Evidence Taken Behind The Back Of A Party After Completion Of Arguments, Madras High Court Sets Aside Arbitration Award

The bench of Justices R. Subramanian and R. Sakthivel held that when an evidence is taken behind the back of a party and after the completion of arguments, it deprives that party of its valuable opportunity to dispute such evidence/document.

The Court also held that such a defect would not be cured if the opportunity to dispute such document was provided before the appellate tribunal.

Facts

The parties entered into an agreement for trading shares wherein the appellant, a registered stockbroker, traded on behalf of the respondent. On 15.03.2000, the respondent entered into a Member Constituent Agreement with the appellant to trade in listed shares.

On 27.07.2009, the respondent instructed the appellant to sell 5,05,000 shares in Electro Steel Castings Ltd. However, the transaction was not completed as authorized. The appellant claimed that a lesser number of shares, about 1,93,462 shares, were sold on November 30, 2009. The appellant asserted that on the subject date the respondent only had 1,93,462 shares. Consequently, the respondent invoked arbitration.

The respondent filed several documents to prove her claim. After the completion of arbitral proceedings, the tribunal called for records from the National Stock Exchange of India and relied upon it to conclude that on 27.07.2009, the respondent did not have 5,05,000 shares in her account and rejected her claims. The appellate tribunal, as provided under NSE Rules, affirmed the award.

Aggrieved thereby, the respondent challenged the award under Section 34. The Single Bench set aside the award on the ground that the arbitrator had acted illegally by calling records from the NSE behind the back of the respondent and that the tribunal failed to deal with the documents relied upon by the respondent. Aggrieved thereby, the appellant challenged it under Section 37 of the A&C Act.

Grounds of Appeal

• That the arbitral tribunal rightly concluded that the respondent did not have 5,05,000 shares 27.07.2009 and this finding was based on examination of evidence and did not deserve any interference under Section 34.
• The opportunity to dispute the statement by NSE was granted to respondent before the Appellate Tribunal.
• The Single Bench travelled beyond the jurisdiction permitted under Section 34 of the Act.

Analysis by the Court

The Court observed that after the arguments were completed, the tribunal called for records from NSE and based it award purely on the statement of NSE, however, the respondent was not given a chance to dispute the statement since it was taken behind its back.

The Court held that the Single Bench rightly concluded that an arbitration award based on an evidence taken on record after the completion of arguments and behind the back of a party would be liable to be set aside under Section 34 of the A&C Act.

The Court held that when an evidence is taken behind the back of a party and after the completion of arguments, it deprives that party of its valuable opportunity to dispute such evidence/document.

The Court also rejected the argument that since the opportunity was granted before the Appellate Tribunal, the defect stood cured. It held that such a defect would not be cured if the opportunity to dispute such document was provided before the appellate tribunal.

The Court also observed that the document filed by the respondent have been ignored by arbitral as well as the appellate tribunal. It observed that certain documents were referred to the hand writing experts but the award made no reference to the opinion of the expert.

Accordingly, the Court upheld the decision of the Single Bench and dismissed the appeal.

Case Title: M/s Geojit Financial Services Ltd v. Mrs. Nalani Rajkumar, Original Side Appeal (CAD) No.51 of 2021

Citation: 2024 LiveLaw (Mad) 170

Date: 21.03.2024

Counsel for the Appellant: Mr. T.K. Bhaskar

Counsel for the Respondent: Mr. K. Shakespeare

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