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... Trading Member / Respondent

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IN THE MATTER OF ARBITRATION UNDER THE BYE-LAWS,RULES AND REGULATIONS OF NATIONAL STOCK EXCHANGE OF

INDIA LIMITED & ARBITRATION AND CONCILIATION ACT, 1996

ARUN BALAJISOLE ARBITRATOR

ARBTTRATTON (AM) NO. NSECRO/002267OI20-21 ilSCilcRp/ARB

BETWEENMr. Mahendran Paulraj218212, Thengapattinam RoadVeftumani Marthandam WC NallurKanyakumari - 629165PAN No. BDGPM3913c

d M/s. Prabhudas Lilladher Private3d Floor. Sadhana House

f, szo, p.e. Marg, worliMumbai - 400018

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ilFf{rg rAI\,IILNADU \ . \' 2. o- r BB 226891

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FACTS OF THE CASE

The applicant opened a trading account with the respondent in May 2020,having unique account code no. 832E349. As per the account openingforms signed electronically, the applicant has opted for Cash market, F&Oand commodity F&O under both NSE and BSE.

The applicant has opted for availing facility of Internet trading/ wirelesstechnology as per the account opening forms electronically signed by theapplicant. As confirmed by both the parties, the login credentials for theinternet trading was provided to the applicant subsequent to accountopening.

As per the Client Ledger statement produced, the applicant transferred asum of Rs.1,00,0001 (Rupees one lakh only) on 06-05-2020 as initialinvestment in the trading account. The Client ledger indicates that tradeshave been canied out during the period 08-05-202Q to 21-08-2020resulting in a debit balance of Rs.219.71 as on 21-08-2020. On 28-09-2020, the applicant has infused Rs.220l- thereby bringing the ledger

,----e=:

balance to 0.29 credit.

,A^g4a

4. As per the ECN log produced, the electronic contract notes have been

."ni Uy the responJent periodically to the registered email id of applicant

"r'|.-"srl"r basis. Further, sMS log indicates that the details of trade by

*"v-iistvts t", been sent to i=he registered mobile number of the

ap6ticant. This has not been disputed by the applicant'

5. The applicant had initiated a complaint with the NSE on 25-09-2020- ,"g"rding the trading member, claiming an amount of Rs"l '00'000/- from

inEi"tpina"nt, citiig thai ail'tne tradis carried out were unauthorised

"nO "& done'by trlm. Consequently, the NSE had initiated IGRP

proceedings

6. The GRC meeting was held on November 17 ' 2o2O wherein the GRC

member has dismisseJthe claim of the Applicant' The GRC member has

oOserveO that the appticant accepted to have shared his login credentials

for the online traOing ;count, to the officials. of the respondent' for

;;t;i.g protit in traoin! lransactigtt:Ihit is desoite the fact that the

applicant has acknowleig"d th" Risk Disclosure Document at the time of

"[i"t.t opening, wtt"i"iilt it explicitly stated.that the applicant is solely

responsible for transactioni "x"clteo

irnoer his login and the credentials

should not be revealed to third parties'

7. Aggrieved by the order of the GRC, the applicant has approached NSE

for Arbitration proceedings claiming an amount of Rs'1'00'000/- from the

resPondent

8. Both the parties have made written submissions and rejoinders before the

hearing date'

9. The Arbitration proceedings was conducted via video conferencing mode-

tni"rgh Mi.ros6tt f""ms"software on March 22' 2021' attended by.the

applicant directly, respondent tnrough their authorised representatives

(crouo Heao-t-egar,'AVP-Chennji Branch and Regional Head-

bl'.,ti"t;F; miaerateo bv Mr' Ramakrishnan from NSE'

10.|nthecourseofhearing,bothpartiessubmittedtheirarguments.Further'the Respondent *"t "ix"J

Ui the Arbitrator to.submit the policy/ affidavit

document taken tromltt "mpioyees

in relation to the code of conduct and

dealings with clients. i'UsJqu6ntfy' the relevant affidavit was circulated

through the NSE.

