Safiya Malik

The High Court of Delhi Single Bench of Justice Jasmeet Singh set aside an arbitral award dated July 31, 2015, rendered by an Appellate Tribunal under the aegis of the National Stock Exchange. The Court held that the award was delivered beyond the statutorily prescribed period, in violation of SEBI Circulars and NSE Bye-laws, and thus void in law. The Court allowed the petition under Section 34 of the Arbitration and Conciliation Act, 1996, and directed that the appellate award be set aside on the ground of patent illegality and contravention of public policy. The Court did not examine the merits of the underlying factual contentions, as the decision was reached solely on the basis of the statutory timeline violation.

The petitioner entered into a Member Client Agreement with the respondent stockbroker in 2007, authorising him to trade in securities on the NSE, including in the derivatives segment. The petitioner opened a trading account and between September 2010 and June 2011 traded in Nifty Futures. The petitioner claimed to have deposited Rs. 1.46 crores into the trading account via RTGS. On 29.06.2011, the respondent issued a cheque of Rs. 31,525.19 and a statement of accounts.

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Alleging unauthorised and excessive trading by the broker, the petitioner filed an arbitration claim on 20.09.2013 before the NSE under Regulation 5.9(h) of the NSE Trading Regulations. The petitioner sought Rs. 2.25 crores on grounds of unauthorised trades, non-compliance with SEBI regulations, failure to provide contract notes, and arbitrary squaring off of positions.

The Original Arbitral Tribunal dismissed the claim on 16.05.2014, holding that the petitioner was aware of the trades. An appeal dated 23.06.2014 was filed before the Appellate Tribunal. The petitioner challenged the factual basis of the original award and contended that his instructions were not followed.

The Appellate Tribunal dismissed the appeal on 31.07.2015, upholding the findings of the Original Tribunal. Consequently, the petitioner filed a petition under Section 34 of the Arbitration Act to challenge both the original and appellate awards.

The petitioner raised several grounds in the petition, focusing primarily on the issue of limitation. It was submitted that the Appellate Award was issued well beyond the three-month period stipulated under Bye-Law 19(b) of the NSE Bye-Laws and Clause 6.5 of the SEBI Circular dated 11.08.2010. The petitioner argued that the Appellate Tribunal was constituted on 11.09.2014 and therefore, the award ought to have been issued by 10.12.2014. An extension of two months was granted, extending the deadline to 10.02.2015. The petitioner and respondent subsequently signed letters consenting to reconstitution of the tribunal after 10.02.2015. However, the final award was issued only on 31.07.2015.

The petitioner argued that this delay rendered the award void ab initio, citing Bye-Law 19(b), Clause 6.5 and 6.6 of the SEBI Circular dated 11.08.2010, and decisions of the Supreme Court, including Pathapati Subba Reddy (2024), H. Guruswamy (2025), and NBCC Limited (2010). It was submitted that the limitation period in arbitration is a matter of public policy and that once time expires, arbitrators become functus officio.

It was also argued that only one arbitrator had sought an extension rather than the tribunal as a whole, which was in violation of the Arbitration Act. The petitioner contended that the NSE and SEBI had failed in their supervisory roles, and that the NSE had improperly removed itself as a party to the proceedings.

On the substantive contentions, the petitioner alleged that no written order instructions were given, trade logs and NEAT system confirmations were not provided, contract notes and margin statements were not supplied, and unauthorized squaring off of positions occurred. The petitioner challenged the authenticity of the telephone recordings relied on by the broker.

The petitioner claimed violations of the Member Client Agreement, SEBI regulations, NSE Trading Regulations, and argued that the award was against public policy and vitiated by fraud.

Respondent No. 1, the stockbroker, argued that the Appellate Award was valid and binding. It contended that the petitioner did not raise the limitation objection during the arbitration and therefore waived his right to do so under Section 4 of the Arbitration Act. It was argued that the timelines were directory, not mandatory, and that there was no clause mandating automatic expiry of the tribunal's mandate. The respondent submitted that the petitioner had participated in proceedings and submitted final written submissions in April 2015.

The broker further contended that the tribunal had rendered a reasoned award, based on contract notes, telephone recordings, margin agreements, and provisions of the Member Client Agreement. It was argued that the trades were authorised, all requisite documentation was supplied, and no regulatory violations occurred.

The NSE (respondent Nos. 2 and 3) contended that it was neither a necessary nor proper party to the petition under Section 34, as it had no interest in the dispute and had complied with all orders. It submitted that it was not a party to the underlying arbitration agreement and only acted as an institutional facilitator. It also filed an affidavit explaining the procedural timeline, noting that both parties had consented to the reconstitution of the appellate tribunal.

