BEFORE THE SOLE ARBITRATOR S C GUPTA ---------------------------------------------------------------IN THE MATTER OF ARBITRATION UNDER THE BYELAWS, RULES & REGULATIONS

OF NATIONAL STOCK EXCHANGE OF INDIA LIMITED (NSEIL)

ARBITRATION MATTER NO F&O/M-0007/2012 BETWEEN

Ms PARUL RAJESH SHAH, 10A, AJINKYA APARTMENTS, 80, TAGORE ROAD, SANTACRUZ (WEST) MUMBAI-54 400054 (PAN NO ACJPS0674F). APPLICANT AND M/S SHAREKHAN LIMITED A 206, PHOENIX HOUSE PHOENIX MILL COMPOUND, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI-13 400013 RESPONDENT APPEARENCES For Applicant

Ms Prachi Pande , Advocate Mr Rajesh Shah, POA Holder Mr Rajesh Desai, Advocate Mr Kashyap M Chokhvatia, VP Legal and compliance

For Respondent

AWARD 1) The Applicant, Ms Parul R Shah ,an investor , has made the present application dated 27th January, 2012 for arbitration against M/S Sharekhan Limited ,a member of the National Stock Exchange of India Limited praying, inter alia, for an award for Rs 23,11,190.20( Twenty Three Lakh Eleven Thousand One Hundred and Ninety and Paise Twenty) along with interest

thereon @ 18% from 18th January,2008 till the date of payment as also the cost of the arbitration. 2) The arbitration matter was originally assigned to another arbitrator and he had fixed the hearing on 17th April, 2012. However, in view of the request made by the Respondent in the first week of April, 2012 to the National Stock Exchange pertaining to the change of the Arbitrator, the Arbitrator informed both the parties on the date of hearing that he had withdrawn his appointment as the arbitrator in the present reference and had also informed the Exchange about the same. After the appointment of the present arbitrator, the first hearing was held on 18th June, 2012 when Ms Prachi Pande, Advocate appeared on behalf of the Applicant and the Respondent was represented by Ms Sabah Naik , Advocate. The Counsel for the Respondent filed the written Statement which was taken on record. The Counsel for the Applicant requested for two weeks time for her rejoinder. The Applicant was given time up to 2nd July,2012 for filing her rejoinder and the Respondent was allowed to file its reply ,if any, within three days thereafter. The matter was directed to be taken up for final hearing on 9th July, 2012. The Applicant submitted her rejoinder on 3rd July, 2012. On 9th July, 2012, when the matter was taken for further hearing, the Counsel for the Respondent requested for some more time to file the reply to the rejoinder. Accordingly, the matter was adjourned for final hearing to 25th July, 2012 when the learned Counsels advanced the arguments on behalf of the parties . 3. It is the case of the Applicant that she had entered into a Member Client Agreement (MCA) with the Respondent on 16th March, 2006 and thereafter started trading in shares in the cash market of the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) as also in the derivative (F&O) segment of NSE. The Applicant has stated that pursuant to her instructions over the telephone, trades in her account used to be executed by the designated relationship manager of the Respondent and that she would receive the contract notes and the bills with respect to the trades in her account from the Respondent either by courier or by the representative of the Respondent company personally handing over the same at her residence. The Applicant has stated that she traded through the Respondent in the cash and derivative segments between March 2006 and 16thJanuary,2008 and there after she did not place any order or undertake any transactions through the Respondent. According to the Applicant, her husband and her two sons also had their trading accounts with the Respondent. The Applicant has stated that on 10th January, 2008, she, her husband and her two sons executed a group adjustment letter for adjustment in the credits and debits in their accounts. A copy of the letter dated 10th January, 2008 has been produced and marked as Exhibit B. The Applicant has further stated that the family decided to restrict the adjustments of their respective accounts/ledger balances to the extent of Rs 2,00,000.Therefore, she along with her husband and her two sons executed another group adjustment letter dated 11th January,2008 in supersession of their earlier group adjustment letter dated 10th January,2008. The said group adjustment letter dated 11th January, 2008 was handed over by the Applicant to the Respondents peon Nitin Bhingarde who had come to their residence on several occasions to collect/deliver certain cheques/documents. A copy of the group adjustment letter dated 11th January, 2008 has been annexed and marked as Exhibit C. The Applicant has stated that she was informed by one of the the Respondents

