IN THE MATTER OF ARBITRATION UNDER THE BYELAWS, RULES & REGULATIONS OF NATIONAL STOCK EXCHANGE OF INDIA LIMITED (NSEIL)

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1 BEFORE THE SOLE ARBITRATOR SHRI S C GUPTA IN THE MATTER OF ARBITRATION UNDER THE BYELAWS, RULES & REGULATIONS OF NATIONAL STOCK EXCHANGE OF INDIA LIMITED (NSEIL) ARBITRATION MATTER NO. CM/-0082/2010 BETWEEN SMT LALITA SOMANI SANTOSH 1/16 HOUSING BOARDING QUARTERS, BEHIND RAM MANDIR RATLAM MADHYA PRADESH ( PAN NO : AECPS3586D) APPLICANT AND M/S INDO THAI SECURITIES LTD, 16, 4 TH FLOOR, DAWA BAZAR R N T MARG, INDORE MADHYA PRADESH. RESPONDENT Appearances For the Applicant For the Respondent Mr Rajesh Khandelwal, Advocate Ms Anamika Dubey, Advocate Mr Sanjay Parmar, Authorised Representative AWARD 1) The Applicant, an investor, has filed the present reference for arbitration against M/S Indo Thai Securities Ltd,a member of National Stock Exchange Of India Limited and the Respondent herein, for a claim of Rs /-together with interest at the rate of 18% per annum till the date of payment. 2) After a notice dated 6 th October, 2010 to both the parties, the matter was fixed for first hearing on 19 th October, 2010 when Shri Sanjay Parmar appeared on behalf of the Respondent as its authorized representative. An was received from the Applicant stating that she had appointed Shri Rajesh Khandelwal as her advocate and had also enclosed the scanned copy the vakalatnama and requested for adjournment of the hearing as her advocate was indisposed. In view of this, the hearing of the matter was adjourned

2 to 12 th November, At the next date of hearing, Shri Sanjay Parmar, the authorized representative 0f the Respondent stated that it proposed to reply to the statement of the case of the Applicant and submit supporting documents, if necessary, within fifteen days. Shri Rajesh Khandelwal, the advocate for the Applicant stated that he would need ten days time to file his rejoinder to the written statement of the Respondent. He also prayed for the direction to the Respondent for production of the original KYC documents and originally acknowledged copies of the contract notes as also margin files/ statements. The Respondent was directed to produce these documents for inspection by the Arbitrator and the Applicant at the next date of hearing on 15 th December, 2010.On that date, the Respondent produced the original contract notes. The advocate for the Applicant prayed for copies of all contract notes which the Respondent agreed to submit within a week. As regards the margin statements, Shri Parmar, the authorized representative of the Respondent submitted that it was not the practice of the Respondent to issue any such statements. The matter was fixed for further hearing on 17 th January, 2011 when the Respondent furnished the copies of the margin statement from 2 nd June, 2008 to 9 th July, Thereafter the counsel for the Applicant Ms Anamika Dubey advanced the arguments on behalf of the Applicant and Shri Sanjay Parmar argued the matter on behalf of the Respondent and the hearing of the reference was closed. 3) The Applicant, in her statement of the case dated 29 th August 2010, has stated that she had entered into an agreement with the Respondent as a client for trading of shares and securities in the cash segment and the F&O segment through the Respondent and accordingly, an agreement was executed by and between the Applicant and the Respondent. The Applicant has further stated that she had issued a cheque for Rs /- on 19 th May, 2008 to the Respondent with the intention to trade in the share market. However, due to some unfortunate circumstances and personal problems, she could not carry out the trades as intended. She was shocked to receive a statement on or about 19 th August, 2009 from the Respondent wherein several unauthorized trades were shown to have been carried out in her account resulting in the loss of Rs /- provided by her to the Respondent. According to the Applicant, on receipt of the statement, she contacted the Respondent complaining about the unauthorized trades in her account and she was assured by the Respondent that her problem would be looked into. However, in spite of repeated requests and reminders, the Respondent failed and neglected to respond to her grievances. She, therefore, approached the Investor Grievance Cell (of NSE) by her letter dated 10 th December, According to her, the Respondent made various false and misleading contentions while responding to the directions of the Investors Grievances Cell. The Applicant had submitted that she had never received any contract notes, account statement and any other information from the Respondent for the unauthorized trades carried out in her account. It is also alleged that the Respondent had carried out the unauthorized trades even in the absence of required margin as stipulated in the NSE guidelines. She has further stated that she had not been provided with contract notes/ bills, account statement in spite of repeated follow ups. She has also not been provided with monthly ledger account statements, monthly statement of holding position and quarterly profit and loss account by the Respondent. In the premises, the Applicant prayed that an award be passed directing the Respondent to pay to the Applicant a sum of Rs 1,00,000/- together with interest at the rate of eighteen per cent per annum till the date of payment.

