TaxTMI 
TaxTMI 
2025 (7) TMI 277
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....er of Rs. 2.25 crores against the respondent No. 1. 2. In the present case, the respondent No. 1 is the stock broker, respondent No. 2 is the National Stock Exchange of India Limited (for brevity "the NSE"), the respondent No. 3 is the Arbitration Department of the NSE and the respondent No. 4 is the Securities and Exchange Board of India (for brevity "the SEBI"). FACTUAL BACKGROUND 3. The brief facts of the case as per the pleadings are that on 13.07.2007, the petitioner entered into a Member Client Agreement (for brevity "the MCA") with the respondent No. 1. According to the MCA, the petitioner, being "the client", agreed to invest and trade in securities, contracts and other instruments admitted for trading on the NSE. The MCA also allowed the petitioner to trade in the derivatives segment and enter into derivative contracts through the respondent No. 1, being "the stock broker". 4. In 2007, the petitioner opened its trading account with the respondent No. 1. From September 2010 to June 2011, the petitioner, with the client ID No. PP 14 RG 012, traded in Nifty Futures through the respondent No. 1. The petitioner deposited a total of Rs. 1,46,00,000/- into the trading....
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....the impugned arbitration award on each of the issues and grounds raised by the petitioner in the grounds of appeal, pleadings and submissions. Further the petitioner may kindly be awarded interest from 01.11.2013 till the final date of disposal of this application of the petitioner along with the cost of arbitration proceedings both at the original and appellate stage held in the National Stock Exchange Limited, New Delhi and the costs involved in pursuing this application. ii. The kind directions of the Hon'ble Court may be issued to the National Stock Exchange Limited, Mumbai and New Delhi to provide all the information sought by the petitioner which is essential to determine the claim of the petitioner. If the respondent broker and the exchange fail to provide the factual details vis-a-vis the prevailing position of substantive law contained in the rules, regulations, orders, notifications etc. issued by the market regulator SEBI and in pursuance thereof by the exchange in terms of the said trading regulations then it is impossible to settle the subject matter of dispute through arbitration as per the present law in force as contained in sub clause (i) of clause (b)....
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....tted that the legal maxim "sublato fundamento cadit opus", as established in Kanwar Singh Saini v. High Court of Delhi, (2012) 4 SCC 307, is applicable in the present case, asserting that once the foundational award is removed due to lapse of time, any derivative or appellate award loses its legal basis. 14. Consequently, both the Original and Appellate awards are deemed void and the arbitrators, having become functus officio due to time lapse, no longer possessed the legal mandate to decide on the matter in both the original arbitral proceedings as well as the appellate arbitral proceedings. 15. Reliance is placed on the decisions of the Hon'ble Supreme Court, in Pathapati Subba Reddy (Died) by LRs & Ors. v. The Special Deputy Collector (LA), 2024 INSC 286, Shri Mukund Bhavan Trust & Ors. v. Shrimant Chhatrapati Udayan Raje Pratapsinh Maharaj Bhonsle & Anr., Civil Appeal No. 14807 of 2024, Order dated 20.12.2024 and H. Guruswamy & Ors. v. A. Krishnaiah since deceased by LRs, 2025 INSC 53, wherein it has been reiterated that the law of limitation is a matter of public policy, mandating fixed periods for litigation to end. 16. The Hon'ble Supreme Court in NBCC Limited v. J.....
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....ally obligated under the NSE Regulations, specifically Clause 3.4 and Clause 5.13A, to maintain and provide these records. The failure to do so, coupled with the neglect of the arbitrators to call and verify these critical documents, as also outlined in their appointment letters, has resulted in biased and collusive award that favor respondent No. 1, thereby compromising the integrity of the arbitration process. The petitioner contends that this omission is a clear violation of Section 34(2)(b) Explanation 1(i) of the Arbitration Act. Standard Operating Procedures: 22. The petitioner argued that the branch of respondent No. 1 and its employees have not been approved or recognized by the NSE; the respondent No. 1 has failed to furnish information despite repeated requests. The respondent No. 1 did not comply with the Standard Operating Procedures (for brevity "the SOP") or Clauses 2.1.2, 4.1.1 and 4.2.1.(b) of the NSE Regulations for operating a branch and for having NCFM-qualified employees/dealers. Further, the NSE, which should ensure compliance, has not provided the requested details and appears biased, acting as a spokesperson for the respondent No. 1 and arbitrators. The....