dealers that a branch manager had executed some trades in her and her family members account without their instructions and behinds their back. Being highly perturbed by the information, the Applicant, by her letter dated 16th January, 2008, specifically instructed the Respondent to square off all her open F&O positions on the same day or latest by 17th January,2008.The Applicant has annexed a copy of her letter dated 16th January,2008 and has marked as Exhibit D .The Applicant has averred that despite her specific instructions, the Respondent did not comply and did not even inform that it had not executed her instructions. The Applicant has stated that she was shocked to learn that the Respondent had not only unilaterally squared off her open position on 23rd January,2008 but had also sold her shares lying in her demat account . The Applicant has annexed the copies of the contract notes dated 23rd January, 2008 and marked as Exhibit E. According to the Applicant, between 16th January, 2008 when she had given the instructions to the Respondent and 23rd January, 2008 when the Respondent actually squared off the position, resulted in a loss of Rs5,72,949.53 to her. The Applicant has further stated that when she became aware of the unilateral action of the Respondent on 24th January, 2008, she immediately wrote to the Respondent complaining and disputing the action of the Respondent. The Applicant has annexed the copies her two letters dated 24th January, 2008 and 26th January, 2008 and marked them as Exhibits F &Exhibit G. The Applicant has stated that on 11th April,2008,the Respondent handed over the statement of her ledger account and it was only then that she became aware of the position of her account which showed a credit balance of Rs 17,38,240.67 as on 26th Janury,2008. The Applicant has annexed a copy of the ledger statement and marked as Exhibit H. The Applicant has stated that she had persistently followed up with the Respondent for payment of Rs 23,11,190.20 but the Respondent did not respond to her complaints and requests. She had, therefore, filed an arbitration application at NSE in December, 2008 but the same was rejected by the Arbitrator by his award dated 31st August 2009 on the ground that it was barred by limitation. She had challenged the award by making an application to the Bombay High Court under Section 34 of the Arbitration and Conciliation Act, 1996. After the issue of the circulars by SEBI in August, 2010 and February, 2011, the Applicants application was allowed to be withdrawn by the Honble High Court and the Applicant has filed the present application for arbitration for an award directing the Respondent to pay to her an amount of Rs 23,11,190.20 along with interest thereon @18% from 18th January,2008 till the date of payment as also the costs of the present arbitration. 4) The Respondent, in its Statement of Defense dated 18th June, 2012, has stated that the Applicant had executed a Member Client Agreement with it and had agreed to the relevant clauses of the MCA. The Respondent has stated that it did not receive the letter dated 16th January, 2008 and the said letter did not bear receipt of acknowledgement of the Respondent. The Respondent has further stated that the Applicant was very well aware of the position of her account as all contract notes, bills/ ledger statements were delivered to her on her email id. The Applicant had signed a mandate to issue the contract notes and the statements of funds in digital format and cannot deny the receipt of these documents at this stage. The Respondent has further stated that the Applicant had given the group adjustment letter dated 10th January, 2008 for adjustments in the debits/credit of the accounts of her family members ie Mr Rajesh Shah, Master Jimit Shah and Master Kartik Shah . The Respondent has stated that the Applicant cannot plead that she became aware of the position of her account only on 11th April,2008 and that her and her group account

