INDIA NON JUDICIAL

tlskq c{re

Certificate No.

Cerlificate lssued Date

Account Reference

Unique Doc. Reference

Purchased by

Description of Docurnent

Description

Consideratton Price (Rs.)

First Pafty

Second Party

Stamp Duty Paid BY

Stamp Duty Amount(Rs.)

Mr. M M Siddiqui(Arbitrator)

--------.Please write or type below this line-'-"-

Government of Karnataka

e-Stamp

tN-KA65906143361952P

10-Jan-2017 03:12 PM

NONACC (Fl)/ kasfincOl/ BANGALORE/ KA-BA

suBl N-KAKASFI NC01 8073299106638 1 P

WAY2WEALTH BROKERS PRIVATE LIMITED

Arlicle 11 Award other than pafiition Award

ARBITRATION AWARD

0(Zero)

HEMANTH KUMAR BHARATHI

WAY2WEALTH BROKERS PRIVATE LIMITED

WAY2WEALTH BROKERS PRIVATE LIMITED

4,275(Four Thousand Two Hundred And Seventy Five only)

Befbre the Arbitration Tribunal

lfustice Mr. R R Gururaian Mr. Gautam Sarkar

(Presiding Arbitrator) (Arbitrator)

In the mattr:r of arbitration under the Bye-Laws, Rules and Regulations ofNational Stock Exchange of India Limited

Arbitration Matter No: CM/B - 000712016

Ap plica nt (Consttiituent) Respondent (Trading Member)

Mr. Hemanth KumaLr Bharathi M/s Way2wealth Brokers Private Limited

Betwecn

./-t-> .."-' Page 1 of 19

Near Sebastian ChurchRoad. Gokulam 1" Sa1

#8. Old No: 991,Greert 'y'alue Buildin Frontline Grandeur. Ground Floor,

, HMT Mainr,-'. 2no Phase

No 14, Walton Road,

Bensaluru - 560001

KarnatakaBansalore -560054, K-arnataka

PAN: AAOPB35lll

I. BACKGROU,\D

The Natiorral 51o,;k Exchange of India Ltd OfSEIL) in terms of its letter

NSE/BRO/ARBN/15()g16-6 AB dated September 16,2016 appointed us as the Arbitrators

in the above reference. The two Arbitrators viz. M.M. Siddiqui and Gautam Sarkar

nominated Hon'ble IVlr, Justice R. R.Gururajan as the Presiding Arbitrator.

The Arbitral Pane,l issued notices to the parties to file their respective pleadings. The

claimant has filed hiLs Claim Statement. So also the respondent filed its Statement of

Defence. The parties were informed of the procedure to be followed by the Arbitral Panel

besides disclosing the: information about them in terms of the provisions of the Amended

Act. Both the pilrties in the light of the documents already filed by them would say that they

would argue their case based on the materials filed by them along with their respective

statements.

Mr. Damo6ar, learned Counsel appeared for the claimant and the respondent is

represented by Mr. Rzrghavendra, an authorized representative of the Respondent.

parties addressed arguments in terms of the pleadings and the documents filed by them'

Written submis;sions were made available to the Arbitral Panel (AP).The AP provided

sufficient opportunity to the parties and after hearing the following award is passed.

The Applicant is a 63 year old Businessman residing at the abovementioned address.

The Respondent is a company registered under the Companies Act, 1956. It is registered as a

trading member of NllIilL (SEBI I{egistration Number INB 231150237,1NF230683037 and

INE 231150237).It is;a.lso registered with BSE, MCX AND NSDL'

As per the init1al cornplaint vide No.15122110005800003 of the Applicant, he claimed to

have invested around Fi.s.l50 lakh with the Respondent. The Applicant further claimed that

he has incurred losses; clue 1o unauthorized trades executed in his account by the Respondent.

In the two IGRP hearings held on March 17 an March 29, 2016, the parties failed to

reconcile the details 6f investment, value of stocks held as on date and purchase and sale of

stocks. The Respond,:nt claimed that the trades were executed based on recorded calls and

confirmation and therefore not unauthorized. As the IGRP found that the differences were

irreconcilable and that the unsubstantiated losses, if any, were not ascertainable, the

Applicant preferred to go for Arbitration.

The A filed the Arbitration Application (Fonn I) dated August 24,2016 with the

6h"rei.r he hzLs claimed an aggtegate amount of Rs. 38,83,809/-(Rupees 'thirty EightNS

| / fl^ l,',,fu{'t9l*u il/ Page 2 of 18

lakh Eighty Three Thor.rsand Eight Hundred and Nine only).The date of dispute has been

nrentioned as June 23,2016 in the said application'

The case was posted for hearing on November 15, 2016 at 12'30 p'm' at the Office of

NSEIL, DBS House, office No: 101, Cunningham Road, Bangalore-560052

2. STATEMENT OII CASE (SOC) OF THE APPLICANT

2.1 The Applicant's submission and arguments in the soc are summarized below:

(i) The Applicant opened a Demat account with the Respondent on September 26'2014

after repeated Visits made by the representatives of the Respondent Company's

Mallesh'waran: branch. The Applicant claims to have no knowledge of share market

and comPuter.

