Before the Sole Arbitrator, Mr. G.A.

Nayak
In the Matter of Arbitration under Bye-laws, Rules and Regulations of
National Stock Exchange of India Ltd. (NSE)
Arbitration Matter No. CM/M-0072/2011

BETWEEN

SSJ Finance & Securities Private Limited, --- Applicant

(Trading Member),
1st Floor, Merchant Chamber,
Opp. Patkar Hall,
41, New Marine Lines,
Mumbai-400 020.

AND

Mr. Kaushik R. Mehta, --- Respondent

(Constituent)
P-4086, Building No.149,
Saidham Co-op. Housing Society,
Surroundings, Vallabh Baug Cross Lane,
Ghatkopar (East),
Mumbai 400 075.
(PAN No.: ANNPM6298A)

Appearances:
Applicant :- 1. Mr. Kamal Agrawal, POA Holder.
2. Mr. Anshul Jain, Head, Compliance, duly authorized by the Applicant.
Respondent :- Dr. S.K. Jain, POA Holder.

1. The Claim
The Applicant, SSJ Finance & Securities Pvt. Limited., (a Trading Member of the NSE) filed a
claim of Rs. 20,97,437.09 (Rupees twenty lakh ninety seven thousand four hundred thirty
seven and paise nine only) from the Respondent, Mr. Kaushik R. Mehta (a Constituent of
the Applicant) representing the amount due and payable by the Respondent to the
Applicant towards debit balance in his ledger account together with interest at 18% per
annum from January 03, 2011 till payment.

2. Hearings
· The Arbitration Matter was initiated by the issue of letter dated November 15, 2011 by the
Arbitration Department of the NSE upon receipt of the Arbitration Application with the
relevant documents from the Applicant on November 01, 2011.
· The initial hearing was scheduled for December 05, 2011 by notice issued to both the
parties by the Arbitration Dept., NSE on November 24, 2011.
· The adjourned hearings were held on January 17, February 13 and 27, and March 21, 2012.

3. Statement of case filed by the Applicant

· The Applicant has filed its statement of case dated 14/10/2011 setting out the facts giving
rise to the present claim against the Respondent as given, briefly, in the following
paragraphs:-
· According to the Applicant, the Respondent approached the Applicant in July 2010 and
showed interest in trade of shares and securities. The Respondent executed the Individual
Client Registration Form, Member Client Agreement (MCA), Combined Risk Disclosure
Document (CRDD) and other documents on August 02, 2010. A copy each of these KYC
documents have been enclosed to the statement of case as Annexure-A. The Respondent
was allotted client code INSJ 490.
· The Applicant has stated that the Respondent executed the transactions through the
Applicant on the NSE and they were executed as per instructions/orders received from the
Respondent from time to time and contract notes/bills for the transactions were issued to
him by the Applicant. There was no query for any discrepancies and the same was found to
be correct by the Respondent.
· As per the Applicant, the Respondent traded in the cash segment of the NSE through the
Applicant till Dec 22, 2010 and consequently, the Respondent had debit balance in his
account with the Applicant of the order of Rs. 20,97,437.09 as on January 03, 2011. Further,
the Respondent has till date failed and grossly neglected to make the payment of the
legitimate amount of Rs. 20,97,437.09 due and payable to Applicant.
· The Applicant has reserved the right to file application and proceedings under Section 17 of
the Arbitration and Conciliation Act, 1996 for interim measures of the protection.
· The Applicant has, therefore, approached the NSE for the arbitration and prayed for an
Award in its favour for the aforesaid sum of Rs. 20,97,437.09 with interest at 18% p.a. from
03/01/2011 till payment.

