SATCO Capital Markets Ltd. v. Rahul H Bajaj

(i) a party was under some incapacity; or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v) the composition of the Arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) the court finds that—

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India.

Explanation.—Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81. (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the Arbitral Tribunal: Provided that if the court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter. (4) On receipt of an application under sub-section (1), the court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the Arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of Arbitral Tribunal will eliminate the grounds for setting aside the arbitral award.

12. The 2015 amendment made several significant changes. Amended Section 34 reads thus: “34. Application for setting aside arbitral award.— (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3). (2) An Arbitral award may be set aside by the Court only if— (a) the party marking the application establishes on the basis of the record of the arbitral tribunal that —

(i) a party was under some incapacity; or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) the Court finds that—

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India.

Explanation 1.— For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—

(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2.— For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute. (2-A) An arbitral award arising out of arbitrations other than international commercial arbitrators, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award; Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence. (3) An application for setting aside my not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter. (4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award. (5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement. (6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon other party.”

13. The difference pre– and post–amendment came to be fully analysed by RF Nariman J in Ssangyong Engineering & Construction Co Ltd v National Highways Authority of India.[4] In particular Ssangyong Engineering takes the position as enunciated in Associate Builders and then demonstrates the changed position following the 2015 amendment.

14. The first task therefore is to gain as accurate and understanding as possible of the scope and standard of review of an award by a Court under Section 34. This is essential because it is fundamental to Mr Chinoy’s case. The two authorities that will guide this discussion are Associate Builders and Western Geco, which held that a challenge to an award lay under Section 34(2)(b)(ii), i.e., that the award conflicted with the public policy of India. But what did this expression “public policy” mean? The two authorities of the Supreme Court tell us that it includes a violation of the “fundamental policy of Indian law”; and possibly equally broad expressions: an award that was contrary to “justice and morality”; and a case of an award that was vitiated by “patent illegality”. These expressions demanded judicial interpretation. In Saw Pipes, the Supreme Court held that the illegality of which the Section spoke must be fundamental. It must go to the root of the matter, and it is not every trivial alleged “illegality” that could support a challenge on the ground of a violation of public policy. There, in Saw Pipes, we also saw the enunciation of a principle of an award being so unfair and so unreasonable as to shock a judicial conscience. An award of that kind, it was said, was inherently opposed to public policy and had to be negated. Post the 2015 amendment the Supreme Court has clarified that ‘patent illegality’ has to be carefully distinguished or parsed from ‘an erroneous application of law’. The law being incorrectly applied does not necessarily mean that there is a patent illegality: Delhi Airport Ltd v Delhi Metro Rail Corporation Ltd.[5]

15. Returning to the Associate Builders and Western Geco formulation, and the explanation of the dimensions of “the fundamental policy of Indian law”, three principles were said to emerge. First, that the arbitrator had to adopt a judicial approach and was required to deal with the subject in a fair, reasonable and objective way. This necessarily meant the exclusion of anything arbitrary or whimsical. That is perhaps self-evident because that which is arbitrary or whimsical cannot possible be fair, reasonable or objective. Second, principles of natural justice has to be met. There must be a demonstrable application of mind to attendant facts and circumstances and a demonstrated non-application of mind was fatal in the sense it would render vulnerable and arbitral award. Third, and this is more precisely where SATCO’s case falls, if the arbitral award was demonstrated to be so perverse or so irrational that no reasonable person would have arrived at it, the award would have to be set aside.

16. This is what we call the ‘Western Geco expansion’. It is based on the principle enunciated in Associated Provincial Picture Houses Limited v Wednesbury Corporation,[6] a principle evolved in administrative law and in judicial review of administrative action, to test standards of reasonableness, rationality and non-perversity in administrative decision-making. It is in Western Geco that this principle was applied to arbitration law in explicit terms and by specific reference to Wednesbury.

17. This raises what is possibly one of the most profound dilemmas in arbitration law. On the one hand, there is a generally stated principle that if a challenge to an arbitration award has not the same amplitude as a civil First Appeal, then this necessarily means that a challenge to an arbitral award must be constricted by Section 34 and a full merit-based review is impermissible. But at the same time, the concepts of perversity, irrationality and Wednesbury unreasonableness carry with them the requirement of accessing whether relevant material has or has not been ignored or excluded or whether irrelevant material has been brought into consideration. This has been expressed to mean that if the award is said to be “so outrageous in its defiance of logic”, it will not and cannot be sustained. The expression “outrageous in its defiance of logic” is of course a direct reference to the statement by Diplock LJ in Council 6 [1948] 1 KB 223. of Civil Service Unions v Minister for the Civil Service,[7] where the Court was interpreting the expanse of Wednesbury unreasonableness.

18. Two other consequences flow from this. Again, these need to be set in a certain context. In an arbitration, facts will be canvassed and will be subjected to proof. On facts proved, it is always open to a party in arbitration to invite an inference. But Associate Builders tells us, in reference to Western Geco, that if on such proved facts an arbitrator fails to draw an inference that ought to have been drawn or, conversely, draws an inference that is unsupported by proved facts and is therefore untenable, resulting in a “miscarriage of justice”, the award would fail. We emphasize this because Mr Chinoy has in fact repeatedly argued at some length and on the basis of a very close reading of the material that the award in question has in fact resulted in a complete ‘miscarriage of justice’. There is, thus, in his formulation not just ‘perversity’ generally stated or ‘irrationality’ widely canvassed, but there is a demonstrable “miscarriage of justice”.

19. But this testing of an award in regard to the exclusion of relevant material, the inclusion of irrelevant material, irrationality inferences impermissibly drawn or not drawn and miscarriage of justice have to be weighed against the much broader proscription against a full merit-based review. That is never an easy task.

20. Will every inference drawn or not drawn which a Section 34 Court believes to be incorrect necessarily invite interference by a 7 [1983] UKHL 6: [1984] 3 All ER 935: [1984] 3 WLR 1174. Section 34 Court? There is at least some authority of other Courts to say that this is impermissible unless the resultant outcome is grossly unfair or is shown to be a gross miscarriage of justice. The Section 34 Court therefore has before it an extremely delicate and nuanced balancing act, especially in the state of the law that as it stood prior to the 2015 amendment. On the one hand, it cannot engage in a full merit-based review. On the other, an assessment of these principles requires some attention to details, facts, pleadings and material. How else would one be able to assess whether a particular inference for instance, is or is not so egregious as to have resulted in a miscarriage of justice?