(ii) The operatiort of the account was commenced by the Applicant with initial

remittance of F:s. 25,5001- in october 2014. Since l're had no knowledge of the

market, the trading was done by the Respondent with his token consent' The

Applicant observed that, barring an insignificant profit in the beginning, the trades

executed by the Respondent mostly ended in losses. However, the Respondent had

assured him ofrecovering the losses'

(iii) on a closer scrutinl,of the trades, the Applicant found that the Respondent was more

keen to increase the volume of trade to earn enhanced brokerage' Further, the

Respondent desired to have his funds all the time with them without making any

PAY OUT to the APPlicant'

(iv) At this stage, the Applicant took over the control of the trading activity himself to the

dislike of the R.espondent. As the purchase and sale orders were exclusively placed

by the Applicant after careful examination of the market movements, there was turn

around in busiless. He could recover the past losses and earn profit. As on August

25,2015 the total profit earned by him stood at Rs. 17, 84,069'19 as claimed by the

Applicant.

While the Applicant was pursuing his trading activity, the Respondent was alongside

engaged in unauthorized trades without the consent of the Applicant' The

Respondent sotd about 60 lakh worth of shares of 24 companies (out of the total

holdings of the, Applicant) on June 15,2015 purporledly without the prior consent

and knowledge resulting in loss of Rs.7,53,016/- including brokerage and other

charges. on the same day, the Respondent also bought shares worth about Rs'40

lakhs. 'Ihe R,lspondent had a list of as many as 58 shares of companies held by the

Applicant. The above allegedly unauthorized distress sale was complained to the

Respordent .ri,Ce Applicant's letter dated June 23, 2015. The sale was done even

whi/the Arrplicant had a stake of Rs. 50 lakh as capital in the share market in

t{airionto d; bonowed amount of Rs. 50 lakh from the company which was readily

available to rreret anY MTM

(v)

nt.

Page 3 of 18

(vi) It is furlher sterted by the Applicant that the Respondent had charged late payment

fees wittrout arry reason by creating artificial debit balance' During the period from

January 01,2015 to October 23,2015, the Respondent had collected Rs. 3,74,2931-

as late paymerrt fees. Wherr the Applicant protested against the said late payment

charges, an anrount of Rs.3, 33,024.25 /- was refunded. Besides Oral prOteSts, the

Applicant had lodged complaints with the Respondent/SEBl regarding unauthorized

trading done b'z t.he ResPondent.

ln response to the complaint lodged by the Applicant with the NSEIL,

IGRP nreetings were held on March 17 and 29' 2016' However, due to

lack of clarity in respect of the claim amount and irreconcilable attitude

of the Respon.dent, no settlement could be reached and, therefore' the

Applicant chose the Arbitration route'

(vii) The Respondent has violated regulations of SEBI and NSEIL They have failed to

give a copy of set o1'documents executed at the time of opening of account, have not

carried out per iodic settlement of account, have not made periodical pay outs to the

Applicalt except i1 the beginning, the orders for tradeswere generated by the

Respondent ultil intervention by the Applicant and shares of 24 companies were

sold/purchasecl rvithout obtaining confirmed orders'

(viii) The Resipondent had continuously overtraded and created debit balance warranting

fund raising plan by the Applicant. The debit balance had reached all-time peak of

Rs.77. 04.40i..]l/- on May 06, 2015. The Applicant had to raise a loan of Rs.50

lakh on May2l,2015 to meet his obligations. The main purpose of the Respondent

was levying o1. late payment fees and maximization of brokerage earnings'

(ix) Through profi:ssional service experience and by maintaining a personal record of

day-to-ctay dealings, the Applicant claims to have earned a total profit of Rs' 17'

84,691- and n,lt profit of Rs. 11,19,6821-. The Applicant claims to have invested a

total amount of Rs. 70,23,7001- over a period of time besides availing a loan of Rs'

50 lakh from the Respondent. He also claims to have incurred loss of ks.9,52,84J1-

due to unauthorized trading done by the Respondenl'

(x) The details clifln as furnished in the SOC are reproduced below:

(In Rs)

Narunt <ii, cLervtNet Profit earned bY the Applicant through self-

brokerage e,tc. charges

AMOLINT71,79,682

tlr v1 | ' 'l ) nsl tt* il/7,53,016

Page 4 of 18

a Brokelage ti

4. Erosion of c

5. Balanc;e port

6 Cost of Arbi

7. Interest paya

amount by tt8. Any other re

feel

9. Total

oru---)aprt

ii";ifi;

the unauthorized trade 3,94,216

pital due to unauthorized trading 9,52,84'7

on of late fee payment 4r,268

ion case etc filing 1,00.000/-

ble at 760/o on32,61,029 being the lost

Le Applicant

5,22,780

ief the Hon'ble Arbitral Tribunal may

38,83,809

The Tribunal sought r;ome clarification with

Thereafter the claimtrnt filed an amended

regard to the claim in terms of the statement'

Statement of Claim revising his claim fiom

Rs.38,83,809/- t.o Rs 2(i,51,5641 -

The Applicant has enclosed the following documents in support of his submission and

claim:

1. Client Registration cum MCA'

2. Ledger staternents, copies of contract notes, holdings Statement, Ioan letter'

3. Bank statements. p1ofit ald loss statements, statement of payment of funds'

4. IGRP proceedings ;:ecord.

5. Statement of unauthorized transactions.

6. Complaint letters to SEBI and NSE.

3. STATEMUNT ()F DEFENCE (SODyOBJEC'IIONS SUBMITTED BY THE

RESPONDENT3.1 The summary of the submissions/counter claims made by the Respondent in his

Statement of Defense: (SOD) is as under:

(i) The Applicant had approached the Respondent and had got the trading account opened

on September 29, 1'.014 after executing the Member client Agreement (MCA) The

Applicant had been allottetl client code No: AD2138 by the Respondent'

(ii) The trades wer€) executed after receiving the orders from the Applicant as per his

requirement. l'he tredes are duly reflected in the ledger statements for the years 2014 to

20r6.

