VINAY KANKARIAversusITI INVESTOR SERVICES LTD

            IN THE HIGH COURT OF JUDICATURE AT BOMBAY
               ORDINARY ORIGINAL CIVIL JURISDICTION

                  ARBITRATION PETITION NO.634 OF 2015

Ashwini Vinay Kankaria                        .. Petitioner

             Vs.
ITI Investor Services Limited                 .. Respondent

                                WITH
                  ARBITRATION PETITION NO.586 OF 2015

Vinay Kankaria                                .. Petitioner

             Vs.
ITI Investor Services Limited                 .. Respondent

Mr. Gandhar Raikar a/w Ms. Iyanah P. for Petitioners.
Mr. Pramod G. Kathane a/w Mr. Krishnakant Dhere for Respondent.

                                  CORAM : ARUN R. PEDNEKER, J.
                                  DATE   : 25th JUNE 2026.

P.C. :


1.       Heard learned Counsel for the parties.

2.       The Petitioners have challenged the arbitral award dated 30 th

September 2014 passed by the learned Sole Arbitrator appointed under the

Bye-laws and Business Rules of the Multi Commodity Exchange of India

Ltd. (MCX). The Arbitrator was appointed by a letter dated 11 th August 2013

in terms of Rule 37, Clause 3.2(a) of the Business Rules, as amended.


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3.     The Arbitral Tribunal fixed the hearing on 27 th August 2014 at 3:30

p.m. in the Conference Room of Multi Commodity Exchange of India Ltd.,

Exchange Square, Suren Road, Chakala, Andheri (East), Mumbai, and due

notice of the hearing was given to both parties. The claimant appeared in

person, while the Respondent was represented through its authorised

representative.

4.     The Arbitrator considered the statement of claim, whereby the

claimant sought recovery of Rs. 2,71,000/-, together with interest, in respect

of the claim lodged on 28th August 2013. It was noted that the claimant was a

constituent client of the Respondent under the agreement dated 20 th April

2009 and maintained a trading account with the Multi Commodity Exchange

of India Ltd.

5.     The claimant's case was that, as on 29th August 2013, he was holding a

copper futures position in his trading account bearing No. BNG00399 with

I.T.I. Investors Services Ltd. According to the claimant, on 28 th August 2013,

he contacted the Respondent's dealer to ascertain his trading position and the

margin available in his account. However, the dealer was allegedly unable to

provide the requisite information. The claimant further alleged that his

copper futures position was squared off without his consent, thereby

depriving him of the opportunity to deposit additional funds to maintain the

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required margin in his account (Account No.BNG0039989). As a

consequence, he claimed to have suffered financial losses.

6.     The factual matrix in the present petition is identical to that in Petition

No. 364 of 2015, the only distinction being the quantum of the claim. In all

other material respects, the facts and issues involved are the same.

7.     The Arbitrator, while deciding the dispute, held that the responsibility

to maintain the requisite margin rested upon the Petitioners. As the

Petitioners had failed to maintain the prescribed margin requirements, the

Respondents were entitled, in accordance with the applicable contractual

terms and conditions, to square off the Petitioners open positions by selling

the relevant contracts. The challenge proceeds on the contention that the

Arbitrator erred in reaching this conclusion.

8.     The learned counsel for the Petitioners, while challenging the arbitral

award, raises twofold contentions. First, he submitted that the entire arbitral

proceedings were concluded in a single day and that no evidence was

recorded. He further contended that a request had been made to call for the

relevant records, particularly to ascertain whether any intimation regarding

the margin requirement had been communicated to the Petitioners by email

or through any other mode. However, no such exercise was undertaken.

Secondly, he submitted that, in terms of Regulations 8.6.5, 8.6.6, and 8.6.7

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of the Bye-Laws of the Multi Commodity Exchange of India Limited, it was

the duty of the Dealer to call upon the Petitioners to make good the margin

shortfall and maintain the requisite margin before taking any further action.