21. Subsequent judgments, i.e., those following the 2015 amendment may shed some light on the overall approach to be taken in matters like this. One of the most notable features of the 2015 amendment was that some previous challenges, as we have seen, were removed and others were re-positioned. This is precisely how Ssangyong Engineering puts it. The analysis of the 2015 amendment, and the changes it wrought, as enunciated in Ssangyong Engineering will clearly show us the pre– and post-amendment position. That analysis may be summarised like this: (a) “Public policy of India”, whether in Section 34 or Section 48 means the ‘fundamental policy of Indian law’ as explained in paragraphs 18 and 27 of Associate Builders. This is a return to the Renusagar position: violation of (i) the fundamental policy of Indian law;

(ii) the interest of India; and (iii) justice or morality.[8]

8 Ssangyong Engineering, supra, paragraphs 34 and 36. (b) The Western Geco expansion, i.e. the requirements of a judicial approach (as interpreted in Western Geco) and placing ‘unreasonableness’ in the ‘public policy’ head, is now a thing of the past.[9] To do so would be to enter impermissibly into a merit-based review of an arbitral award.

(c) Violations of principles of natural justice continue to be a ground for interference.10 (d) “The interest of India” does not survive as a ground for challenge.11 (e) The ‘justice or morality’ standard is now to be viewed as a test of whether the award violates ‘the most basic notions of morality or justice’, in accord with paragraphs 36 to 39 of Associate Builders — the award must shock the judicial conscience to admit of interference on this ground.12 (f) Domestic awards must now survive an additional test: that set out in Section 34(2A), the ‘patent illegality’ standard. This must be a facially patent illegality. It cannot be an erroneous application of the law. A backdoor entry is not permitted: a ground not within ‘the fundamental policy of Indian law’ — the 9 And therefore paragraphs 28 and 29 of Associate Builders would no longer obtain.

10 Arguably, though, this would not be on ‘merits’ strictly speaking, so much as a question of procedure and a violation of the equal-treatment standard.

12 Ssangyong Engineering, supra, paragraph 35. contravention of a statute unlinked to public policy or public interest — cannot slither in under the ground of ‘patent illegality’.13 (g) There is distinction between ‘an erroneous application of the law’ and an ‘incorrect invocation of the law’. For instance, ignoring a binding decision of a superior court is not an erroneous application of the law. It is a ground of patent illegality, because it does not state the law correctly. But an award that correctly states the law is not vulnerable because its application of that correctly stated law to the contractual dispute is said (or even shown) to be erroneous. (h) Patent illegality does not extend to a re-appreciation of evidence. Only an appellate court can do that. A Section 34 court cannot. It is not an appellate court.14

(i) A mere contravention of substantive Indian law is no longer a ground to set aside an arbitral award.15 (j) But an award with no reasons is a violation of Section 31(3) of the Arbitration Act and constitutes a patent illegality. Paragraph 42.[2] of Associate Builders stands.16 (k) The interpretation and construction of a contract is primarily for the arbitrator to decide. If the tribunal does so in a way no fair-minded or reasonable person

16 Ssangyong Engineering, supra, paragraph 39. would — that is, the arbitrator’s view is not even minimally a possible one — or if he wanders outside the contract and deals with mattes not assigned to him (for instance, in a dispute about a leave and license agreement considering whether a particular communication is defamatory and awarding damages or an injunction), then the award is vulnerable as a jurisdictional error within Section 34(2A).17 (l) ‘Perversity’, as understood in paragraphs 31 and 32 of Associate Builders, is no longer under the ‘public policy of India’ head. Yet it continues to exist. It is now repositioned to fall under the ‘patent illegality appearing on the face of the award’ head. This would include: a finding based on no evidence at all; an award which ignores vital evidence in arriving at its decision; or, say, a finding based on documents taken behind the back of the parties.18

(m) The patent illegality standard is unavailable for international commercial arbitrations.19 (n) Section 34(2)(a) does not permit a challenge to an arbitral award on merits.20

22. We return to the fundamental concepts, those of ‘perversity’ and ‘patent illegality’ and how these are to be meaningfully 17 Ssangyong Engineering, supra, paragraph 40.

20 Ssangyong Engineering, supra, paragraphs 43–48. addressed by a Section 34 Court. Delhi Airport Ltd v DMRC is clearly a decision after the 2015 amendment. But while analyzing the law, the Supreme Court looked to a general principle regarding interference on the facts of each case. It stressed, inter alia in paragraph 28 and elsewhere, that above all there had to be minimal judicial interference, a broad mandate that did not change after

2015. It was always there. Courts must therefore be restrained while examining the validity of the arbitral awards. The reason is pegged to statutory intent. Arbitration as a dispute resolution mode (we will not say alternate) is intended to provide a speedy resolution not only of disputes but allow quick enforcement of the resultant awards. Courts are not intended to sit in appeal over awards. There are provisions in the Arbitration Act for assistance of arbitral tribunal in discharging their functions; thus the limitation on grounds available for judicial interference. But each case would have to be assessed differently and the Supreme Court in Delhi Airport Ltd v DMRC noted that there was what it calls a disturbing tendency of courts to set aside awards after bisecting and reassessing factual aspects of the cases to conclude that the award demanded intervention. Then, courts would, as the Supreme Court said, “dub” the awards to be vitiated by either perversity or patent illegality. This approach, in the words of the Supreme Court, would lead to a corrosion of the object of the Arbitration Act.

23. Delhi Airport Ltd v DMRC emphasized the need for minimal judicial interference. One cannot allow decisions of the Supreme Court to become dead letters simply by labelling every award before a Section 34 Court as either ‘perverse’ or ‘patently illegal’. It is not the substance that matters, not the label one attaches to it.

24. Mr Khambata maintains that what SATCO has set about doing in the Section 37 Appeal is precisely that which the Supreme Court disapproved in Delhi Airport Ltd. It is advocating a fullspectrum re-appreciation of the entire material before the arbitrator at least to the extent of the award in favour of Bajaj. That is not a permissible course of action even for the Section 34 Court, let alone for an Appellate Court in Section 37.

25. Another perspective is this. If the view of the arbitrator is possible — not required to be plausible or even probable — no interference is permitted. Errors of fact cannot be corrected. The arbitrator is the master of the evidence both as regards quantity and as regard quality. Even if an award is based on evidence that was scanty and insufficient to a changed legal mind, that would not per say invalidate an award. But what continues throughout is that the fundamental policy of Indian law is the requirement of a judicial approach and the absence of perversity.

