BEFORE THE PANEL OF ARBITRATORS COMPRISING OF Justice Dr Pratibha Upasani (Retd.) Judge Mr A S Aguiar (Retd.) Mr S.

Srinivasan Presiding Arbitrator Co-Arbitrator Co-Arbitrator

In the matter of Arbitration under Bye-Laws, Rules & Regulations of National Stock Exchange of India Ltd. Arbitration Matter No. F&O/M-0134/2009 BETWEEN

Manjula Arvind Thakkar 43, Kailash Darshan Dr Ambedkar Road Mulund (West) Mumbai-400 080 AND Sharekhan Limited having Registered Office at A-206, Phoenix Mills Compound Senapati Bapat Marg Lower Parel, Mumbai-400 013 Appearances :

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Applicant/Constituent

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Respondent/Trading Member

Adv. Mr Rajesh Khandelwal for the Applicant Ms Neeta Thakkar, Power of Attorney-holder for the Applicant Adv. Mr Rajesh Desai for the Respondents Mr Kashyap Chokhawatia, AVP-Clients Affairs & Legal AWARD 1) These Arbitration proceedings have been initiated by the Applicant/Constituent Manjula Arvind Thakkar claiming from the Respondents/Trading Member Sharekhan Limited, a sum of Rs. 32,89,412 along with interest at the rate of 18% p.a. thereon till payment/realisation towards credit of shares (allegedly) illegally sold by them.

2)

Case of the Applicant, as narrated by her in her Statement of case may be briefly stated as follows:-

The Applicant is the client of the Respondents and has entered into broker-client agreement along with other incidental documents. The Applicant was allotted ClientCode No. 32505. The Respondent is a member of National Stock Exchange of India Ltd., and Bombay Stock Exchange Ltd., and undertakes trading on behalf of its clients.

3)

The Applicant has stated that she was holding certain shares in her DP account with the Respondent and had provided the Respondent with the said shares as margin for trades to be carried out under her instruction. It is her case that various uninstructed and unauthorised trades were carried out in her account in the period beginning from 25/04/2008. These uninstructed and unauthorised trades carried out by the Respondent in her account resulted in a total loss of Rs. 9,37,568/- as on 05/11/2008 which was wrongly debited in her account and hence she is claiming that Rs. 9,37,568/- being the loss on the alleged transactions be reversed along with interest @ 18% p.a. from 05/11/08 upto the date of realisation.

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4)

The Applicant has further stated that in addition to the unauthorised trades carried out by the Respondent resulting in a loss of Rs. 9,37,568/- the Respondent also wrongfully disposed of her holdings which amounted to Rs. 23,51,844/-. She has

therefore submitted a claim of Rs. 9,37,568/- + Rs. 23,51,844/- + interest @ 18% p.a. for the delayed period on this claim of Rs. 32,89,412/-. Copies of details of unauthorised trades carried out by the Respondent in her account, and wrongful sale of her holdings sold by the Respondent against wrongful debits due to unauthorised trades are marked and annexed to the Statement of case as Exhibit 9 (colly).

5)

The Applicant has further contended that the Respondent not only failed to sell her holding when due and required, but in addition wrongfully sold her holding against alleged wrong debits. She sought clarification from the Respondent with regard to the alleged transactions in her account vide letter dated 08/12/2008 and again by way of reminder on 05/01/2009 to the Respondent. She has stated that Respondent did not pay any heed and ultimately simply denied all the allegations vide their letter dated 06/02/09 copy of which she has annexed as Exh. 4. Copies of her letter & reminder also are annexed and are marked Exh. 2 and 3 respectively.

6)

The Applicant has further stated that the Respondent along with their abovereferred reply dated 06/02/2009 had enclosed one undated letter to be group-adjustment letter purported to be signed by the Applicant and her family members. It is stated that the said letter is addressed to one SSKI Investor Services Pvt. Ltd. and S. S. Kantilal I. Ltd. Since the Respondents name here is Sharekhan Limited it is submitted by the Applicant if these entities have merged with the Respondent Sharekhan Limited, they cannot stretch the benefits available to those two entities without following the rule and procedure of law. According to the Applicant, the said letter is null and void and has no legal sanctity. The Applicant has denied that she has signed any group adjustment letter with the Respondent.

