Karnataka High Court

Ms Poornima Swamy vs M/S Smc Golbal Securities Limited on 10 June, 2022

Bench: Alok Aradhe, J.M.Khazi

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       IN THE HIGH COURT OF KARNATAKA AT BENGALURU

           DATED THIS THE 10TH DAY OF JUNE, 2022

                          PRESENT

           THE HON'BLE MR. JUSTICE ALOK ARADHE

                                AND
             THE HON'BLE MS.JUSTICE J.M.KHAZI

               M.F.A.NO.1679 OF 2016 (AA)
BETWEEN:

Ms. POORNIMA SWAMY
D/O SRI.RAMASWAMY
AGED 65 YEARS,
RESIDING AT NO.70, SBM COLONY
2ND MAIN, ANANDNAGAR
BENGALURU - 560 024
                                           ... APPELLANT
(BY SRI. A.R.HOLLA, ADVOCATE)

AND:

M/S SMC GOLBAL SECURITIES LIMITED
11/6B, SHANTHI CHAMBERS,
PUSA ROAD, NEW DELHI-110 005
HAVING OFFICE AT NO.2003/4,
OMKAR, 2ND FLOOR, 100 FEET ROAD
ABOVE TATA DOCOMO OFFICE,
HAS 2ND STAGE, INDIRANAGAR
BENGALURU - 560 008
BY ITS MANAGING DIRECTOR
                                             ...RESPONDENT
(BY SRI. SHREYAS JAIN, ADVOCATE)

      THIS MFA IS FILED UNDER SECTION 37(1)(b) OF THE
ARBITRATION AND CONCILIATION ACT, 1996 PRAYING TO SET ASIDE
THE ORDER AND DECREE DATED 30.09.2015 PASSED BY THE 42ND
ADDL. CITY CIVIL & SESSIONS JUDGE, BENGALURU (S.D.) IN
A.C.NO.25 OF 2015 AND ALLOW THE CLAIMS OF THE APPELLANT IN
A.C.NO.25 OF 2015 AND ETC.,
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     THIS MFA COMING ON FOR FINAL HEARING THIS DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:


                       JUDGMENT

Mr.A.R.Holla, learned counsel for appellant.

Mr.Shreyas Jain, learned counsel for respondent.

This appeal under Section 37(1) of the Arbitration and

Conciliation Act, 1996 (hereinafter referred to as 'the Act' for

short) has been filed against the order dated 30.09.2015

passed by the trial Court, by which objections preferred by the

appellant under Section 34 of the Act against award dated

08.01.2015 passed by the panel of arbitrators has been

dismissed.

2. The appellant is resident of Bengaluru and had

invested her savings in the share. The respondent is a

company engaged in the business of share broking and is a

registered member of National Stock Exchange of India

Limited. The appellant, in sometime in the year 2013 opened

an account with the respondent in Bengaluru. Thereafter, the

respondent sold shares of the appellant worth

Rs.33,90,239.33. However, only an amount of Rs.7,26,921/-

was paid to the appellant. When the appellant demanded the

balance amount from the respondent, she was told that her

money was invested in shares and subsequently the same has

been lost in share transactions.

3. The dispute between the parties were referred to

the Arbitration. The panel of Arbitrators passed an award

dated 08.01.2015, by which claim of the appellant was

dismissed. Being aggrieved by the same, the appellant filed

objections under Section 34 of the Act challenging the award

passed by the panel of Arbitrators. However, the aforesaid

objections has been dismissed by the trial Court vide order

dated 30.09.2015. In the aforesaid factual background, this

appeal has been filed.

4. Learned counsel for the appellant submitted that

the panel of Arbitrators has passed the impugned award

without recording any evidence. It is further submitted that

there is no basis for recording the findings by the panel of

Arbitrators. However, it is also submitted that the trial Court

ought to have appreciated the findings of the award passed by

the panel of Arbitrators is based on no evidence and was liable

to be set aside as the same suffers from patent illegality.

