. He had the facility to view and watch all his trades, accounts and other details online at all the hours of
the day. His request for payout was pending and he should have ensured that the funds were available in the credit with
the respondent for making his payment to him. He has also not denied that in accordance with the terms and conditions
as incorporated in the Broker Client Agreement the respondent could not be held responsible for an
action or inaction if it was the result of technical fault in the system. Anyhow, the allegations made by the
applicant does not show that the delay in payment to the applicant by the respondent on 4th, 6th, or 7th
April, 2011 was deliberate and intentional or with some latent criminal motive. The respondent has given
table in the statement of defence which clearly shows that the applicant had been given a payout of Rs. 1,
31,700/- on 26.8.2011 when there was credit balance of Rs. 1,35,408/- in his account. He was again given
payout of Rs. 40,000/- on 12.9.2011 when his account had credit balance of Rs. 44,723/-. It means that
the request of the applicant was resolved by the respondent whenever the credit balance was available in
his account for making the payout. Furthermore, it is not explained as to what benefit would accrue to the
respondent by withholding funds deliberately and intentionally for two or three days till his account went
into debit balance. After all, the applicant was liable to relinquish the debit balance in his account if it
occurred soon after the payout was taken by him. It is also interesting to note that the applicant, who now
says was immensely aggrieved by withholding of payout and then denying it on 8th April, 2011 continued
to carry out trades and transactions in his account in F&O segment till February, 2012. He had taken out
payout in August and September, 2011 in F&O segment. If he felt that he was being cheated or was
victim of any fraud by the employees and Senior Managerial staff of the respondent, he would not have
worked with the respondent for about eight more months. He would have immediately severed his
connection with the respondent, so that no further cheating and fraud is committed upon him. The
contention of the applicant that his request for payout was delayed and ultimately denied by the
respondent deliberately or was motivated, therefore, does not appear to be true.
8. The next contention of the applicant is that the shares purchased by him were kept by the respondent in
its pooL for months together, even though there was no debit balance against him and at the same time
charges for delay in payment were also levied which amounted to cheating and misappropriation of his
funds and securities by the respondent. He stated that the respondent could charge interest from him only
if his securities were transferred to his Demat account but keeping them with it and charging 'interest is
totally manipulation. It is also stated that on 22.6.2011 the respondent sold his scrip kept in Demat account
and not the scrip which was retained in pool account. The respondent referred to clause (a) of the Running
Account Letter and clause titled as "Default in payment in the KYC" Annexure”A' to the statement of
defence. It is stated that the applicant has not disputed the trades and also the debit balance outstanding
against him. Clause (a) of Running Account Letter has provided as under:
"I would like to keep securities purchased by me with you as collateral for giving me exposure
limits in my trading account. 1 authorize you not to transfer shares / securities purchased by me
to my demat beneficiary account and keep them with yourselves. 1 also authorize you to pledge
these shares / securities with the Clearing Member Exchange / banks at your discretion. In case
any of the shares / securities are sold in subsequent settlements, you may take this as a standing
instruction to adjust against my previous purchase positions."
'
The default in payment clause of the Broker Client Agreement reads as under;
"The client agrees that IIL may set off his; her credit balances on NSE and BSE, hereinafter referred to as
the "Exchanges" against the debit balances in one or more accounts of the Client in relation to t he said
Exchanges and segments of the Exchanges.
Without prejudice to the Stock Broker's other rights (including the right to refer a matter to
arbitration), IlL shall be entitled to liquidate; close out all or any of the Client's positions in
cash segment or derivative segment on any Exchange for non payment of margins or other
amounts, outstanding debts, etc. and adjust the proceeds of such liquidation; close out if any
against the Client's liabilities; obligations. Any and all losses and financial charges on account of
such liquidation; closing out shall be charged to and borne by the Client.
On a default' by the Client to remit any monies payable to ILL, IIL shall be entitled to
Appropriate the monies maintained by the Client I the Minimum Margin Deposit towards its
dues. The Minimum Margin Deposit with ILL shall be subject to a lien for the discharge of any
and all indebtedness or any other obligation that the Client may have to ILL.
The E-broking services shall be suspended to the Client until such time as the Client replenishes
funds adequate to maintain the Minimum Margin Deposit at the stipulated level.
Notwithstanding anything contained in these present, any amounts shall be overdue from the
Client towards trading either in the cash or .........segments or on account of any other reason
the member, will be charged delayed payment charges at the rate of 20% per month or such other rate may
be determined by the Member. The Client hereby authorizes the Member do directly debit the same to
the account of the Client at the end of each month."
