“No Exceptional Rarity, No Irreparable Damage”: Bombay High Court Upholds Arbitral Tribunal’s Power to Allow Withdrawal and Fresh Claims Under Section 19
Safiya Malik
The Division Bench of the Bombay High Court comprising Justice Revati Mohite Dere and Justice Dr. Neela Gokhale dismissed writ petitions challenging the arbitral tribunal's order granting liberty to respondents to withdraw arbitration claims and file fresh proceedings. The court, while exercising its jurisdiction under Article 226 and 227 of the Constitution of India, held that there was no exceptional circumstance or perversity warranting interference with the arbitral process.
The petitioner, Central Depositories Services (India) Limited (CDSL), a company registered under the Companies Act, 1956 and operating as a securities depository, filed writ petitions challenging an order dated 18 April 2024 passed by the arbitral tribunal in Arbitration Case Nos. 3 to 9 of 2023. The tribunal had dismissed the claims filed by individual respondents as "withdrawn with liberty to file afresh."
The dispute arose from transactions involving demat accounts opened by the respondents with Anugrah Stock & Broking Private Limited, a depository participant of CDSL. Alleging losses due to negligence by Anugrah and CDSL, the respondents initiated arbitral proceedings under the bye-laws of CDSL.
During the course of arbitration, on 12 February 2024, oral arguments were concluded. On 28 February 2024, in post-hearing clarifications (PHC), respondent Ketan Shah introduced new elements to the claim based on a Chartered Accountant's analysis. He requested a week to file the CA's certificate. CDSL opposed the submission of additional material.
At the PHC hearing on 20 March 2024, the respondents sought to amend their Statements of Claim (SOC) to include revised claims. However, the arbitral tribunal noted that the statutory timeline for passing the award was set to expire in May 2024 and found amendments impermissible at that stage. The tribunal, therefore, offered the respondents two options: withdraw the claims and refile afresh or continue with the existing claims. The respondents chose the former.
On 21 March 2024, Ketan Shah formally communicated withdrawal of the claim and sought liberty to file fresh claims. He cited difficulty in responding to CDSL's bare denials and the lack of full documentation from CDSL as necessitating a comprehensive audit and revised claim.
CDSL objected through a detailed letter dated 29 March 2024, arguing inter alia that:
- The arbitral tribunal lacked authority to grant liberty for re-filing,
- No grounds for such liberty were made out,
- CDSL would face prejudice due to indefinite litigation.
The arbitral tribunal, by its order dated 18 April 2024, allowed withdrawal with liberty to initiate fresh claims, directing respondents to serve fresh notices of invocation. The tribunal clarified that CDSL would retain the right to raise jurisdictional and procedural objections, including limitation and res judicata.
The court framed the primary question: "Whether the impugned order warrants interference by this Court in exercise of its jurisdiction under Article 226 of the Constitution of India?"
Citing precedents including Bhaven Construction v. Executive Engineer and IDFC First Bank Limited v. Hitachi MGRM Net Limited, the Division Bench reiterated that judicial review under Articles 226 and 227 is maintainable against arbitral orders only in exceptional circumstances involving perversity or bad faith.
The court noted: "Interference under Articles 226/227 is permissible only if the order is completely perverse i.e. the perversity must stare in the face."
It further observed: "There is no glaring perversity, least of all of a kind which 'stares in the face' in the order impugned herein, to justify any interference."
Addressing CDSL's contention regarding Section 32(2)(a) of the Arbitration & Conciliation Act, the Bench stated:
"Section 32 of the Act declaring the termination of mandate of an Arbitral Tribunal is a consequence of withdrawal of a claim and is not a ground on which an objection to withdraw a claim can be sustained."
On the issue of procedural authority, the court observed: "Section 19 of the Act provides for determination of rules of procedure... the Arbitral Tribunal has the power to determine conduct of the proceeding in the manner it considers appropriate."
In relation to the tribunal’s reasoning, the court referred to paragraph 7 of the arbitral order which stated:
"In view of the massive fraud committed by Anugrah and to ascertain the exact number of securities lost by the Claimants, it would be fair to allow them to withdraw the existing arbitration applications with liberty to file fresh proceedings."
As regards prejudice to CDSL, the court noted: "The impugned order does not cause any prejudice or irreparable damage to the Petitioner. The Petitioner has no legitimate interest to claim a final award."
The court held that: "We do not find any reason to interfere with the impugned order. The Petitions are dismissed. Rule is accordingly discharged. In view of the same, the draft amendment is rendered infructuous and accordingly disposed."
A request for stay made by Senior Counsel for the petitioner post-pronouncement was also rejected with the court recording: "For the reasons that we have recorded, the request is rejected."
Advocates Representing the Parties:
For the Petitioner: Janak Dwarkadas, Senior Advocate with Kunal Dwarkadas, Rahul Dwarkadas, Sanaya Contractor, Rahil Shah and Rahul Deshpande, instructed by Veritas Legal.
For the Respondents: Karl Tamboly with Ravichandra Hegde, Parinaz Bharucha, Ashok Panday and Kandarp Trivedi, instructed by RHP Partners.
Case Title: Central Depositories Services (India) Limited v. Samir Shah & Ors.
Neutral Citation: 2025: BHC-OS:4806-DB
Case Number: Writ Petition (L) No. 15131 of 2024 and connected matters
Bench: Justice Revati Mohite Dere and Justice Dr. Neela Gokhale
[Read/Download order]
