Madras High Court Invalidates Arbitration Award Due To Evidence Taken Without Party's Knowledge After Conclusion Of Arguments

Madras High Court Invalidates Arbitration Award Due To Evidence Taken Without Party's Knowledge After Conclusion Of Arguments

The Madras High Court has ruled that an arbitration award relying on evidence taken after the completion of arguments and without the involvement of one party could be invalidated under Section 34 of the A&C Act.

The Bench comprising of Justices R. Subramanian and R. Sakthivel concluded that when evidence is obtained without the participation of a party and after the conclusion of arguments, it denies that party the crucial opportunity to challenge such evidence or documents.

The Court further emphasized that this deficiency cannot be rectified even if the chance to dispute the document is offered before the appellate tribunal.

The parties engaged in a share trading agreement, whereby the appellant, a registered stockbroker, conducted trades on behalf of the respondent. On March 15, 2000, the respondent entered into a Member Constituent Agreement with the appellant to engage in the trading of listed shares.

On July 27, 2009, the respondent directed the appellant to sell 5,05,000 shares in Electro Steel Castings Ltd. However, the transaction was not executed as instructed. The appellant contended that only a lesser number of shares, approximately 1,93,462 shares, were sold on November 30, 2009. The appellant argued that on the specified date, the respondent only possessed 1,93,462 shares. Consequently, the respondent initiated arbitration.

The respondent submitted multiple documents to substantiate her claim. Following the conclusion of the arbitration proceedings, the tribunal requested records from the National Stock Exchange of India and utilized them to determine that on July 27, 2009, the respondent did not possess 5,05,000 shares in her account, thereby dismissing her claims. The appellate tribunal, in accordance with NSE Rules, upheld the award.

Feeling aggrieved, the respondent contested the award under Section 34. The Single Judge overturned the award, citing the arbitrator's unlawful action in obtaining records from the NSE without the respondent's knowledge and the tribunal's failure to address the documents relied upon by the respondent. Dissatisfied with this decision, the appellant challenged it under Section 37 of the A&C Act.

Grounds of Appeal:

• The arbitral tribunal correctly determined that the respondent did not possess 5,05,000 shares on July 27, 2009, based on evidence examination, warranting no intervention under Section 34.
• The respondent was provided with an opportunity to challenge the statement by the NSE before the Appellate Tribunal.
• The Single Judge exceeded the jurisdiction allowed under Section 34 of the Act.

The Court noted that following the conclusion of arguments, the tribunal requested records from the NSE and based its award solely on the NSE's statement. However, the respondent was not afforded an opportunity to contest the statement as it was obtained without their knowledge.

The Court affirmed that the Single Judge correctly determined that an arbitration award relying on evidence obtained after the conclusion of arguments and without the involvement of a party could be subject to invalidation under Section 34 of the A&C Act.

The Court ruled that obtaining evidence without the involvement of a party and after the conclusion of arguments deprives that party of the crucial opportunity to contest such evidence or document.

The Court dismissed the argument that the defect was cured because the opportunity was provided before the Appellate Tribunal. It maintained that such a defect would not be rectified even if the chance to dispute the document was offered before the appellate tribunal.

The Court also noted that the documents submitted by the respondent were disregarded by both the arbitral and appellate tribunals. It was observed that certain documents were sent to handwriting experts, yet the award did not mention the expert's opinion. Consequently, the Court upheld the Single judge's decision and dismissed the appeal.