7)

Without admitting the veracity or legality of the said group adjustment letter, it is contended by the Applicant that she and her family had agreed to (1) treat all accounts as one, (2) adjust balance of any or all accounts with the said two entities for BSE and NSE, (3) authorise to pass such entries, (4) adjustment of debit balance against credit balance, (5) consolidation of accounts to ascertain limits, (6) withhold payments and (7) withhold securities. The Applicant has submitted that nowhere does the said group adjustment letter authorise the Respondent Sharekhan Limited to sell shares to proceed towards its rights enumerated hereinabove. According to her, the group-adjustment letter merely facilitates adjustments in accounts inter se within the family vis--vis inter Exchange.

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8)

The Applicant has further submitted that she was not provided with contract notes since October, 2008 despite repeated requests though it was mandatory under the law to do so. The Panel of Arbitrators was requested to give direction to furnish copies of all contract Notes from 01/10/2008 to her with respect to NSE transactions.

9)

It is submitted by the Applicant that the present Arbitration Reference has been filed by her, being dissatisfied by the lack of response from the Respondent. Finally it is prayed that Award be passed in her favour directing the Respondents to pay her sum of Rs. 32,89,412/- along with interest thereon at the rate of 18% p.a. till payment and/or realisation towards credit of shares illegally sold by them. Legal fees and cost of incidental expenses are also prayed for.

10)

The Respondents have filed their reply (undated) denying all the allegations made against them by the Applicant in her Statement of case.

At the outset they have stated that Applicant has distorted the facts, ignored the rules, regulations and bye-laws of NSE. According to them the claim of the Applicant is vague and is not supported by proper documentary evidence, justifying the alleged claim.

11)

It is submitted by the Respondents that the claim of the Applicant is time-barred. It is stated that the period of dispute as alleged by the Applicant is from 25/04/2008 to 05/11/08 whereby the Applicant ought to have filed the present Arbitration claim within 6 months from the said date of dispute which according to them the Applicant has failed to do. According to them the disputes prior to 17/10/08 cannot be considered before this Arbitral Tribunal as the same is barred by limitation.

12)

The Respondents have pointed out that the Applicant has submitted the group adjustment letter for adjusting the debit/credit of all the four accounts of the Applicant, and (her family members) Arvind Berai, Nita Thakkar and Dipak Thakkar on the basis of which the debit and credit of all the four accounts were adjusted.

13)

It is also submitted by the Respondents that the Applicant has failed to mention which shares on which date and what amount have been disposed off unauthorisedly by the Respondents. They have denied the claim and have stated that they are not liable to the alleged claim of Rs. 32,89,412/- with interest. According to them the amount being claimed by the Applicant is totally bogus and concocted.

14)

The Respondents have submitted that the Applicant had entered into a memberclient agreement with the Respondents. It is submitted by them that the Applicant is

falsely stating that she is not in receipt of the said agreement. They have stated that the -5-

Applicant has signed KYC Agreement also with the Respondents. It is further stated by the Respondents that the Applicant was well-aware of the position of her account and that the Respondents were regularly providing her with quarterly statement and accounting balance. They have emphatically stated that the transactions were strictly carried out as per the instructions of the Applicant and were as per the rules laid down by NSE and SEBI guidelines. They have stated that profit and loss in shares are subject to market fluctuations for which the broker cannot be blamed. They have submitted that the group debit balances of the group (consisting of family members of the Applicant) were adjusted as per the group adjustment letter signed by all the members of the group. It is once again stated by the Respondents that details of the alleged disputed trade beginning from 25/4/2008 to 05/11/2008 were not given by the Applicant. They have also reiterated that disputes prior to 17/10/08 cannot be considered as the same barred by Limitation. is

15)

It is submitted by the Respondents that the Applicant cannot back out from her liabilities. It is stated that the Applicant has agreed and is aware that in case of failure on the part of the client to discharge her liability as per ledger, the Stock-broker has authority to recover the debit balances by selling the stock/squaring off the position.