4. Statement of Defence of the Respondent

The Respondent has submitted his statement of reply dated 10/01/2012 and at the outset,
the Respondent has submitted that the claim of the Applicant is false and frivolous as the
Applicant was and is fully aware that the Respondent had not carried out any trades in the
scrip of Shree Ashtavinayak Cinevision Ltd., (for short “SACL”) in his own account, as falsely
 alleged by the Applicant in its statement of claim. The true facts as explained by the
Respondent are as under:-
Ø Mr. Harshad Mehta, the promoter of SACL in collusion with some brokers including the
Applicant was involved in manipulating the price of the scrip of SACL.
Ø The Applicant without knowledge, consent and/or concurrence of the Respondent executed
trades aggregating to 5,21,000 shares of SACL at an uniform price of Rs.47.10 per share on
23/11/2010. On that day a total a total traded volume in the said scrip on the Bombay Stock
Exchange(BSE) was 37,37,572 shares and on the NSE was 85,31,730 shares. Out of the
volume traded on the NSE, the Applicant allegedly executed 11 trades aggregating 5,21,000
number of shares amounting to Rs. 2,46,28,333.89 in the account of the Respondent.
Ø The Applicant, being fully aware, that the Respondent will not be in a position to make
payment of such large amount, still purchased 5,21,000 shares of SACL and the Respondent
had no means to pay even a fraction of such large amount.
Ø At the instance of Mr. Saurabh Jain, Director of the Applicant, Mr. Harshad Mehta deposited
a sum of Rs. 1,24,00,000/- in the Bank account of the Respondent on 23/11/2010. On the
same day, on the instructions of the Applicant, the Respondent issued a cheque for similar
amount to the Applicant. Thus, Mr. Saurabh Jain and Mr. Harshad Mehta were hands in
glove in transferring the aforesaid funds and executing trades in the scrip of SACL in
furtherance to their common objective to manipulate the volumes and price in the shares of
SACL.
Ø The complicity of the Applicant and the promoter of SACL is manifest and amply
demonstrated from the fact that the Respondent was kept completely in dark about the
execution of trades in the account of the Respondent.
Ø It is apparent from the Respondent’s NSE ledger account that there was huge debit balance
of Rs. 1,22,10,940.48 after credit of Rs. 1,24,00,000/-, yet the Applicant did not call the
Respondent for payment of the balance amount. It is even surprising that the Applicant did
not sell any shares of SACL lying with it on 24/11/2010, 25/11/2010 and 26/11/2010,
although huge volumes of trades in the scrip were executed both on BSE and NSE.
Ø On 29/11/2010, the Applicant, on its own, sold 2,50,000 shares of SACL at 29.35 per share
that too surprisingly in a single trade. Even on the same day the Applicant could have sold
the remaining shares at the same price, which would have not only liquidated the balance
outstanding amount but also there would have remained a substantial surplus in the
account of the Respondent. The Applicant, for the reasons best known to it, did not sell the
shares, which further prove that the Applicant and Mr. Harshad Mehta were only interested
in manipulating the scrip of the said SACL, with a view to making wrongful gain for
themselves in detriment to the interest of gullible investors.
Ø The Applicant, therefore, fully knew that it was dealing with Mr. Harshad Mehta and not
with the Respondent. The complicity of Mr. Saurabh Jain and Mr. Harshad Mehta is further
 evident, as the present arbitration has been filed after a lapse of 10 months. During the said
period of 10 months, there is no correspondence of any nature, whatsoever, from the
Applicant to the Respondent for payment of any amount as claimed in the present
Arbitration Reference. No broker will remain silent if, genuinely, he had to recover such
huge amount from its client for such a long time.
The Respondent has further given his para-wise reply to the statement of claim in which he
has stated as under:-
a) The Respondent had put his signature on unfilled Client Registration Form. He was not
provided with a copy of the Client Registration Kit after filling the said Client Registration
Form. As such, all the columns are filled by the Applicant itself and even the Applicant got
signature of the witnesses in the said Form.
b) It is pertinent to mention that the Respondent had declared a gross income of Rs.1,08,573/-
for the AY 2008-09. The Respondent, therefore, denies that he had acknowledged, agreed
and accepted the terms and conditions of the Agreement as alleged.
c) It is denied that any amount is due by the Respondent to the Applicant as alleged. It is
further denied that the Applicant had executed any trade in the scrip of SACL on
23/11/2010 as falsely alleged in the contract note/bill. Since Mr. Saurabh Jain and Mr.
Harshad Mehta were hands in glove in execution of trades in the said scrip, the claim of the
Applicant in the present Arbitration Reference is false, bogus and frivolous.
d) The Respondent has denied all other contentions of the Applicant in its statement of case
including its right to file application under section 17 of the Arbitration and Conciliation Act,
1996 and sought dismissal of the present Arbitration Matter with exemplary cost.