It is evident from these clauses of the Agreement which govern the parties that the respondent's action, if
at all, by clearing the debit balance by sale of shares, transfer from the Demat account and not selling the
shares which were in the pool account can in no way be termed as transgression of the authority vested in
the respondent by these agreements. The applicant has not been able to justify his allegation that the
respondent ought to have disposed of those scrips which were available in the pool account with it before
selling the scrips by transfer from the Demat account. No criminality in the account of the respondent can
be imputed. It can also not be said to be a case of cheating or manipulation done by the respondent. This
contention of the applicant also has no force. Similarly, his allegation that his scrips were kept in pool
account as collateral security; margin for carrying out F&O trades for a long period and months together
and at the same time he was charged interest for the delay in payment also does not hold good in view of
the terms of the agreement quoted above. The applicant being an on line trader could have himself
watched his interest and would have taken immediate action to liquidate the debit balance, either by
selling the scrips or closing out or liquidating the positions etc.. He could not have dependent solely on
the respondent otherwise the opening an on line account was frustrated. I, therefore, do not find that the
respondent could be said to have committed any illegality or had any ill motive or criminal intention. The
levy of the charges; interest for delay in payment was in accordance with the terms of the agreement. This
contention of the applicant also has no merit.
9. With regard to the squaring off the applicant's open positions in F&O segment on 27.4.2011 the
allegation of the applicant was that this account smacked 'criminal culpability' and 'manipulate market'.
According to him on 26.4.2011 at about 10:30 PM a call was received by him from the respondent
asking for payment "to replenish the shortage in Margin before 8 AM on the following morning.
Otherwise, he was told his open positions would e squared off. According to the applicant, he
immediately requested the respondent not to square off his open position and promised to pay the
amount in the morning as soon as the bank opened, or by selling shares / holding or he himself would
square off one open position in the F&O. It is submitted that the applicant did not receive any reply to
his Email till 27.4.2011. He also talked to the Branch Incharge Shri Harsh Monga before the market
opened at 9AM. After the market opened, he tried to sell securities in cash to meet the margin
requirement between 9: 16 and 9:24 hrs. and also tried to square off one open F&O position but
s
it was rejected by the terminal. He contacted the branch and while he was talking to Shri Harsh Monga,
who had advised him to wait and kept him on hold, his position in F&O segment were squared off.
Similarly, open positions were also squared off on 21.6.2011 in an arbitrary and discriminatory manner.
The applicant, thus, received SMS for payment to fulfill the margin requirement at late hours in the
night and further without giving him adequate opportunity to either make the payment or sell his shares /
one of the positions, to replenish the margin requirement his positions were squared off and further his
attempt to sell his shares and square off one open position in the F&O to meet the margin requirement
were blocked as they were not accepted by the trading terminal. The respondent, thus, had a criminal
intention to cheat and play fraud upon him. Conversely, the respondent submitted that an on line trader
had the facility of viewing and monitoring his account an the trades himself. It is submitted that under
the agreement he was duty bound to maintain adequate margin and clear the debit balance without any
demand being made from him. Still, the applicant was informed by SMS at 10:30 PM, as admitted by
him, to clear the debit balance. His positions were squared off by the Risk Management of the
respondent. According to the respondent, the applicant was aggressive trader in F&O segment and that
stock market is always highly volatile so it was the duty of the applicant to clear his debit balance and
mark to market losses on day to day basis. He could have seen the position of his account and the
margin requirement at 3.30 PM when the market closed and could have taken adequate steps to avoid
squaring off his open position. The respondent has further submitted that in the event there is possibility
of the squaring off the open position of a client, the respondent blocked the terminal of the client in
order to avoid double sale of the position, both by the respondent as well as by the client like the
applicant. It is submitted that the applicant cannot have 92% in debit during the trading period, so he
himself was responsible for not clearing the debit balance regularly. It is submitted that the trades in
F&O segment carry always risk of highest degree. There was continuous heavy debit balance in the
account of the applicant and his account had a debit outstanding balance at the end of the day. So, the
I.
