RECENT rulings by the Madras High Court and the Bombay High Court have reinforced the principles of fairness and transparency in arbitration processes. These decisions highlight the judiciary’s role in ensuring that evidence is properly considered and that natural justice is upheld during arbitration proceedings.
Geojit Financial Services vs Nalani Rajkumar & Ors. This case involves a conflict between Geojit Financial Services Ltd, a stockbroker, and its client, Nalani Rajkumar, regarding unauthorised transactions of shares. Nalani Rajkumar claimed ownership of 5,05,000 shares in Electro Steel Castings Ltd, which Geojit was supposed to sell but allegedly did not.
Seeking compensation, Nalani initiated arbitration under the National Stock Exchange (NSE) regulations. After the hearings, the Arbitral Tribunal obtained additional information from the NSE and, based on this, dismissed Nalani’s claim, asserting she did not own the shares.
Award overturned
Nalani contested this decision at the Appellate Tribunal, which upheld the initial ruling. She then appealed under Section 34 of the Arbitration & Conciliation Act, 1996, to the Madras High Court. A single judge Bench overturned the award, a decision later upheld by a Division Bench.
The court identified several critical issues: The tribunal’s acquisition of NSE details after the hearings disadvantaged Nalani, as she was unable to challenge or clarify this new information.
Crucial documents supporting Nalani’s claims were disregarded by the tribunal, which relied solely on the NSE’s post-hearing statements.
The lack of findings from a handwriting expert on disputed documents contributed to procedural unfairness.
The tribunal’s actions compromised the fairness of the arbitration process, warranting the annulment of the award under Section 34.
Govt of India vs Addl Commissioner, Nagpur This case pertains to a dispute over compensation related to land acquisition for the National Highway (NH7) project. The landowner challenged the compensation and sought arbitration. The arbitrator, after the hearings, increased the compensation based on photocopies of two sale deeds submitted post-hearing, which the National Highways Authority of India (NHAI) could not contest.
The Government of India (GOI) and NHAI challenged the arbitrator’s award under Section 34, but the District Judge rejected their challenge. Upon appeal, the Bombay High Court (Nagpur Bench) found significant procedural issues: The arbitrator’s reliance on documents not disclosed to NHAI violated Section 24, which requires the communication of all information, and Section 28, which mandates adherence to Indian substantive law. The award was contrary to fundamental legal principles, necessitating its annulment.
The landowner requested that the case be remanded under Section 34(4), but the court clarified that this discretionary power is intended to correct insufficient reasoning, not procedural errors. Citing the Supreme Court’s decision in ‘I-Pay Clearing Services Pvt Ltd vs ICICI Bank Ltd,’ the court ruled against remanding the case.
Restoring balance
These judgments emphasise the critical importance of procedural fairness and the proper consideration of evidence in arbitration. They underscore the need for transparency, equal opportunity, and adherence to due process to maintain the integrity of arbitration proceedings. According to Abhishek Kumar, a lawyer with Singhania & Partners, these rulings reinforce the necessity for transparency and equal procedural rights, thereby bolstering the credibility of the arbitration process.
