Madras High Court Upholds ₹48.77 Lakh Award Against Angel One Over Illegal Squaring Off Of Client's Shares

The Madras High Court has upheld an arbitral award directing Angel One Limited to pay Rs 48.77 lakh with interest to its client, holding that the squaring off of shares by the broker was illegal.

The court found no ground to interfere with the award under the limited scope of a challenge to an arbitral decision.

Justice N. Anand Venkatesh said the sole arbitrator's conclusion was based on a proper appreciation of evidence. The court made clear that it could not re-examine the merits merely because another view was possible.

"This finding of the sole Arbitrator to the effect that the squaring off done by the petitioner on 21.1.2016 was illegal is certainly a possible view on appreciation of evidence. Just because there is a possibility of taking a different view based on the evidence available on record, that cannot be a ground to interfere with the finding and the law on this issue is too well settled.", it said.

The dispute relates to events in January 2016. Angel One squared off the client's securities on January 21, citing a margin shortfall. The client's case was that he had been repeatedly asked to fund the account. He issued a cheque of Rs 20 lakh on January 18, 2016. That cheque was initially given credit and reduced the margin shortfall.

The client also claimed that a further cheque of about Rs 12 lakh was issued on January 20, 2016. Despite this, the broker proceeded to square off the shares. The client said the shares were sold at lower prices and that he suffered a loss of ober Rs 48 lakh.

The dispute first went before an arbitrator under the National Stock Exchange mechanism, resulting in an award in October 2016. That award was later set aside by the High Court in 2021, after which a sole arbitrator was appointed by consent of both parties.

Before the Court, Angel One relied on the agreement signed with the client. It pointed to a clause that allowed the broker to square off positions in the event of a margin shortfall. The company also referred to automated margin messages sent to the client, arguing that these amounted to sufficient notice.

Angel One further submitted that even after giving credit for the Rs 20 lakh cheque, there was still a debit balance, which entitled it to act under the contract.

The Court noted that the sole arbitrator had closely examined the sequence of events between January 18 and January 21, 2016. It recorded that the arbitrator found the automated margin messages did not reflect the actual account position.

They could not be treated as valid notice before squaring off the securities. The arbitrator also examined Angel One's own risk management policy and found that the prescribed sequence for squaring off was not followed.

The court accepted this reasoning and saw no reason to interfere with the award. On the question of compensation, it noted that the arbitrator had relied on the loss calculation set out in the claim statement, which Angel One had not seriously disputed.

The court also upheld the award of interest at 9% per annum from January 21, 2016, saying it was in line with Section 31(7)(a) of the Arbitration and Conciliation Act. The petition was dismissed with costs of Rs 1.5 lakh.

For Petitioner: Advocates G. Surya Narayanan and Jayasudha Surya Narayanan (For Angel One)

For Respondent: Advocates B. Arvind Srevatsa