Arbitral award upheld under Section 34 despite no formal counterclaim, as tribunal treated statement of defence as such given parties' misconception of conciliator's fee-value report, emphasizing substance over form and broker's admitted fault causing share loss.

JUDGMENT :

SANDEEP V. MARNE, J.

1) This is an interesting case where the constituent/investor raised a complaint before the National Stock Exchange Limited complaining about action of the Trading Member/Stockbroker in selling its shares purchased under the Margin Trading Facility (MTF) on account of technical glitch in the software leading to non-placement of requisite pledge by the investor thereby causing loss to the investor. The mistake is admittedly attributable to the stockbroker. The Stock Exchange referred the dispute to an Institute for online dispute resolution mechanism which appointed a Conciliator. The Conciliator made attempt to resolve the dispute through conciliation and while submitting the Failure Report, determined the value of claim adjudicable in the arbitration. Strangely, the investor did not file any claim, but the Trading Member/Stockbroker was advised to challenge the report of the Conciliator qua the claim value determined by her in the Report. The challenge to the Conciliator’s Report was raised by Stockbroker under a misconception that the Conciliator awarded Rs.75,00,000/- to the investor. The investor also carried the same impression and filed Statement of Defense. He felt that Rs. 75,00,000 determined by the Conciliator was sufficient and did not file any counterclaim. Thus, both Stockbroker as well as the investor laboured under a complete misconception as if the Conciliator had ‘awarded’ the claim in the sum of Rs.75,00,000/- in favour of the investor. In arbitration the Three Member Arbitral Tribunal, has delivered a split verdict. The Presiding Arbitrator has rendered minority award holding that the stockbroker did not file any arbitration claim and therefore dismissed its arbitration application. The Presiding Arbitrator further held that the investor did not file any counterclaim and that therefore no compensation is payable to him. In the majority award however, the two co-arbitrators treated the Statement Of Defence of the investor as a counterclaim and have awarded the claim in his favour in the sum of Rs.23.30 lakhs.

2) The issue that arises for consideration in the present Petition is whether the Arbitral Tribunal is justified in awarding the sum in favour of the investor, who failed to file any claim or counterclaim before it. As both the sides laboured under a misconception that the Report of the Conciliator ‘awarded’ claim in favour of the investor, the issue for consideration is whether the approach in the majority Award treating the statement of defence as the counterclaim, is so irrational that the award is required to be invalidated in exercise of powers under Section 34 of the Arbitration Act. Also arises for consideration is the issue whether in the light of admission of liability by the stockbroker to compensate the investor, the computation and award of the compensation in the majority award deserves interference.

3) The issues arise in the light of challenge raised by the Petitioner-Stockbroker in the present Petition filed under Section 34 of the Arbitration and Conciliation Act 1996 (Arbitration Act) to the majority Award of the three-member Arbitr