3 4) The Respondent, in its statement of defence dated 25 th November, 2010 has denied that it failed to provide the Applicant with the copies of MCA and other documents executed between them. According to it, since in the present case, MCA was executed on 9 th May, 2008 whereas the NSE circular was issued on 23 rd June,2008 which required the members to furnish the MCA and other documents to their existing clients on her/ his demand. Therefore, according to the Respondent, the contention made by the Applicant made in para 2 of her statement of case is false. The Respondent has also contested the submission of the Applicant that due to unforeseen circumstances, she could not carry out trades as intended and wondered how there were unfortunate circumstances only for F&O segment and not for cash segment. It has also stated that there are contradictions in the submissions by the Applicant as in para 5 of the statement of the case, she has stated that various unauthorized trades were depicted in her account whereas in her dated 23 rd August, 2009, she has stated that she had not done any trade in F&O account. As far as the unauthorized and uninstructed trades are concerned, the Respondent has stated that it had sent the contract notes and statements regularly not only on her as provided by her in her KYC but also delivered the same to her in physical form. Referring to the averment made by the Applicant that the cheque was given for trading in share market and not for F&O segment, the Respondent has asked whether she can prove that it was given specifically for cash segment when it was maintaining combined ledger for both segments. The Respondent has given the calculation to show that even after excluding the loss incurred by her in F&O Segment, there was still a loss of Rs in the cash segment. Therefore, according to it, in no situation, the sum of Rs 1,00,000/-as claimed is payable to her. The Respondent has further stated that it had submitted the copies of KYC, MCA, and RDD to the Investor Services Cell of NSE in response to the complaint filed by the Applicant on 8 th March, 2010 and in turn she must have received the same from NSE. In the premises, the Respondent has stated that the Applicant is trying to transfer the onus of her loss incurred by her in her account and most of her contentions are repetitive in nature and has requested that the Applicant be directed to pay the debit balance in account of Rs /-. Earlier on 11 th October, 2010, the Respondent had sent a letter to NSE stating that it had regularly sent the contract notes to the Applicant not only on the provided by her but also in the physical form to her authorized representative Shri Ashish Kabra. It had also enclosed the digital copy of the contract notes sent to the Applicant, the statement of account from to , the copy of the Applicant s ledger as also the KYC documents. 5) The Applicant, in her rejoinder dated 8 th December, 2010 has stated that the Respondent has grossly failed, neglected and omitted to deal with Applicant s statement of claim in spite of seeking an opportunity for the same and has merely made bald statements which are not palatable in law and practice. Referring the submissions in para 1 of the reply, the Applicant has stated that the Respondent has tacitly admitted that it did not provide the copies of MCA and other documents executed between the parties and has blatantly tried to justify the reason for not providing the same to the Applicant. Referring to para 2 of the reply, She has objected to the questions put by the Respondent and has stated that instead of dealing with the contentions of the Applicant, the Respondent has chosen to make inappropriate statements which are devoid of any reasoning. She has also denied that her statements are contradictory in nature and has submitted that the Respondent was attempting to dodge the questions of facts. She has also denied having received any contract notes in any manner whatsoever. She has stated that the purported id alleged to be part of her KYC was neither provided by her nor

4 belonged to her. She has once again stated that she had signed KYC documents in blank and the Respondent had falsely and with malafide intention fudged the purported id in KYC document. She has denied having carried out any trades in cash segment. She has submitted that she was not aware of any trades in her account in cash segment. Therefore, the question of her objecting the alleged trades in cash segment did not arise. She has also denied any amount being due or outstanding to the Respondent much less the alleged Rs 2,24,074/-or any part thereof. She has also stated that in spite of the alleged outstanding, the Respondent had not made any demand for payment of the alleged outstanding amount. She has also denied that trades without sufficient margin or the purported trades were subject matter of the Exchange. In the premises, the Applicant has prayed for an award directing the Respondent to pay to her a sum of Rs100000/- together with interest at the rate of 18% per annum till the date of payment. On 5 th