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....senting recordings from four days does not suffice to validate all the trades executed in the account of the petitioner. It emphasizes that every trade must be supported by unequivocal, documented consent of the client. The reliance of the arbitrators on a limited, allegedly manipulated sample of recordings is stated as a distorted interpretation that disregards the lack of written evidence. This approach violates natural justice principles and prescribed code of conduct by the SEBI for arbitrators. Contract Notes, Quarterly Statement of Accounts, Daily Margin Statements etc.: 25. The petitioner contended that the respondent No. 1 violated the regulations, notably the SEBI Circular No. MIRSD/SE/Cir-19/2009 dated 03.12.2009 and NSE Circular No. NSE/INSP/2010/91 dated 03.02.2010, by entering derivative trades without obtaining the specific option of the petitioner through written authorization. According to the petitioner, derivative trades form an independent class requiring clear and confirmed orders and the failure of the respondent No. 1 to provide proper disclosures or verify the instructions of the petitioner renders the trades unauthorized. In addition, the respondent No....
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....ned appellate award is invalid because it violates substantive law, the terms of the contract and the public policy of India. It is contended that the award is driven by fraud, corruption and institutional inefficiencies and that the arbitrators exceeded their jurisdiction by rewriting the contract and ignoring evidence. It is stated that the award is violative of Sections 28(1), 28(3) and 34(2)(b)(ii) of the Arbitration Act. The petitioner argues that the award is vitiated by patent illegality, as the appellate arbitrators dismissed the grounds of appeal without proper consideration. 28. It is further submitted that respondent No. 1 has committed blatant violations of the MCA which outlines that both parties must adhere to the NSE Bye-Laws, the NSE and SEBI Regulations and relevant government notifications. The violations include not reconciling accounts periodically, not providing mandatory daily activity logs and not maintaining acknowledged duplicate copies of contract notes as required by SEBI and the NSE Regulations. It is also asserted that the respondent No. 1 carried out unauthorized trades in an inactive account, illegally retained funds and securities and disregarded ....
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....icipants in the matter, despite claiming otherwise. 34. It is stated that the NSE is acting in collusion with the respondent No. 1 by seeking dismissal of the present petition, despite being responsible for managing arbitration and regulatory compliance. This amounts to misconduct and a failure to act as a neutral regulatory authority. 35. The arbitration in question is described as institutional and mandatory, conducted under the rules of the NSE approved by the SEBI. It is stated that the NSE, being the custodian of all arbitral records, must assist the court in understanding and verifying the process required to be adhered to. SUBMISSIONS ON BEHALF OF RESPONDENT NO. 1 The Appellate Award is not time barred. 36. The petitioner contended that the Appellate Award issued on 31.07.2015, is null and void because it was rendered beyond the time limits set by Bye-Law 19(b) of the NSE Bye-Laws. The petitioner argues that the Appellate Tribunal is functus officio, meaning it no longer has the authority to act and therefore, the award should be considered invalid. 37. It is pertinent to note that the Appellate Tribunal was appointed on 11.09.2014 and was required to dispo....
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....iewed contract notes, quarterly statements, and other relevant documents, concluding that the petitioner had received the necessary documentation and was aware of the terms and conditions of the trading account. The tribunal noted that the petitioner deposited a significant amount shortly after opening the account, indicating knowledge of the trading activities. 45. In paragraph 7 of the Appellate Award, the Appellate Tribunal noted that the respondent No. 1 had the right to square off positions if the petitioner failed to meet margin requirements, as stipulated in the MCA. The tribunal found that the respondent No. 1 acted within its rights under the MCA. 46. In paragraph 8 of the Appellate Award, the Appellate Tribunal examined audio recordings of conversations between the petitioner and the representatives of the respondent No. 1, confirming that the petitioner did not deny the authenticity of these recordings. The tribunal dismissed the claims of the petitioner that the recordings were manipulated, stating that they were relevant to the case. 47. In paragraph 10 of the Appellate Award, the Appellate Tribunal determined that the respondent No. 1 did not breach any appli....
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....hone Recordings: 52. The petitioner asserted that only four transcripts of phone conversations between him and the broker were submitted, claiming that these do not accurately represent the situation and suggesting that other recordings have been destroyed or concealed. The respondent No. 1 clarifies that the Original Tribunal specifically directed the production of sample recordings/transcripts, which is why only the transcripts for four days were provided. There was no requirement from the tribunal to produce all transcripts related to every trade executed by the petitioner. Written Consent of the Petitioner: 53. The respondent No. 1 refuted the claim of the petitioner that written consent was not obtained prior to executing transactions, asserting that such consent is not strictly mandated under the relevant regulations. Regulation 3.4.1 of the NSE regulations states that trading members must obtain "appropriate confirmed order instructions" from clients before placing orders on the NEAT system. However, it does not explicitly require these instructions to be in written form. Regulation 17(j) of the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 (for brevity "th....