(iii) The contrsct notes /bills and transactional documents were duly sent to the Applicant at

hise-mailIDhemarrtt*u-@whichisregisteredwithus.TheApplicanthas not disputed the above. Further, the Applicant was also receiving the SMS on the trades

on his registered mobile no +91-9886599854 which was not disputed by the

Applicant;rather, this has been accepted by the Applicant before the previous Panel which

shows that he was aware of all his obligations towards his transactions, open positions,

MTM requirernents.

(iv) The Applicant hLar] executed MCA with the Respondent wherein he has agreed that the

Respondent strall be entitled to liquidate /close out all or any of the client's position for non-

Ai ,/+af,/ / ,at,.,t^,t, //

Page 5 of 18

payment of margins, rtutstanding debt and that the losses and hnancial charges on account

of such liquidation shall be charged to and bome by the Applicant.

(v) The Applicant hacl lbr the first time made allegation that the alleged square off on June

75,2015 in his accourrt was without intimation and therefore unauthorized which caused the

Applicant a loss of Rs. 6,22,6571-. However, the Applicant had withdrawn the complaint

after the Respondent explained to him the reasons for such liquidation' Subsequently, the

Applicant has listed ,zarious unauthorized transactions in his complaint to SEBI and NSE

which are inconsistent and discrepant. The Applicant has not been able to provide proper

evidence in respect of the allege<l unauthorized trades in his account. The unauthorized

trades as listed by the Applicant in his letter dated March 29,2016 are reproduced below:

SR

NO

NAMECOMPANY

AXIS CODE

2 BOMBAY B

3 HEXA.\VARI

4 JET AIRWA

5 MAX INDIA

6 MMTC)

7 SUNPI{A

8 SUN TV

RIVIA

EN

THIl QUANTITYPURCHASED

PURCHASEPRICE

PURCHASEVALUE

GG 1000 198.29 1 98290:00

MAH 1000 474.42 474420-00

H LTD r000 260.68 260680:00

LI]D l 500 2s3.76 380595:00

r07 469 501 83:00

250 42.18 l 0s45:00

500 840.01 420005:00

1000 304.06 304060:00

ulL

'.fEC'rs

The alleged unauthorized sell of shares by the Respondent on June 15,2015 as listed out by

the Applicant in his letter dated March 29,2016 addressed to NSE are without mentioning

the dates of the trad<:s, The Applicant has not been able to furnish the dates on which the

trades were executed irr respect of the following trades:

OF QIJANTITY BUY PRICE SELLPRICE,

LOSS

NDIA 1000 155.878 t55877.97 l I 121.03

r000 476.2348 47623.8 1814.8

NGG 1000 t98.4052 I 98405. I 5 42412.03

EL 1 000 57.2332 57233.18 26766

NK r000 292.385s 292385.53 70249.17

r000 l 08.1 745 r 08174.5 5446r.15

500 1037.9681 518984.02 20986.88

I

EE

S"II

-t

SL

NO

NAMEiCOMPANYASHAHIGLASS

2 BOME}AYBURMHA

aJ AXISCADE

4 BHUSAN

5 CANARA B

6 DLF T,TD

2 EMAMI L

Ct Page 6 of 18

8 EXIDEINDUS'IRI

9 GATEWAY

l0 HCLTECHNO

11 HEXWARETEC

t2 JET

l3 LOYD

ELECTRONI

t4 MAXIT.JDIA

15 MMTC

t6 SUN PIIARN

t7 SUN T'V

l8 SUVE].JLIFE

SCIENCE

l9 TALWARBETTF;R

20 TATA STEE

2l TITAN CO

22 TVS MOTO

L) YES BANK

1000 144.0763 144076.28 47546.92

ISTRI r000 356.3836 356383.64 56902.56

IES

500 908. l 379 454068.95 34442.2

IES

1000 26t.7 r88 261718.8 1038.8

S I 500 253.541 38031 1.46 283.54

1000 188.5691 188569.05 47186.15

t07 469.887 s 59277.96 0.8

250 42.0736 10518.39 26.6r

A 500 838.975s 419487.75 2517.25

l 000 304.6796 304679.57 619.59

l 000 241.6146 241614.56 30885.44

RS r000 3r4.5 3 14000 62s00

1000 296.2758 296275.76 33s00.s4

PANY 500 343.352s 17t676.23 t3356.77

S 1000 22s.992r 225992.11 40924.29

TD 500 804.31s6 402157.8 45r802

a

(vi) The Applicant has not appraised the Hon'ble Tribunal about the withdrawal of his

complaint letter daterd June 23, 2015. The Respondent had refunded an amount of Rs'

333,024.25/- tc, the Applicant being excess brokerage charges as a mark of good gesture.

(vii) Regardingl alleged squaring off of the position and liquidation of shares on June 15,

20l5,the Respondent states that the stocks held as collaterals valued at Rs. 58,20,569'28 as

on the date of J'une 1:i, 2015 were sold against the debit balance of Rs' 60,48,226.93/- on the

Applicant's failure to clear the debit balance as per the MCA. The position of the

Applicant's account rr/as as under:

Clientname

NetDrlCr

POA-B-HCut

Approved stocks

Collatera

I

EQ

COMFORT

E

a

Hema

nth

Kuma

r

Bhrat

6,048,22

6.93

r,062,611)5

4,757,95

8.03

7,479,35

5.37

r23.47 S

qr

off

E-s

D

Branch

name

Code

Malleshwaram

AD21

38

//PageT of L8

(viii) The voice conversations between the Applicant and the Respondent/Staff are proof

that the Applicant has accepted without any demur all the trades in the Applicant's account.

