Bombay High Court Sets Aside ₹15.92 Lakh Arbitral Award Against Stockbroker Over Trading Software Glitch

The Bombay High Court has set aside an arbitral award directing stockbroker 5 Paisa Capital Limited to pay ₹15.92 lakh to an investor over a dispute involving a technical glitch in its trading software.

Justice Aarti Sathe held that the appellate arbitral tribunal had failed to decide key issues, including whether the glitch caused the investor's losses and whether the broker was justified in liquidating his positions under its Risk Policy.

The court observed that the tribunal had merely reproduced the parties' submissions without returning findings on their rival contentions.

“All these are questions which are rival contentions advanced by the parties which have neither been considered nor any finding has been rendered on them by the Appellate Arbitral Tribunal. This Court, therefore, cannot undertake the exercise to adjudicate upon these issues and come to an independent finding under Section 34 of the Act, and would be thus constrained to set aside the impugned appellate arbitral award which suffers from the vice of being an award rendered without giving findings on contentious issues," the court held.

The investor, Ankit Agarwal, opened a trading account with 5 Paisa in October 2016. Between September 18 and October 4, 2018, a technical glitch in the broker's software resulted in excess holdings being reflected in his Demat account.

On October 1, 2018, his debit balance stood at ₹1.45 crore, while his Gross Holding Value Cover (GHVC) was 19.41%. Under the broker's Risk Policy, accounts with GHVC below 20% were treated as being at risk and liable for square-off.

After the initial square-off, the debit balance fell to ₹1.03 crore and GHVC to 6.15%. The broker subsequently liquidated further positions, leaving ₹6.55 lakh outstanding.

Agarwal disputed the trades, alleging that they had not been authorised by him. He also claimed that he had not received contract notes and sought ₹15 lakh in compensation.

The sole arbitrator rejected the broker's claim for ₹6.53 lakh and partly allowed Agarwal's counterclaim. It awarded him ₹14.30 lakh towards losses and ₹1.62 lakh for 1,260 bonus shares of Adani Gas Limited.

The appellate arbitral tribunal upheld the award in October 2019. It held that both parties were responsible for reporting abnormalities, but placed liability on the broker because it had admitted the software glitch and failed to notify the investor suitably and in time.

Before the High Court, 5 Paisa argued that the tribunal had not determined whether the trades were unauthorised or whether the glitch caused the losses. It also questioned whether the investor's trading decisions and the Risk Policy had been properly considered.

The investor maintained that the broker had liquidated his positions without adequate notice and was responsible for the losses.

The High Court found that the appellate tribunal had not addressed these issues. It held that the absence of findings on contentious issues amounted to patent illegality, warranting interference under Section 34 of the Arbitration and Conciliation Act.

The court clarified that it could not independently decide the disputed issues or substitute its own findings for those of the tribunal.

It set aside the appellate arbitral award and permitted the parties to initiate fresh arbitration in accordance with law. Any amount deposited in court is to be released within one month of the judgment being uploaded. There was no order as to costs.

For Petitioner (5 Paisa Capital Limited): Advocates Kunal Katariya, Jyoti Ghag, Shailesh Prajapati, Vineet Jadhav and Riti Gada (instructed by Dua Associates).

For Respondent (Ankit Agarwal): Advocate Pranil Pawar.