11. Subsequent to the hearing, the applicant has sent his email submissions

dated 23-03-2021 ;;J i'-03-2021' The .respondent oro'vtd-e^d- t!9

response to the atorlslid a-pplit;;i submissions dated 26-03-2021' All

the'above submissions have been considered'

l2.Theapplicantc|aimsthathissubmissionofa.screenshotofa..Whatsapp''chat dated May 7rn, Z'OiO J"J S"ptember 101h' 2020 is between him and

one Ms. oeepa, emJ[-y"" oi tn"'t"tpondent The chat indicates sharing

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.rAvt"t"'P t'

of a password to the employee and the intention,of the employee to start

tt"Oihg. The chat furtherindicates apologies made by the employee. after

mahn! tosses while trading. The applicant submitted that he was tricked

into "o."rprorising

his SMART login credentials without knowing that the

same ciedentiali are used foi trading also. The applicant further

submitted that the respondent ought to have security measures.like one

fime passwora (oTp) before tradl execution and allowing trading only

ifrrorbn the mobile phone of the applicant, to prevent unauthorised

irad;i The applicant also submitted that the employees of the

resoo-nOent resoried to arbitrary trading to earn higher commissions for

the respondent and hehce the latter is liable for the same'

13. The respondent submitted that though one Ms Deepa was an employee- of tn" ,"tpondent (currently not in service), the supposed chat between

the applicint and her, cannot be authenticated or taken as evidence since

if," tetponO"nt had not provided any mobile number/ phone to Ms'

beepa.'Further, the "Risk Disclosure DocumenU Rights & obligations of

itoci< brorers, sub-brokers and clients" acknowledged by the applicant at

the time of account ofening clearly states that the applicant should "not

r."*"r tn" password io any-tniro party including employees and dealers

oi tne stoct brokei'. The respondeni further submitted that though the

applicant was receiving the eleclronic contract notes (ECN) and

iransaction SMS on daily-basis, he did not raise any complainU objection'

The respondent also submitted that its systems and process are in line

with the requirements of the exchange and SEBI' with regard to security

measures.

II. OBSERVATIONS

oncarefu|perusa|ofthesubmissionsofboththepartiesandinthecourseofhearing proceedings, the following observations arise:

1 . At the time of account opening' all the forms and documents produced by

any traoing memuer snoutd 6e carefully read by the constituent before

iig'ti.g- tiis notos true for any signed document' A signed document

becomes an executed contract and both the parties are bound by it' Any

future claim ot ignorance of clauses in the signed forms/ document' is bad

in law. The appiicant ought to have been aware of the Risks of operating

a wireless tecnnotogy biseo trading accou-nt and his duty to secure the

login credentiats prwiOeO. The document of the respondent clearly states

that the ctient snourJ not reveal the password to any third party including

ii, "tpfoy""t.

ff,e teievanl cfause fiom the Rights & obligations of Stock

Brokers,'Sub-brokers and Clients is reproduced below: ^I r, ll /\

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ulhe CltentsDafi [e reponsible fat keeplng the l]semame and Password

confidental atd securc attd shalt be sotcly responslble ior elt orelert

entered and tansactfong don e by any person whosoever lhro{'g" ltte S(ock

brofels |8f Sys l*r uslng thc Cllent's Usemam e and/or Password whethu

ornotslchPe,ljonyAr'auhorizedtodoso.A'sothec|ientlsawarethatauthenticeton tecinologros and strict secud'y measures are rcgulrcd lor

thc Intenettadingl s*utities trading through wireless lechnology lhrough

ordur routed sysfem and undedakes to ensuro that the password of tlte

ellent an&or his authortzed rcpresentetlvl an not rovezled to any thlrd

party including employe* and dealers of Oc slack broker'o

"theCtiilrtEhalllmmedialelvnottlvthestockbrokerlnwritingifhofargctslrispasswor4drcoveissecurityflattlnSlockBrolre/s'8fS'€te'n'discovers/suspects dlscrepanclesl unatihori:ed accegs through his