The Applicant has duly acknowledged all the transactions up to Julyl4, 2015 by signing the

statement of account.

(xi) The Applicant has regularly brought

obligations to his account which

position. The details are as provided

in pay-in of funds towards his margin and MTM

showed that he was aware of his open stock

by the Respondent :

Date V

02-04-201500(

tr-04-2015

24-04-2015 R

05-05-2015 R

08-05-2015

03-07-20 I s R

l 8-08-2015 RT

00

2s-08-2015 R

06-10-2015

RE

RF,AI00()00

RF:AT

00r100

RE)A

00r)0

RE)A

00,10

RTiAT

00004

Er,t

)0

her Bank Cheque Cr. Amount

ADOT

)0014

CORP I 74880 500,000.00

D07

033

CORP 2148t6 500,000.00

D07

086

CORP 2t4821 500.000.00

ADOT

)013 5

CORP 214823 3,00,000.00

ADOT

t}t67CORP 214825 500,000.00

)ADO7

t0410

CORP 214839 500,000.00

iADOT

0s79

CORP 214838 500,000.00

ADO'7

)0630

CORP 214843 500,000.00

ADOT

)0918

CORP 214844 500,000.00

ouc

RIiAT00006

RIiAT00009

The above pay-ins showed that the Applicant was aware of the trades on continuous basis

and also aware of lunding the account periodically

(xii) The claims submitted by the Applicant are inconsistent and lack proof. It isnot clear

as to how he has arrived at the total claim amount of Rs.38, 83,809/-(Rs. Thirty Eight

Lakh Eighty Three Thousand Eight Hundred and Nine only) as one of the

components gf Rs.lI,lg,682l-represents profit eamed by the Applicant through

independent handling of his account on which he has claimed costs and interests also

which is;devoid of logical reasoning.

The Applicanl's claim that he had no knowledge of share market dealings contradicts

the fact that [e harj earned profit through trading by himself an earning profit as

above. tt is denied that the Respondent has not been provided with the copies of

Form, agreerrent and KYC. The Applicant had signed the rnandate for delivering

lxiii)

Q'/ /t Page 8 of 18

contract notes alld statement of funds in the digital format. The Applicant has not

raised anY grie'vances earlier'

(xiv) The Respondent querstions the authenticity in the Applicant's allegation of buy of

l l40 RS SOF'|WAI{E shares as there is mismatch in the statement of complaint to

SEBI.TheallegedclaimsareinconsistenttooneanotherinthevariousEXHIBITS.Further, in the Exhibit 5 where the Applicant has claimed to have earned proht f Rs'

17,840691- is inconsistent with his claim of Rs' ll, 19,682/- claimed in another

sheet.TheAplllicanl.isrequestedtoprovidedlegibleEXHIBITll.

(*u) The Respondent questions the Applicant's action of applying fbr Margin Trading

Finance of Rs, 50 lakh when he is admittedly a person with no trading experience.

The Applicant had signed the statement of account dated July 14,2015 without any

dispute but allegecl that all the trades previous to that are unauthorized' The

Applicant macle various payments while there was voluminous trading as alleged by

him.ItisalsopertinenttonotethattheApplicanthasnotdisputedasingletradeonvoice recorded linr; when he was discussing about trading strategies with the

Respondent. 'llhe Applicant admits to have received electronic communication and

SMS updates flrom the Respondent about the MTM requirement and likely square off

in case of non-fulfillment of his obligations' The Applicant has not furnished the

details of the lransactions through which he has earned profits of Rs' 17,19'6821-'

(xvi) Therefore, thr: Resllondent, for the reasons stated above, is of the view that the

complaint is talse and liable to be dismissed'

T'he Respondent has submittcd the following documents

(a) Statement of Case

(b) Client Registratirln fortn, agreements etc

(c) Statement of account/ledger

(d)E-logreportfor:;endingcontractnotesandStatementofaccounts(e) Reply to I(3RC

(0 Copy of IGRC Proceeclings

(g) Copy of complainant'r; withdrawal letter

(h) Voice recordings of conversations in a CD

(i) Copy of arlknowledged copy of statement of account

0) SMS log

(k) Sauda SurnmarY

(l) Profit and loss accounl

(m)DP transaction statement

(n) Reply of Itespondent rlated 2910112016 to the Applicant

4. PERSONAL AP PEAITANCES/HEARINGS

4.1 The Applicant was g;iven the opporlunity to present his oral submission' lntroducing

himself,theApplicant,Nlr'Bharathi,infornedtheArbitralPanel(AP)thatafterretiringfrom State Governrlent Service he wanted to invest money in shares' He' however' added

etc. He furlher stated that he was approached by the representatives of the Respondent

Company and was corrvinced after they assured him of taking care of all his trading matters'

Theyopenedhistradirrgaccountinoctober20|4.WhenthePresidingArbitratoraskedhimto specifically l;tate the main arguments in the case' the Counsel for the Applicant Mr'

Damodar said that al the time of opening of account signatures in the documents and

acknowledgements wr:re taken in blank but the mandatory documents like Risk Disclosure

Document (RDD), M Agreement (MCA), KYC etc' were not provided to the

Applicant which was of the extant Exchange guidelines. The Arbitral panel

wanted to know whet cant had asked for the above documents and whether he

had raised any objection/complaint with the Respondent for not providing with the same' To

this, the Applicant/Counsel replied that as the Applicant was new to the stock market' he had

neither raised zrny objection nor complained for non-receipt of the said documents at any

point of time.