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....at he failed to meet the margin requirements. Therefore, the respondent No. 1 was justified in squaring off the positions to mitigate risk. The respondent No. 1 asserts that the petitioner was informed about the squaring off of the positions, which aligns with the terms of the MCA. Furthermore, the respondent No. 1 claims that there was no violation of Regulation 3.10(a) of the NSE Regulations because the margin was collected from the petitioner. The transaction was closed due to the non-payment of daily settlement obligations by the petitioner, in accordance with Regulation 3.10(b) of the NSE Regulations. SUBMISSIONS ON BEHALF OF RESPONDENT NO. 2 AND 3 NSE is neither a necessary nor a proper party to the present proceedings. 56. The respondent No. 2 and 3 argued that the NSE is neither a necessary nor a proper party to the current proceedings under Section 34 of the Arbitration Act. 57. The dispute arose solely from the MCA between the petitioner and the respondent No. 1, in which the NSE is not a party. Therefore, the involvement of the NSE in the proceedings is unwarranted. 58. The respondent No. 2 and 3 submitted that the NSE has already complied with the relief ....
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....timelines for concluding reconstituted arbitration proceedings. 64. In compliance with an order dated 24.08.2018 passed by this Court, the NSE filed an affidavit on 02.11.2018, explaining the situation regarding the Appellate Arbitral proceedings. The affidavit noted that both parties had no objection to the same panel of arbitrators being reconstituted. 65. The respondent No. 2 and 3 argued that both parties were aware of the expiration of the time period for the Appellate Award and consciously approved the reconstitution of the same panel of arbitrators, as evidenced by the letter of the petitioner dated 28.01.2015. 66. The respondent No. 2 and 3 emphasized that there is no provision in the NSE Bye-Laws for the automatic termination of the arbitral tribunal upon the expiration of the mandate of the arbitrator. SUBMISSIONS ON BEHALF OF RESPONDENT NO. 4 SEBI is neither a necessary nor a proper party to the present proceedings. 67. The respondent No. 4 asserted that SEBI is not a necessary or proper party to the proceedings, as the dispute arises solely from the MCA between the petitioner and the respondent No. 1, with SEBI not being a party to this agreement or th....
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.... of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice. Explanation 2.-For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute. (2-A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award: Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence." 74. In Delhi Metro Rail Corporation Limited (supra), the Hon'ble Court endorsed the position in Associate Builders (supra) and Ssangyong Engg. & Construction Co. Ltd. (supra), on the scope for interference with domestic award under Section 34 of the Arbitration Act. The relevant paragraphs reads as under: "39. In essence, the ground of patent illegality is available for setting aside a domestic award, if the decision of the arbitrator is found to be perverse, or so irrational that ....
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....2014 till 10.02.2015. On 21.01.2015, the respondent No. 1 wrote to the respondent No. 3 giving its consent for re-constitution of the Appellate Tribunal. A letter dated 28.01.2015 for re-constitution of the Appellate Tribunal after 10.02.2015 was also signed by the petitioner. The Appellate Award was issued on 31.07.2015. 78. Clause 6.5 of the SEBI Circular dated 11.08.2010 reads as under: "6.5 The appeal shall be disposed of within three months from the date of appointment of appellate panel of such appeal by way of issue of an appellate arbitral award." 79. Bye-Law 19(b) of the NSE Bye-Laws reads as under: "19 (b) The Appellate Arbitrator shall consist of three arbitrators who shall be different from the ones who passed the Arbitral Award appealed against and such Appellate Arbitrators shall dispose of the appeal by way of issue of an Appellate Arbitral Award within three months from the date of appointment of the Appellate Arbitrator." 80. Clause 6.6 of the SEBI Circular dated 11.08.2010 reads as under: "6.6 The Managing Director/ Executive Director of the stock exchange may for sufficient cause extend the time for issue of appellate arbitral ....
