Petitioner Was Aware And Participated In Trades | No Case Made Out For Interference Under Section 34: Bombay High Court Dismisses Challenge To NSE Arbitral Award
Isabella Mariam
The High Court of Judicature at Bombay Single Bench of Justice Somasekhar Sundaresan dismissed a petition challenging an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996. The court held that no credible case had been established warranting interference with the impugned arbitral award. It further directed that the petition be dismissed and clarified that no costs would be imposed in view of the circumstances of the prolonged pendency. The court concluded that the challenge to the arbitral tribunal's composition and the substantive findings on unauthorized trades did not merit judicial intervention.
The case arose from a petition under Section 34 of the Arbitration and Conciliation Act, 1996, contesting an arbitral award dated October 15, 2013, which affirmed an earlier award dated April 15, 2013. The dispute related to a series of trades executed on the petitioner’s account by the respondent, a securities broker. The petitioner alleged that the trades, except for one, were unauthorized and sought a refund of Rs. 14,87,014.43.
The arbitration proceedings were conducted at the National Stock Exchange (NSE). The petitioner also initiated parallel proceedings before the Bombay Stock Exchange (BSE), which were similarly decided against him. The current petition only challenged the NSE arbitration.
Previously, a Single Judge of the High Court had upheld the arbitral award by an order dated December 2, 2015. On appeal, a Division Bench remanded the matter for reconsideration by an order dated November 16, 2016, due to the absence of reasons in the initial decision.
The petitioner claimed that the trades were conducted without his authorization and in violation of his written instruction dated October 18, 2010, requesting the respondent to cease further purchases. He argued that the respondent failed to provide him an opportunity to cover any margin shortfall before squaring off positions.
He contended that he was a person of modest means, with an annual income of approximately Rs. 1 lakh, and was misled into trading of nearly Rs. 37 crores. He claimed that he was promised monthly profits by one Rajesh Kumar, a relationship manager known to him from his earlier engagement with ICICI Securities and ING PMS.
The petitioner also described himself as ignorant of stock markets, asserting he could not distinguish between NSE and BSE. He challenged the composition of the arbitral tribunal during appellate arbitration, arguing that the appointment of the arbitrator violated NSE bye-laws.
The respondent refuted these claims, arguing that the petitioner actively participated in the trades and received timely confirmations, SMS alerts, and contract notes. The respondent asserted that the petitioner reconciled all but 11 trades and understood the disputed transactions during hearings.
Evidence included emails, telephonic recordings, trade confirmations, bills, margin statements, and ledger accounts. The arbitral tribunal evaluated this material and concluded that the petitioner knowingly participated in the trades and could not later repudiate them.
The petitioner later challenged the arbitrator's appointment, although the arbitrator had been his second suggested nominee. The parties proceeded by mutual consent, and no objection was raised during the primary proceedings.
Two decisions cited by the petitioner—Bonanza Commodities Brokers Pvt. Ltd. vs. Roshanara Bhinder and BMA Commodities Pvt. Ltd. vs. Kaberi Mondal—were found to be factually distinguishable.
Justice Somasekhar Sundaresan observed, "The Petitioner has not made out a case for interference under Section 34 of the Act." The court found the grounds raised by the petitioner inconsistent with the material on record.
"The Petitioner indeed actively participated in the trades after his emails that purportedly asked the Respondent to stop further purchases," the judgment stated. "His written suspension of purchases also do not partake the character of a firm injunction from trading but represent his bargaining and protestation about the scale of earnings from the trades."
On the nature of communication, the court noted, "The Petitioner did not even protest, much less express astonishment or shock about trades having been effected by the Respondent—and that too after his email purporting to suspend purchases on his behalf."
It recorded that, "Trade confirmations, bills, margin statements and contract notes were sent on email to the Petitioner; sms messages were sent about every trade to the Petitioner." It added, "The Petitioner does not disclaim receipt of these but points to expressions of anguish by him about the losses being suffered in his account."
Regarding evidence from recorded conversations, the judgment stated, "The recordings were presented in a compact disc to the Learned Arbitral Tribunal and transcripts of the same were also presented." These included several instances where the petitioner acknowledged ongoing trades.
The court pointed to the petitioner’s contradictory statements, stating, "The Petitioner was provided with margin statements along with post-transaction reports, and he was fully conscious of the trades and the margin positions."
The court found the petitioner's purported ignorance of the stock market implausible, stating, "The Petitioner is not at all a naïve investor without knowledge of the stock market – he was conscious about the trades and comprehended the trades."
On the arbitrator's appointment, it recorded, "The Petitioner was never in a position to object to the arbitrator... after according consent to proceed, it would not be open for a party to object to an arbitrator and that too after an adverse order."
The court added, "There is not a whisper about any real or perceived lack of independence or impartiality on the part of Mr. Iyer. The grievance is rooted in the arbitration outcome not having gone the Petitioner’s way."
On legal provisions cited, it held, "Neither Section 34(2)(iii) nor Section 34(2)(iv) of the Act has any relevance or application to the case."
The court concluded:
(a) The Petitioner expected the Respondent to provide portfolio management services with a migration of his relationship with the same relationship manager who was servicing him at ICICI Securities and ING portfolio management services;
(b) The Petitioner expected the Respondent to trade freely and provide him returns and was happy to receive post-transaction reports;
(c) The Petitioner indeed received post-transaction confirmations and reports including contract notes, margin statement, ledger etc., on email and also by way of sms confirmations;
(d) The Petitioner complained bitterly about the losses being incurred but refrained from firmly suspending or terminating the relationship – he was happy to engage further and indeed took note of, and approved arbitrage (with contemporaneous contrary trades on two different exchanges) even after the emails by which he indicated a desire to stop further buy transactions;
(e) The Petitioner is not at all a naïve investor without knowledge of the stock market – he was conscious about the trades and comprehended the trades;
(f) The Respondent may have violated securities regulations on executing discretionary transactions on behalf of the Petitioner but that would not have a consequence for the commercial claims and counter-claims between the parties;
(g) The Petitioner’s contentions about being completely naïve stands undermined – he was fully aware of the volume of trading (about Rs. 37 crores) contemporaneous with the trades. The volume may have been large but the losses were of a mere approximate Rs. 14 lakh;
(h) The contention about the composition of Learned Arbitral Tribunal being flawed necessitating starting afresh with Mr. G.A. Nayak as the arbitrator is not tenable; and
(i) Neither Section 34(2)(iii) nor Section 34(2)(iv) of the Act has any relevance or application to the case.
The High Court dismissed the petition, stating, "In the result, the Petition fails and deserves to be dismissed." The court declined to impose costs, acknowledging the delay in disposal was not attributable to either party.
"I have been persuaded to conclude that costs need not be imposed," the court recorded. It directed that "All actions required to be taken pursuant to this order, shall be taken upon receipt of a downloaded copy as available on this Court’s website."
Advocates Representing the Parties:
For the Petitioners: Ms. Prachi Pandya, Advocate, instructed by Corporate Attorneys
For the Respondents: Mr. Naushad Engineer, Senior Counsel, assisted by Mr. Sharad Parbat, instructed by Ajay Khandhar & Co.
Case Title: Jagadeesa G. Chary vs. Nirmal Bang Securities Pvt. Ltd.
Neutral Citation: 2025:BHC-OS:8421
Case Number: Arbitration Petition No. 410 of 2014
Bench: Justice Somasekhar Sundaresan
[Read/Download order]
