An appeal was filed before the Delhi High Court under Section 37 of the Arbitration and Conciliation Act, 1996 (A&C Act) read with Section 13 of the Commercial Courts Act, 2015, to assail a judgment dated 24-12-2024 by the District Judge, Dwarka Courts, whereby the respondent’s petition under Section 34 of the A&C Act was allowed and an arbitral award dated 06-08-2019 by the Sole Arbitrator under the National Stock Exchange (NSE) rules and regulations as well as an order dated 04-11-2019 of the Appellate Arbitral Tribunal upholding the arbitral award was set aside.
The dispute relates to a demat and trading account opened by the respondent with the appellant in 2007. Although the respondent discovered his account balance was empty in 2014, he did not file a formal complaint with the Securities and Exchange Board of India [SEBI] until February 2019, alleging unauthorized trading and missing funds. The initial administrative review by the Investor Grievance Redressal Panel (IGRP) was in the respondent’s favour, awarding him a principal sum of Rs. 9,42,000/- after finding that the appellant failed to produce historical SMS or email trade alerts and improperly allowed its own representative to trade on the client’s behalf. However, when the appellant challenged this before a Sole Arbitrator and subsequently the Appellate Arbitral Tribunal of the NSE, both forums overturned the IGRP’s findings, ruling that the respondent’s claims were legally inadmissible because they were barred by the limitation period.
Thereafter, the respondent’s Section 33 application was dismissed, and he filed a Section 34 petition to contest the arbitral awards without a statement of truth. After 4 years and 9 months, the respondent filed an application under Order XI Rule 1 of the Code of Civil Procedure, 1908 (CPC) to place the said statement on record. By the impugned order, the Section 34 petition was allowed, and the arbitral award, along with the concurrent findings of the Appellate Arbitral Tribunal, were set aside. It was concluded that the respondent had never authorized the transactions, was kept in the dark regarding account activity, and that the limitation period for fraud begins only from the date of discovery, which was in 2019, when the respondent allegedly uncovered a forged authorization letter bearing the name of the appellant’s employee. Additionally, the District Judge accepted the respondent’s Statement of Truth despite an extensive delay in filing, characterizing it as a curable procedural defect.
The appellant argued that the District Judge overstepped the legally restrictive boundaries of a Section 34 proceeding, and that the judge improperly re-evaluated factual evidence, established findings of fraud without giving the appellant a fair chance to respond, and impermissibly substituted his own conclusions over a perfectly plausible and reasoned arbitral award. The respondent contended that the lower court’s decision was sound and argued that blank documents signed at account opening were misused to execute unauthorized trades.
A Division Bench of Justice V. Kameswar Rao and Justice Manmeet Pritam Singh Arora analysed the documentary evidence on record, highlighting that the NSE Appellate Arbitral Tribunal, presided over by a retired High Court Judge, had already established that the respondent possessed active knowledge of his account’s credit and debit balances in 2012, 2013, and 2014. Consequently, the respondent’s 2019 plea asserting total ignorance of the 2007–2008 trades was found to be fundamentally unsustainable.
To put a quietus to the dispute, the appellant was ready to pay Rs. 20,00,000/- as a full and final settlement of the claims raised by the respondent. The appellant stated that the principal sum received was Rs. 10,42,000/- and that he was willing to pay Rs. 9,58,000/- as interest on the said amount. The Court noted that the controversy had become limited to the quantum of interest payable by the appellant in addition to the principal amount.
The Court said that even if the impugned order were given effect, the respondent would receive only the principal amount of Rs. 9,42,000/-, and hence, found the appellant’s offer just and reasonable as it would meet the objective of the respondent who was pursuing its claim of implementation of IGRP’s order. Thus, the Court directed the appellant to pay Rs. 20,00,000/- to the respondent within 4 weeks. It was mentioned that if the appellant failed to pay the amount, it would become liable to pay interest at 18% compound interest per annum on the principal amount of Rs. 10,42,000/- w.e.f. 18-02-2019.
The Court held that the Sole Arbitrator’s award and the Arbitral Tribunal’s order would cease to have any effect and that the appellant would not be entitled to rely on the same to dispute its liability. Hence, the IGRP’s order was modified, and it was stated that the present order would be executable as if it were a decree of the Court.
The Court stated that the findings of fraud against the appellant were completely divorced from the foundational pleadings or concrete documentary evidence, relying instead on pure intuition, conjecture, and surmise. Considering the documents, the Court said that the findings of fraud were directly contrary to the Appellate Arbitral Tribunal’s findings. Thus, the District Judge’s order was set aside to the extent that it found the appellant guilty of practicing fraud on the respondent. Lastly, the Court held that if the appellant failed to make the said payment, it would amount to playing fraud on the Court, and the appeal was allowed.