was in shortfall of Rs 8,47,33,641.92 as on 23rd January,2008. The Respondent has submitted that it had informed the Applicant on 24th January,2008 that as her group account had a shortfall of Rs 8,47,33,641.92 as on 23rd January,2008, and as the additional funds were not available on 23rd January,2008, it had no option but to square off the position and this was communicated to her husband Shri Rajesh Shah by its letter dated 24th January,2008. The Respondent has enclosed the copy of its letter dated 24thJanuary,2008 to Shri Rajesh Shah and marked it as Annexure 1(1)1(3) .It has further stated that by its letter dated 29th January,2008,( for which it claims that it bore the acknowledgement of the Applicants husband ) it had supplied the documents including the ledger statement s, script wise margin reports as on 22nd January,2008 and 25th January,2008, a copy of the group open position as on 29th January,2008 and demat holding statement of the Applicant. The Respondent has submitted that the Applicant cannot deny that she was unaware of the position of her account despite receipt of these documents. The Respondent has claimed that the contract notes were regularly delivered to the Applicant. It had also sent the open position through email from Ist January, 2007 to 23thJanuary,2008 and had had also received the reply through mail. The Respondent has denied the receipt of any group letter dated 11th January, 2008 or the letter dated 16th January, 2008 and alleged that the Applicant and the members of her family had entered into conspiracy with one Nitin Bhingarde and placed the bogus group adjustment letter dated 11th January, 2008 stating the limit of the adjustment amount not exceeding Rs 2,00,000/- which is handwritten. The Respondent has stated that it had filed a non cognizable report with Khar Police Station on 22nd May,2008 against Nitin Bhingarde wherein he had confessed that the Applicant and her family had prompted him to plant the letter dated 11thJanuary,2008 and the letter dated 16th January,2008 in the records of the Respondent. 5. Dealing with the para wise averments made in the Statement of the case of the Applicant, the Respondent has stated that the Applicant was actively trading on the floor of BSE .NSE cash and F&O and traded even after 16th January, 2008.As regards the group adjustment letter dated 11th January,2008, the Respondent has stated that the said letter dated is false and fabricated document implanted by the Applicant and did not bear the acknowledgement of the Respondent . It has also denied that its branch manager had executed some unauthorized trades in the Applicants and her family members accounts. The Respondent has also stated that it never received the letter dated 16th January, 2008 and therefore, the Applicant cannot plead the breach of instructions to sell the shares on 16th January, 2008.The Respondent has also denied the averments made by the Applicant that it had unilaterally and contrary to her instructions or consent squared off the Applicants open position on 23rd January, 2008 and on 31stJanuary, 2008 sold her shares lying in the demat account. The Respondent has denied that the Applicant had suffered a loss of Rs 5,72,949.53 due to squaring off the Applicants open position .It has also denied that it is liable to pay Rs 1738240.67/- as claimed by the Applicant. The Respondent has stated that there was a group adjustment letter dated 10th January,2008 and as there was a group debit, therefore, the position of the Applicant was squared off. In the premises, the Respondent has prayed that the claim of the Applicant be dismissed and that the cost of this arbitration be provided to it. 6. The Applicant, in her rejoinder dated 16th July, 2012, has affirmed the averments made in her Statement of the Case and disputed the averments made by the

Respondent. She has stated that her letter dated 16th January, 2008 was addressed to the Khar branch of the Respondent. The Applicant has denied the averment by the Respondent that the said letter dated 16th January, 2008 is an afterthought prior to initiation of the arbitration proceedings and has asserted that the Respondent had neither denied or disputed the said letter even though the Applicants email dated 15th February, 2008 makes a categorical reference to the said letter. The Applicant has stated that she had addressed another letter to the Respondent on11th February,2008 wherein she had categorically referred to her letters dated 11th January,2008,14th January,2008 and 16th January,2008 and had attached the copies of the same . However, the Respondent did not object to any of the letters or denied the receipt of the same. The Applicant has contended that the Respondent now disputing the same is clearly an afterthought, false and bogus. Referring to para vii of the Statement of Defense of the Respondent, the Applicant has submitted that if it is the case of the Respondent that it delivered all the contract notes, bills/ ledger statements to the Applicants email id, it ought to have proved by email log which the Respondent has miserably failed to do so. She has also stated that for reasons known to the Respondent, it made no mention of the group adjustment letter dated 11th January, 2008 in its Statement of Defense which the Applicant had exhibited as Exhibit C to her Statement of the Case. The Applicant has stated that the Respondent had, in its letter dated 29th January,2008 had enclosed the group adjustment letter dated 11th January, 2008 ,which it was now disputing , clearly goes to prove that the group adjustment letter dated 11th January,2008 was in fact the letter agreed by and between the parties and it superseded the earlier group adjustment letter dated 10th January,2008. She has averred that the Respondent had denied the group adjustment letter dated 11th January, 2008 only during the course of arbitration proceedings and a belated attempt to wriggle out of its liability. The Applicant has reiterated that at the relevant time ,the Respondent had enclosed group adjustment letter dated 11th January,2008 along with its letter dated 29th January,2008. Referring to the averments in para xiii of the Statement of the Case, the Applicant has stated that the Respondent has made bald and sweeping allegations against the Applicant .Further, the Respondent had filed the criminal complaint only against its own employee. If the Respondent was alleging that the Applicant had conspired with its employee, it ought to have filed the complaint against the Applicant which was not the case. Also, despite the Respondent filing the criminal complaint against its employee, it is surprising that the said employee continues to be in the employment of the Respondent. The Applicant has denied that she had continued trading even after 16th January, 2008. She has called upon the Respondent to furnish evidence to prove its contention that she gave instructions to execute trades on or after 16th January, 2008. The Applicant has stated that even the group adjustment letter dated 10thJanuary, 2008 does not bear the seal of the Respondent. Thus, the Respondent disputing the group adjustment letter on the ground that it does not bear the seal of the Respondent ought to be rejected. The Applicant has averred that the Respondent itself had attached the group adjustment letter dated 11th January, 2008 along with its letter dated 29th January,2008. The Applicant has submitted that the Respondent had not acted on the instructions given by her on 16th January,2008 and had squared off the position only on 23rd January,2008 owing to which she suffered colossal loss for which the Respondent alone is responsible. In the circumstances, the Applicant has requested that her claim be accepted and an Award be passed in her favour and against the Respondent as prayed for.