SEBI (respondent No. 4) argued similarly that it was not a proper party to the petition, and its jurisdiction extended only to regulatory supervision, not adjudication of individual disputes. It also submitted that the arbitration was purely between the petitioner and the stockbroker.

The Court recorded the mandate of Section 34 of the Arbitration and Conciliation Act, stating that it allows for setting aside an arbitral award if the award is in contravention of public policy, is patently illegal, or violates principles of natural justice. The Court quoted "An award without reasons would suffer from patent illegality" and that "the arbitrator commits a patent illegality by deciding a matter not within his jurisdiction or violating a fundamental principle of natural justice".

Regarding the limitation issue, the Court stated: "The Appellate Award has clearly been passed beyond the time prescribed under Bye-Law 19(b) of the NSE Bye-Laws and Clause 6.5 of the SEBI Circular dated 11.08.2010".

The Court noted that the tribunal was appointed on 11.09.2014, and hence, the award was required to be passed by 10.12.2014. A two-month extension was granted until 10.02.2015. The Court stated: "Even if the NSE had the authority to extend the mandate and to reconstitute the Appellate Tribunal, the Appellate Award was to be made within the 3-month timeline, i.e., till 10.05.2015 and not thereafter".

The Court held that this failure vitiated the award: "Any award passed thereafter is violative of the intent, purpose and spirit of the NSE and SEBI rules and regulations".

The Court recorded: "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". It observed that "merely inaction of the relevant authority (being NSE and SEBI) will not legitimize the delay on behalf of the Appellate Tribunal".

Citing the Supreme Court's judgement in Pathapati Subba Reddy, the Court noted: "The law of limitation is founded on public policy. It is enshrined in the legal maxim 'interest reipublicae ut sit finis litium'".

The Court further quoted from H. Guruswamy, "No court should keep the 'Sword of Damocles' hanging over the head of a litigant for an indefinite period of time".

Regarding the argument that limitation provisions were directory, the Court stated: "The use of the word 'shall' in Bye-Law 19(b) of the NSE Laws read with Clause 6.5 of the SEBI Circular dated 11.08.2010 suggests that the time frame... is mandatory".

It rejected the waiver argument, observing that "filing of the written submission by the petitioner cannot be construed as a waiver to the right to object to the mandate of the arbitrator".

On the issue of NSE and SEBI’s roles, the Court stated: "Despite the absence of an automatic expiry clause for the mandate of the arbitral tribunal under NSE Bye-Laws, Bye-law 7(b) empowers the Relevant Authority to terminate an arbitrator who fails to act within the prescribed time".

The Court concluded that "any unjustified delay undermines the efficacy and cost-effectiveness of arbitration, rendering prolonged proceedings contrary to the fundamental objectives of dispute resolution".

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The Court clarified that its findings were limited to the Appellate Award and stated: "The scope of the present judgment is limited to the validity of the Appellate Award and is not going into the examination of the validity of the Original Award".

The Court concluded: "Since the award is being set aside on the ground of delay, I need not dwell into the factual challenges made by the petitioner".

The Court directed that the Appellate Award dated 31.07.2015 in the matter of Ram Kawar Garg v. Just Trade Securities Limited be set aside. The judgment recorded: "For the reasons set forth above, the petition under Section 34 of the Arbitration Act is allowed and the Appellate Award dated 31.07.2015 in the matter of Shri Ram Kawar Garg v. Just Trade Securities Limited,NSE/Appeal Arbn./F&O/D-0085/2013, is set aside.".

Advocates Representing the Parties:

For the Petitioner: Ram Kawar Garg, Petitioner in person

For the Respondents: Mr. Dhruv Dewan, Ms. Smarika Singh, Ms. Yashna Mehta, Mr. Arjun Singh Rana, Ms. Sanjukta Roy, Advocates, Mr. Sujoy Sur, Mr. Aubert Sebastian, Mr. Vedant Kumar, Advocates, Mr. Ashish Aggarwal, Mr. Rahul Malik, Ms. Shivangi Shokeen, Advocates

Case Title: Ram Kawar Garg v. Bajaj Capital Investor Services Ltd. (now Just Trade Securities Ltd.) & Ors.

Neutral Citation: 2025: DHC:5129

Case Number: O.M.P. (COMM.) 83/2024

Bench: Justice Jasmeet Singh