It was only upon the Petitioners failure to comply with such a demand that

the Dealer was entitled to square off the Petitioners’ position. He submitted

that there was a clear violation of the aforesaid Regulations. In support of

this contention, he relied upon the judgment of this Court in Kritika Nagpal

v. Geojit Financial Services Limited in Arbitration Petition No. 47 of 2009

(along with the connected matter), particularly paragraphs 56 and 58. He

contended that, in an identical factual situation, this Court had held that,

before squaring off a client's position on account of a margin shortfall, it was

the duty and responsibility of the Dealer to duly inform the client of the

margin requirement and provide an opportunity to meet the shortfall.

9.     Per contra, learned counsel for the Respondent submits that the

Petitioners were duly informed via email regarding the margin positions;

however, due to a technical glitch, the said email could not be received by

the Petitioners. It is further submitted that the squaring-off of the margin

positions was carried out in order to minimize the losses of the Petitioners,

and that the same is permissible and in accordance with the applicable rules.



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10.    Having considered the rival submissions, it is apparent that the

Arbitral Tribunal fixed its first meeting on 27 August 2014. The record does

not contain evidence of any email having been sent by the Respondent to the

Petitioners. The Petitioners were not made aware of the account position at

the relevant time. Further, there is no reference in the arbitral proceedings to

the compliance of Rules 8.6.5, 8.6.6, and 8.6.7, by the learned Arbitrator. For

ready reference, the Rules are quoted below:

        “8.6.5 An Exchange member may [square off] an open position
        of a client when the call for further margin or any other payment
        due is not complied with by the client;

        8.6.6 A clearing member may [square off] an open position of a
        constituent member when the call for further margin or any other
        payment due is not complied with by the constituent member;

        8.6.7 The Relevant Authority may [square off] the cleared open
        positions of a clearing member when the call for further margin
        or any other payment due is not complied with bt the clearing
        member [as per the procedure laid down by the Exchange]”

This indicates non-compliance with the applicable procedural rules.

Accordingly, there appears to be a violation of the mandate of the rules, as

has been observed by this Court in Kritika Nagpal (supra). The relevant

portion of Kritika Nagpal (supra) at paras 56 and 58 is quoted below :

        “56. A perusal of the impugned award indicates that the arbitral
       tribunal has not referred to the said Regulation 3.10 or has not
       considered the effect thereof which provision cast mandatory
       duty and obligation upon the trading member to demand margin
       money in the circumstances set out therein. The arbitral tribunal
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       has only considered Clause 29 of the agreement entered into
       between the parties and has rendered a perverse finding that the
       said provision of the agreement gave an exclusive discretion
       upon the trading member to liquidate position/security on
       occurrence of shortfall in margin. The arbitral tribunal has drawn
       an adverse inference that the trading member always makes a
       margin call which the client is required to fulfill and has further
       held that when a request is made to the trading member by the
       constituents not to square off the outstanding position by the
       constituent, the trading member usually considers the situation
       and may await the payment by the client. In my view the
       inference drawn by the arbitral tribunal is totally contrary to the
       mandatory duty and obligation under Regulation 3.10 cast on the
       trading member.

       58. In my view, the onus was on the respondent to prove that the
       demand for amount of margin money as required under
       Regulation 3.10(a) was actually made by the respondent from the
       constituent and was not paid by the petitioner. Admittedly, the
       respondent had the e-mail ID of the petitioner. Not a single
       document was produced by the respondent before the arbitral
       tribunal to show that any demand for the margin money was
       made by the respondent member upon the petitioner of the
       amount which was demanded but not paid by the petitioner. In
       my view, the impugned award is without any evidence and thus
       deserves to be set aside.”

11.    The Court thus set aside the impugned arbitral awards. The Petitioners

are granted liberty to pursue fresh Arbitration proceedings. This Court also

records a change in the respondent’s name—the company earlier known as

ITI Investors Services Ltd. is now Intime Multi Commodities Company

Limited. Re-verification is dispensed with.

12.    Arbitration Petitions are disposed of.

                                                  [ ARUN R. PEDNEKER, J. ]
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