Bombay High Court Sets Aside Awards Against Stock Broker For Ignoring Claimant's Statements

The Bombay High Court recently set aside concurrent arbitral awards, holding that ignoring vital evidence, including the claimant's own statements, rendered the findings perverse.

Justice Somasekhar Sundaresan heard a petition by Kantilal Chhaganlal Securities Pvt Ltd. The firm had challenged an arbitral award dated October 23, 2013 and an appellate award dated April 8, 2014 in favour of its client. 

Setting aside the awards, the court said:

“That vital evidence that cuts to the root of the matter is ignored, would lead to patent illegality of an extent that warrants interference. Merely because there are two concurrent findings in the two-tier arbitration that has been conducted, the check and balance under the Section 34 jurisdiction would be no less a check and balance. With the aforesaid observations, the Section 34 Petition is allowed, and the Arbitral Award and the First Award are quashed and set aside."

The awards had held Kantilal and its sub-broker Akshay Standard Insurance Services jointly liable to refund Rs. 2 crores with interest to the client. The amount had been deposited in October 2009 in a trading account.

The dispute was whether trades carried out by Jignesh Barasara between October 2009 and July 2010 were authorised. The tribunals held that in the absence of prior authorisation for each trade, all transactions were unauthorised. They ordered a full refund.

The High Court disagreed. It found that the tribunals ignored crucial material, including statements made in a complaint before the Economic Offences Wing. These statements indicated that Jignesh had been authorised to trade but had allegedly misused that authority.

The court also criticised the rejection of income tax returns as “private papers”. It said such records could reflect contemporaneous conduct. The court observed:

“Even the trading account of an individual client of a broker constitutes 'private papers'. The disputes relate to contents of such private papers and therefore the stance adopted in the tax returns by the same party before the litigation began could not have been brushed aside as 'private papers'.”

The court held that vital evidence was shut out and a summary approach was adopted. It clarified that it was not deciding whether the trades were authorised. It only held that the findings were vitiated. Both awards were quashed. The parties can pursue fresh arbitration.