5. Applicant’s application for passing ad-interim order

The Applicant submitted an application dated 17/01/2012 in consonance with the
provisions of the bye-law 12 of Chapter XI of the NSE Bye-laws read with section 17 of the
Arbitration and Conciliation Act, 1996 for passing ad-interim order against the Respondent
for either depositing the claim amount of Rs.20,97,437.09 with the NSE or passing an-
interim order restraining the Respondent for transfer of any of his immovable properties till
the satisfaction of Applicant’s claim. As per the Applicant, the trigger for filing the said
application is the Respondent’s statement of defence, in which he has not only disputed the
validity of transaction of 23/11/2010 but also disputed claim amount. According to the
Applicant, the Respondent has earlier admitted the liability and agreed to clear the dues by
transferring the shares to the Applicant, but now disputing the same. The Applicant has
serious doubt that the Respondent may take steps to transfer his assets to some other
persons to frustrate the claim of the Applicant. Hence, the Applicant has prayed for grant of
an ad- interim order.
6. Applicant’s rejoinder to the Respondent’s statement of reply
The Applicant has submitted the rejoinder on 17/01/2012 against the Respondent’s
statement of defence dated 10/01/2012 in which, at the outset, the Applicant has denied all
the allegations leveled against it by the Respondent. The Applicant has, therefore, felt it
necessary to bring on record date-wise case history and related additional papers to
demonstrate that the Respondent has dishonestly with malafide intention, to avoid liability,
disputed the transaction for purchase of 5,21,000 shares of SACL, which is, in brief, as
follows:-
§ On 02/08/2010, the Respondent executed a composite KYC-cum- MCA and thereby
established a broker client relationship with the Applicant. Under clause 37 of the MCA, the
Respondent has authorized the Applicant to adjust the balances amongst inter-segments
and inter-exchanges and also adjust the funds among the family members.
§ On 04/08/2010, the Respondent issued a cheque bearing No.557221 of Rs.25 lakh for
executing transactions for sale and purchase through the Applicant. During the period
04/08/2010 to 29/11/2010, the Respondent traded in shares through the Applicant on the
BSE and contract notes were prepared and sent them to the Respondent through courier
which had been received, retained and accepted by him without any dispute or demur.
§ On 23/11/2010, the Respondent placed order for purchase of 5,21,000 shares of SACL and
on the basis of which the Applicant executed the order through trading terminal provided
by the NSE in the Respondent’s client code. The Applicant prepared and sent the contract
note No.0157069 for the said transaction by courier which was received by the Respondent
and no objection of any nature was raised and thereby, accepted their validity. A copy each
of the contract note and print out of trade file evidencing the execution of trade through
NEAT system is enclosed as Exhibit C and D to the Applicant’s rejoinder.
§ On 23/11/2010, the Respondent issued cheque No. 636682 dated 23/11/2010 drawn on
HDFC Bank for Rs. 1,24,00,000/- against the placement of order for purchase of aforesaid
SACL shares, which was credited to his ledger account with the Applicant. After adjusting
the said amount against the debit of Rs. 2,46,28,333.89 for purchase of said SACL shares, a
sum of Rs. 1,22,10,940.48 was due and payable to the Applicant by the Respondent. For the
same reason, the Applicant has not transferred the said shares of SACL to the Respondent
and had lien on the same.
§ Despite assurance from the Respondent, the Respondent failed to make the payment till
the morning of 29/11/2010 and therefore, the Applicant decided to dispose off said shares
to recover the debit balance. Accordingly, on 29/11/2010, the Applicant placed order for
sale of 1,00,000 shares at the NSE, but due to price range, the trading system cancelled the
transaction. Besides, on the same date, the order for sale of 2,50,000 shares of SACL at the
BSE was executed and the proceeds of Rs. 73,11,132.55 was credited to the Respondent’s
account. Because of the transfer of the credit balance, consequent to the said sale of
 shares, from BSE to the NSE account of the Respondent, the debit balance came down from
Rs. 1,22,10,940.48 to Rs.48,99,807.93, when the Applicant was still holding 2,71,000 shares
of SACL belonging to the Respondent against the said debit balance.
§ During the period from 30/11/2010 to 21/12/2010, the shares of SACL were under lower
circuit at both the Exchanges and therefore, no transaction for sale of balance 2,71,000
shares was effected. However on 22/12/2010, the Applicant was able to execute a
transaction for sale of 2,50,000 shares of SACL in the account of the Respondent on NSE and
a credit of Rs.28,02,392.90 was given through the contract note no. 0176153, which was
sent by courier. Thus, the debit balance in the Respondent’s account had reduced to Rs.
20,97,426.06 from Rs. 48,99,807.93, against which the Applicant held balance 21,000 shares
of SACL. During the period from 23/11/2010 till 22/12/2010, the Respondent was in
continuous touch with the officers of the Applicant and never ever raised dispute of any
nature either in respect of purchase of 5,21,000 shares of SACL or sale of 5,00,000 (2,50,000
each at BSE and NSE) shares of SACL.
§ The Applicant has produced a CD containing the telephonic conversation of Mr. Saurabh
Jain, the MD of the Applicant with the Respondent on 31/01/2011, wherein the Respondent
has admitted the liability and assured that he would transfer some shares to the Applicant
to clear the outstanding dues within next 2-3 days. A copy of the printout of the transcript
for conversation dated 31/01/2011 has also been annexed as Exhibit D to the rejoinder.
Subsequently, on 02/02/2011, Mr. Kuldeep Pareek, an officer from the Applicant spoke to
the Respondent and reminded his assurance to Mr. Saurabh Jain regarding transfer of
shares and the Respondent again assured arranging delivery of shares. Besides, the
Respondent instructed not to sale balance 21,000 shares lying with the Respondent, as he
would fulfill his obligation. A copy of the printout of the transcript of the conversation dated
02/02/2011 has been annexed as Exhibit E to the rejoinder.
§ On 04/02/2011, the Applicant sent quarterly statement of accounts for quarter ended
31/12/2010 with error reporting clause by UPC to the Respondent, which was retained by
the Respondent without any objection in respect of entries of purchase of 5,21,000 SACL
shares and other transactions appearing therein. A copy each of the quarterly account
statement and UPC showing the postal department confirmation of dispatch of envelope to
the Respondent is also produced by the Applicant with its rejoinder.
§ On 11/02/2011, Mr. Kuldeep Pareek again contacted the Respondent over telephone and
reminded him for the payment. The Respondent informed Mr. Kuldeep Pareek that since his
bank and demat accounts are frozen by SEBI, he would not be able to do anything. The
Respondent further informed that his solicitors were taking steps to de-freeze the accounts
and then he would do the needful. Again on 14/02/2011, on contacting the Respondent
over telephone, Mr. Kuldeep Pareek was informed that the Respondent had not got any
 relief from SEBI and trying to do needful. The printouts of transcripts of the aforesaid
telephonic conversations have also been produced as Exhibit G and H.
§ It is pertinent to mention that during all 4 telephonic conversations, the Respondent
admitted the liability of around Rs 20-23 lakh, balance 21,000 shares and confirmed to clear
the same by arranging some shares.
§ The Applicant has produced the copies of the quarterly statement of account for the
quarters ended 31/03/2011 and 30/06/2011 sent to the Respondent on 18/04/2011 and
25/07/2011 respectively together with proof of dispatch under UPC.
§ Since the Respondent was not paying the outstanding balance inspite of assurances, the
Applicant was left with no other option, but to file the present reference for adjudication of
its claim and for an award.
§ The Respondent has questioned the demand of the arbitration fee of Rs. 49,207/- made by
the Arbitration Dept of NSE. While the Respondent has submitted the FORM No. II and
statement of defence, he has not appeared to have paid the requisite arbitration fee as
payable under NSE Regulations and as such on this ground alone the Respondent
disqualifies himself to contest the matter on merit.
§ Under the para-wise reply given by the Applicant, the Applicant has denied all the
allegations made by the Respondent against the Applicant, with regard to collusion with
Harshad Mehta, promoter of SACL and also personal or business relationship with Mr.
Harshad Mehta or any other person of SACL. The Applicant has further denied that it was
involved in manipulating the price of the scrip of SACL. Other averments made by the
Applicant in the para-wise reply are as given below:-
i. The Applicant denies that while accepting order instructions for purchase of 5,21,000 shares
of SACL from the Respondent, the Applicant had any knowledge and/or apprehension that
the Respondent will not make the payment. Particularly in a situation where against the
purchase of 5,21,000 shares of SACL, the Respondent had issued a cheque for
Rs.1,24,00,000/-, there was no reason for the Applicant to have any doubt about the
bonafide of the Respondent.
ii. The Applicant denies that at the instance of Mr. Saurabh Jain, Mr. Harshad Mehta deposited
a sum of Rs 1,24,00,000/-in the bank account of the Respondent on 23/11/2010 and also
denies that, on the instructions of the Applicant, the Respondent had issued the cheque of
the said amount to the Applicant. Besides, according to the Applicant, it had no relation of
any nature whether business or personal with the said Mr. Harshad Mehta.
iii. The Applicant has nothing to do with the kind of business understanding between the
Respondent and Mr. Harshad Mehta and the Applicant cannot be held liable for their any
kind of understanding. The conversation recorded on 31/01/2011, 02/02/2011, 11/02/2011
and 14/02/2011 clearly demonstrate that till the time the Applicant had not filed the
present reference, it was acceptable to the Respondent that the said transaction for
 purchase of 5,21,000 shares of SACL was executed by the Applicant as a broker on his
instructions. Only after the Applicant filed the present reference, the Respondent started
raising false and frivolous grounds to somehow dispute the liability.
iv. The Applicant denies that there was any complicity in Applicant’s execution of transaction
for purchase of shares of SACL in the name of the Respondent and that the Respondent was
kept in dark about execution of trades in his name. The Applicant has executed the
transactions on the basis of instructions given by the Respondent against which he had
voluntarily deposited a cheque against the said purchases.
v. The Applicant denies that the Applicant has not called the Respondent for the balance
payment after receipt of cheque of Rs. 1.24 crore. The aforesaid telephonic conversations
clearly shows that all the attempts were made by the Applicant to recover the balance
amount from the Respondent. The Respondent had deposited cheque of Rs. 1,24,00,000/-
which was more than 50% of the purchase value and therefore, there was no question of
selling shares on the next day or day thereafter. Particularly, when the Applicant was
secured with the shares. It was for the Respondent to instruct the Applicant to sell the
shares on 26/11/2010 or thereafter after exchange payout of securities. Instead of giving
instructions to sell the shares, the Respondent has assured the Applicant for the balance
payment and therefore, shares were not sold.
vi. The Applicant denies that it had sold 2,50,000 share on 29/11/2010 on its own. The
Applicant has exercised its right under the Bye-laws of the NSE and BSE to dispose off the
securities purchased by the client for which the client had not made full payment.
Accordingly, the Applicant entered an order of sale of 1,00,000 shares of SACL at the NSE
and 2,50,000 shares of SACL at the BSE in the client code of the Respondent. While the BSE
confirmed the order into trade at the rate shown in the contract note, the NSE trading
system rejected the order due to non-availability of quote for which the Applicant cannot
be blamed, as the Applicant had no control over the rate and time of the trade, once orders
were placed on the trading system.
vii. The Applicant has denied all the contentions of the Respondent in other paragraphs of his
statement of reply and sought award in its favour for the claim amount with interest and
cost.