5. In support of the aforesaid submissions, reliance

has been placed on the decision of Hon'ble Supreme Court in

the case of B.V.Radha Krishna Vs. Sponge Iron India

Ltd., reported in AIR 1997 SCC 1324.

6. On the other hand learned counsel for the

respondent has referred to the award passed by the panel of

Arbitrators and has referred to the evidence recorded by the

Arbitrator with regard to dumping of e-mails.

7. We have considered the submissions made by the

learned counsel for the parties and have perused the record.

8. At the outset, it is pertinent to mention here that

the submissions made by the learned counsel for respondent

with regard to dumping of e-mails is wholly relevant in the

facts and circumstances and as well as context of the

submission made by the learned counsel for the appellant.

9. The scope and ambit of Section 34 of the Act is well

delineated by catena of decisions of Supreme Court. The

Supreme Court in SSANGYONG ENGINEERING AND

CONSTRUCTION COMPANY LIMITED supra while dealing with

powers of the court, deciding application under Section 34 of the

Act, took note of the amendments brought about to Section 34

of the Act by Amendment Act 2015, explained the ratio of the

decisions of the Supreme Court in ONGC VS. WESTERN GECO

INTERNATIONAL LIMITED', (2014) 9 SCC 263, ASSOCIATE

BUILDERS VS. DDA, (2015) 3 SCC 49, post amendment to

Section 34 of the Act and laid down following principles as

mentioned in para 34 to para 41 of the judgment.

(i) The interference by the court with an award on the ground that arbitrator has not adopted a judicial approach would tantamount to interference with merits of the award which cannot be permitted, post amendment of Section 34 of the Act.

(ii) The ground for interference insofar as it concerns 'interests of India' has been deleted, therefore, it is no longer permissible to interfere with the award on the said ground.

(iii) Similarly, the ground for interference in the award on the basis that the same is in conflict with justice and morality, has to be understood as conflict with 'most basic notions of morality or justice'.

(iv) The expression 'public policy of India' is now restricted to mean that a domestic award is contrary to fundamental policy of Indian law and the ground for interference that such an award is against basic notions of justice or morality is done away with.

(v) The exercise of re-appreciation of evidence, which the appellate court can undertake is not permitted on the ground of patent illegality in the award.

(vi) Mere contravention of substantive law of India by itself is no longer a ground available to set aside an arbitral award.

(vii) The change made in Section 28(3) by the Amendment Act follows that construction of terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in a manner that no fair minded or reasonable person would, in short that arbitrators' view is not even a possible view to take. If the arbitrator

wanders outside the contract and deals with the matter not allotted to him he commits an error of jurisdiction and this ground of challenge is covered under Section34(2-A) of the Act.

(viii) A decision of the arbitral tribunal, which is perverse is though no longer a ground of challenge under 'public policy of India', would certainly amount to a patent illegality appearing on the face of the award.

(ix) Thus a finding recorded by an arbitrator which is based on no evidence at all or an award which invokes vital evidence in arriving at its decision would be perverse and is liable to be set aside on the ground of patent illegality.

10. The decision SSANGYONG ENGINEERING AND

CONSTRUCTION COMPANY LIMITED supra was considered

by Supreme Court in DELHI AIRPORT METRO EXPRESS PVT.

LTD. VS. METRO RAIL CORPORATION LTD. (2021) SCC

ONLINE SC 695 and in para 26 & para 27 of the judgment,

the parameters of interference with an arbitral award on the

ground of patent illegality were explained inter alia as under:

(i) The patent illegality should be an illegality which goes to the root of the matter and

every error of law committed by an arbitral tribunal would not fall within the expression of 'patent illegality'.

(ii) Erroneous application of law cannot be categorized as patent illegality.

(iii) Contravention of law not linked to public policy or public interest is beyond the scope of expression 'patent illegality'.

(iv) The courts are prohibited to re appreciate the evidence to conclude that award suffers from patent illegality appearing on face of it as court do not sit in appeal against an arbitral award.