January,2011, the Applicant submitted an affidavit stating the she had never carried out any trades in any segment of NSE and all trades in her account were unauthorized for which she never received any contract notes, bills or any documents from the Respondent for the alleged trades. She has further stated that she had not put any person s name in the column name of family/authorized person. She has stated that she was made to sign the said authority letter in blank by the Respondent by making it appear that it was compulsory for her to sign the said authority letter. She has further stated that she did not know any Ashish Kabra or his whereabouts, contact number or any details about him and also that she had never allowed or authorized the said Ashish Kabra or any person to act as her authorized person. She offered herself to be cross examined on the averments made in her affidavit. 6) The Respondent, in its reply dated 28thJanuary, 2011 to the Applicant s rejoinder, has denied that the Applicant s signatures were taken in blank on the MCA and other documents. It has stated that all the KYC documents and agreement were signed by the Applicant herself. The Respondent has further stated that the Applicant had signed stamp paper, copy of the PAN card, bank proof and address proof which proves that she had opened an account with it in full conscious mind. The Respondent has also claimed that the Applicant started trading in cash segment first and there after executed her first trade in F&O segment on 29th May, It also claimed the Applicant had signed all documents related to derivative segment also. The Respondent has submitted that Mr Ashish Kabra was authorized by the Applicant and it was for her to provide the details like telephone number etc. The authority letter was signed by the Applicant and his signature was also attested by her. Therefore, according to the Respondent, the Applicant s averment that it was signed in blank is false and baseless. The Respondent has stated that it had regularly sent the contract notes on the provided by her in her KYC documents but also delivered to her in physical form to her authorized representative. Denying the averment by the Applicant that the trades were executed without sufficient margin, the Respondent has enclosed a margin statement to show that there was sufficient margin at all times when the trades were executed on behalf of the Applicant. Dealing with the averment made by the Applicant that it did not provide the copies of the KYC/MCA/RDD etc, the Respondent has stated that the NSE circular was issued on 23 rd June,2008 while MCA was executed on 9 th May,2008. Therefore, her contention is false. The Respondent has further stated that so far statement was concerned, since she was having trades with it in CM segment, and as it was maintaining combined ledger account, the Applicant had not raised any objection in respect of CM segment, her claim that she had not received statement for F&O segment was not correct. The Respondent has contested the averment of the Applicant that the cheque was given

5 for trading in share market and not for F&O segment and stated that even assuming the amount was for cash segment, even then nothing was payable as there was a loss Rs in her cash segment trades. The Respondent has, in the premises, submitted that the Applicant was trying to transfer onus of loss suffered by her in her account without any basis and has prayed that the Applicant be instructed to pay her debit balance in her account of Rs 2,24074/- as also the arbitration expenses. 7) I have gone through the pleadings and heard the arguments of the parties. It is observed that the Member-Client Agreement and other KYC documents were executed between the parties on 9 th May, 2008 at Ratlam. It is the submission of the Applicant that she had signed the documents in blank which were subsequently filled up by the Respondent. The Applicant has also submitted that she had not received any of the KYC documents. She further alleged that she had never traded either in cash segment or in F&O segment and did not receive any contract notes either electronically or in physical form and all trades in her account were unauthorized. On the other hand, it is the submission of the Respondent that it had sent all the contract notes to her on the id provided by her as also in physical form to her authorized representative whom she had authorized in the authorization letter given by her to the Respondent. The Respondent has produced the copies of the contract notes sent to her electronically on the id purported to have been provided by her in the MCA documents as also the copies of the same in physical form to one Shr Ashish Kabra, who, according to it, was her authorized representative. The Applicant has vehemently denied having provided any id to the Respondent or having authorized any person to act as her authorized representative. It is observed from the MCA that it contains gmail.com as the id in the Residential Details The Applicant has denied having provided this id to the Respondent. I find considerable