,
respondent was forced to square off the position under the risk management. The applicant pleaded and
promised to make the payment, so his request to buy some positions on the same day was also acceded to by
the respondent. There is no cogent and plausible reason given by the applicant as to why he waited for SMS
from the respondent asking him to pay the debit balance and fulfill the margin requirement. It is not the case
of the applicant that the respondent was duty bound to demand the shortage in the margin before he made the
payment I replenished the margin obligation. He has not denied that there was outstanding debit balance in
his account and has also not disputed that his margin had fallen short. He has also not denied that it was his
obligation to meet margin shortage and M to M losses occurred due to his trading and transaction. The
applicant cannot hold the respondent responsible for the squaring off the position when he has admitted that
he had not made the payment when the market opened on the next day. It is also not stated by him that his
terminal was blocked and he was not allowed to sell the shares or close out his open position at 9AM when
the market opened. It is his case that he tried to do that between 9: I5 and 9:24 hours. The respondent
committed no error in not waiting till the applicant himself sold the shares or closed out his position during
the trading day. It cannot be denied that F&O stock market carry risk of highest degree. It is also highly
volatile. Therefore, no fault could be found in the action which was taken by the risk management of the
respondent. It is also interesting to note that even after this episode the applicant continued to carry out trades
for further eight months with the respondent and suffered losses. The complaint of the applicant is, therefore,
highly belated.
10. The contention of the applicant that the respondent while continued to promise to resolve his grievances
did not allow him to leave and enjoy some other broker is unsubstantial. Nothing would have prevented the
applicant from closing his account with the respondent if he was not satisfied with the services provided to
him or he felt that he was being cheated or a fraud is being played upon him by the respondent and its
employees. He cannot blame for the loss suffered by him simply because he did not receive any reply from
the respondent to his mail sent during the night of 26.4.20 II. The respondent, under the terms and conditions
of the Broker Client Agreement, was not obliged to withhold the required action till a reply was given or wait
for the applicant to take steps for meeting the margin requirement during the day.
11. Another contention of the applicant was that his trading terminal lost connection between 3:03 and 3:25
hrs. on 19.5.2011. The respondent has not only denied but has pointed out that the applicant had executed
trades at 3:07 hrs. when he placed an order to sell INDHOTEL (expiring on 26.5.2011) as shown in the order
log which is filed as Annexure 'D'. This contention of the applicant, therefore, that he was denied opportunity
to trade through terminal, therefore, does not appear to be true. Even otherwise an on line trader he could
avail of the services of the dealer of the trading member for placing orders by telephone. The applicant should
have carried out trades through the trading member if there was something wrong with the trading terminal
provided to him.
..
12. According to the applicant, his open position in F&O were squared off at lower rate than the actual rates
prevailing on 26.4.20 II. The allegation may not be true as the squaring off is done on the computer and. as such,
there is no chance of any manipulation in the rates.
13. The applicant has further alleged that he was not allowed to purchase one lot Rolta Future on 29.9.20 II although
adequate margin was available. This alIegation has also been denied. It is submitted that the applicant could not
execute this trade because of short fall in margin in his account and has filed copy of the order log Annexure 'C to
the statement of defence. Another allegation of the applicant that he was unable to square off open position of scrips
one CONCOR on expiry date on 26.5.2011 at 3:20 PM which caused him loss. The respondent has stated that it is a
false accusation. The applicant might not have been able to trade in this share from his personal terminal
being an on line trader due to various technical reasons for which the respondent could not be held
liable. But when he brought this fact to the notice of the respondent that the trades were executed from the
branch itself and the relevant physical contract was filed as Annexure 'E' in support of this submission. The
applicant also made an allegation that he was unable to buy a lot of ICICI Bank on 11.10.2011 at 9:53 hrs. in spite
of margin details given to the respondent. According to the respondent this trade was rejected due to short fall in the
margin as would appear from the order log which is filed as Annexure 'D'. Yet another allegation of the applicant is
that he was unable to square off the open position of L&T on 15.12.2011. The respondent stated that this allegation
is also false and baseless. The applicant had carried out 40 trades on 15.12.2011 out of which 2 were rejected, 2
were cancelled. 9 were modified and 27 were placed. so there is no question of the respondent not allowing the
applicant to square off his position in the said scrip on that day. A careful perusal of the documents which have been
submitted by the respondent belie all above allegations and accusations made against the respondent. The applicant,
who has suffered losses due to his own judgmental error, cannot make the respondent to compensate for all
these losses. He could have also not born with all the inadequacies in the services of the respondent for a very
long period after he started trading in F&O segment since February, 2011 and come up with the complaint
when he could not recoup the losses from the trades.
14 From the above discussion. I do not find that any of the allegations made by the applicant against the respondent
in this arbitration application has been established. The applicant has not been able to prove his claim against
the respondent.
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15. Consequently, the arbitration application and the claim preferred therein by the applicant Constituent is dismissed.
However, the parties are left to bear their own cost.
Award announced on
June 20, 2012
(M.A. KHAN)
SOLE ARBITRATOR