The Bombay High Court has set aside concurrent arbitral awards directing refund of ₹2 crore to an investor, holding that the findings were vitiated by failure to consider vital evidence going to the root of the dispute. Justice Somasekhar Sundaresan has observed that:
“That vital evidence that cuts to the root of the matter is ignored, would lead to patent illegality of an extent that warrants interference. Merely because there are two concurrent findings in the two-tier arbitration that has been conducted, the check and balance under the Section 34 jurisdiction would be no less a check and balance.”
The dispute arose from trades executed in a securities account opened by the respondent through a broker and sub-broker. While the arbitral tribunals held that the trades were unauthorised and directed refund of the entire investment with interest, the broker challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996.
Allowing the challenge, the High Court held that although arbitral tribunals are the final judges of evidence, interference is warranted where vital evidence is ignored in a manner that renders the findings perverse. It noted that the respondent’s own statements before the Economic Offences Wing (EOW), indicating that she had authorised a third party to trade on her behalf, were not considered by the tribunals.
The Court found that this material went to the core issue, whether the trades were authorised, and could not have been brushed aside as irrelevant merely because the complaint was filed after the transactions. It observed that excluding such evidence resulted in a failure to adjudicate the real controversy.
The Court further held that the tribunals adopted a simplistic approach by treating absence of formal authorisation as determinative, without examining whether authority could be inferred from conduct and surrounding circumstances.
On the issue of income tax returns, the Court noted that rejecting their production solely on the ground that they were “private papers” was flawed, particularly where they could indicate the party’s contemporaneous stance regarding the transactions.
“Indeed, the tax returns would have contained other information not germane to the stock market trades. Such information could have been redacted to protect the privacy.”
The Court reiterated that an arbitral award is liable to be set aside where it is based on no evidence or where vital evidence is ignored, amounting to patent illegality.
In view of these findings, the Court quashed both the original and appellate arbitral awards, leaving it open to the parties to pursue fresh arbitration in accordance with law.
Appearances
Mr. Pesi Modi, Senior Advocate, a/w Ms. Kalpana Desai, Mr. Pranav Nair, Mr. Abhineet Sharma & Ms. Riya Gokalgandhi, i/b Chambers of Abhineet, for the Petitioner.
Ms. Shreya Gupta, a/w Ms. Swagata Ghosh, i/b Shardul Amarchand Mangaldas & Co. for the Respondent No.1.