4.2. The Counsel f,or the Applicant stated that one of the major points of dispute is the

unauthorized trades executed by the Respondent' Elaborating' he said that the trades were

supposed to be off-lirre through hat records sho

of ftu...n"nt of orders b1' the rgued that the

without client's cons'ent. The A trading started

initial investment o{' Rs. 25.5001-and confir he had no sh

Applicant further said that the Respondent had not done any unauthorized trading before

March2015.'[.heC.rtrnse|fortheApplicantraisetheproceduralissueoftradingbytheRespondent without upfror The Applicant said that shares were purchased and

profit earned till March 15 the period october20l4 andMarch 2075,they had

received all the contlact nc tatements' SMS alerts' They also confirmed having

invested apprc,ximat,lly Rs.25 lakh over a period of time for purchase/sale of shares' They

further said that the l)ay-outs were a meager Pts' l '7671-

4.3 The counsel then raised the issue of distress sale of shares and purchase of shares

without consent of the Applicant. He argued that by not keeping record of transactions in

electronic mode or hard copy containing details pertaining to sale/purchase, the placement of

orders to such transactions, brokerage and clearing charges, etc. the Respondent had violated

paral3.2.3.1 of NSEIL circular dated June l7 '2070'

The Respondent wanted time to file his counter arguments to the revised statement of claim

submitted by the Applicant. Both the parties agreed for December 10' 2016 as the date of

final hearing.

4.5. The hearing \/as fulther postponed to Decemberl5,2016 at2'00 p'm' on account of

sudden indisposition o1' the Presiding Arbitrator.The Applicant and the respective

representatives/counsel of both the parties were present on the said date of final hearing'

4.6 The Applicant reiterated the issue of sale of shares on June 15,2015 adding that there

was no necessity for 'distress sale' which was resorted to by the Respondent with the motive

of earning more brokerage. The Applicant quoted value of his sales and purchase up to the

/, Z Page 10 of 18O'/

date of distress sale ard also the total amount of money paid by him to the Respondent' He

said that he had worked thr: credit balance in his account approximately at Rs. 48 lakh and

argued that when he hLad made excess payment to the trading member then why the question

of debit balancer arose? He turther argued that the if the contention of the Respondent was to

liquidate the debit balance was by selling his shares on that date then why was shares were

purchased again on the sarne day and the day following? The Applicant further stated that

when debit balernce in his tlading account was going on for the past three months prior to the

date of distress; sale then 'why was not the debit balance squared off earlier? one of the

Arbitrators asked about the purpose of the margin loan of Rs. 50 lakhs. The Applicant

replied that the loan was arranged by the Respondent company to facilitate trading' The

Applicant concluded his submissions after making a few references to what he perceived as

unauthorized tr.ading up to August 25,2015 without, however, substantiating his points to

the satisfaction of the Arbilral Panel.

4.1 The Respondent was g,iven opportunity to make his oral submissions before the Panel'

The authorize represt:ntative summed up his arguments vis- -vis the Applicant's claims as

below(a)Regarding non receipt oiKYC documents etc as alleged by the Applicant/constituent' the

Respondent stated that his client has received all the mandatory/non-mandatory documents

such as KYC, Client Reg,istration Agreement, Risk Disclosure, and write up on PMLA'

Tariff Sheet, Rights an obligation of the client and the Trading Member etc' for which an

acknowledgement was obtained from the client. He added that a welcome letter with all the

requisite details was sent to the client by post and the Proof of Dispatch (PoD)has been

enclosed for reference. He further said that the Applicant had not raised any objection

regarding non-receipt of the above documents at any stage before.

(b) on the issue of atleged unauthorized trade, the Respondent submitted that there are more

than 300 voic,e records captured in cD which show various conversations between the

Applicant and the olficial:;/dealers of the Respondent company. The Respondent submitted

the CD and transcripts to the Arbitrators. He said that a perusal of the transcripts revealed

that on various occersions the Applicant had discussed trading strategy including buy and

sale of shares., appraised of debit balance and margin requirement in the account' pricing'

market movements ,:tc. right from the time of opening of account up to September 2015'

The presiding Arbitrator ersked the Representative to read out some of the transcripts which

he did. when the Applicant was asked whether it was his voice in the cD, he confirmed

though adding that the unauthorized transactions were not reflected in the voice recording'

(c) The Respondent further stated that the trading was only off-line and was executed as per

the instructions of the u\pplicant conveyed over land telephone or the mobile of the

dealer/staff. f[s, l-r6wever, added that the Applicant used to log in online to see the actual

trading /transactionsr effected in his account for which the details of login are available' He

argued that since thr: Appticant had logged in to his account on numerous occasions during

the actual tracting and, as he had free access for viewing each and evely trade, it was highly

improbable that he rvas not aware of the trades which he labeled as 'unauthorized''V tl' n I t,.t.aUn) t/ Page 11 of 18

(d) The Respondent drew attention of the Panel to the various inconsistencies in the claims

made by the ApplicarLt. The claim amount which originally stood at Rs.38, 83,809(Form 1

Arbitration Application) was revised downwards to Rs. 27,39,432 (Written arguments dated

November 15 2016) and fuither to Rs26, 51,564(as part of written submission on the date of

final hearing Decembt.:r 16,2016). This showed that the Applicant was not sure of his claim

at any stage and, therefore, he kept on changing his claims without furnishing plausible

reasons.

(e) On being asked by one of the Arbitrators as to the need for selling shares worth of Rs. 60

lakhs on a single day i.e. June I 5, 2015 and whether the client was informed about the

margin position as the, exposure was getting beyond a safe limit, the Respondent replied that

the Risk Management System (RMS) automatically squares off any open position depending

on the deficit in margin.Fle said that there are records of emails and SMS exchanged

between the Respondent antl the Applicant prior to selling of shares on that date alerting the

client of margin requirement /debit position. The Respondent placed the relevant emails

before the Panel.