7. Respondent’s application for recording his objection to the alleged transcript produced by
the Applicant in its rejoinder and seeking cross examination
The Respondent has filed his application dated 24/01/2012 with the Exchange on
25/01/2012 for recording his objection in respect of alleged conversation/transcription
sought to be relied upon by the Applicant in the rejoinder filed by it and to cross examine
the persons whose names appear therein, if the said alleged conversation/ transcription is
admitted as evidence. The Respondent has stated therein that in order to deal with the
 reply filed by him, the Applicant has concocted a false story and is now attempting to bring
false evidence in record in order to mislead and misguide the present Hon’ble Tribunal to
obtain orders against the Respondent. The Respondent has, therefore, raised strong
objections to taking on record, the alleged recording of telephonic conversation in the CD
and the transcripts thereof produced by the Applicant, as evidence to buttress its claim. The
main points raised by the Respondent against such evidence are i) an attempt is being made
to show that vide the said conversations the Respondent had assured the Applicant of
making alleged balance payment and allegedly admitted his liability towards the Applicant
which is categorically denied by the Respondent, ii) the said conversation/transcript as
sought to be relied is taken out of context and as such cannot be relied upon, iii) the said
conversation does not constitute the whole conversation between the parties and the
Applicant cannot be allowed to pick and choose and use any conversation between the
parties out of context and only the portions suiting the Applicant, iv) the said telephonic
conversation per se is not admissible in evidence, as it is settled position that telephonic
conversation/transcript is not admissible as evidence, v)the said telephonic conversation
has been distorted, doctored and tampered by the Applicant for attempting to establish its
alleged claim before the present Arbitral Tribunal, vi)such conversation cannot be used as
direct evidence in the matter and no corroboration whatsoever has been set out by the
Applicant and vii) tape recorded conversation can only be used to some extent for
corroborating the statement of a person who deposes that other speaker and he carried on
that conversation which had been tape recorded; in the present case in the absence of any
such deposition or evidence, the tape recorded conversation cannot be treated as evidence
and relied upon. According to the Respondent, in case the telephonic conversation is
admitted as evidence by the Tribunal in the matter, then the Respondent ought to be given
complete and fair opportunity to rebut the same. Thus, it is just, fair and in the interest of
natural justice and fair play that the Respondent is allowed to cross examine the Applicant
and particularly the parties to the telephonic conversation, apart from other persons whose
names have been mentioned in the said alleged conversation. The Respondent has,
therefore, prayed for summoning the promoter of SACL, Mr. Harshad Mehta as a witness in
the matter and the Respondent is allowed to cross examine him, apart from cross
examining Mr. Saurabh Jain, Mr. Kuldeep Pareek and Mr. Abhay, officer of the Applicant.

