2025 (10) TMI 62 - HC - Indian Laws

Three interconnected arbitral awards set aside for irreconcilable contradictions; common arbitrator reached opposite findings, retired judge appointed anew

Sharekhan Ltd. Versus Arjav Jagannath Chakravarti & Ors. And Arjav Jagannath Chakravarti Versus Sharekhan Commodities Pvt. Ltd. & Ors.

The HC quashed and set aside three interconnected arbitral awards arising from NSE, BSE and MCX proceedings, finding them implausible due to pervasive, ... Arbitration award at NSE, BSE and MCX - Same arbitrator who was a member of both appellate tribunals - one at the NSE and the other at the MCX, with opposite findings - Authorisation of trades that led to the accounts ledger in the books of the broker - receipt of sms alerts and electronic contract notes by email for every trade executed on his behalf or not - opportunity to controvert any trade as and when they were executed throughout the period of the trading - voice recording of a conversation is evidence of understanding the transactions executed or not HELD THAT:- What had a ring of confidence for the learned arbitrator when interpreting the same evidence in the appellate arbitral proceedings at the NSE sounded hollow to the very same arbitrator when he sat in a different combination at the appellate arbitral proceedings at MCX. The resounding endorsement at the MCX of the case against Arjav is in fact the stance taken by the dissenting arbitrator at the NSE. The diametrically opposing views taken by the learned arbitrator who was common to both is fatal to the two awards. If his stance at the MCX appellate arbitral proceedings were to be applied at the NSE, the dissenting award would have hypothetically become the majority award. Yet, one cannot accept one version of his adjudication and reject the other, simply because the Section 34 Court is not an appellate court but a court that looks only to the limited grounds statutorily stipulated, including perversity and patent illegality. The ledger for the trades on the NSE and the BSE is one and the same, considering that the trades attributed to Arjav were executed by Sharekhan (as opposed to Sharekhan Commodities on the MCX). It is unable to accept the feeble attempt by Learned Senior Counsel for Arjav to indicate that one of the two views could be upheld by this Court with that view being applied across the board. The proceedings at the BSE present another complexity. The chartered accountant who filed Arjav’s tax returns (the husband of the authorised person of Sharekhan and Sharekhan Commodities) had been made a respondent in all the three arbitral proceedings. At the BSE, he is seen to have initially refuted the allegation that he executed the sale of the corporate bonds without instructions from Arjav, but in the next round, he appears to have helpfully led evidence that he had indeed carried out trades without the knowledge of Arjav. This change of stance is not dealt with at all in the BSE appellate award. The arbitral award of the first instance at the BSE records that the chartered accountant had strongly refuted the allegations against him – that he had carried out trades on Arjav’s behalf without authorisation. However, the very same person who refuted the allegation of trading without authorisation confirmed in appeal that the trades were indeed executed by him and without authorisation - All in all, the three awards are riddled with contradictions – primarily by a learned arbitrator who was a member of the appellate arbitral tribunals at the NSE and the MCX giving contradictory findings in assessing the very same evidence, all within a span of less than two weeks. This infects the proceedings at the BSE, where again, the appellate tribunal has taken a stand diametrically opposite to the arbitral tribunal of the first instance, in an implausible manner without explaining why the complete change of stance by the chartered accountant should be accepted. There are no hesitation in holding that all the three awards have been rendered implausible. It is not possible to segregate them from one another to save one award from the infirmities of the other awards. All the three arbitral awards deserve to be quashed and set aside. An arbitral tribunal is constituted by consent of the parties - Justice Akil Kureshi, Former Chief Justice of Rajasthan and Tripura High Court and former judge of this Court, is hereby appointed as the Sole Arbitrator to adjudicate upon the disputes and differences between the parties covered by this Application. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the presence of a common arbitrator across contemporaneous appellate arbitral tribunals who reached diametrically opposite conclusions on the same factual matrix gives rise to perversity or patent illegality under the limited review jurisdiction, warranting quashing of the awards. 2. Whether the Section 34 court may re-appreciate evidence or substitute its view for that of the arbitral tribunals where the tribunals have reached inconsistent findings across related proceedings. 3. Whether multiple arbitral awards arising from substantially identical facts and evidence can be segregated so as to save any one award from infirmity caused by contradictions in related awards. 