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....d) 85. The Hon'ble Supreme Court in the case of Pathapati Subba Reddy (Died) by LRs & Ors. (supra) has held as under: "7. The law of limitation is founded on public policy. It is enshrined in the legal maxim "interest reipublicae ut sit finis litium" i.e. it is for the general welfare that a period of limitation be put to litigation. The object is to put an end to every legal remedy and to have a fixed period of life for every litigation as it is futile to keep any litigation or dispute pending indefinitely. Even public policy requires that there should be an end to the litigation otherwise it would be a dichotomy if the litigation is made immortal vis-a-vis the litigating parties i.e. human beings, who are mortals." 86. Further, the Hon'ble Supreme Court in the case of H. Guruswamy & Ors. (supra) has held as under: "17. We are of the view that the question of limitation is not merely a technical consideration. The rules of limitation are based on the principles of sound public policy and principles of equity. No court should keep the 'Sword of Damocles' hanging over the head of a litigant for an indefinite period of time." 87. In NBCC Limited (supra), th....
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.... must be concluded expeditiously. Counsel for the respondent had submitted that this Court should examine and go into merits and demerits of the claims and counter claims with reference to the written submissions, claim petition, reply, document etc. for deciding whether the award is justified. In other words, counsel for the respondent wanted the Court to step into the shoes of the Arbitrator or as an appellate court decide the present objections under Section 34 of the Act with reference to the said documents. This should not be permitted and allowed as it will defeat the very purpose of arbitration and would result into full fledged hearing or trial before the Court, while adjudicating objections under Section 34 of the Act. Objections are required to be decided on entirely different principles and an award is not a judgment. Under the Act, an Arbitrator is supposed to be sole judge of facts and law. Courts have limited power to set aside an award as provided in Section 34 of the Act. The Act, therefore, imposes additional responsibility and obligation upon an Arbitrator to make and publish an award within a reasonable time and without undue delay. Arbitrators are not required t....
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....nder Bye-Law 7(b) of the NSE Bye-Laws otiose. Bye-Law 7(b) reads as under: "(b) in the opinion of the Relevant Authority, the arbitrator becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay including failure to make the arbitral award within the time period prescribed by the Relevant Authority. Such a decision of the Relevant Authority shall be final and binding on the parties;" 92. It can be inferred that the NSE Bye-Laws aim to prevent undue delay and thus, prescribe for time limits as well as consequence of the non-compliance with such timelines. Merely inaction of the relevant authority (being NSE and SEBI) will not legitimize the delay on behalf of the Appellate Tribunal. 93. The decision of the Hon'ble Supreme Court in Harinarayan G. Bajaj v. Rajesh Meghani, (2005) 10 SCC 660 (para 15), highlights that "the arbitration proceedings as provided in the Bye-laws and Regulations are subject to the provisions of the Arbitration and Conciliation Act, 1996, to the extent not provided for in the Bye-laws and Regulations [Bye-law (14)]" and further outlines that the disputes "shall be submitted to arbitration i....
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..... There is no provision to raise objection to the constitution of the Arbitral Tribunal except Sections 14 and 15 of the Act. But, once the Arbitration is closed for award, that stage also goes and the parties have no choice but to wait for the award. There was no reason and/or occasion for the respondent to raise any such objection before the Arbitrator under Section 16 of the Act and/or even before the Court under Section 14 of the Act. Once the matter is closed for judgment/order, a call for stamp-paper is nothing, but a ministerial procedure. It cannot be stated to be judicial proceedings to be attended by all the parties. Even otherwise, how party can presume that the arbitrator would not follow the mandate of the arbitration agreement, once the agreed period is over. The arbitrator could have and/or might have, after expiry of two years, and as extendable by consent one year more, refused to pass Award or terminated the arbitration proceedings suo motu. Any judgment and/or order cannot be presumed or assumed by the parties after closing of the matter unless actual order is passed and/or circulated to the parties. 32. The delay by the Arbitrator, to pass the award in ....
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....Limited (supra) highlighted that even though the Arbitration Act (pre-amendment 2015) does not prescribe a strict fixed period for rendering awards, arbitrators are obligated to convene and conclude proceedings expeditiously. The relevant paragraphs are extracted as under: "46. Merely because the Act does not fix a time limit within which the arbitral tribunal should render its award, it does not mean that the tribunal can display a casual or non-serious approach in the matter of conduct of the arbitral proceedings. It is the tribunal which has to control the proceedings by laying down definite times lines and by enforcing strict adherence to them. Of course, there may be occasional and genuine exceptional situations, when those times lines may be relaxed in the interest of justice and fair play, but by and large, those time lines should be strictly enforced even handedly and consistently by the tribunal. 47. The reason why the act does not lay down a fixed time within which the tribunal should render the award from the time of its entering upon the reference is not to set the arbitral proceedings at large and give an unlimited time to the tribunal to conclude the....