8. Sur-rejoinder of the Respondent to the Applicant’s rejoinder

The Respondent has filed the sur-rejoinder dated 01/02/2012 on 03/02/2012 which has
following relevant points:-
· The Respondent for the first time came to know that on 29/11/2010, the Applicant had
placed an order for sale of 1,00,000 shares in the scrip of SACL at the NSE, but due to price
range, the trading system cancelled the transaction. According to the Respondent, the said
 order could have been cancelled by NEAT only if, the order price was above or below the
circuit filter limit. The Applicant, being a member of the NSE and BSE, knows well about
circuit filter and limits and hence the contention of the Applicant about the order
cancellation is ridiculous and preposterous.
· The Applicant has reveled that it had placed an order for sale of 2,50,000 shares of SACL at
the BSE and the transaction was executed. The Applicant could have sold as many shares
out of 5,21,000 shares to recover alleged debit balance; however, the Applicant had placed
order for 2,50,000 shares only and trade got executed. Thus, it is surprising that the
Applicant deliberately did not place order for remaining shares to the extent the alleged
debit balance could have been squared off as on 29/11/2010, knowing well that there was
huge trading volume in SACL scrip on that day. The Applicant nowhere states in its rejoinder
that the remaining shares could not be sold on that day.
· According to the Respondent, no prudent broker who is also a corporate member of BSE
and NSE would sell only a portion of shares lying with it and keep its debit balance
outstanding, if the system allows him to execute trades for the shares lying with him which
would enable him to square off his entire debit balance. However, the Applicant did not do
so which uncontrovertibly prove that Mr. Saurabh Jain and Mr. Harshad Mehta were
involved in creation of artificial volume and manipulation of the price of the SACL shares.
Their tacit understanding is implicit in execution of trade in the account of the Respondent,
as they were fully aware about the financial status of the Applicant whose income in the
KYC was only one lakh per annum.
· The Respondent has repeated and confirmed that Mr. Harshad Mehta had deposited third
party cheque for a sum of Rs. 1,24,00,000/- in the bank account of the Respondent on
23/11/2010 and on the same day, on the instruction of the Applicant, the Respondent had
issued the cheque for the similar amount to the Applicant. The denial of the Applicant that
the Applicant had no relation of any nature whether business or personal with the Mr.
Harshad Mehta is false and motivated.
· The Respondent refuted and denied that he has received contract note and bill for alleged
transaction in the scrip of the said company and put the Applicant to the strict proof. The
Respondent further denied that he has received any statement of accounts allegedly sent
by the Applicant to the Respondent by the UPC. He has further stated that in catena (i.e.,
chain or connected series) of cases, it is held that UPC cannot be relied upon.

9. Applicant’s reply to the Respondent’s application objecting the alleged transcript

produced by the Applicant and seeking cross examination.
The Applicant has submitted its reply dated 03/02/2012 to the Respondent’s application
dated 24/01/2012 to record his objection to telephonic conversation and transcript
produced by the Applicant as part of evidence and cross examining the parties involved in
 the conversation and whose names figured therein apart from the promoter of SACL, Mr.
Harshad Mehta. The main points in the Applicant’s defence against the application of the
Respondent are, briefly, given below:-
Ø The Respondent has no defence against the claim lodged by the Applicant on merit and as
such an attempt is made to somehow delay the present arbitration proceeding with
malafide intention. The application is, therefore, liable to be rejected on this ground alone
with cost.
Ø There is no procedure provided in the Chapter 5. Arbitration of NSE Capital Market
Regulations which permits any party to the proceedings to take out any application under
arbitration and pray separate relief and thus, the application of the Respondent is not
tenable.
Ø The Clause 50 of the MCA provides for trading member’s right to record a telephonic
conversation and use the same recording when required to resolve dispute in connection
with the trading transactions. The Respondent is, therefore, stopped from raising objection
under the principles of Estoppel.
Ø The Applicant as a trading member had all the rights to record telephonic conversation and
use the same for the purpose of present arbitration proceedings.
Ø The Respondent’s prayer for permitting him for cross examination of Mr.Saurabh Jain and
Mr. Kuldeep Pareek is malafide and the same is taken out with the sole intention to delay
the present proceedings. The Applicant has further submitted that the arbitral proceedings
conducted as per Bye-laws and Regulations of the NSE are summary in nature and the
present Arbitral Tribunal can adjudicate the claim of the parties on the basis of documents
provided by the parties without going into examination and cross examination of witness. In
the present case, the documentary evidence are more than sufficient to establish the
transactions for purchase of 5,21,000 shares of SACL executed by the Applicant, as a broker
for and on behalf of the Respondent on his instruction and only after the Respondent
arranged advance payment of Rs. 1,24,00,000/-. The Applicant has argued against the
involvement of Mr. Harshad Mehta and other outsiders in the present proceedings, as the
Applicant’s claim is based on the documents and between the parties to such documents.
Ø The Applicant has denied all other allegations and contentions of the Respondent in his
application dated 24/01/2012.

