Mandate Of Arbitrator Can Be Terminated For Delay In Passing Award Despite Absence Of Automatic Termination Clause In NSE Bye-Laws: Delhi HC

Brief Facts:

This petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Arbitration Act”) seeking to challenge the Appellate Arbitral Award dated 31.07.2015 (“the Appellate Award”) by which the Appellate Arbitral Tribunal dismissed the appeal of the petitioner against the Original Arbitral Award dated 16.05.2014 (“the Original Award”) vide which the Original Arbitral Tribunal dismissed the claim of the petitioner of Rs. 2.25 crores against the respondent No. 1.

The petitioner entered into a Member Client Agreement “the MCA”) with the respondent No. 1. According to the MCA, the petitioner, being “the client”, agreed to invest and trade in securities, contracts and other instruments admitted for trading on the NSE. The MCA also allowed the petitioner to trade in the derivatives segment and enter into derivative contracts through the respondent No. 1, being “the stock broker”.

As per the respondent No. 1, the petitioner incurred losses during trading and on 29.06.2011, the respondent No. 1 issued a cheque for Rs.31,525.19/- along with the statement of accounts, reflecting the credit balance available in the account of the petitioner. Subsequently, the petitioner invoked the arbitration mechanism under Regulation 5.9(h) of the NSE (Futures & Options Segment) Trading Regulations (“NSE Regulations”) by filing a Statement of Case dated 20.09.2013 before the NSE.

The Original Arbitral Tribunal dated 16.05.2014 concluded that all trading transactions during the relevant period were within the knowledge of the petitioner and subsequently dismissed the entire claim.

The Appellate Arbitral Tribunal, in the impugned award, dismissed the appeal of the petitioner and upheld the findings of the Original Tribunal.

The Petitioner submitted that the Original Award dated 16.05.2014 is time-barred since it was passed and received well after the four-month period mandated from the date of the appointment of the arbitrators i.e. 31.10.2013, as provided under Bye-Law 13(b) of Chapter XI of the National Stock Exchange Bye-Laws.

It was further submitted that the award passed by the Appellate Tribunal is time barred as it was issued beyond the three month time period from the date of appointment of the Appellate Arbitrators as stipulated under Bye Law 19(b) of the NSE Bye Laws.

It was further contended that although the NSE was authorised to manage the appointment of the Arbitrators through its Centralised Arbitrator Appointment Process, it failed to follow its own procedural guidelines. Therefore, the Award is liable to be set aside under section 34(2)(a)(v) of the Arbitration Act.

It was further submitted that the branch of respondent No. 1 and its employees have not been approved or recognized by the NSE; the respondent No. 1 has failed to furnish information despite repeated requests. The findings of the arbitrators are contradictory and illegal because they downplayed the necessity of adhering to the NSE and SEBI Regulations. The arbitrators have violated the Code of Conduct stipulated in the SEBI Circular dated 11.08.2010.

It was further submitted that key procedural lapses included not obtaining written confirmed order instructions before executing trades, not maintaining statutory records such as NEAT system-generated trade slips or order confirmations and issuing contract notes without proper consent of the petitioner. These breaches mean the contract notes do not reflect the actual orders of the petitioner, thereby making them invalid.

Per contra, the Respondent submitted that the petitioner did not raise any objections regarding the timeline until after the award was issued, effectively waiving his right to contest the timing under Section 4 of the Arbitration Act. The timelines in the NSE Bye-Laws are directory rather than mandatory, as there are no specified consequences for non-compliance.

It was further submitted that the Appellate Tribunal found that the petitioner was aware of the Nifty Future trades and had provided funds for trading. The tribunal highlighted that the petitioner did not raise objections about the contract notes until years after the trades were executed, undermining his claims of ignorance.

It was also argued that the requisite approval for opening the branch was indeed obtained from the NSE. The respondent No. 1 emphasizes that if it had not secured the necessary approval, the NSE would have penalized it and taken appropriate action. This indicates that the broker was compliant with regulatory requirements.

It was further submitted that while Regulation 17(j) of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 mandates the written consent for principal trades, it does not negate the validity of trades executed based on confirmed instructions received through other means.

It was further submitted that clauses 37 and 40 of the MCA allows the Respondent to square off open positions without even prior notice if the margin requirements are not met. Since the petitioner did not dispute his failure to meet margin calls, the Respondent was justified in taking action to mitigate the risk.

