ANGEL BROKING PRIVATE LIMITED Vs. SUNIL NAGAR

JUDGEMENT

(1.) THE Petitioner, a trading member, originalRespondent has challenged award dated 29 August 2009 passed by the Sole Arbitrator appointed by the National Stock Exchange of India Limited (for short, NSEIL), in the matter of Arbitration under Byelaws, Rules and Regulations of the NSEIL.

(2.) THE operative part of the award is as under:

(3.) ON 17 October 2008, at the opening of the market the Respondent had credit balance of Rs.4,08,016.21 and margin shortage of Rs.1,92,859.52 in respect of the outstanding open positions after the accounting for the credit balance. The Respondent was continuously was in margin shortfall from 26 September 2008. The Respondent sold 195 lots of NIFTY Put Option at a strike price of Rs.4500/ and earned the premium of Rs.1,34,75,525/ and thereby exposed itself to unlimited market risk without having the requisite margin in his account. The Respondent also bought 1 lot of NIFTY Call Option at a strike price of Rs.3400/ and 3 lots of NIFTY Put option at a strike price of Rs.3200/ and paid total premium of Rs.32,425/ as a result of which net premium of Rs.1,33,56,933.47 was credited to his ledger account. The trade of the Respondent accounted for about 41% of the total NIFTY Put Option sold on the exchange. The software was having some glitches which allowed, the premium earned on options sold erroneously, being taken into account for further limits. Thus, on account of this, the limits available to the Respondent automatically increased. The Respondent, realizing that the system was permitting enhanced limits on premiums earned, went on selling options without any regard to the risk exposure and in the process sold 9750 (195 lots) Nifty Puts for Rs.1,34,75,525/. Even after taking into account premium earned on 17 October 2008 from the sale of NIFTY Puts for margin purpose, which is not permissible, the Respondent was still liable to pay a margin of Rs.49,19,952.85 at the close of the market on 17 October 008. Against the above liability of the Respondent towards margin payment to the tune of Rs.1,86,84,902/, the Petitioner only had an undated cheque issued by the Respondent for Rs.10 lacs. This cheque was taken from the Respondent during his trades with the Petitioner. The Respondent on request for payment of margin instructed the Petitioner to present the said cheque for Rs.10 lacs which, however, bounced on presentation. The Respondent promised to make the payment on the following day i.e. 18 October 2008 and instructed the Petitioner to get the cheque collected from his residence address before 6.00 p.m. on 18 October 2008.