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First Global Stock Broking Pvt Ltd Vs Tarun Gupta: No Way To Establish Appellant Followed Instructions Of Respondent

Rheaa Nair ,
  06 November 2021       Share Bookmark

Court :

Brief :

Citation :

Coram
J. VipinSanghi
J. Sanjeev Narula

Parties
Appellant- First Global Stock Broking Pvt Ltd
Respondent- Tarun Gupta

Subject

The appellant, aggrieved by the order of the Single Judge, has preferred the present appeal under Section 37 of the Arbitration & Conciliation Act, 1996. The Arbitral Tribunal has found the appellant at fault, and the appellant wishes to set the arbitral award aside.

Overview

  • The respondent entered into a contract with the appellant, and the appellant was to invest on behalf of the respondent. The respondent claimed that the contract was a discretionary trading account, and the appellant had to trade in the respondent's account according to the trade strategies of their product, where trades are hedged to protect the capital.
  • On this basis, the respondent claims to have invested a sum with the appellant, which initially gave a positive return. Finding, fluctuations in the balance of his account, the respondent brought the same with the appellant.
  • The appellant assured the respondent that the fluctuations were the result of trade settlements and margin requirements, and there was no need to worry. But the respondent eventually suffered losses and claimed the amount and interest on what he had invested.
  • The position taken by the appellant during the arbitration proceedings was that the respondent’s account was a simple trading account, and he alone was responsible for all the trades undertaken in his account. The Appellant says the trades in question had been undertaken on the respondent’s specific instructions.
  • The Arbitral Tribunal, and the Appellate Tribunal, gave a decision in favor of the appellant, concluding that the appellant was not undertaking trading at its own discretion, and the trades were not hedged to protect the capital. The respondent’s claims were dismissed.
  • The Single Judge however found that the Tribunals ignored Regulation 3.4.1 of the National Stock Exchange of India Limited Regulations (F&O Segment), in their analysis. The Judge noted that the Tribunal had failed to consider the respondent’s plea, that he received the first ledger later, and subsequently protested to the same. The Tribunal’s emphasized the respondent's lack of protest on the contract notes, but the Judge found these could not be accepted. The award given by the tribunal was set aside.

Relevant Provisions

Regulation 3.4.1 of the National Stock Exchange of India Limited Regulations (F&O Segment):Trading Members have to ensure that appropriate confirmed order instructions are obtained from clients must be recorded.

Issues

Whether the decision of the arbitral tribunal against the appellant is correct?

Analysis

  • The court found that there was no merit in the appeal. The appellant’s stand was thatthe account maintained a discretionary trading account. The respondent’s position on the other hand was that the contract entered into between the parties shows that the account of the respondent was a simple trading account.
  • The appellant additionally claimed that the trades were carried out on the instruction of the sub-broker. This stand was also rejected by the Tribunals. The appellant has to show compliance with Regulation 3.4.1, and this would have been adhered to if the instructions were received from the respondent. But there were no recorded logs of such instructions.
  • The contract notes also came into existence after the trade was undertaken. They recorded the concluded transaction and, in no way, did it convey exercise of discretion and judgment by the trading account holder of the particular trades. The respondent was not expected to protest the undertaking of the trades, as he was under the assumption that the appellant was following the previously discussed guidelines.
  • When the respondent became aware, he raised objections, and the appellant assured the respondent that the grievance was being looked into. Since the court found no way to establish that the trades by the appellant were on the instruction of the respondent, the appeal was dismissed.

Conclusion

Under Section 37 of the Arbitration and Conciliation Act, awards by the arbitral tribunal can be appealed to a court. This was employed in this. The contention in the case was about how the appellant utilised the funds of the respondent. The Single judge bench found that the analysis of the tribunal was lacking proper analysis and the High Court is seen to agree with that. It has been contended that the respondent did not protest the investments when they were made, but the court found that the respondent was not given a chance to do so. The appeal was dismissed, as no merits were found in the case.

Click here to download the original copy of the judgement

Questions

  • Why was the appeal dismissed?
  • Under what circumstances can one appeal an arbitral award under Section 37?
 
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