10. Applicant’s counter reply to the sur-rejoinder dated 01/02/2012

The Applicant has submitted its counter-reply dated 03/02/2012 received in the Exchange
on 06/02/2012 to the sur-rejoinder of the Respondent dated 01/02/2012. The Applicant has
filed the affidavits of Mr. Saurabh Jain and Mr. Kuldeep Pareek. The important submissions
in the Applicant’s counter reply are as follows:-
v The Respondent under para 2(e) of his reply dated 10/01/2012 has confirmed that a
payment of Rs. 1,24,00,000/- was made by him out of his bank account. the Respondent
under para 4 of his application dated 24/01/2012 has admitted the genuineness of the voice
recording of telephonic conversation dated 31/01/2011, 02/02/2011, 11/02/2011 and
14/12/2012.
v As per Bye-laws and Regulations of the NSE, the arbitral tribunal is not required to look into
whether the client had his own funds or he had arranged the funds from third party and
what was the arrangement, why the client has placed order for big quantity and whether
placement of order for big quantity is in violation of any SEBI regulation etc. It is also not the
job of a broker to find out source of funds for a client or the reason why he/she is
purchasing such big quantity of shares unless and until the broker had some doubt.
v The Applicant has denied that the first time the Respondent came to know about
Applicant’s placement of order for 1lakh shares of SACL on 29/11/2010. The Applicant has
submitted that on Saturday i.e., 27/11/2010, Mr. Kuldeep Pareek, the Manager of the
Applicant has contacted the Respondent for balance payment and he had assured for the
payment by evening. On 26/11/2010, the closing price of SACL was Rs.36.80 and therefore,
upper circuit limit on 29/11/2010 was at Rs.44.16 and the lower circuit was Rs.29.44. The
Applicant entered an order instruction for sale of Rs.1lakh shares of SACL in the client code
of the Respondent at the NSE at 9.15.06 @Rs.43.95 which was well within the circuit filter
limit. Since the market price of SACL was ranging between Rs. 29.45 to 29.50, the order
could not result into trade. The allegations of the Respondent is, therefore, false and
malafide.
v The Applicant has further submitted that since the Applicant had placed an order for sale of
Rs. 1 lakh shares of SACL in the client code of the Respondent in NSE, it had placed order
only for 2.50 lakh shares of SACL at the BSE, as both the transactions would have cleared
the dues. It is pertinent to note that the Respondent has time and again assured payment
and therefore, the Applicant has taken wise decision not to sell entire lot of 5,21,000 shares
and for such decision, the Applicant cannot be blamed. It was for the Respondent to
intimate the Applicant and instruct the Applicant to execute the transaction for higher
quantity. On the contrary, the Respondent was assuring the payment and requesting for not
selling the shares.
v The voice recording of the telephonic conversation clearly shows that it purely a
conversation between the officer of the Applicant and the Respondent.
v The Applicant has submitted that all the transactions executed by the Applicant in the name
of the Respondent were genuine and delivery based transactions as far as the Applicant’s
role is concerned, as a stock broker. The Applicant is not aware and nothing to do under
what circumstances the Respondent has taken decision to execute the said transactions.
 The Applicant has also no control over the Respondent’s relationship with third party and
his acceptance of money from the third party.
v The Applicant has denied that the Respondent has not received the contract notes and bills
for transactions and/or statement of accounts. According to the Applicant, in a telephonic
conversation, the Respondent has admitted quantum of amount due and payable by him to
the Applicant and from when it was due and also his request to the officer of the Applicant
to not to sell balance 21,000 shares. The quantum of liability and the quantity of shares
which are remaining in the hands of the Applicant can only be confirmed by the Respondent
when he had received the statement of accounts and contract notes for transactions, as
without these documents, there was no means for the Respondent to confirm amount and
quantity.
v The Applicant has, in its short submission dated 05/03/2012, submitted that on 27/11/2010,
Mr Kuldeep Pareek, the Manager of the Applicant had telephonically contacted the
Respondent to follow-up for payment of balance amount of Rs.1,22,10,940.48, wherein the
Respondent assured for making balance payment by Monday i.e., on 29/11/2010. During
the conversation, the Respondent himself had communicated its understanding in the event
of the Respondent’s failure to pay the balance amount, the Applicant may sale shares. This
telephonic conversation also confirms execution of transaction for 5,21,000 shares of SACL
by the Respondent and proves that his denial of the transaction in the present proceeding is
false and malafide. Since the Respondent failed to make balance payment as assured, the
Applicant in order to minimize their risk sold 2,50,000 shares of SACL at the BSE @Rs. 29.35
per share and credited Rs. 73,11,132.55 to the Respondent’s account. Further, in the said
telephonic conversation, the Respondent communicated that the Respondent expected the
scrip of SACL to hit the upper circuit on Monday i.e., 29/11/2010. Therefore, the Applicant
also placed an order for sale of 1,00,000 shares of SACL in NSE at 43.95 per share which
remained unexecuted. The Applicant has also submitted printout of order log report of the
NSE and the BSE for the period 30/11/2010 to 21/12/2010 evidencing the orders placed by
the Applicant in all those days for sale of SACL shares in the Respondents client code and
cancelled by the NSE and BSE systems as non-executed; printout of analysis showing market
price of SACL in the BSE and the NSE during the period from 01/11/2010 to 31/01/2011
along with traded volume.

