Evidence taken on record behind the back of the opposite party provides a valid ground under section 34 of Arbitration and Conciliation Act,1996 to set aside the Arbitration Award passed by Tribunal.

Legal Brief: Evidence taken on record behind the back of the opposite party provides a valid ground under section 34 of Arbitration and Conciliation Act,1996 to set aside the Arbitration Award passed by Tribunal.

Case: Geojit Financial Services Ltd. v. Nalani Rajkumar & ors.

Court: High Court of Madras

Date of Judgment: 21.03.2024 By: Adv.  Saksham  Mathur Facts

  • The appellant is a stock broker entered into a member constituent agreement with the respondent on 15.03.2000. According to the agreement the appellant will trade in listed shares and trade codes on behalf of the respondent. The dispute arose from the unauthorized share trading from respondent ‘s account managed by appellant. The respondent alleged that the appellant conducted multiple unauthorized transactions, provided inaccurate account statements, and failed to execute a sale order for 5,05,000 shares of M/s. Electro Steel Castings on July 27, 2009, as instructed.
  • The respondent claimed damages amounting to 6,60,20,018/- based on the difference in share value. Appellant refuted the allegations, asserting that respondent did not possess the claimed number of shares on the relevant date. The primary point of contention was whether respondent indeed held 5,05,000 shares of M/s. Electro Steel Castings Ltd. on 27.07.2009.
  • The respondent invoked the arbitration clause of the agreement and initiated the arbitration The Arbitral Tribunal concluded that the respondent has not shown that she held 5,05,000 shares of M/s. Electro Steel Castings Ltd. on 27.07.2009. Aggrieved by the Arbitration Award the respondent filed an appeal before the Appellate Tribunal.
  • The Appellate Tribunal upheld the Arbitration award by observing that the respondent failed to show that she hold the 5,05,000 shares of M/s. Electro Steel Castings Ltd. on 27.07.2009. The respondent aggrieved by the order of Appellate Tribunal filed an application under section 34 of Arbitration and Conciliation Act,1996. The learned single judge set aside the order passed by the Appellate Tribunal and the Award of Arbitration Tribunal for two reasons, firstly no proper opportunity was provided to the appellant as after conclusion of hearing the Arbitration Tribunal considered the document filed by the NSE. Secondly, the tribunal overlooked most of the documents submitted by the
  • Aggrieved by the order of learned single judge the appellant file an appeal before the Hon’ble High Court of

Issues

 

  1. Whether the Arbitral Tribunal and Appellate Tribunal commit procedural irregularities by relying on evidence obtained after the conclusion of the hearing without providing respondent an opportunity to respond?
  2. Whether the Tribunals errored in disregarding crucial documents potentially supporting respondent ‘s claims, such as those suggesting her ownership of the disputed shares and evidence from appellant’s records as a depository participant?

Legal Analysis

 

  • Procedural Irregularity: The Madras High Court determined that the Arbitral Tribunal’s decision to obtain shareholding statements from the NSE after the hearing’s conclusion without affording respondent an opportunity to address this new evidence constituted a procedural This action disadvantaged respondent as she was denied the chance to rebut or explain the implications of this evidence. The court rejected the argument that the opportunity provided during the appellate stage rectified this error, emphasizing the importance of a fair hearing at each level of the arbitration process.

 

  • Ignoring Material Evidence: The court found fault with the Tribunals’ failure to adequately consider critical documents presented by This included annexures that she claimed contained admissions supporting her ownership of the disputed shares. Additionally, the court noted the lack of consideration given to potential evidence held by appellant in its capacity as a depository participant for respondent, which could have shed light on her actual shareholdings. The court highlighted that the Tribunals’ reliance on a potentially incomplete evidentiary record raised concerns about the award’s validity.

Conclusion

 

The Madras High Court upheld the Single Judge’s decision to set  aside  the Arbitral award. The Court found that the procedural irregularity concerning the NSE statement and the Tribunals’ failure to thoroughly examine all pertinent evidence, including documents  indicating  potential  admissions  by  appellant and its records as a depository participant, justified overturning the award. The court stressed the importance of adherence to principles of natural justice and a comprehensive examination of evidence in arbitration proceedings, ultimately siding with respondent in this instance.

Leave a Comment

Your email address will not be published. Required fields are marked *