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

The Delhi High Court bench of Justice Jasmeet Singh has held that although the National Stock Exchange (NSE) Bye Laws do not provide for the automatic termination of the Arbitrator's mandate after the expiry of the time period stipulated under Bye Law 7(b) of the NSE Bye Laws, the mandate of the Arbitrator can be terminated by the Relevant Authority if the Arbitrator fails to pass the award within time thereby indirectly limiting the arbitrator's mandate. This shows that the intent and spirit of both the NSE Bye-Laws and the Arbitration Act is the same as both prescribe for the termination of the arbitrator's mandate if timely award is not passed. 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 ...

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

Mohd Malik Chauhan

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

Mohd Malik Chauhan

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Mohd Malik Chauhan

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