Participation In Regulatory Proceedings Does Not Bar Arbitration: Bombay High Court Allows Section 34 Petition, Sets Aside Award Rejecting Investors’ Claims Against CDSL As Forum Shopping
Isabella Mariam
The High Court of Bombay, Single Bench of Justice Sandeep V. Marne on 23 December 2025 set aside an arbitral award that had rejected investors’ claims against Central Depository Services (India) Limited (CDSL) on the premise that their participation in regulatory proceedings amounted to forum shopping and an election of remedies. Allowing a Section 34 petition, the Court held that such participation does not bar a separate arbitration seeking restoration of securities, or their market value, arising from alleged failures connected with a stockbroker-cum-depository participant handling the investors’ demat holdings. The Court held the arbitral panel committed a serious error by declining to adjudicate the investors’ indemnification claim on merits and directed CDSL to pay costs.
The petitioners were trading members who opened trading and demat accounts with Anugrah Stock and Broking Pvt. Ltd., a stock broker on NSE and a depository participant of the respondent, Central Depository Services (India) Ltd., a depository under the Depositories Act, 1996. Account-opening documents, including a power of attorney, were executed, and the petitioners transferred funds and securities as margin/collateral for trades in the F&O segment.
On 3 August 2020, NSE withdrew Anugrah’s membership and trading rights for regulatory non-compliance; on 10 August 2020, Anugrah informed the petitioners that open positions were squared off and provided contract notes and a margin statement showing stated credit balances; on 13 August 2020, Anugrah issued a holdings statement reflecting stated securities values. The petitioners then sent instruction slips seeking reversal of securities kept as collateral; petitioner no. 1 sought cancellation of the power of attorney and lodged complaints on CDSL’s grievance portal.
The petitioners filed proceedings under section 9 of the Arbitration and Conciliation Act, 1996, and also pursued regulatory-related steps, including communications to SEBI, NSE, and CDSL. NSE Clearing Ltd. initiated proceedings against Edelweiss Custodial Services Ltd. (Anugrah’s clearing member); by order dated 20 October 2020, NCL held that client securities were illegally sold and directed reinstatement. Edelweiss appealed to SAT; petitioner no. 1 intervened; SAT dismissed the appeal on 15 December 2023, and a further appeal was stated to be pending.
On 18 July 2023, the petitioners issued a notice to CDSL seeking indemnification; on 24 August 2023, they invoked arbitration; and on 5 September 2023, they sought restoration of securities, alternatively their stated value. CDSL filed a defence raising limitation and alleging forum shopping. A three-member tribunal issued an award dated 29 April 2024 rejecting the claim, and the petitioners challenged that award under section 34 of the Arbitration and Conciliation Act, 1996, invoking, inter alia, section 16 of the Depositories Act, 1996.
The Court observed that “The case involves refusal of adjudication of claim of Petitioners by three-member Arbitral Tribunal by accusing Petitioners of forum shopping.” On the effect of participation in regulatory proceedings, it stated: “In my view, therefore there is no functional similarity in the proceedings between the NCL proceedings against Edelweiss and arbitral proceedings against CDSL.” It further recorded that “doors on the Petitioners cannot be closed by the Arbitral Tribunal under a specious plea that in an unrelated inquiry one of the Petitioners supported the order passed by the NCL.”
On the arbitral tribunal’s approach, the Court stated: “The Arbitral Tribunal has egregiously erred in accusing Petitioners of forum shopping, which findings are perverse to say the least.” It added: “It is incomprehensible as to how mere support to the order passed by NCL by Petitioner No.1 before SAT would constitute forum shopping.”
While addressing the tribunal’s reliance on Supreme Court precedent, it recorded: “The Arbitral Tribunal, I must say, has not even bothered to consider the ratio of the judgment in Cipla Limited and has blindly presumed that the same applies against the Petitioners.” It further stated: “The Arbitral Tribunal plucked out the two words ‘functional similarity’ and ‘subterfuge’ appearing in para-155 of the judgment without even bothering to discuss the real ratio in para-146 to 154 of the judgment.”
On election of remedies, the Court recorded: “The doctrine of election has been discussed by the Apex Court in Transcore (supra), in which it is held that there are three elements of election (i) existence of two or more remedies (ii)inconsistencies between such remedies, (iii) a choice of one of them.” Applying that test, it stated: “If the three tests prescribed by the Apex Court in Transcore are applied to the facts of present case, the first test of ‘existence of two or more remedies’ does not get satisfied.” It concluded: “In my view, therefore the doctrine of election is inapplicable to the facts and circumstances of the present case.”
On the proposition that approaching different fora is not, by itself, forum shopping, the Court recorded: “Thus, mere approach made by Petitioner No. 1 to different Fora for redressal of his claims cannot be a ground to hold that the case involves forum shopping.” It noted: “reliance by the Petitioner on judgment of Delhi High Court in Brilltech Engineering Pvt. Ltd. (supra) is apposite” and reproduced: “Merely because the petitioner has approached different forums for redressal of its claims, cannot be said to be a ground to hold that this is a case of forum shopping.” The Court also referred to “A. P. State Financial Corporation v. Gar Re-Rolling Mills”, “National Insurance Company Ltd. v. Mastan” and “Ireo Grace Realtech Private Limited v. Abhishek Khanna.”
On relief and costs, the Court recorded: “The matter would not end here. I have found that the Respondent-CDSL has levelled baseless allegation of forum shopping on the Petitioners.” It added: “CDSL therefore must pay costs of the present proceedings to the Petitioners. In my view, considering the facts and circumstances of the case, it would be appropriate to direct Respondents-CDSL to pay costs of Rs.3,00,000/- to the Petitioners.” It also recorded: “reliance by Mr. Kadam on judgments of the Apex Court in OPG Power Generation Private Limited (supra) and Ssangyong Engineering and Construction Company Limited (supra), far from assisting Respondent’s case, actually militates against it.”
The Court ordered: “Petition accordingly succeeds and I proceed to pass the following order:”
“(i) The impugned Award dated 29 April 2024 passed by the Arbitral Tribunal is set aside.”
“(ii) Respondent-CDSL shall pay to the Petitioners costs of Rs. 3,00,000/- within a period of four weeks. Arbitration Petition is allowed in above terms with costs as directed above.”
Advocates Representing the Parties
For the Petitioners: Mr. Karl Tamboly with Mr. Reehan Ajmerwalla, Mr. Ravinchandra Hegde, Ms. Parinaz Bharucha, Mr. Kandarp Trivedi with Ms. Janani Sivaraman i/b M/s. RHP Partners
For the Respondents: Mr. Rohan Kadam with Ms. Varuna Bhanrale, Ms. Shourya Bari, Kaazvin Kapadia and Ms. Ananya Sinha i/b M/s. Trilegal
Case Title: Nimish Chandulal Shah and Ors. : VERSUS : Central Depository Services (India) Ltd.
Neutral Citation: 2025:BHC-OS:26170
Case Number: Commercial Arbitration Petition No.293 Of 2024
Bench: Justice Sandeep V. Marne