7. The Respondent, in its sur- rejoinder dated 16th July, 2012, has denied the averments made by the Applicant and reiterated that it had not received any instructions from the Applicant for selling the shares on 16th January,2008. It has also denied that it had enclosed the group adjustment letter dated 11th January, 2008 along with its letter dated 29th January, 2008.As regards Nitin Bhingarde, the Respondent has stated that the investigation is going on and the charges will be framed after completion of the investigation. 8. I have gone through the pleadings by the parties and heard at length the arguments the by the learned counsels for the parties. There is no dispute that the parties had entered into the Member Client Agreement in March,2006, that lot of trades had been executed by the Respondent both in cash and F&O segments on the floor of NSE on the basis of the instructions given by the Applicant and that this continued up to 16th January,2008 . It is also not in dispute that on 10th January, 2008, the Applicant, along with her husband and her two sons, had executed a group adjustment letter authorizing the Respondent to adjust the balances in any or all of the account. The dispute is only about the two letters, first dated 11th January, 2008 and the second one dated 16th January, 2008, which the Applicant claims to have sent to the Respondent and the Respondent denies having received the same. The Applicant claims that in partial supersession of the earlier letter dated 10th January,2008, another group adjustment letter dated 11th January,2008 was delivered to the Respondent restricting the adjustment to an amount not exceeding Rs 2,00,000/- of their respective accounts. . The Respondent denies the receipt of any such letter from the Applicant and claims to have exercised the right of adjustment on 23rd January, 2008 when there was a huge shortfall in her and the group account. Also, the Applicant (along with her family members) claims to have written letter on 16th January, 2008 calling upon the Respondent to square off all the open positions in their accounts as on that date or latest by 17th January, 2008. The Respondent claims not to have received this letter either and did not square off the position till 23rd January, 2008 when due to shortfall in the funds, the Respondent sold the open positions .The Applicant claims that due to the Respondent not squaring off the open position as instructed on 16th January, 2008, she has suffered a loss of Rs 572949.53. Further, there was a credit of Rs 1738240.67 in her NSE ledger account. The Respondent claims to have adjusted this amount also towards the liability of other members of the group. 9. The Applicant has submitted that the group adjustment letter dated 11th January, 2008, was handed over to one Nitin Bhingarde, a peon with the Respondent who had visited the Applicants residence on several occasions in the past also. The Respondent has denied the receipt of what it calls abogus group adjustment letter and has alleged criminal conspiracy by the Applicant along with her family with Nitin Bhingarde. The Applicant has submitted that the Respondent itself had attached the group adjustment letter dated 11th January, 2008 along with its letter dated 29th January, 2008 addressed to her. It is seen that the Applicants letter dated 11th January,2008 which has been marked as Exhibit C to the Statement of the Case , even has some hand written notings recorded on the face of the letter in the Respondents office which indicates that the Applicants letter dated 11th January,2008 had indeed been received by the Respondent. On the other hand, the allegation of criminal conspiracy by the Respondent between the Applicant and Nitin Bhingarde is not very convincing and seems to be a ploy by the Respondent to wriggle out of the liability as the said employee still continues to be in the