26. This is where Mr Chinoy firmly places his case on facts. He cites a notable decision of a learned Single Judge (SC Gupte J) in Jackie K Shroff v Ratnam Iyer.21 That was also a case under the law as it stood prior to the 2015 amendment. The petitioner was entitled to an amount of USD 3.[5] million under a settlement agreement. He has said that he has performed all his obligations. But the award 21 2020 SCC OnLine Bom 647: (2020) 5 Mh LJ 524. denied him this amount because his wife (not a party to the settlement agreement nor to the arbitration) had in some email correspondence to her associates called the respondent Iyer “a forger”. The learned Single Judge held that the resultant award was “a bizarre outcome”. Adjectives aside, the finding that is material for our purposes in that decision is that the award was something that no fair or judicially minded person could have made; it was the very opposite of justice; and that it would be a travesty of justice to uphold such an award. The learned single Judge also held that the award was thoroughly unreasonable impossible and perverse, partly based on no evidence, party on non-application of mind and partly on a wholesale misapplication of law — and resulting in a miscarriage of justice. Gupte J held that it was an impossible award (as opposed to a possible one) and that its conclusions shocked the judicial conscience; they were neither fair nor judicious, and therefore were contrary to the fundamental policy of Indian law in making awards. The decision was upheld in appeal; the Section 37 appeal failed.22 The decision of the learned Single Judge was ultimately upheld by detailed judgment of the Supreme Court Ratnam Iyer v Jackie Shroff.23

27. There are cases and cases of all hues and description. Multiplying authorities on this or that side will not necessarily assist. We note that for example, Mr Khambata relies on the ultimate decision of the Supreme Court in Haryana Tourism Ltd v where the Supreme Court held that the

Section 37 Court’s appellate decision impermissibly entered into the realm of a merit-based claim as if it was deciding a Civil Appeal against an original judgment and decree. Even in Associate Builders the Supreme Court disapproved of the approach of the High Court Division Bench and said it was the jurisdictional error to interfere with the pure finding of fact.

28. More importantly, Mr Khambata lays a great deal of emphasis on paragraph 52 of Associate Builders for the observations that in a Section 37 Appeal, the Appellant was bringing in facts “which were neither pleaded nor proved…”

29. As to the judicial conscience, we believe that this is a term that lends itself to far too much subjectivity to be of much assistance to us. We will only say that under the guise of a shocked judicial conscience, no Court can substitute its view for that of an arbitrator to do what might generally called “justice” or even “substantial justice”. It is entirely possible for example for a Court to say “this is not the judgment that I would have made. It is nonetheless a judgment of an arbitrator and I cannot interfere with it because it is a possible view.”25 See: Sutlej Construction Ltd v Union Territory of Chandigarh.26

30. As to patent illegality, we have already seen some of the principles that have been applied and enunciated in Associate Builders. That decision is still a well accepted and well established reference point on arbitration law and is almost unarguably the authoritative pronouncement of the law as it stood just prior to the 2015 amendment.

31. Two further principles must also be noted. The first is that the perceived insufficiency of evidence is no ground for interference. The second is that it is impermissible for a Section 34 Court to reexamine facts, i.e., to re-appreciate the evidentiary material, to see whether a different result was possible.

32. This is the state of the law regarding Section 34. The fundamental question of law that might well be dispositive of the appeal is not about the scope of Section 34 of the Arbitration Act. That aspect of the matter has been dealt with earlier and is largely not contentious. The views of the two sides, however, are very sharply divided on the question of the precise, ambit, scope and width of Section 37 of the Arbitration Act.

33. That Section falls in Chapter IX of the Arbitration Act captioned Appeals. That entire Chapter has just that one Section. It reads thus: “37. Appealable orders.— (1) Notwithstanding anything contained in any other law for the time being in force, an appeal shall lie from the following orders and from no others to the Court authorized by law to hear appeals from original decrees of the Court passing the order, namely:— (a) refusing to refer the parties to arbitration under section 8; (b) granting or refusing to grant any measure under section 9;

(c) setting aside or refusing to set aside an arbitral award under section 34.

(2) An appeal shall also lie to a Court from an order of the arbitral tribunal— (a) accepting the plea referred to in sub-section (2) or sub-section (3) of section 16; or (b) granting or refusing to grant an interim measure under section 17. (3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.”

34. This is, to our mind, of crucial importance. For, as we noted, Mr Chinoy’s entire presentation on behalf of SATCO has proceeded on the basis that a Section 37 Appeal is what he calls a ‘full-spectrum appeal’, i.e., an appeal on both facts and law, albeit within the limits of Section 34.

35. We are not concerned with an appeal originating from any other provision or section of the Act but only with Section 37 appeals against orders under Section 34.

36. Mr Chinoy’s submission, and indeed, the entire structure of his argument is: (a) Firstly, that a Section 37 Court may do everything that a Section 34 Court may do. Nobody questions that. (b) Secondly, (and this is contentious), that Section 37 itself says that ‘an appeal shall lie’ but does not constrain or qualify the word ‘appeal’ in any manner. An appeal is an appeal unless specifically qualified. Therefore, a Section 37 appeal from a Section 34 order is no different from a regular civil First Appeal and it follows, therefore, that a Section 37 appeal lies on both facts and law. Mr Chinoy submits that the decision of the Supreme Court in Ramnath Exports Pvt Ltd v Vinita Mehta and Anr27 held that an Appeal under Section 37 is a First Appeal. It is therefore a rehearing on law as well as on facts.

(c) Thirdly, he argues that this would necessarily permit an appellant to address (to the extent permitted by Section

34) the original award directly, or the making of it, and to assail that award on every ground available under Section 34, and only at the end address the order impugned and made in the Section 34 Petition.

37. It is this contention that is most strenuously contested by Mr Khambata and Ms Sonal on behalf of Bajaj. To take it sequentially, at least this much is not contentious that a Section 34 Petition is in no sense an appeal from an arbitration award. Nobody disputes this proposition. But Mr Khambata and Ms Sonal point out that there several decisions of the Supreme Court that say that if the jurisdiction of a Section 34 Court is limited, that of a Section 37

38. Before we proceed to consider these, we must clarify why we believe it is necessary to examine this construct at a threshold. If Mr Chinoy is right, then we must, Alice-like, follow him down that jurisprudential rabbit hole into whatever Wonderland it may lead us. But if he is not, then we will not go first (let alone only) to the award. We will go first to the order of the Single Judge on the Section 34 Petition. If we find that a ground of vulnerability is made out in the Section 34 order then — and only then — can we, if we accept the propositions canvassed by Mr Khambata and Ms Sonal, proceed further to an examination of the underlying award.

39. Mr Khambata’s emphasis is on the Supreme Court decision in MMTC Ltd v Vedanta Ltd,28 a post–2015 amendment decision. Paragraph 14 of Vedanta Ltd must be reproduced. This is what it says.

