Case Note & Summary
The petitioners, original constituents, filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the final award dated 23 September 2011 passed by the Appellate Tribunal under the byelaws of the National Stock Exchange of India Limited (NSE). The Appellate Tribunal had set aside the sole arbitrator's award dated 9 May 2011, which had directed the respondents (trader and its employee) to return certain shares to the petitioners. The dispute arose from a client-broker relationship where the petitioners alleged that the respondents failed to return their shares. The sole arbitrator found in favor of the petitioners and ordered the return of shares. However, the Appellate Tribunal reversed this decision. The High Court, while hearing the petition, observed that the shares in question (item nos. 5 to 7) were in the account of a third person, Darshan Ashok Gujarathi, who was not a party to the arbitration agreement or proceedings. The court noted that the arbitrator's award directed the return of these shares to the petitioners, effectively affecting the rights of a third party without giving them an opportunity to be heard. The court held that such an award is contrary to the fundamental policy of Indian law and violates principles of natural justice. Consequently, the court set aside the Appellate Tribunal's order and the arbitrator's award to the extent it directed return of shares belonging to a third party. The court remanded the matter to the Appellate Tribunal for fresh consideration, allowing the petitioners to implead the third party and giving all parties an opportunity to be heard.
Headnote
A) Arbitration Law - Setting Aside Award - Section 34 of the Arbitration and Conciliation Act, 1996 - Public Policy - The court examined whether the Appellate Tribunal's order setting aside the sole arbitrator's award was contrary to public policy. The court held that the award directing return of shares to a third party not party to the arbitration proceedings was in violation of natural justice and public policy, as it affected the rights of a person not heard. (Paras 1-3) B) Arbitration Law - Natural Justice - Third Party Rights - The court noted that the shares in question were in the account of a third person, Darshan Ashok Gujarathi, who was not a party to the arbitration agreement or proceedings. The court held that an award cannot be passed against or in favor of a person who is not a party to the arbitration, as it would violate principles of natural justice. (Paras 3-4)
Issue of Consideration
Whether the Appellate Tribunal under NSE byelaws erred in setting aside the sole arbitrator's award and whether the award directing return of shares to a third party not party to arbitration is sustainable under Section 34 of the Arbitration and Conciliation Act, 1996.
Final Decision
The court set aside the Appellate Tribunal's order and the arbitrator's award to the extent it directed return of shares belonging to a third party. The matter was remanded to the Appellate Tribunal for fresh consideration, allowing the petitioners to implead the third party and giving all parties an opportunity to be heard.
Law Points
- Arbitration award contrary to public policy
- violation of natural justice
- award affecting rights of third party not party to arbitration
- Section 34 of Arbitration and Conciliation Act
- 1996