16)

The Respondents have stated that Sharekhan Limited was formerly known as SSKI Investor Services Pvt. Ltd. and is having its affiliated company S.S. Kantilal Ishwarlal Securities Pvt. Ltd. It is submitted that just because the name of the Respondents is changed, the liability of the Applicant cannot be wiped out and the group adjustment letter cannot be null and void.

17)

The Respondents have emphasised that the Applicant was regularly provided contract Notes and bills and that she never raised an issue regarding the non-receipt of details at any time in the past before this event. It is stated that she could have made a complaint before Investors Grievance Cell for non-receipt of contract notes and bills, but that for the first time she has raised this issue before this Arbitral Tribunal.

18)

Respondents have thus denied the allegations, accusations and claim of the Applicant and have prayed that her claim be dismissed with costs. The Applicant has filed her Rejoinder dated 1st October, 2009, reiterating what she has stated in her Statement of case. It is stated by her that she was at a loss to find details of the unauthorised trades carried out in her account from 25/04/08 to 05/11/2008 as she did not receive the contract notes and bills of the disputed dates which would help her to detail out the unauthorised trades. It is further stated that after repeated follow-ups

19)

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and reminders, she received only a ledger account wherein she tried to ascertain the amount of losses she had suffered due to unauthorised trades in her account and on getting no response from the Respondent she made a complaint dated 05/01/09 in writing and also sent a reminder dated 03/02/09. She has stated that as she was running out of limitation and with the limited information available with her, she filed the present reference. She has stated that she has made a claim of Rs. 32,89,412/- for the unauthorised trades from 17/10/08 onwards only and has left out the trades prior to 17/10/2008 in view of the limitation period. A copy of the details of the claim of Rs. 32,89,412/- is marked and annexed to the Rejoinder as Annexure A. She has therefore claimed that her claim is not barred by limitation and that even the Respondents have contended that the trades prior to 17/10/08 are barred by limitation, which in any event are not included in the present Application.

20)

As far as the group-adjustment letter is concerned, the Applicant has submitted that the Respondents are deliberately attempting to misinterpret the stipulations in the purported group-adjustment letter. It is reiterated that the Respondents had unauthorisedly sold her shares, created credit in her account and then went on to adjust the purported credits from her account to various accounts. According to her, the group adjustment letter does not confer any right on the Respondent to unauthorisedly sell the shares in the account of one entity and then appropriate the credits in the account of other entities. According to her, this is a gross violation of the Rules, Regulations and Byelaws of the Exchange. Non-receipt of contract notes and bills is once again submitted concerning the period when the Respondent carried out unauthorised trades in her account. The Respondents have filed their Sur-Rejoinder dated 26th October, 2009 in which they have submitted that the Applicant had entered into a mandate to issue contract-notes in digital form and that all the contract-notes were delivered to the Applicant on her e-mail Id which she cannot deny. It is stated that the Applicant/Group Account was in debit and in spite of repeated requests they failed to make payment and hence as per rules, regulations and by-laws of NSE, the position of the Applicant was squared off to recover the debit of the Applicant/Group Account. It is reiterated that she never raised any dispute before and it was raised for the first time on 08/12/08 and that it is an afterthought to extort money. It is emphasised that the trades were not unauthorised and that the group adjustment letter was given to adjust the debit/credit of all the four accounts of (1) Applicant, (2) Arvind Berai, (3) Nita Thakkar & (4) Dipak Thakkar. Rest of the Statements are reiterated as they have been stated in their reply.

