Bombay High Court Sets Aside NSE Arbitral Award Upholding IGRP’s 50% Liability Finding Against Broker
Isabella Mariam
The High Court of Bombay, Single Bench of Justice Manish Pitale set aside an arbitral award passed under the National Stock Exchange bye-laws that had upheld an Investor Grievance Redressal Panel’s direction requiring a brokerage firm to pay ₹7.18 lakhs to a client for losses from alleged unauthorised trading in the futures and options segment. The IGRP had found both parties equally responsible and apportioned 50% liability to the broker, which was later confirmed by the sole arbitrator. Hearing a challenge under Section 34 of the Arbitration and Conciliation Act, 1996, the Court held that the award was contrary to established law and vitiated by patent illegality.
The case arose from a dispute between Peerless Securities Limited, the petitioner, and Vostok (Fareast) Securities Pvt. Ltd., the respondent, regarding trading transactions in the Futures, Options, and Currency Derivative segments of the National Stock Exchange. The respondent had opened a Demat and Trading Account with the petitioner in January 2016, followed by similar accounts for group entities and family members. According to the petitioner, all trades were carried out with the respondent’s consent and regular post-trade confirmations were sent through electronic contract notes, emails, and SMS alerts.
On July 28, 2017, the respondent lodged a complaint before the National Stock Exchange alleging that Peerless Securities had fraudulently induced it to open trading accounts by initially providing profits to lure further investments, ultimately leading to substantial losses. The dispute was referred to the Investor Grievance Redressal Panel, which on September 11, 2017, partly allowed the complaint, holding that both parties were responsible for the losses and directing the petitioner to pay Rs. 7.18 lakhs to the respondent.
Peerless Securities challenged the IGRP’s findings before an arbitral tribunal, which on February 23, 2021, dismissed the claim and upheld the IGRP’s order. The arbitrator held that Regulation 3.4.1 of the NSE Regulations required the petitioner, as a trading member, to obtain confirmed order instructions before placing trades. The arbitrator further noted that the respondent had instructed the petitioner on March 25, 2017, to provide a detailed profit account and to square up all positions, yet trading allegedly continued till July 2017. The arbitrator concluded that since both parties contributed to the losses, the IGRP’s apportionment of liability at 50:50 deserved confirmation.
Aggrieved by the award, the petitioner invoked Section 34 of the Arbitration and Conciliation Act, 1996, contending that the award was contrary to public policy and vitiated by patent illegality. The petitioner cited Supreme Court and Bombay High Court precedents, including OPG Power Generation Pvt. Ltd. v. Enexio Power Cooling Solutions India Pvt. Ltd., Ulhas Dandekar v. Sushil Financial Services Pvt. Ltd., and Dhwaja Shares and Securities Pvt. Ltd. v. Sunita A. Khatod, arguing that Regulation 3.4.1 was only directory and that the 50:50 apportionment of losses was irrational.
The respondent countered that the petitioner had failed to produce post-trade confirmation evidence and that the arbitral award recorded well-reasoned findings based on materials on record. It was further submitted that the approach of the IGRP and the arbitrator was fair and justified in light of the petitioner’s conduct.
Justice Manish Pitale examined the legal grounds raised under Section 34(2)(b)(ii) and Section 34(2A) of the Arbitration Act. Referring to the Supreme Court’s decision in OPG Power Generation Pvt. Ltd. v. Enexio Power Cooling Solutions India Pvt. Ltd. (2025) 2 SCC 417, the Court reiterated that after the 2015 amendments, the expression “in conflict with the public policy of India” must be accorded a restricted meaning. The Court cited paragraph 55 of that judgment stating: “To bring the contravention within the fold of fundamental policy of Indian law, the award must contravene all or any of such fundamental principles that provide a basis for administration of justice and enforcement of law in this country.”
The Court also referred to Associate Builders v. Delhi Development Authority (2015) 3 SCC 49, explaining that an arbitral award would be patently illegal if it was contrary to substantive law, the provisions of the Arbitration Act, or the contract terms. It recorded that a finding could be considered perverse if based on no evidence, irrelevant material, or by ignoring vital evidence.
Justice Pitale noted that the arbitrator had “placed much emphasis” on an alleged instruction dated March 25, 2017, by the respondent to the petitioner to close all trading positions, though there was no written record of such communication. The Court found that this was “merely an allegation made in the complaint before the IGRP,” and it was improper for the arbitrator to rely on it.
The judgment further recorded that both the IGRP and the arbitrator had erred in relying on the conflicting global reports from the petitioner’s Mumbai and Kolkata offices. The Court stated that “the dates of the reports show that while the reports from the Mumbai office were received in April 2017, those from the Kolkata office were received in May 2017,” and hence, they could not have influenced the respondent’s trading decisions in March 2017 as claimed.
Justice Pitale observed that the arbitrator’s interpretation of Regulation 3.4.1 as mandatory was inconsistent with the law laid down in Ulhas Dandekar v. Sushil Financial Services Pvt. Ltd. and Erach Khavar v. Nirmal Bang Securities Pvt. Ltd. The Court stated that these decisions had held the provision to be directory and not mandatory. Accordingly, “the impugned arbitral award is in conflict with the said established position of law and hence it is in conflict with public policy of India under Section 34(2)(b)(ii) of the Arbitration Act.”
The Court also accepted the petitioner’s contention that sufficient material existed to prove that the respondent had been informed of all transactions through emails and SMSes, and that the respondent had failed to exercise its duty to raise timely objections. It rejected the respondent’s claim that it could not review the numerous communications, stating that both the IGRP and the arbitrator had acknowledged regular post-transaction intimations.
On the issue of apportionment of liability, the Court cited Dhwaja Shares and Securities Pvt. Ltd. v. Sunita A. Khatod, where it was held that “simply halving the amount claimed by the aggrieved party and awarding it amounts to an irrational and unreasoned approach.” The Court described the IGRP’s 50:50 apportionment as arbitrary and lacking empirical basis, stating that it reflected a “panchayati approach” inconsistent with judicial standards. The Court found that this error rendered the award patently illegal and perverse under Section 34(2A) of the Act.
The judgment recorded: “This Court is convinced that the grounds of challenge raised on behalf of the petitioner are made out and hence the impugned award deserves to be interfered with. The impugned arbitral award dated 23.02.2021 is quashed and set aside.”
The Court further observed that while it does not sit in appeal over arbitral findings, interference is warranted when the statutory grounds under Section 34 are made out. The order concluded that the arbitral tribunal had failed to appreciate material evidence correctly and had applied an incorrect interpretation of law. Pending applications, if any, were also disposed of.
Advocates Representing the Parties:
For the Petitioner: Mr. Sunny Shah a/w. Mr. Yash Kataria and Mr. Akshay Suresh i/b. Ashwin Ankhad & Associates
For the Respondent: Mr. Sean Wassoodew a/w. Ms. Ashna Shah
Case Title: Peerless Securities Limited v. Vostok (Fareast) Securities Pvt. Ltd.
Neutral Citation: 2025: BHC-OS:18807
Case Number: Arbitration Petition No. 157 of 2021
Bench: Justice Manish Pitale