(Emphasis added)

40. This paragraph must be clearly understood. It begins by saying that the outer limits for a Section 37 inquiry are those of a Section 34 inquiry. A Section 37 Court does not have wider powers then a Section 34 Court. But, Mr Khambata argues, that this does not mean that a Section 37 Court is not further limited or that it must in every case or even that it can in every case go to the full extent that the Section 34 Court might. A Section 37 Court cannot undertake an independent assessment of the merits of the award. This is the basis of Mr Khambata’s answer to Mr Chinoy’s formulation which we summarized at the head of this judgment. Vedanta Ltd, according to Mr Khambata, says that a Section 37 Court must primarily see whether the Section 34 Court exceeded the limited jurisdiction that was conferred on it. The third sentence of paragraph 14 is a curious imposition of a restriction by the Supreme Court on itself. For here it says in the clearest possible terms that where a challenge to an arbitral award fails under Section 34, and the Section 37 Appeal also fails, even the Supreme Court, despite its plenary and wide powers, “must be extremely cautious and slow” to disturb such concurrent finding. The reason for this is again a harking back to the primary principle of minimal judicial interference underlying arbitration.

41. In UHL Power Company Limited v State of Himachal Pradesh,29 in paragraph 16 the Supreme Court said that as it is the Section 34 jurisdiction is narrow. But the Section 37 jurisdiction of an appellate Court in examining a Section 34 order or setting aside or refuse to set aside an order, “is all the more circumscribed”. This means that the Vedanta Ltd principle of a further constricted Section 37 ambit is now settled.

42. This has been followed by this Court in Jagannath Parmeshwar Mills v Agility Logistics,30 and has been cited with approval by the Supreme Court in SV Samudram v State of Karnataka & Anr.31

43. In its very recent decision in Delhi Metro Rail Corporation Ltd v Delhi Airport Metro Express Pvt Ltd,32 the Supreme Court summarized the applicable principles regarding perversity and patent illegality, following the decisions in Associate Builders and Ssangyong Engineering. The Supreme Court in DMRC v DAMEPL held:

40. In essence, the ground of patent illegality is available for setting aside a domestic award, if the decision of the arbitrator is found to be perverse, or so irrational that no reasonable person would have arrived at it; or the construction of the contract is such that no fair or reasonable person would take; or, that the view of the arbitrator is not even a possible view. [Patel

31 2024 SCC OnLine SC 19, paragraphs 62 to 64. 32 2024 INSC 292. Engineering Limited vs North Eastern Electric Power Corporation Limited, (2020) 7 SCC 176)]. A ‘finding’ based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside under the head of ‘patent illegality’. An award without reasons would suffer from patent illegality. The arbitrator commits a patent illegality by deciding a matter not within his jurisdiction or violating a fundamental principle of natural justice.

41. A judgment setting aside or refusing to set aside an arbitral award under Section 34 is appealable in the exercise of the jurisdiction of the court under Section 37 of the Arbitration Act. It has been clarified by this Court, in a line of precedent, that the jurisdiction under Section 37 of the Arbitration Act is akin to the jurisdiction of the Court under Section 34 and restricted to the same grounds of challenge as Section 34. [MMTC Ltd. v. Vedanta Ltd, (2019) 4 SCC 163, para 14; Konkan Railways v. Chenab Bridge Project Undertaking, 2023 INSC 742, para 14.]

44. Vedanta Ltd is therefore reaffirmed. It was also reiterated in Konkan Railway Corporation Ltd v Chenab Bridge Project Undertaking.33 In paragraphs 18 and 19 of Konkan Railway, The Supreme Court held that the powers of a Section 37 appellate court are restricted and subject to the same limitations on interference with arbitral awards as those of a Section 34 court. Neither is akin to normal appellate jurisdiction.

45. Two principles emerge: (a) The powers of Section 34 Court are constricted by statute. They are not in any sense the powers of First Appellate Court. A Section 34 challenge Petition is not a First Appeal on facts and law. Both sides accept this. (b) The powers of a Section 37 Court are even more limited. They are, firstly, constrained by Section 34: a Section 37 court cannot do more than a Section 34 court could. Both sides accept this too.

(c) The disagreement is whether the Section 37 appeal can go directly to the award without any assessment first of the Section 34 order for vulnerability. Mr Chinoy maintains that, within the parameters of (a) and (b) above, since the word ‘appeal’ is unqualified, a Section 37 Court is entitled to test the award itself directly.

46. We find SATCO’s reliance on the Supreme Court decision in K Sugumar & Anr v Hindustan Petroleum Corporation Ltd & Anr34 to be entirely inapposite to SATCO’s case. The Supreme Court held that court’s jurisdiction under Section 37 is limited to what has been conferred under Section 34, and the High Court— in appeal cannot reappreciate evidence as though sitting in appeal over the arbitral award itself.

47. A recent judgment of a Division Bench of this Court (Devendra Kumar Upadhyay CJ and Arif S Doctor J) must be noticed because it has an uncanny parallel: Azizur Rehman Gulam & Ors v Radio Restaurant & Ors.35 This was also a Section 37 appeal that directly assailed the award. The respondents argued that the appeal raised points never taken either in arbitration or before the learned single Judge (paragraphs 16 and 22) — precisely Mr Khambata’s argument today. Writing for the bench, Arif S Doctor J in his careful and elaborate judgment inter alia noted the decisions of the Supreme Court in UHL Power and MMTC Ltd on the question of the scope and ambit of Section 37. Then in paragraphs 27 and 28, the Division Bench held:

27. Hence it is clear that the scope of Appeal under Section 37 is one which is extremely limited and narrow. In this context we must note that in the present case not once were we even shown the Impugned Order nor was a single submission made to assail the Impugned Order on any ground whatsoever. The Appellants’ entire challenge in the present Appeal was only to the Arbitral Award. Thus, the Impugned Order has therefore in fact remained entirely unassailed in the present Appeal. Hence, in our view, the Appeal must necessarily fail on this ground alone.

34. The Hon’ble Supreme Court in the case of MMTC Ltd. v. Vedanta Ltd. has specifically held as follows, viz.

“14. As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the Court cannot undertake an independent assessment of the merits of the award and must only ascertain that the exercise of power by the Court under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the Court under Section 34 and by the Court in an appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings.”

28. What the Appellants have therefore sought to do in the present Appeal is to effectively challenge the Arbitral Award afresh on grounds never taken before. We find that such a course of arguments, apart from being in the teeth of the law laid down by the Hon’ble Supreme Court in the case of MMTC Ltd. (supra), if allowed, would in fact unsettle the entire scheme of Chapters VII, VIII and IX of the Arbitration Act. Thus, equally on this ground alone, the present Appeal must also fail.

48. This is an unambiguous statement of the law. It fits the present case precisely.

49. We therefore refuse to tread the path of Mr Chinoy’s submissions — directly going to the award. That would be entirely contrary to law. We will, instead, begin by first looking at the impugned Section 34 order and the grounds on which it is challenged. That is the only approach available to us.

C. THE FACTUAL BACKGROUND

50. Only to provide context, we proceed to a synoptic narrative of the relevant events. We do so only to complete the narrative, since Mr Chinoy submitted that the ‘unbalanced equation’ argument is evident from the facts.