21)

22)

On these pleadings of the parties the first issue which arises for consideration is that of limitation. On merits, the main issues would be the alleged non-receipt of -7-

contract-notes and bills by the Applicant, accusation of unauthorised trading and the interpretation of the group-adjustment letter. Conclusions with respect to these issues will decide whether the trades during the disputed period were indeed unauthorised or not and whether contentions of the Applicant are to be believed and accepted or the Respondents have legitimately and convincingly countered the allegations of the Applicant.

23)

The point of limitation is not at controversy at all in view of the fact that the Applicant has not included in her claim the trades prior to 17/10/08 and the Respondents are contending that those trades are barred by limitation. Thus, the Applicant has in any event restricted her claim with respect to trades after 17/10/08 and hence the thunder in the Respondents contention is taken away. This point therefore has to be held in favour of the Applicant.

24)

As far as merits of the case are concerned, it will have to be clarified that there is no question of law, leave aside any complicated question of law, involved. The case rests purely on certain sets of facts. Since these are civil proceedings, the touchstone for coming to any conclusion will be preponderance of probabilities. The burden of proof to prove the allegations levelled by the Applicant against the Respondents is no doubt on the Applicant. However once she discharges that burden, it shifts to the Respondents. Since both the parties are given ample opportunity to prove their case, it will be interesting to see as to whose case appears to be more believable and hence acceptable.

25)

The Panel of Arbitrators has heard both the sides at length and has carefully considered the record. After applying the touchstone of preponderance of probability and after considering the Rules, Regulations and Bye laws of NSE, the Panel is inclined not to believe the story of the Applicant. The Panel is also not inclined to accept the contents and interpretation of the group-adjustment letter the way the Applicant has interpreted it. We, the Panel of Arbitrators, are interpreting the said letter in a different but simple way, which is favourable to the Respondents, by applying the golden rule of interpretation. We will discuss about that in the forthcoming paragraphs.

26)

Let us start with the Applicants outcry that she did not receive any contract notes/ bills during the period 25/04/08 to 05/11/08. It is during this period that the alleged disputed trades took place. According to the Applicant these trades were unauthorised and without her instructions. According to her, contract notes were not at all furnished to her since October 2008. Now, the question that arises is that why she did not complain immediately within 24 hours and why she remained quiet? Also the Member-Client Agreement, clause 3:14 provides that The clients agree to collect the contract notes for

deal executed and in case of non-collection, the Member may dispatch the contract notes through ordinary post, courier or through any other mode at the address mentioned in this -8-

Agreement or at any other address expressly informed to the Member by the clients and it shall be deemed to be effective delivery of the contract note to the clients (emphasis supplied). It is pertinent to note that by virtue of this clause, the primary duty is that of the client to collect the contract notes and in case of non-collection, the Member may dispatch the same. The question here is: why the Applicant did not abide by this clause and collect the contract notes?

27)

The Respondents have also produced copy of the Mandate to issue contract notes in digital format dated 26/6/06. The said Mandate is signed by the Applicant wherein her E-mail Id is given as manjulaathakker@yahoo.co. and she has agreed and consented to accept the contract notes in digital form. The pertinent thing to note is that she has not come out with a plea that it is not her signature on this Mandate, or that it is not her e-mail id. Even the stock defence that her signature was taken on a blank form etc. is not there. As such the fact of the Applicant not complaining for about 7 months of not getting contract notes/bills for the disputed period appears suspicious. Often the conduct speaks louder than the words. This is one such example. It is worth remembering that the first complaint in writing is also made as late as on 8/12/08 and that too to the Respondents only and not to any other regulating authority like NSE or SEBI.

28)

Coming to the Group adjustment letter given by the Applicant, her husband, son and daughter in law: in our opinion, it will be reasonable to apply the golden rule of interpretation while reading and understanding its contents. It is specifically mentioned in the said letter that though all four of them have entered into individual member-client agreement with (predecessors of) the Respondents and though separate accounts were opened in their individual names, for operational ease, all their accounts be treated as one account. It is further stated in the said letter, Though you have two separate entities for transactions on BSE and NSE, we would like you to treat our account as one and as such we authorise you to adjust balances in any or all of our accounts with any of you with that of our any accounts with other or vice versa.