4. Appropriate remedy where arbitral awards are found to be rendered implausible by contradictory adjudications: quash and remit to arbitration, and whether the Court may or should facilitate appointment of a consensual sole arbitrator and provide directions for further arbitration while preserving issues on merits for the tribunal. ISSUE-WISE DETAILED ANALYSIS Issue 1: Common arbitrator delivering diametrically opposite findings - legal framework Legal framework: The Court's jurisdiction under the Arbitration and Conciliation Act is confined by statutory limits (e.g., grounds under Section 34) and traditional standards of review, including scrutiny for perversity and patent illegality. Arbitrators are masters of evidence but their conclusions can be impugned where no reasonable arbitrator could have reached the conclusions arrived at. Precedent treatment: The Court reiterates the settled principle that Section 34 is not an appellate re-hearing; however, where an award is perverse or shows patent illegality, interference is permissible. The judgment treats prior authorities on narrow review parameters as binding guideposts (followed). Interpretation and reasoning: The Court analysed that a single arbitrator sat on two contemporaneous appellate tribunals and accounted for the same circumstantial evidence (post-trade confirmations, voice recording, tax returns, trade patterns) but endorsed opposite inferences in each. The temporal proximity (less than two weeks) and identical factual issues amplified the anomaly. The Court reasoned that it is inconceivable a reasonable arbitrator could consistently adopt diametrically opposite positions on the same facts in such close temporal sequence. Ratio vs. Obiter: Ratio - A common arbitrator taking mutually inconsistent positions on substantially identical evidence across contemporaneous proceedings amounts to perversity/patent illegality justifying interference under Section 34. Obiter - observations regarding motives or credibility of the arbitrator beyond inconsistency are not central. Conclusions: The presence of the common arbitrator delivering irreconcilable findings constitutes a ground of perversity/patent illegality, invalidating the affected awards. Issue 2: Scope of Section 34 review - re-appreciation of evidence vs. perversity inquiry Legal framework: Section 34 review is narrowly circumscribed; the Court cannot act as an appellate fact-finder or re-evaluate evidence except on statutory grounds like perversity, fraud, or violation of natural justice. Precedent treatment: The Court reaffirmed established jurisprudence limiting its role, emphasizing the test of whether a reasonable man/arbitrator could have reached the impugned conclusion (followed). Interpretation and reasoning: While ordinarily the Court would defer to arbitrators as masters of evidence, the Court held that where the same arbitrator arrives at mutually exclusive conclusions on the same facts across contemporaneous proceedings, the anomaly transcends ordinary disagreement and meets the threshold of perversity. The Court therefore did not re-weigh evidence to substitute its view but assessed whether the conflicting outcomes could be reconciled as reasonable choices by an arbitrator. Ratio vs. Obiter: Ratio - The narrow review permits interference where inconsistency between awards by the same arbitrator demonstrates that no reasonable arbitrator could have taken both positions; merely differing evaluations of evidence does not suffice. Conclusions: The Court may not ordinarily re-appreciate evidence, but it can set aside awards where inconsistency between contemporaneous awards by the same arbitrator amounts to perversity/patent illegality. Issue 3: Segregability of related awards and cumulative effect of conflicting findings Legal framework: Awards arising from related factual matrices may be interdependent; the Court must consider whether infirmity in one award infects others such that they cannot be severed. Precedent treatment: The judgment follows the principle that where awards are interlinked by identical factual issues and evidence, contradictions in one may render others implausible if the defects are material to outcome (followed). Interpretation and reasoning: The Court examined the transactional ledger, common modes of trade confirmation, overlapping evidence (voice recording, tax returns, sms/ECN), and the critical role of NSE findings in justifying BSE outcomes (e.g., whether bond sales were justified to cover NSE debit). Given the material interdependence, inconsistent adjudications by the common arbitrator at different exchanges infected the entire set of awards. The Court also noted unexplained changes in witness stance not addressed in appellate reasoning, further undermining plausibility. Ratio vs. Obiter: Ratio - Interconnected awards based on the same evidence cannot be disentangled where contradictory findings by arbitrators materially affect outcomes; such awards may all be set aside. Conclusions: The three contemporaneous awards were inseparable in infirmity and thus all deserved to be quashed. Issue 4: Remedy - quashing awards and reconstitution of arbitration by consent; Court's powers to facilitate arbitration process Legal framework: Where awards are set aside under Section 34, the Court may remit parties to arbitration or allow re-arbitration. Parties may by consent appoint arbitrators and the Court can record procedural directions to facilitate a fair and expeditious resolution without expressing views on merits. Precedent treatment: The judgment aligns with the supervisory role of the Court to ensure arbitration efficacy and to permit parties to agree upon arbitrators and procedures; such facilitation does not decide merits (followed). Interpretation and reasoning: Considering the long delay and parties' joint consent, the Court appointed a sole arbitrator by consent, set procedural directions (disclosure under Sections 11(8)/12(1), communication particulars, preservation of deposited monies, waiver of fresh pleadings), and explicitly kept merits open for the arbitrator. The Court stressed that its order is limited to remedying procedural and legal infirmity and not an expression on merits. Ratio vs. Obiter: Ratio - Where awards are quashed for the reasons stated, the Court may, with parties' consent, facilitate constitution of a new tribunal and give directions to expedite re-hearing while preserving merits for the tribunal. Obiter - Specific procedural preferences (e.g., sole arbitrator identity) are situation-specific. Conclusions: The appropriate remedy was to quash all impugned awards and permit re-arbitration before a consensually appointed sole arbitrator on the existing record with directions to conclude proceedings expeditiously; interim deposits to remain subject to the outcome.