51.

SATCO is a trading member of the National Stock Exchange (“NSE”) and the Bombay Stock Exchange (“BSE”). Bajaj is an investor or a trader, and, as the facts that follows show, possessed of much enthusiasm on both exchanges. That Bajaj and SATCO had an agreement and an understanding that allow Bajaj to trade on both exchanges through SATCO is not contentious. Bajaj began trading through SATCO on these two exchanges sometime early in 2001.

SATCO says that its agreement with Bajaj at the time allowed it to close out “any open position of the constituent—Bajaj” in accordance with stock exchange regulations “in case of non payment of dues by the constituent towards margins, daily marked to market settlement, fees, brokerage, commission and other charges”.

52. Some 10 years went by. In March 2001, Bajaj purchased 65000 shares of Amar Raja Batteries Limited (“ARBL”). This was in Settlement No. 63 at the NSE and the price was Rs. 316 per share. The total thus was Rs. 205,43,108.69 with a pay in date of 15th March 2001. At this point in time Bajaj had a ledger credit of Rs.20,56,964.52 with SATCO. But it seems that SATCO had also to receive delivery of 10,000 ARBL shares from a purchase effected by Bajaj in an earlier transaction. These shares came in on 9th March 2001 and SATCO held them as or towards margin. They were fully paid for by Bajaj.

53. Two days after the 65,000 share purchase of ARBL, its stock price fell from Rs.316 per share to Rs. 266.75. SATCO says this immediately resulted in a mark-to-market loss of Rs.32 lakhs for 65,000 shares. The arithmetic at this point at least is simple. Rs. 316-Rs. 266.75 x 65000 shares.

54. This state of simplicity did not last very long. The margin with SATCO, i.e., the ledger credit balance was, as we noted, Rs.20,56,964.50. Added to this was the then market value of the 10,000 ARBL shares. Now taking these at the lower market price of Rs.266.75, the value of these 10,000 shares was Rs.26,67,500. Yet another simple addition of these two numbers tells us that the total available margin at that time was the sum of these two numbers Rs.47,24,464.

55. We note that the finding in the resultant award is slightly different, but we will address that presently.

SATCO claims that the required margin was 30%. But 30% of what? According to SATCO that 30% had to be computed at the required Settlement No. 63 price of Rs.316 per share, i.e., 30% of Rs.205,43,108.69. This meant that the required margin was Rs.61,85,770. Then there was the mark-tomarket loss that it claimed of Rs. 32 lakhs. The aggregate of these two was thus Rs.93,85,770.

56. Mr Chinoy states that leaving aside the percentages, and even if the percentage requirement was computed at 10% rather than 30%, if one took 10% of the settlement rate of Rs.316 per share for 65,000 shares, the required margin would be Rs.20,54,310. Added to this the mark-to-market losses of Rs. 32 lakhs would make a requirement of Rs.52,54,310.

57. Therefore, SATCO says, there was what it called a margin shortfall. This is a really the genesis of the dispute that then followed.

58.

SATCO contends that as on 6th March 2001, the date of expiry of the settlement with NSE, Bajaj had a credit balance of Rs.18,16,186.65 ps. in his books on the NSE and credit balance of Rs.4,75,328.94 ps. in the books of SATCO and BSE. The total aggregate margin available with Satco was Rs.54,51,505.50, which included the collateral security of 10,000 ARBL shares. On the next day, 7th March 2001, Bajaj purchased 65,000 ARBL shares through SATCO on the NSE in Settlement No.63 at the average rate of Rs.316.02 ps. per share.

59. On the same day, i.e., 7th March 2001, SEBI issued a circular banning all short sales in the market and any sale effected by any broker was required to be backed by physical delivery or a prior purchase position. The market rate of ARBL scrip fell due to certain short selling and finally closed at Rs.266.75 per share on NSE and Rs.308.40 on BSE. On the same day, SATCO conducted a ‘Share Badla’ of 8,000 ARBL shares on BSE (out of 10,000 shares lying with it as collateral security), without issuing a contract note to Bajaj. On 12th March 2001, even before 10 am, SATCO started selling and sold 62,281 of the 65,000 shares ordered by Bajaj on 7th March 2021. Later, on 29th March 2001, SATCO sold the remaining 2791 ARBL shares (from the unsold quantity of the 65,000 shares order). SATCO issued no contract note to Bajaj.

60. Thus, Bajaj’s claim that the sale of 65,000 ARBL shares plus the sale of 10,000 ARBL shares violated NSE, BSE and SEBI byelaws and circulars. Bajaj claimed that he and his father at the relevant time held an outstanding purchase position in the ARBL scrip on the broking outfits of other brokers; they had filed a complaint with SEBI as also with NSE/BSE regarding many brokers engaging themselves in selling their purchase positions without their consent. SEBI conducted an enquiry, which revealed, according to Bajaj, that SATCO had offloaded his open position of 65,000 shares of ARBL on the alleged pretext that Bajaj had failed to pay its markto-market cost of Rs 35 lakhs. He filed a complaint against SATCO with Investors Services Cell of BSE.

SATCO replied to the complaint stating that Bajaj had failed to meet the mark-to-market and Gross Exposure Margin obligation of Rs.35,99,300/- and hence, it offloaded 8,000 ARBL shares belonging to Bajaj and kept as collateral in the Share Badla mechanism of the BSE.

SATCO also claimed an unpaid margin of Rs.61,85,770/-, allegedly due from Bajaj, the non-payment of which prompted it to the ‘square off’ its purchase position of 65,000 ARBL shares on the NSE.

61. A more exhaustive narrative is unnecessary. We this, we turn to the impugned order.

D. THE ORDER IN THE SECTION 34 PETITION

62. The impugned order is dated 7th January 2016. It assailed the second arbitral award (delivered in circumstances adverted to hereafter) dated 30th September 2014. There were two earlier awards, one by the arbitral tribunal of the Bombay Stock Exchange and the other by the arbitral tribunal of the National Stock Exchange. Both were set aside by a Supreme Court consent order dated 5th February 2013, and the disputes were referred to a counsel at our Bar as the sole arbitrator.

63. Before this sole-member arbitral tribunal, the learned single Judge noted in paragraph 3, Bajaj claimed:

(i) Delivery of 65,000 shares of Amar Raja Batteries Ltd

(ii) Delivery of 10,000 shares of ARBL with accretions, coming to 150,000 shares;

(iii) Dividend on 10,000 ARBL shares and interest; and

(iv) All corporate benefits on 150,000 shares of ARBL.

64. In the same paragraph, the learned single Judge also noted that, for its part, SATCO filed a written statement and counterclaim for recovery of— (a) Rs 5,35,702.39 with future interest at 18% pa; and (b) Rs 11,77,051.66 with future interest on Rs 6,28,941.80.