The letter further says In consideration of your agreeing to the aforesaid, we hereby irrevocably and unconditionally authorise you to give effect to this purpose and intent. (emphasis supplied)

Thus sweeping and overall powers/authorisation is given by the Applicant and her above-referred family members to treat their individual accounts as one for all purposes and intent. This was the general principle. Now, without affecting this general principle

(generality) they irrevocably and unconditionally authorised the (predecessors of the) Respondents to do the following in their accounts maintained by the Respondents.

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1) Pass journal entries adjusting the debit balance of any one or all of us against the credit balance of any one or all of us in any account maintained by you.

2) Consolidate our accounts for the purpose of ascertaining limits available to us.

3) Withhold payment to any or all of us against payments due from any or all of us in any account.

4) Withhold securities due to any or all of us against dues of any or all of us in any account.

In the last but one para of the said group-adjustment letter, it is stated that such entries passed by you to give effect to the authorisation given herein shall be binding on all of us and we shall not dispute the same ... Undertaking is given by the Applicant and her three family-members who are signatories to the group-adjustment letter that they undertake to pass necessary accounting entries in their respective books of accounts to give effect to entries passed by the Respondents on the basis of authority given to them vide the said group-adjustment letter. The last sentence of the said letter states that the authority is given to the Respondents singularly and jointly.

29)

Thus, plain reading of the said letter leaves no doubt in the mind, of the true meaning of that letter, namely, the intention of all to treat the four accounts as one for all purposes and intent. That was a general principle to be followed and more specifically, without affecting the generality (general principle) of what was stated in earlier paras of that letter, some specific authorisation was also made by them, authorising the Respondents to do some specially-mentioned acts enumerated in clauses (1) to (4).

30)

Moreover the Power of Attorney signed by the Applicant and her husband in favour of the Respondents coupled with the rules, regulations and bye-laws of NSE empowered the Respondents to do what they did. In case of failure on the part of the client to discharge his/her liability as per ledger, stock-broker has authority to recover the debit balances by selling the stock/squaring off the position. When it was agreed that accounts of all four were to be treated as one, the Respondents were within their rights to sell the Applicants shares as debit arose in Dipaks (individual) account. This cannot be labelled as unauthorised transaction. The group-adjustment letter was executed for that purpose only and the intention is explicit from the language used. We

therefore reject the interpretation as given by the Applicants Advocate and hold that the action of the Respondents was justified in view of the said group-adjustment letter, the Power of Attorney and the Rules, Regulations and Bye-laws of the Exchange and - 10 -

the transactions on the disputed dates were not unauthorised as alleged by the Applicant, that she was aware of what was happening in her account with the Respondents and her action smacks of something which comes as an afterthought. We are also satisfied after perusing the documents produced by the Respondents that they are the Successors-in-title of S.S. Kantilal Ishwarlal Securities Pvt. Ltd. and SSKI Investor Services Pvt. Ltd. After the hearing was closed, we were furnished with copy of the decision taken by the Arbitration forum of BSE in Arbitration proceedings between the same parties, apparently on a similar issue and the said decision appears to be in favour of the Applicant. With respect, this Panel of Arbitrators does not agree with the views expressed and the decision taken by that forum. We have given our reasons in the foregoing paras for arriving at the decision against the Applicant and in favour of the Respondents. Accordingly, we pass the following Award:

1)

Arbitration claim of the Applicant Mrs Manjula Thakkar against the Respondents Sharekhan Limited is hereby rejected.

2)

Parties to bear their own costs.

3)

The Award is signed and issued in three stamped originals. The NSEIL may retain one stamped original and forward one stamped original to each of the Applicant/ Constituent and Respondent/Trading Member.

S. Srinivasan (Co-Arbitrator) Mumbai 10th February, 2010

Justice A.S. Aguiar (Retd.) (Co-Arbitrator)

Justice Dr Pratibha Upasani (Retd.) (Presiding Arbitrator)