11. Written submissions

At the final hearing of the matter on 21/03/2012, the parties were directed by the Sole
Arbitrator to submit their written submissions on or before April 10, 2012 and the matter
was closed for award on receipt of the written submissions by the parties. The written
submissions were received from both the parties on 10/04/2012 as directed.
12. Findings and conclusion
I have gone through the lengthy and detailed pleadings, written submissions and other
records very carefully and heard both the parties patiently and extensively and my
observations are as given below:-
a) Dispute between the parties:
The dispute between the parties has arisen in view of the Respondent’s failure to pay the
amount of outstanding debit balance of Rs. 20,97,426.06 as on 22/12/2010 due and payable
by the Respondent to the Applicant. The Applicant has therefore, filed the present
arbitration reference on 01/11/2011 on the basis of the net debit balance of Rs.
20,97,437.09 as on 03/01/2011(after adding demat charges of Rs.11.03)in the Respondent’s
NSE capital market segment account maintained by the Applicant.
b) Cause of dispute
The Respondent has vehemently denied his liability to the Applicant. The main reasons for
the denial of the payment to the Applicant by the Respondent, according to the
Respondent, are i) the transactions were carried out by the Applicant without the
knowledge, consent and/or concurrence of the Respondent and at the instance of the
promoter of the SACL, Mr. Harshad Mehta, ii) the trades were executed by the Applicant for
a huge quantity of 5.21 lakh shares of SACL in 11 lots for an aggregate amount of
Rs.2,46,28,333.89 in one session of marketing hours on 23/11/2010, iii)on that day i.e.,
23/10/2010, the total trade volume in both the markets in respect of SACL shares was of
very high order of 1,22,69,302 shares (BSE-37,37,572 shares and NSE 85,31,730 shares),
iv)the Applicant was aware of the weak financial position of the Respondent and as such not
in a position to make payment of such a large amount and still purchased 5,21,000 shares of
SACL in the Respondent’s account, iv) at the instance Mr. Saurabh Jain MD of the Applicant,
Mr. Mehta deposited a sum of Rs. 1.24 crore in the bank account of the Respondent on
23/10/2010, the day on which on the instruction of the Applicant, the Respondent issued a
cheque for the similar amount to the Applicant, v) thus, Mr. Saurabh Jain and Mr. Harshad
Meta were hands in glove in transferring the said funds and executing the trades in SACL
shares in furtherance of their common objective to manipulate the volumes and price in the
scrip of the company, vi)the complicity of the Applicant and promoter of SACL is manifest
and is amply demonstrated from the fact that the Respondent was kept in dark about the
execution of trades in the accounts of the Respondent, vii) in the NSE ledger account of the
Respondent, there was a huge debit balance Rs.1,22,10,940.48 after adjusting the deposit
of Rs. 1.24 crore, even then, the Applicant did not call the Respondent for balance amount
payment; the Applicant did not dispose off the share in next three days from 24/11/2010 to
26/11/2010 when trades in scrip was in huge volumes in both the exchanges, viii) the
Applicant not selling the entire 5.21 lakh shares of SACL on 29/11/2010 itself instead of 2.50
lakh shares in BSE and thereby, facilitating not only liquidation of entire balance
 outstanding in ledger account but also surplus in the account of the Respondent, thus
hinting at manipulation of price of scrip of SACL for making wrongful gains for themselves at
the detriment to the interest of gullible investors and ix) the Applicant filing the arbitration
reference after the lapse of 10 months and no correspondence, whatsoever, between the
parties for payment of any amount as claimed in the arbitration application, which no
broker will do if, genuinely, he had to recover such huge amount from its client for such a
long time.
The Respondent could not submitted any credible proof involving Mr. Harshad Mehta in the
whole process of transactions and the remittance of funds in the account of the Respondent
to support the Respondent’s allegations. However, in one of the telephonic conversations
between Mr. Kuldeep Pareek and the Respondent (i.e., on 02/02/2011), there was a
mention of the name of ‘Harish’, which according the Respondent was Mr. Harshad Mehta.
The POA Holder of the Respondent had indicated at the proceedings that from the
telephonic conversation, it was apparent that the Respondent was in constant touch with
the Mr. Harshad Mehta and Mr. Saurabh Jain and Mr. Abhay had also talked to him.
However, the same cannot be considered as clinching evidence of Mr. Mehta’s
involvement, as two names are different and the said conversation cannot give any
authentic lead.
The Applicant has, however, countered the Respondent on all the points convincingly in its
pleadings given in various paragraphs above with supporting documents, voice recordings in
CD with transcripts, affidavits, statements, order and trade logs and legal case citations.
The Applicant has also submitted that there was no dispute whatsoever till the filing of the
arbitration reference and the dispute has been raised and various allegations are leveled
against the Applicant by the Respondent to delay and deny its legitimate dues arising out
transactions executed under the Bye-laws, Rules and Regulations of NSE and BSE.
I have also examined the documents very carefully to understand the allegations and its
veracity and found that there are no irregularities suggesting any involvement of third party
to the transactions. I have found some irregularities in placing orders in the Respondent’s
code in respect of SACL shares by the Applicant on 2/12/2010 to 07/12/2010 in the nature
of excess quantity of shares in sale order (i.e., 6-5 lakh shares of SACL) than the balance
shares (i.e., 2,71,000) with the Applicant, but they are inconsequential, as there was no
trade took place on those days due to low circuit in the scrip of SACL. In view of this, I am of
the opinion that there is no substance in the argument put forth by the Respondent with
regard to transactions in his account as also involvement of Mr. Harshad Mehta as alleged.
c) Deposit of Rs. 1.24 crore in Respondent’s Bank account
The Respondent has stated in his statement of defence that, at the instance of Mr. Saurabh
Jain, Mr. Harshad Mehta has deposited a sum of Rs. 1.24 crore in the bank account of the
Respondent on 23/11/2010. On the same day, on the instruction of the Applicant, the
 Respondent issued a cheque for similar account. The Applicant has denied these statements
and produced a copy of the HDFC Bank , Lower Parel (W), Mumbai letter dated 02/02/2012
confirming the credit of Rs. 1.24 crore to the Applicant’s account from the Respondent’s
account and filed an affidavit dated 03/02/2012 of Mr. Saurabh Jain denying any
relationship with Mr. Mehta and also denying any instruction from him for executing
transaction of 5,21,000 shares of SACL. The Applicant has further stated that the
Respondent has voluntarily deposited the cheque for the said amount for the purchases.
The Respondent has also stated that the Applicant was fully aware of the weak financial
position and that he had declared a gross income of Rs.1,08,573/- for assessment year
2008-09.
I have seen the aforesaid copy of letter of the Bank and compared the same with the copy
of the bank account statement of the Respondent maintained with HDFC Bank, Ghatkopar
Branch and observed that the said fund transfer is indicated therein and thus, it is a
bonafide transfer. However, from the said bank statement of the Respondent, there are
two entries of RTGS credits of Rs. 60 lakh and Rs.65 lakh on 22/11/2010 in the name of
Vanguard Jewels. The relationship between the Respondent and Vangaurd Jewels is not
indicated in the pleadings. However, the Respondent has submitted that he had received
the third party transfer cheques from Mr. Harshad Mehta at the instance of the Applicant
and deposited the same in his account. Though, there is subtle difference in the submission
of the Respondent as far as mode of transfer of funds used (i.e., RTGS credit vs cheques), it
is very clear that the amount invested by the Respondent in SACL shares on 23/11/2010 had
come from Vangaurd Jewels. Further, admittedly, it is a third party’s fund utilized for the
huge investment in SACL shares and the Respondent has made the said allegation against
the Applicant and Mr. Harshad Mehta, there is a need to thoroughly investigate the matter
not only for finding out the real source/owner of funds and person/institution behind the
said transactions in the Respondent’s account, but also from anti-money laundering act
angle. This requires an in-depth investigation. The Exchange may like conduct the same in
order to unveil the hidden facts and take suitable action thereafter.
Incidentally, I have also observed that though the Respondent has declared the income of
Rs. I,08,573/- in his income tax return for AY 2008-09 filed with Income Tax Office in March
2010, the Respondent has traded in BSE through the Applicant prior to Nov 2010 after
depositing Rs. 25 lakh on 04/08/2010.
d) Applicant’s application for interim arbitral award
The Applicant filed the Application under bye-law 12 (presumably bye-law 11) of Chapter XI
of the Bye-laws of the Exchange read with section 17 of the Arbitration and Conciliation Act,
1996 on 17/01/2012 seeking direction to the Respondent to either deposit a sum of Rs.
20,97,437.09 with the NSE within a period of 3 days or alternatively pass an order to
restrain him from transferring any of his immovable properties till the satisfaction of
 Applicant’s claim. The said application was made after the Respondent made out a case in
defending himself on the grounds of alleged collusion between the Applicant and the
promoter of SACL and their complicity to create artificial volumes and manipulate the price
of SACL shares, detrimental to the interest of the gullible investors, including the
Respondent. The Sole Arbitrator felt that there were serious allegations against the
Applicant and the Respondent was required to be given opportunity to defend himself vis-à-
vis the application and directed the Respondent to file his reply. The Respondent filed his
reply and also an application raising objection to alleged telephonic conversations and
transcripts thereof produced by the Applicant and sought cross examination. The Sole
Arbitrator, accordingly, decided to examine both the applications along with the merits of
the case, so that a comprehensive final award could be given after taking all relevant factors
into consideration. The Applicant, therefore, did not pursue the application further.
e) Respondent’s Application raising objection to voice recording of telephonic conversations
and transcripts thereof and cross examination of persons involved in the conversations
The Respondent submitted an application in which he had objected to the Applicant relying
upon the recorded telephonic conversation between i) Mr. Saurabh Jain, MD of the
Applicant and the Respondent and ii) Mr. Kuldeep Pareek, officer of the Applicant and the
Respondent on various dates in January and February 2011 and transcript thereof and using
them as evidence against the Respondent. The Respondent sought complete and fair
opportunity to rebut the same. Accordingly, the Respondent sought cross examination of
Mr. Saurabh Jain, Mr. Kuldeep Pareek, Mr. Harshad Mehta, promoter of SACL and Mr.
Abhay, an officer of the Applicant whose name figured in the telephonic conversation, with
a view to following principles of natural justice. Both the parties put forth strong arguments
and written submissions for and against the said application and submitted various case
laws/legal citations in support of their arguments and submissions.
After carefully going through all the materials on record and citations produced by the
parties, the Sole Arbitrator has decided to strictly go by the procedure for arbitration
prescribed by the Exchange under regulation 5.9 (Chapter 5) of Regulations- Part A (Capital
Market Segment), which does not envisage any cross examination of witnesses. Instead,
affidavits of the persons concerned are taken on record. As regards, the acceptance of
recorded telephonic conversation and transcript thereof, it is taken as corroborative
evidence which reinforces the documentary and oral submissions. The recording of the
telephonic conversation are taken on record, if they are audible, accurate and identifiable.
In the arbitration proceedings, the recordings of the placement of orders, confirmation of
orders and other conversation connected with payment/settlement are accepted and taken
on record as supportive evidence in the normal course. In the instant case, the MCA
executed by the Respondent with the Applicant provides for such tape recording of
conversation under clause 50 (page 17) and allows relying upon such recording and using it
 as evidence to resolve disputes relating to trading transactions. Further, in this case, there is
no dispute with regard to conversation and clarity of voice and the Respondent has
identified his voice. The Applicant has also submitted the affidavits of Mr. Saurabh Jain and
Mr. Kuldeep Pareek as a back-up to its arguments and submissions. Thus, the Sole
Arbitrator has no other alternative, but to reject the application of the Respondent in this
regard.