(v) An award can be interfered with on the ground of patent illegaility when an Arbitrator takes a view which is not even a possible view and interprets a clause in the contract in such a manner that no fair minded or reasonable person would or if the Arbitrator commits an error of jurisdiction by wandering outside the contract and deals with matters not allotted to it.

(vi) An arbitral award stating no reasons for its findings would make itself susceptible to challenge on the ground of patent illegality.

(vii) The conclusions of an Arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Similarly, the consideration of documents, which are not supplied to the other party would render a finding recorded by the Arbitrator perverse and the same would fall within the expression 'patent illegality'.

(viii) Explanation (1) amended by 2015 Amendment Act clarifies the expression 'public policy of India' and its connotations for the purposes of reviewing arbitral awards. It has been made clear that an award in conflict with public policy of India only when it is induced or affected by fraud or corruption or is in violation of Section 75 or Section 81 of the 1996 Act, if it is in contravention of fundamental policy of India law or if it is in conflict with most basic notions of morality or justice.

(ix) The contravention of a statute only if is linked to public policy or public interest is ground for setting aside the award as being at odds with the fundamental policy of Indian law.

11. The aforesaid decisions of the Supreme Court were

referred to with the approval by a three judge bench of the

Supreme Court in STATE OF CHHATTISGARH AND ANOTHER

VS SAL UDYOG PRIVATE LIMITED (2021 SCC Online

1027).

12. At this stage we may refer to para 4.1 of the

award passed by the panel of Arbitrators, the relevant extract

of para 4.1 reads as under:

"4.1 At the outset, Mr.Holla, representative of the Applicant, reiterated the Applicants primary claim that she had not received the payment within three days against sale of shares and that trades were executed in her account without her consent and knowledge. The Panel of Arbitrators wanted to know from Mr.Holla whether any demand was made through e-mail or letter for the alleged non- payment to the tune of Rs.26,63,318/-. To this Mr.Holla confirmed that no demand or complaint had been made by the Applicant in writing. He added that the demand was made only telephonically. The Panel also wanted to know from Mr.Holla why it took so much of time in filing the complaint regarding non-payment against sale of shares involving huge amount of money, when ordinarily the matter should have been taken up with the Respondent or concerned authority immediately without any loss of time. The Representative admitted that ordinarily nobody would do that. The Panel asked Mr. Holla to produce evidence, if any, such as call history, etc of telephonic conversation to which Mr.Holla said he did not have any proof."

13. Similarly at para 4.2 of the award, the relevant

extract of para 4.2 reads as under:

"4.2 The Respondent stated that they had complied with all rules and regulations relating to trading as laid by the SEBI/NSEIL. They had sent the sms alerts, Electronic and physical contract notes, ledge statements etc to the Applicant's registered mobile number and e-mail ID. The Arbitrators asked both the parties about the authenticity of the mobile number and the registered e-mail ID and both the confirmed the same as given the KYC form at the time of opening of account. On being asked by no objection was raised on receipt of sms alerts, ECN, ledger statements, Mr.Holla maintained that the Applicant had not placed any order for trading. The Respondent rebutted by saying that the orders were telephonic which were followed by sms alerts, contract notes etc containing details of trades in the Applicant's account. Any objection should have been brought to the notice of the Respondent immediately. On query from the Panel on the Voice recording system in place at the Respondent's office, the latter explained briefly their system that it was used as random check and not for all the transactions. The Respondent was asked whether he could produce call history for the disputed trades to which he replied that it was very difficult.."

14. The panel of Arbitrators thereafter proceeded to

decide the lis and recorded the findings in para 6.1 to 6.5 and

eventually concluded that the appellant had failed to prove

the case according to the claim of the appellant. Thereafter

the objections preferred by the appellant under Section 34 of

the Act has been dismissed and the award has been upheld by

the trial Court.

15. In the aforesaid facts of the case, the panel of

Arbitrators had given an opportunity to the appellant to

adduce her evidence. However, the appellant despite having

an opportunity to adduce evidence to prove her claim, has not

led any evidence to prove claim. Thereafter, the panel of