Both the parties filed written submissions which were taken on record. The Arbitrators

asked the Respondenrt as to how they could treat the refund of excess brokerage charges (

Rs. 3,33,02 4.251-) to 1he Applicant as a "good gesture" shown by the Trading Member when

it has been clearly erstablir;hed that it was wrongfully charged by them. The Respondent

accepted that it was a mistake committed inadvertently'

4.8 The Applicant has submitted revised claim which is reproduced below:

SL

NO

NATURE OIr CLAIM AMOLINT

1

2.

t let p.ont earneri by independent handling of

portfolio by Applicant (net of brokerage and other

charges)

11,18,184

Dist.d sale (loss) due to manipulative activity of

Respotrdent rtf shares by the Respondent including

brokerage etc. charges

5,93,156

aJ. Brokerage fbr the unauthorized trade including

excess brolierage collected at 0.05 on the

unauth orized transaction

2,08,758

4. Erosion of cerpital ,Cue to unauthorized trading 2,25,665

5. Balance portion of'late fee payment 10,558

6. Cost of Arbitration case etc. filing 1,00.000/-

Interest payable al 160 on32,61;029 being the lost

amount by thLe ApPlicant

3,95,216

, Any other relief the Hon'ble Arbitral Tribunal may

feel

/) I ila au/ // Page 12 of L8

4.9 Both the parties completed their arguments. The Award was reserved.

5. FINDINGS ()F THE AITBITRAL PANELAfter careful examination and analysis of the Applicant's Statement Of Claim (SOC)/

written arguments and the Respondent's reply/additional written submissions documents,

voice recordings and givirLg due regard to the oral submissions made by both the parties

during the hearings, the Panel of Arbitrators have formulated the following issues and

arrived at findings and conclusions:

ISSUES EXAMINEDI ) Has the Applicant er;tablished that his signatures were taken on various blank forms

and he was neither informed nor made aware of the Risk Disclosure Documents as

mandated by SEBIAJSE?

2) Does the Applicanl establish that unauthorized trades were carried out by the

Respondent simultaneously with authorized trades?

3) Is the Applicant entitled to the amount claimed by him?I (a) The first issue is examined based on the written statement/oral submissions and

documents submitted to this Panel. The Applicant has contended that after his retirement

from government service, he was approached by the Respondent's employees to open atrading account and a demert account and invest in stocks and shares. He further contends

that he had no knowledge o1'the share market and he did not know how to operate computer.

He was, however, persuaderl to open his demat account with the Respondent on September

26,2014.

(b) The Respondent has su'bmitted that the accounts were opened voluntarily. Documents

submitted by thcn'r, interalia, are Client Registration Form, Member Client Agreement, KYC

documents as well as oth,sr non-mandatory documents like Agreements for Securities

Trading using Wireless Te,:hnology, Power of Attorney, issuance of Electronic Contract

Notes (ECN), Registratior-r of e-mail ID/mobile number of client lbr electronic

comrnunication etc. Perusal of these documents reveals that all of them are standard printed

forms with appropriate blank spaces for filling in personal data of individual applicants.

Each of the forms has caplions in bold print indicating their content and purpose. Boxes

have been provided for signatures and it is observed that the Applicant has signed in every

single box at appropriate places, thereby giving rise to the conclusion that he was broadly

aware of the contents of the documents.

(c) The Counsel for the Applicant repeatedly argued that signatures were taken on blank

documents thereof. T'his argument is found to be without merit, considering that the

Applicant is an educated, retired government servant and that every form has clear captions

and printed conditions, the rbroad purpose of which could not have escaped the attention of

an educated person w'hen he was signing the documents. The principles of Estoppel and

Waiver will also operate against the Applicant as both the parties have carried out numerous

.^, \ // contactual transactions basred on t documents and there was no earlier protest or

k l'/ demur from the Applicant on the issPage 13 of 18\v,

(d) Additional Submissions ( 282pages) bound book was submitted to the Panel on l0-12-

2016 by the Respondent. Comprehensive sets of documents were filed in support of the

Rejoinder. Annexure "R' at pages 60-64 are copies of the Welcome Letter dated 30-09-2014

sent to the Applicant with proof of dispatch. Attached to the said letter were "DO'S &

DON'TS FOR INVESTOI{S" which clearly sets out the risks associated with trading in

stock markets. Further, the Member client Agreement (MCA) contains clauses which spell

out the risks associated with stock market investments and trading, thus the requirement of

risk disclosure has been complied by the Respondent. Here again, the contention that the

risks associated with stock markets have not been disclosed appears to be a weak argument

as he has tradecl for months and admittedly made losses as well as profits' No objection was

raised regarding non - disc;losure of risks in the market during the period he has traded in

Iarge values as well as vc,lumes. These admitted facts preclude the Applicant from now

contending that he was an innocent and gullible customer who has been exploited by the

Respondent. The Panel rejects the Applicant's contention in this regard. Admittedly, the

claimant is a responsible offlcial having worked in the State Government, fairly for a long

time. He must be aware ol the consequences of his signing various documents in terms of

the material placed by the respondent. We are not convinced that the respondent took his

signatures on yarious blanl< forms as sought to be argued before us. In the circumstances,

this argument cloes not appeal to us. Hence, we reject the same.

2. The second issue involves two aspects.

(i) One pertains to the clairrr of the Applicant in respect of alleged unauthorized trade carried

out by the Respondent (along with authorized trade as stated by the Applicant) in normal

course of trading during th,o period October 2014-September 2015 which caused him alleged

loss of P:s.2.25.6651-.