force in her submission as it is found that this id is also her client code both for CM and F&O segment in the books of the Respondent. The client code cannot be known to a client at the time of signing the MCA documents and is furnished to the client subsequently after processing and registration of the documents by the Trading Member. Thus, the Applicant could not have provided this as her id to the Respondent while executing the documents thus completely falsifying the claim of the Respondent that the id was provided by the Applicant. Further, there is nothing on record to show that the Respondent had subsequently sent this id to the Applicant. Therefore, on the basis of the evidence on record, I hold that as id was not provided by the Applicant, the question of her receiving copies of the contract notes electronically did not arise. As regards the receiving of the documents in physical form by the authorized representative of the Applicant, the Respondent had, on 15 th December, 2010, produced the receipted copies of the contract notes which bear the signature of one Ashish Kabra. The Applicant has denied having ever given any authorization to any person. In the affidavit 5 th January, 2011, the Applicant has stated that she had signed the authority letter in blank as she was asked to sign the document in blank by the Respondent who made it appear that it was compulsory for her to sign the said document. In the aforesaid affidavit, she has further stated that she did not know any person by the name of Ashish Kabra and she did not know his whereabouts, contact number or any other details. She even volunteered to be cross examined by the Respondent which was not accepted by it. During the course of arguments, it was submitted on behalf of the Applicant that all the said copies were fudged and seemed to have been signed in the same ink and on the same day and there was no mention of any date in any of the copies of the contract notes. It was submitted that as the Applicant had not provided any id

6 to the Respondent and the contract notes to the Applicant were not delivered to her electronically, she could not be aware of any trades executed on her behalf. It was, therefore, for the Respondent to show how the contract notes in physical form came to be delivered to Ashish Kabra when the Applicant herself did not know about the execution of such trades. The Respondent has frankly admitted that it did not have address or the telephone number or any other detail about Shri Ashish Kabra. In the circumstances, the submission made by the Respondent of having delivered the copies of the contract notes to the authorized representative does not inspire much confidence and cannot be accepted. Further, even though the Applicant has been claiming that she had not traded in the cash segment also, the Respondent failed to produce any documentary evidence to show that there had been transactions in that segment. This naturally leads to the conclusion that no trades were done on behalf of the Applicant in the cash segment. While initially, the Respondent was reluctant to produce the margin statements, it submitted the margin statement from 2 nd June, 2008 to 8 th July, 2008 by its letter dated 28 th January,2011to NSE to show that there were adequate margins at all the times when the trades on behalf of the Applicant were executed. It is clear from the margin statement that while the statement is in the name of the Applicant, the margin deposits were made by one Beni Holdings. The Respondent did not even clarify as to who Beni Holdings was and why it had been depositing margin monies in the account of the Applicant. This fact along with other facts makes the transactions carried out by the Respondent in the account of the Applicant highly suspicious. In any case, if adequate margins were available, the Applicant s ledger account would not have been in the debit. Further, if the account was really in debit as alleged by the Respondent, it would have, at some time or the other, called upon the Applicant to clear her debit balance which it never did. This goes on to show that nothing was really due or payable by the Applicant and the Respondent has made a false claim against the Applicant to avoid the refund of the money to the Applicant. 8) On the basis of the documents on record and my discussions above, I am of the view that the Applicant has proved her claim that the Respondent had carried out unauthorized trades in her account and that she is entitled to the refund of the monies kept with the Respondent. Accordingly, I pass my award as under; (1) The claim of the Applicant is allowed for an amount of Rs /- which will carry interest at the rate of 12 percent per annum from the date of her application for arbitration ie 29 th August,2010 till payment (2) The counter claim of the Respondent for Rs is rejected. (3) The cost of arbitration will be borne by the Respondent. This stamped award is made in three originals; one each for the parties and one to be retained by NSEIL for its records. MUMBAI 25 th March, 2011 S.C Gupta Sole Arbitrator