65. The learned single Judge noted in paragraph 4 of her order that the arbitral tribunal partly allowed both the claim and counterclaim. It—

(i) Directed SATCO to deliver 150,000 ARBL shares to

(ii) Directed SATCO to pay interest at 12% per annum on the accrued dividend on 10,000 ARBL shares (or their equivalent) after issuance of bonus or split of the shares from the respective dates of accrual;

(iii) Directed SATCO to ay dividend computed at Rs

(iv) Rejected Bajaj’s claim for 65,000 ARBL shares.

(v) Held that SATCO was entitled to a credit of Rs

6,28,941.80

66. The details of how these claims were computed will be taken a little later as part of the chronology. But now comes the interesting and telling part. For the learned single Judge noted that:

5. The challenge to the Arbitral Award by the petitioner [SATCO] is limited to delivery of 10,000 shares of ARBL including the corporate benefits accrued thereon. The specific averment made in that regard at para 3 of the petition reads as under:— “Being aggrieved by the impugned award to the extent that the same allowed the claim of the Respondent for delivery of 10,000 shares of ARBL including the corporate benefits accrued thereon, the Petitioner is filing the present on the following amongst other grounds, each of which are taken in the alternative and without prejudice to one another. ”

67. In arbitration, both sides led documentary evidence.

68. In paragraphs 7 to 10, the learned single Judge summarized the factual background thus:

7. The brief statement of the facts alleged by the respondent, which is relevant for the dispute presently under consideration, is that the respondent is an investor and also a trader in shares and securities. He and his family members, at the relevant time, were the largest minority shareholders of ARBL. During his trading activities the respondent had, in settlement No.62 of NSE taken delivery of 10,000 shares of ARBL through the petitioner. These shares were agreed to be kept as collateral security by the respondent with the petitioner. As on 6th March, 2001 i.e. the date on which Settlement No.62 ended with NSE, the respondent had credit balance of Rs.18,16,186.65 ps. in the books of the respondent on the NSE and the credit balance of Rs.4,75,328.94 ps. in the books of the petitioner at BSE. Along with the collateral security of 10,000 shares of ARBL lying with the petitioner of the value of Rs.31,60,000/, the total aggregate margin available with it was of Rs.54,51,505.50 ps. Then on the next day i.e. on 7th March, 2001 the respondent purchased 65,000 shares of ARBL through the broking card of the petitioner at the NSE, in Settlement No.63, at the average rate of Rs.316.02 per share. The total consideration payable for the shares as per the contract note issued by the petitioner to the respondent was of Rs.2,05,41,413.69 ps. against the exposure of which, at the relevant time the total margin money available with the petitioner was approximately of Rs.54,51,515.59 ps. which amounted to margin of approximately 24.64%. This margin, according to the respondent was sufficient to secure the petitioner upto the drop in market rate of ARBL shares to Rs.232.15 per share.

8. On 7th March, 2001 SEBI had issued a circular bearing No.PR 39/2001 whereby it had banned all short sales in the market. Any sale effected by any broker was required to be either backed by physical delivery or by a prior purchase position.

9. Owing to certain shortselling in the scrip of ARBL, it’s market rate started falling and on 9th March, 2001 it closed at Rs.266.75 ps. per share on the NSE and at Rs.308.40 ps. per share on the BSE. On the very day the petitioner [SATCO] conducted “share badla” of 8,000 shares of ARBL on the BSE out of the 10,000 shares lying with it as and by way of collateral security, without issuing any contract note to the respondent. On 12th March, 2001 even before 10.00 am. the petitioner [SATCO] started selling the purchase position of the respondent [Bajaj] and sold 62,281 shares of ARBL out of the 65,000 shares purchased on 7th March, 2001. Thereafter, on 20th March, 2001 it sold the balance 2791 shares. For these sales also no contract notes were forwarded to the respondent.

10. According to the respondent [Bajaj] sale of the 65,000 shares of ARBL and the sale of 10,000 shares of ARBL were in violation of the rules, byelaws, regulation of NSE/BSE and in violation of the circular dated 7th March, 2001 issued by SEBI, banning short sales in the market. The respondent [Bajaj] claimed that he and his father, at the relevant time, had outstanding purchase positions in the scrip of ARBL on the broking outfits of various other brokers and since they apprehended that many of their brokers had engaged themselves in selling their purchase positions without their instructions, he and his father filed a complaint with SEBI as also with NSE/BSE for an enquiry into the trading in the scrip of ARBL by all the market participants. The respondent had also written letters to his various brokers requesting them to provide him with the relevant details in respect of the trading conducted by them in the scrip of ARBL for the relevant period. The letter written to the applicant was dated 27th March, 2001. During the course of enquiry conducted by SEBI the petitioner [SATCO] revealed, for the first time, by it’s letter dated 28th July, 2001 that it had offloaded the respondent’s [Bajaj] open position of 65,000 shares of ARBL on NSE on the alleged premise that the respondent [Bajaj] had failed to pay Mark to Market loss amounting to Rs.35,00,000/despite demand. On this disclosure, the respondent [Bajaj] on 17th September, 2001 filed complaint against the petitioner with the Investors Services Cell of the BSE. The petitioner [SATCO] by it’s letter dated 3rd October, 2001 responded to the complaint claiming that the respondent [Bajaj] had, on 10th March, 2001, for his transactions on the NSE, failed to meet the Mark to Market and Gross Exposure Margin obligation of Rs.35,99,300/and hence it had offloaded 8,000 shares of the applicant [Bajaj] lying with it in the “share badla” mechanism on the BSE. The petitioner [SATCO] further claimed that at that time the unpaid margins of the respondent [Bajaj] amounted to Rs.61,85,770/nonpayment of which prompted the petitioner [SATCO] to square off the respondent’s [Bajaj’s] purchase position of Rs.65,000/shares of ARBL on the NSE. It was further revealed that the petitioner [SATCO] had sold all the 10,000 shares, (including 8,000 shares offloaded as “share badla”) on 12th March, 2001.