(ii) The other pertains to the alleged 'distress sell' of shares worth Rs.60 lakhs by the

Respondenton a single day i.e. June 15,2015 causing loss of Rs. 5,93,1531-to the Applicant'

(i) It is observed that the A.pplicant was an off-line trader since the beginning though he was

provided with log-in facility on February 04,2075 by the Respondent. As an off-line trader,

the orders /instructi6ns were placed by the Applicant over the phone-mobile as well as

landline. The Respondent has submitted a CDalong with the transcripts which adequately

captures detailed conversation on trade strategy, pricing, and sell/buy of shares' debit

position and execution of trades based generally onmutual consent of the parties' The

recordings, which tell their own story, have not been disputed by the Applicant' More

importantly, the ApplicanLt had sent Electronic Contract Notes (ECN), SMS alertsto the

registered e-mail lD/m,cbile of the Applicant (hemanthkumarlg53@yahoo'com I

988659985 4) after each transaction for which enough evidence have been provided by the

Respondent. While the Aprplicant has not denied receipt of ECN, SMS alerts' he argued that

he could not verify the genuineness of the transactions on the same day as these were not in

phvsical form. His argument does not stand to reason as any person of ordinary prudence is

xpected to be alert especially after opting for ECN/digital mode ofreceipt in the Application

form.

// h / -t,./,on,r, 4/ Page 14 of 18

The Applicant also claimed to have earned a profit of Rs I 1,1 8,1 841-by independently doing

off-line trade. It is further claimed that because of simultaneous unauthorized trading the

profit has disappeared and is replaced by huge losses' As against theself-prepared statements

of the Applicant, the Respondent has filed computerized transaction records, profit and loss

statements, voice recording,s and transcripts. The veracity of the submissions made by the

parties is also to be viewed from their conduct and actions during this protracted dispute' A

significant letter is the one dated 4-Feb 2016 to SEBI by the Applicant' At page 2' para 10

he states that he asked for installation of software so that he could monitor movement of

stocks and place orders on phone. In the next para he also goes on to say that he was

obstructed from accer;sing his tracling platform so he could not watch the screen and take

decisions on buying/selling, of stocks. This is a clear admission that he was a regular trader

and was watching th,; scre,en online regularly. This is corroborated by the online logging

statements produced by th,l Respondent, which have been extracted from NEST Database

Server, which rjiscloses that the Applicant has logged in 296 times on numerous occasions

during 2014-2015.

It is significanl to note that the Applicant had made substantial pay-ins to his account on a

regular basis which had continued much beyond the date of dispute i.e' June 15,2015 up to

October 2015. As per the data provided by the Respondent, a total amount of Rs'l' 25'

23,7001-was paid by the Applicant during the period October 01,2014 to October 06.2015'

FIis patterns of'pay-ins indicate that, despite his grievances about alleged unauthorized and

increased volume of trade, he made no attempt at any stage to stop the Respondent from

further trading. Instezrd, he facilitated trading by consistently funding his account. Therefore,

a person of his awareness, l<nowledge and experience cannot be oblivious to the transactions

in his trading account.

In view of the foregoing. the Panel is not convinced of the Applicant's contentions that

trades were unauthorized and rejects the claim of Rs. 2,25,6651-

(ii) The Applicant hLas cl;aimed Rs.5,93,153/- being loss caused by 'distress sell' of his

shares. The amount includes brokerage and other charges'

It is observed that the Applicant has not been consistent with regard to his claim amount'

Initially the claim amount stood at Rs.7, 53,016l- which was subsequently revised

downward to Rs.5. 93,\531-. Discrepancies were found in various submissions and

statements. However, the issue was examined in the light of available records and facts'

On the issue 6f squaring off of the position and liquidation of shares on.Tune 15,2016, the

Respondent has subrnitted a statement at page 27 of their Additional Submissions as under:

NetDr/Cr(I-zkhs)

Ben

Collat

eral

POA-

B-HCut(

lakhs)

Current

Purchase

Future

Sales

EQ

Comfort

EQ

Status

71.26 78.19 10.80 5.40 0.00 126.93 Normal

69t.73 78.70 r0.76 5.40 1.67 r30.67 Normal08-06- 1 5

/). /Page 15 of 18

09-06-l 5 67.49 12.62 10.69 0.00 0.00 123.43 Sqr-offzone

4. r 0-06- I 5 67.49 72.34 10.70 0.00 000 r23.03 Sqr-offzone

5. I 1-06- 1 5 62.t)9 68.70 r0.73 0.00 0.00 t26.t1 Normal

6. t2-06-t5 60.1 8 64.72 r0.62 0.00 0.00 12s.21 Normal

7. 1 5-06-1 5 60.48 64.04 10.63 0.00 0.00 t23.47 RMS

Sqr-off

8. 16-06- I 5 0.47 3.84 10.66 21.02 0.00 3 107.60 Normal

The Table has been set out to consider and determine whether the actions of the Respondent

in Squaring-off (distress sale as termed by the Applicant) over Rs. 60 lakhs worth of shares

on 15-06-2015 are.iustified. A study of the numbers above reveals that 125o/o is an

acceptable risk management level. Below that percentage is considered as square-off zone'

On three occasions in June 2015 (9th, l0tl'and l5tl'; the levels have moved into square-off

zone and the Respondent has opted unilaterally to square-off a very substantial holding to

the extent of Rs.60.48 lakhs onl5'l'June 2Ol5.No such action was taken on 9'l'and lOth June

2015. The panel adverled to the contractual and regulatory provisions to scrutinize the

legality and justification of the transactions.