Observations:

The court noted that in NBCC Limited, the arbitration proceedings had lingered on for 9 years. The Hon'ble Supreme Court held that the said delay defeated the notion of the whole process of resolving the disputes through arbitration. The decision of the High Court in fixing a time schedule within which the arbitration should be concluded was upheld.

In light of the above judgment, it can be concluded that the law of limitation in arbitration is grounded in public policy. The primary objective of the limitation is to prevent indefinite litigation. Arbitrators are mandated to conduct and conclude the proceedings in a prompt manner. If the Arbitrator fails to conclude the proceedings within time that may lead to termination of its mandate and setting aside of the award. The courts have reiterated time and again that unjustified delays in the arbitration defeat the purpose of the Arbitration as an efficient dispute resolution mechanism.

The court further observed that the use of shall in Bye Laws 19(b) of the NSE Laws and clause 6.5 of the SEBI Circular issued on 11.08.2010 makes the three month time period for issuing the award mandatory. Even if the time is considered directory, the Appellate Tribunal cannot be given extension for more than 2 months as per clause 6.6 of the SEBI Circular.

Therefore, in the present case, the Appellate Tribunal could not have issued the award beyond three months from 10.02.2015 as no further extension for two months was granted. Any award passed after the expiry of the stipulated time period violates the true intent and spirit of the NSE and SEBI Rules. If the arguments of the Respondents are accepted, Bye Law 7(b) of the NSE Bye Laws would be rendered otiose. Just because no action was taken by the NSE or SEBI does not justify the delay made by the Appellate Tribunal in passing the award.

The Supreme Court in Harinarayan G. Bajaj v. Rajesh Meghani, (2005) held that the arbitration under the NSE Bye Laws is governed by the Arbitration and Conciliation Act wherever the Bye Laws are silent. The Apex Court further held that the disputes must be resolved strictly in accordance with the Bye Laws and Regulations. Any deviation from the Bye Laws would invalidate the proceedings.

In light of the above discussion, the court held that “Hence, despite the absence of an automatic expiry clause for the mandate of the arbitral tribunal under NSE Bye-Laws, Bye-law 7(b) empowers the Relevant Authority to terminate an arbitrator who fails to act within the prescribed time, thereby indirectly limiting the mandate of the arbitral tribunal. It can be seen that the intent and spirit of the NSE Bye-Laws is similar to the Arbitration Act as the NSE Bye-Laws also impose specific timelines for issuing awards.”

It observed that mere act of filing of written statement by the Petitioner does not take away his right to challenge the mandate of the Arbitrator. Notably, the last written submissions filed by the Petitioner were related to the last arbitration proceedings conducted on 26.11.2014 and no new grounds were introduced by the Petitioner in the submissions.

It held that hence, if the delays are excessive and result in a delayed award, they would contravene the broader public policy mandate of achieving swift, just resolution of disputes. In balance, while the unamended Act does not prescribe strict time limits, the validity of such an award may still be challenged under Section 34 of the Arbitration Act if the delay is unreasonable as to defeat the purpose of arbitration and the fundamental principles of justice.

It concluded that in the present case, the Appellate Award has clearly been passed beyond the time prescribed under Bye-Law 19(b) of the NSE Bye-Laws and Clause 6.5 of the SEBI Circular dated 11.08.2010 and thus, is violative of public policy under Section 34 of the Arbitration Act.

Accordingly, the present petition was allowed and the Appellate Award was set aside.

Case Title: RAM KAWAR GARG versus BAJAJ CAPITAL INVESTOR SERVICES LIMITED NOW NEW NAME IS JUST TRADE SECURITIES LIMITED AND ORS.

Case Number: O.M.P.(COMM.) 83/2024

Judgment Date: 01/07/2025

For Petitioner: In Person

For Respondent: Mr. Dhruv Dewan, Ms. Smarika Singh, Ms. Yashna Mehta, Mr. Arjun Singh Rana, Ms. Sanjukta Roy, Advs. for R-1.

Mr. Sujoy Sur, Mr. Aubert Sebastian, Mr. Vedant Kumar, Advs. R-2&3. Mr. Ashish Aggarwal, Mr. Rahul Malik, Ms. Shivangi Shokeen, Advs. for R-4.

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