usetnamey'Password/accountwithtultdetatbofsuclrunattthorizeduse'the

data, tha mannilr and thc tratsacf'otts eftec'ted pursuant !0 suctl

unauthoized use,etc"ufhe Client ls lully avare ot ud understands lte rlstrs assoctaled with

aval|ingolase.ryicetorroutingordersovetthetnternet/s*uritiestading

mrougn wirsress technology and Ctient ehall ba lutty ttabte and responsible

toranyandal|acrsdonelnthectien|,gUsernarrrer'prsswordinu|yma,nef

rhalsoeyor."

2.Passwordisa..sensitivepersonaldata',asdefinedunderthe|nformation- Technology (Reasonabli Security Practices

- and Procedures and

Sensitive-Personal Data or Informaiion) Rules, 2011. Once a password

hasbeencompromisedbytheownertoathirdpartyoutof.theformelsfree will, no protection can be accorded under the law lt is clear from the

"ppfi."nt't d*n submissions that the trading password was compromised

to one Ms. Deepa for trading on his behalf'

3. lt appears from the submissions of the applicant that he was not

conversant with the stock market and that he believed by that the

emf Oyee ot tne respohdent can trade on the applicant's behalf and make

orofits. The applicant ought to have understood the nuances of the stock

;;;k;i ;.;;.sociated iisks before opening a trading account with the

i".ponO"nt. Pleading ignorince and relying-on 11" t-k]ll,:t-l:.dgement of

,A"

tnirO p"t.on c"nnol be a ground for protecting the applicant'

4.Animportantpointwhicharisesisthattheapp|icantc|aimstohavedisc|osedine foiin credentials in good faith to an employee of the respondent' for

ii"aind on his behalf. The applicant seems to have trusted the employee and

atso UltieveO that disclosing the password to an employee tantamount to

disclosing it to the respond6nt itself Consequently' the applicant believed

tn"i tn" ,i.pondent being an established stock broi<er will supposedly take

care of the tracling ""t-iuiti".

and earn profits for the applicant' Even

ai"uting the abov-e to be true, the applicant's belief and trust cannot be

lrounA t6 make the respondent liable when there was a clear direction by

[he respondent not to sirare the password even.with its employees' at the

iime of'account opening. Hence' the respondent cannot be said to be in a

iiorii"ry capacity in this case on the basis of employer-employee

relationshiP.

5.Theapplicant'ssubmissionsregardingOTPandnotallowingtradingfromdevices other than applicant's mobile phone, are welcome measures for

impiementation which can be recommended to SEBI/ NSE However' the

reioondent has followed the recommended security measures/processes

mandated by SEBI and NSE and there is no lapse

6. Based on the above points, it is clear that the respondent has neither carried- oui""V unauthorised trades in the account of the applicant nor committed

any otner wrongdoings' Hence, there is no reason to penalise or levy any

claim on the respondent

7. However, any employer is morally respons'rble for any misdeeds of' ;il|"y;;t, t'hougn sufficient caution and disclaimer has been given

clients.

tII. AWARD

In view of the foregoing submissions' documents submitted and on the basis of the

above observations, the following award is passed:

. The claim of the applicant is dismissed since there is no unauthorised trade

by the respondent and no amount is payable by the respondent to the

applicant. Sufficient training to employees' monitoring dealings between employees

and clients and strict ""iiln

ior violation of folicies needs to be enforced by

ihe respondent to avoid similar instances in the future'

This award has been prepared and signed by the Sole Arbitrator and then

Dronounced on this 13th day ofApril 2021 al Chennar'

-N*J- o

ARUN BALAJI ASOLE ARBITRATOR

itsto

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