69. Paragraph 11 of the learned single Judge’s order summarizes SATCO’s defence in arbitration:

11. The petitioner [SATCO] in it’s written statement obviously did not dispute any of the sale transactions and set up the same claim as in it’s reply to the complaint to Investor’s Services Cell. It claimed that on 7th March, 2001 when the respondent [Bajaj] purchased 65,000 shares on NSE, the margin requirement for those shares was of Rs.61,85,770/. When this was adjusted against the then ledger credit of Rs.20,56,964.52 ps., the deficit left was of Rs.41,28,805.48 ps. This deficit was secured by the 10,000/- shares of ARBL of which the delivery was received. In view of the huge deficit in the margin “share badla” of 8,000 shares was effected on BSE to generate liquidity to cover the deficit. Under the badla transaction by liquidating 8,000 shares, a sum of Rs.24,62,349.74 ps. was generated. After deducting the margin for badla transaction the net amount generated was of Rs.14,10,799.39 ps. resulting in the final shortfall of Rs.28,71,955.74 ps. as on 10th March, 2001. From 9th March, 2001, the price of ARBL shares started falling drastically. The respondent [Bajaj] failed to secure the margin losses and provide further margin despite notice to him. Therefore, in order to prevent further loss to the petitioner [SATCO] and correspondingly to the respondent [Bajaj], with the respondent’s [Bajaj’s] knowledge and consent, the petitioner [SATCO] started selling the outstanding position of the respondent [Bajaj] in ARBL. On 12th March, 2001 the petitioner [SATCO] could sell only 62,281 shares in a price range between Rs.287.75 ps. to Rs.223.90 ps. per share. The balance 2,719 shares could not be sold on that day as the market hit a lower circuit on ARBL stock and there were only sellers. The remaining shares could be sold subsequently on 20th March, 2001. The respondent [Bajaj] at no point of time had objected to the sale. He had in fact consented by waiving his objections. This prompt action on the part of the petitioner [SATCO] had saved the respondent [Bajaj] from suffering further losses. The petitioner [SATCO] had from time to time provided the contract notes and the bills to the respondent [Bajaj].

70. Then the learned single Judge noted the arbitral tribunal’s finding that the basic issue was whether SATCO was justified in selling Bajaj’s ARBL shares for margin insufficiency (which Bajaj was alleged to have known). Admittedly, there was some margin available with SATCO; the question was whether SATCO could prove this was ‘insufficient’ to justify its action in ARBL share sales. That evidentiary burden lay on SATCO, which examined its employee, one Babani. It turned out, on an appreciation of the evidence before the arbitral tribunal, that Babani joined SATCO after the disputed transactions. His knowledge came from the Branch Manager, who was not examined. He himself did not know the amount of margin paid to the NSE by SATCO, but he admitted that there was some margin available to SATCO as on 9th March 2001 to the extent of Rs 51 lakhs. Importantly, Babani agreed that SATCO gave no notice to Bajaj before selling either the 10,000 ARBL shares or the 65,000 ARBL shares. He did not know if there was a contract note for the sale of these shares or of the so-called margin deficit on 9th March 2001of Rs 43,16,335.48 (which included the margin and the mark-to-market loss).

71. If the question was of testing SATCO’s case of margin insufficiency, and that probative burden was on it, then the arbitral tribunal was clearly required to appreciate the evidence, oral and documentary, on record. On such an evidentiary appreciation, the arbitral tribunal held that the margin requirement was about 10%. SATCO was found to have so admitted in correspondence. It was also held to have failed to produce any material to support its case that the margin was 15%. The total margin in rupees available to SATCO on 9th March 2001 was Rs 49,59,015.59 as against the required margin of Rs 12 lakhs. The arbitral tribunal returned a finding of fact that the margin with SATCO was sufficient; and that, therefore, SATCO had no need to do a badla transaction of 10,000 ARBL shares on the BSE or to offload any part of the 65,000 ARBL shares on the NSE.

72. Further, the learned single Judge noted that the arbitral tribunal had found — again as a finding of fact — that SATCO never issued a contract note for the 10,000 ARBL shares but only bills. That sale, sans a contract note, was contrary to BSE regulation No 354, and was hence illegal and void.

73. In arbitration, SATCO argued that, being a broker, it had a broker’s lien over the 10,000 ARBL shares on the BSE, in view of Bye Laws 227(a) and (b). The arbitral tribunal repelled this submission on the basis that these Bye Laws and the claim for lien would not arise if the notice was ab initio illegal and void for want of notice.

74.

SATCO also argued any delay would have resulted in massive loss to Bajaj. His response was that this was a justification afterthought; and hindsight, as everyone knows, is usually the lack of foresight. For the question was not what might have happened, but what was the factual position on the date of the sale: was there margin? Was it sufficient? Did SATCO prove the margin was insufficient? If so, by how much? Could insufficiency of margin justify a failure to issue a contract note and notice of sale? The arbitral tribunal held — again a finding of fact or, at any rate, a mixed finding of fact and law and one bound up with an appreciation of the evidence — that what SATCO did on 9th March 2001 could not be justified by what happened four days later on 13th March 2001, SATCO being neither prescient nor omniscient, and having some margin, but no fortune-telling crystal ball. On 9th March 2001, no one knew that the ARBL share price would fall; Babani agreed this was so. Therefore, factually, on that day, 9th March 2001, SATCO could not justify its actions. The arbitral tribunal therefore rejected this argument by SATCO of saving future loss.

75. Then SATCO argued that Bajaj’s relief was in the nature of a decree for specific performance of agreement for sale of movable property. The arbitral tribunal rejected this on the ground that SATCO was in a fiduciary capacity vis-à-vis Bajaj and the 10,000 ARBL shares on the BSE were collateral security, not an agreement for sale. In fact, Bajaj had already paid for these shares. They were pledged as security, and had to be returned on redemption.

76. Consequently, the arbitral tribunal held, the learned single Judge found, that SATCO’s sale of 10,000 ARBL shares on BSE was illegal and void. Now these shares had, over time, been converted to 150,000 shares and earned dividend of Rs 11.21 lakhs as on the date of the claim. Consequently, the arbitral tribunal held for Bajaj ordering delivery of 150,000 shares and the dividend with interest.

77. After setting out the law on Section 34, the learned single Judge proceeded in paragraph 20 to summarize SATCO’s five grounds of challenge under Section 34. We have tabulated the submissions (there were more than five submissions advanced) and the decision of the learned single Judge on each. Sr No Objection / Challenge under Finding of learned single 1 Sufficiency of margin A finding of fact by the arbitral tribunal.

2 Claim being in the nature of specific relief Rejected on the finding that there was no claim for specific performance of a contract of sale of movable property. The 10,000 ARBL shares on the BSE had already been purchased and paid for by Bajaj; they were just collateral security. The relief was for return of the shares, and could never have been for ‘specific performance of a contract for purchase or sale of movable property’ proscribed by Section 10 of the Specific Relief Act.

3 Claim contrary to the NSE bye-laws which also do not provide for specific performance of a ‘purchase contract’. Rejected since Bajaj’s claim was not on account of a ‘failure to perform a contract’.

4 Bajaj could not approbate and reprobate The argument was that since in the earlier (defunct) round of arbitrations, Bajaj had claimed rupee compensation as the monetary equivalent of the 10,000 ARBL shares, he could now not seek those shares in specie. The learned single Judge found that no such contention was taken in arbitration. Besides, the Supreme Court had ordered a de novo arbitration with a fresh statement of claim.