Respondent's Loan letter dated 2110512015 is margin trading finance facility provided to the

Applicant, incorporating therein terms and conditions. Certain conditions, relevant to the

context of the issue before the Panel are reproduced below: "WCPT,

Funding

,,Triggerl: An alert to the borrower by SMS/Email/Telephonic call. The shortfall can be

made good by the bgrrower within 2 working days in the form of cash and or /approved

shares. If borrower fails to top-up the value of shortfall, positions are sold on (FIFO) basis to

meet the shortfall on third rvorking day by 10.30 a'm'

Trigger 2: Analert to the trorrower to top-up the shortfall within 12 hours. WCPL shall sell

the scrips (on FIFO basis) to meet the shortfall, the next trading day by 2 p'm'

Trigger 3: At this level, W(IPL shall proceed with the sale of the scrips of its choice withoul

prior intimation to the bortrlwet."

National Stock Exchange of India Regulations - Part A (capital Market segment)'

Trigger3Trigger2

Page 15 of 18

If constituent fails to make payment of consideration to the trading member in respect of any

or more securities purchased by him before the pay-in date notified by thQ Exchange from

time to time, the Trading M,ember shall be at liberty to sell the securities reQeived in pay out'

in proportion to the amount not received, after taking into account any Payment

lying to

the creditof the Constituent, by selling equivalent securities at any time on {he Exchange not

later than the fifth trading day reckoned from the date of pay-in. If . '..

The loan letter clearly spells out the triggers for shortfall and stipulates thaf alerts should be

given to the borrower and time should be given to top-up the shortfall' Ttle signihcant part

of the condition is that onl5i shortfall in margin requirements has to be cor'iered by payment

in the form of cash and /or approved shares. The whole or major part of the holding need not

be squared-off as was done in the instant case. This view is reinforced bi the provision of

the above cited Regulation 3.11 which speaks of the Trading Member beinp at liberty to sell

securities "in proportion to the arnount not received"'

In the transactions being sr;rutinized by the Panel, it is observed that tho{Sh routine Email

has been sent on 12-06-2015. no specific SMS alert or telephonic advice fras been given to

the Applicant on 15tl'June 2015 to deposit money towards margi4 shortfall' More

significantly, a study of the margin table above clearly indicates thata sqlrare-off of only 5

to 6 lakhs worth of ,hur", o.r l5'l' June would have altered the margin ppsition to bring it

within the comfbrt level of 125 percent. Thus, the actions of the Respondgnt in squaring-off

Rs. 60.48 lakhs worth of s'ocurities is arbitrary and is contra to their loan fonditions as well

as regulatory provisions. 'Ihe Panel therefore holds that the Applicant is entitled to 90

percent of the amount claimed under the head of distress sale. l0 percent is not allowed as

the Respondent would have been within their rights to sell some portion of the holding to

cover margin shortfall.

The Applicant is thus entitled for a sum of Rs.5,33,838/- as against the clalm of Rs'5'93'153'

The Tribunal, after careful consideration of the material on record has come to the

conclusion that the claim of Rs.11, 18,184/- is not sustainable in law' The material on

record would reveal that rthe claimant is aware of the trade and he has [raded and he has

earned some profits also. In the circumstances, the claimant cannot make a claim styling as

net profit earned by independent handling. There is no sufficient maferial available on

record to consider this claim. According to the Arbitral Panel, this claim [s unsustainable in

law and hence the same is rejected'

The second claim is with regard to excess brokerage amounting to Rs'2, p9,l52l-' In terms

of the material placed on record we are satisfied that the claimant is entitled for brokerage

loss calculated on Rs.60, 48,000/- works out to Rs.18, 1441-' ln the circuipstances' we allow

this claim in part and instead of RS.2, 08,7521-,we restrict this claim to R$'18'144/- only'

As the respondent has adrnitted the third claim towards excess brokerage at Rs'18'0421-' the

said claim stands allowed,

claimant has signed various documents and he is fully aware of the same. In the

circumstances, except the distress sale, we do not think that the claimant is entitled for any

other claim on the ground of erosion of capital due to unauthorized trading. There is no

proper foundation for this claim. Hence, we reject this claim in toto.

The claimant has claimed balance portion of late fee payment amounting to Rs.10,558/-

We do not find any substanr;e in this claim. Hence, we reject the same.

The claimant has claimed a sum of Rs.l lakh towards cost of arbitration. However, the

Arbitral Panel deems it proper that there is no Award to costs.

AWARI)

The claims of the clairnant are partly allowed. Following claims are admittEd and granted:-

(i) Claim towards distress s;ale : Rs.5,33,838/- (Rupees Five Lakhs Thirty Three Thousand

Eight Hundred and Thirty Eight Only) ----- A(ii) Claim towards consequential brokerage: Rs.18,l44l- (Rupees Eighteen Thousand One

Hundred Forty Four Only) ----- B(iii) Claim towards excess brokerage: Rs.18,042l- (Rupees Eighteen Thousand Forty Two

Only) ---- C

(iv) We are not inclined to Grant any cost to either of the parties on the peculiar facts and

circumstances of this case.

The respondent is directed to settle total sum

Thousand Twenty Four only) vide above

the date of this award to the Applicant.

Dated at Bangalore this the I day of Januaty 2Ol7 -

(Arbitrator) (Presiding Arbitrator)

of Rs.5,70,024l-(Rupees Five Lakh Seventy

stated amounts (A+B+C) within 30 days from

Rt"#nQ.,.u.uiu,'

Page 18 of 18