employment of the Respondent. It certainly defies common sense that an employer (more so if engaged in providing financial services) would retain an employee of suspicious and doubtful integrity that too after his acts of committing fraud on it had become known to it. Further, the Respondents letter dated 4th December, 2008 to the Economic Offences Wing of the Mumbai Police and its earlier filing of merely a non cognizable report with Khar Police Station of criminal offences of very serious nature seems to suggest that the Respondent was not very particular about the investigation of the matter by the police and the allegation of conspiracy was merely to create some evidence. Further, in its Written Statement, the Respondent has taken a stand that the cap of limit of Rs2,00,000/- was hand written and not signed by the Applicant and her sons; and therefore it was a fabricated document. Since the only change in the group adjustment letter made in the letter dated 11th January,2008 was to limit the liability of the members to Rs 2,00,000/-,therefore, how addition of the hand written words to that effect in the letter would make it a fabricated document has not been categorically stated by the Respondent. Further, it is seen , contrary to the claim by the Respondent, that the group adjustment letter dated 11th January, 2008 was signed by all the parties ie the Applicant, her husband and her two sons. Therefore, there is no merit in the claim made by the Respondent in this regards also. Accordingly, on the basis of the evidence on record, I accept the Applicants contention that the group adjustment letter dated 11th January, 2008 was delivered to the Respondent restricting such debits only to the extent of Rs 2,00,000/- and the Respondent was not justified in fully appropriating the Applicants funds towards the debit in of her family members account and that she is entitled to the credit of Rs 17,382,40.67 lying in her NSE F&O ledger account with the Respondent on 23rd January,2008. 10. As regards the Applicants letter dated 16th January, 2008, the trigger for the letter, according to the Applicant, was some confirmed transactions in the commodity market segment which was subsequently denied by the khar branch of the Respondent. The letter is acknowledged by Mr Nitin Bhingarde, a peon working with the Respondent. It is in evidence that he had been coming to the residence of the Applicant (this fact is even admitted by the Respondent). While this letter does not bear the seal of the Respondent, the acknowledgement of the letter by Mr Bhingarde does prove that such letter was indeed received by him for delivery to the Respondent. The second letter of the even date was written by Mr Rajesh Shah, the husband of the Applicant, on behalf of both of them, and which,in case, bears the rubber stamp of the Khar branch of the Respondent. The Applicant, in para 5 of her Rejoinder dated 3rd July, 2012, has stated that her husband had written a letter on 11th February,2008 in which point 3 is the reference to the letter dated 16th January,2008 instructing the Respondent to square off all F &O positions and enclosed a copy of the letter dated 11th February,2008 has been enclosed and marked as Exhibit C. The Respondent, in its sur-rejoinder dated 16th July, 2012 has merely denied the averment made by the Applicant and has not offered any comment on the Exhibit C to the Rejoinder dated 3rd July,2012. The averments made by the Respondent regarding the conspiracy between the Applicant and Mr Nitin Bhingarde in forging the documents has already been considered by me in para 9 above and rejected. I, therefore, accept the submission made by the Applicant that the Respondent had ,contrary to her instructions, not only squared off all her open positions on 23rd January,2008 but had also sold her shares lying in her demat account with it resulting in a loss of Rs 5,72,949.53. and allow her claim accordingly.

11. In view of my finding above, I pass my Award as under (1) The claim of the Applicant for an amount of Rs. 23,11,190.20 ( Rs Twenty three lakh eleven thousand one hundred ninety and twenty paise) against the Respondent is allowed along with interest @ 15% per annum from 18th January, 2008 till the date of payment or realization of the same. (2) The cost of the present arbitration shall be borne by the Respondent (3) This award is made in three originals; one copy for each of the parties and the third will be retained by NSEIL for its records.

MUMBAI 23 August, 2012

S C Gupta Sole Arbitrator