In view of the foregoing, the Respondent has failed to prove his case. The Applicant has,
however, produced necessary and relevant evidences and argued its case in a convincing
manner. These are civil proceedings and the case has to be decided based on the principles
of preponderance of probabilities. Accordingly, the Applicant’s arbitration application is
allowed and the Applicant is entitled to get its claim of Rs. 20,97,437/- with interest.

Accordingly, the Sole Arbitrator passes the following Award:-

Award

1. The Respondent, Mr. Kaushik R. Mehta (Constituent) is directed to pay to the Applicant, SSJ
Finance and Securities Pvt. Ltd.,(Trading Member), a sum of Rs.20,97,437/- (Rupees twenty
lakh ninety seven thousand four hundred thirty seven only) towards its claim with interest
@12% p.a. from the date of filing the present arbitration reference (i.e. November 01, 2011)
till payment or realization.
2. The Exchange may like to conduct a thorough investigation of the matter, especially with
respect to transfer of funds to the bank account of the Respondent by Vanguard Jewels in
the light of the observations at paragraph 12(c) above and the allegations leveled by the
Respondent against the Applicant and the promoter of SACL, Mr. Harshad Mehta in this
regard.
3. The cost of the Arbitration to be borne by the Respondent.
4. No order as to costs.
5. The Award is signed in three stamped engrossments, one each for the NSE, the Applicant
and the Respondent.

G.A.Nayak
Sole Arbitrator
Mumbai
Date: May 20, 2012