Case Note & Summary
The case involves a challenge under Section 34 of the Arbitration and Conciliation Act, 1996, to an arbitral award passed by a tribunal constituted under the bye-laws of the National Stock Exchange of India Limited (NSEIL). The petitioner, Kotak Securities Ltd., a stockbroker, and the respondent, Gaurav Goel, a client, had entered into a Member Client Agreement on 1 November 2004. The respondent claimed that on 28 December 2004, he handed over a letter containing standing instructions for trading during his absence from 29 December 2004 to 26 January 2005 to the petitioner's relationship manager, Mr. Abhishek Bhargave. The petitioner disputed the receipt and veracity of this letter. The arbitral tribunal awarded Rs. 26,16,321 to the respondent, holding that the petitioner failed to act on the standing instructions. The petitioner challenged the award on grounds of patent illegality and violation of natural justice. The court found that the tribunal had erroneously placed the burden of proof on the petitioner to disprove the letter, whereas the respondent, as claimant, had the burden to prove its existence and authenticity. The tribunal also failed to provide an opportunity to cross-examine Mr. Bhargave, who was the key witness. The court held that the award was based on no evidence and suffered from patent illegality, being in conflict with the public policy of India. Consequently, the court set aside the award and allowed the petition.
Headnote
A) Arbitration - Section 34 of Arbitration and Conciliation Act, 1996 - Patent Illegality - Award based on unproven letter of standing instructions - Arbitral tribunal failed to consider that the letter was disputed and not proved in accordance with law - Held that the award suffers from patent illegality and is liable to be set aside (Paras 10-15). B) Evidence - Burden of Proof - Section 101 of Indian Evidence Act, 1872 - Claimant failed to discharge burden of proving the letter of standing instructions - Arbitral tribunal erroneously shifted burden on respondent - Held that the award is perverse and contrary to law (Paras 16-20). C) Natural Justice - Violation of Principles - Arbitral tribunal did not provide opportunity to cross-examine the witness who allegedly received the letter - Held that the award is in conflict with public policy of India (Paras 21-25).
Issue of Consideration
Whether the arbitral award suffers from patent illegality and is in conflict with the public policy of India, warranting interference under Section 34 of the Arbitration and Conciliation Act, 1996.
Final Decision
The court allowed the petition and set aside the arbitral award dated 8 May 2007.
Law Points
- Arbitration and Conciliation Act
- 1996
- Section 34
- Patent Illegality
- Public Policy
- Natural Justice
- Evidence Act
- 1872
- Burden of Proof
- Member Client Agreement
- Standing Instructions
- Stock Exchange Bye-laws