5 Finding of a fiduciary relationship being contrary to law SATCO argued that this finding of the arbitral tribunal was contrary to the memberclient agreement. At best, SATCO was an agent of Bajaj. He could never claim specific performance but only, at best, damages. In any case, there was no trusteeship, but a Sr No bailment of the 10,000 ARBL shares. Since Bajaj had not filed a tracing action, his only remedy was in damages. Reliance was placed on a judgment that had also been cited before the arbitral tribunal.36 The judgment was held to be distinguishable on fact (because that was a case of a failure to render accounts despite demands).37 The argument was countered by reliance on a Supreme Court decision, to the effect that on a nondelivery of goods by a bailee on a demand by the bailor, the bailor is entitled to sue for conversion or detinue. If the bailor sued in detinue, it was no answer for the bailee to say that he was guilty of conversion at an earlier time and that the act of conversion was known to the bailorplaintiff. The bailor has the option of choosing his remedy. The bailee cannot resist one chosen remedy by saying the other was available; he could take no advantage of his own wrong, and could not demand that the bailor plaintiff adopt a remedy less beneficial to the bailor but one less harmful to the bailee.38

36 Seth Maneklal Mansukhbhai v Jwaladutt Rameshwar Pillani, 1946 SCC OnLine Bom 14: AIR 1947 Bom 135: (1946) 48 Bom LR 727; per MC Chagla J (as he then was).

37 In any case, even if the arbitral tribunal had held wrongly, this would not per se be a ground of challenge under Section 34.

38 Dhian Singh Sobha Singh & Anr v Union of India, 1957 SCC OnLine SC 59: 1958 SCR 781: AIR 1958 SC 274. Sr No The learned single Judge held that viewed either way, it would make no difference to the claim. Further [paragraph 27] on trusteeship per se, the learned single Judge held that the submission by SATCO had to be seen in the context of its other submission regarding specific performance of an agreement for purchase of shares. The arbitral tribunal had not, the learned single Judge held, defined the relationship between the parties.

E. THE GROUNDS OF CHALLENGE IN THE

SECTION 37 APPEAL

78. We turn now to the grounds in the Section 37 appeal. Grounds (A) and (B) are general. Grounds (C) to (O) and (S) are all on facts, alleging ‘a patent error’, on the question of sufficiency of margin. Ground (H) says there is ‘an error apparent’. Ground (P) alleges that the learned single Judge failed to appreciate the arbitral tribunal’s alleged ‘non-application of mind’ regarding some admissions, but this is not explained further. Grounds (Q) to (S),

(DD) and (II) deal with factual aspects regarding ‘credit’ and margin. Grounds (U) to (X) and (CC) are on the aspect of approbating and reprobating, conversion and detinue, mixed questions of fact and law. Ground (Y) is on the matter of the authorities cited. Grounds (Z) and (AA) allege a misreading of the Supreme Court consent order directing an arbitration de novo. Ground (BB) is a reiteration of the specific performance argument. Grounds (EE), (FF) and (HH) are on the question of the fiduciary relationship and bailment. Ground (GG) is on a question of applicability of bye-laws.

79. There is absolutely nothing in any of these grounds to indicate that the view of the learned single Judge was implausible, let alone impossible, thus warranting our interference in Appeal.

80. In other words, the appeal fails at the first leg, to show that the Section 34 order is in any way vulnerable.

F. ANALYSIS OF THE ORAL SUBMISSIONS ON

BEHALF OF SATCO

81. But this is the peculiarity. The appeal was not argued on the basis that the order of the learned single Judge was perverse or implausible or impossible or resulted in a miscarriage of justice. The case argued across the Bar is not based on a single one of these grounds in the memorandum of appeal. The entirety of the argument was on the basis that the award was perverse and resulted in a miscarriage of justice. This is inter alia evident from the “rejoinder note” captioned ‘Factual Context of the Appellants’ Submission Re the Award of 10,000 shares’. The entire note goes only to the Award; and it is only about that portion of the award that relates to the 10,000 ARBL shares as collateral security (accreted to 150,000 ARBL shares).

82. What was this so-called ‘miscarriage of justice’? According to SATCO, the award of 10,000 ARBL margin shares (on the BSE) to Bajaj without a corresponding or countervailing direction to Bajaj to refund/pay the sale proceeds to SATCO would “unbalance the otherwise balanced equation”.

83.

SATCO has never argued this: not in its written statement, not in its counter-claim, not in oral arguments before the arbitral tribunal, not in the grounds in the Section 34 Petition, not orally before the learned single Judge, and not in the grounds of appeal in the Section 37 appeal.

84. Let us see, in a condensed manner, what transpired. The following factual position is undisputed: (a) Bajaj and family were the largest minority shareholders of ARBL at the relevant time. (b) Bajaj held 10,000 ARBL shares, fully paid for. These were placed with SATCO as collateral for BSE trades.

(c) Bajaj also had Rs 22,91,515.59 as a cash margin with

(d) Bajaj placed an order through SATCO for purchase of

65,000 ARBL shares on NSE. (e) Before Bajaj was called on to pay for those 65,000 shares, and without notice to him, SATCO began selling these shares. It claimed to have suffered a ‘loss’ of Rs 44,61,307.39 (f) SATCO sought to meet his alleged ‘loss’ by

(i) Selling the 10,000 ARBL margin shares on

(ii) Adjusting the cash margin of Rs

(iii) Adjusting Rs 1,71,324.13 out of the amount of

85. Now the reason or justification for this loss was SATCO’s evidently panicked sale of the 65,000 shares on NSE on 9th March 2001, well before it knew that the price would slide precipitously. Therefore, it was SATCO and SATCO’s action that generated this so-called loss, and not anything that Bajaj did or did not do.

86. The sole arbitrator held the sale of 65,000 shares to be illegal and invalid (paragraph 31 of the award). Bajaj had never paid for these shares and therefore could not claim them. Bajaj orally sought damages on account of the illegal sale. There was no pleading to that effect for damages, and the sole arbitrator rejected the claim for that reason.

87. The sole arbitrator also held the sale of 10,000 shares to be illegal. But since these were Bajaj’s shares, fully paid for, and kept as collateral security, and sold without notice (or proved justification for margin shortfall), Bajaj was entitled to a return of these shares, and sought that relief. Bajaj also made no claim for a return of his cash margin of Rs 22,91,515.59 and consequently lost that as well.

88. Bajaj also did not accept SATCO’s claim that an amount of Rs 1,71,324.13 was due at the foot of the account.

89. What the ‘equation balancing’ argument really means is this: (a) The illegality of SATCO’s sale of 65,000 shares resulting in the so-called loss should be ignored or at least treated as non-consequential; (b) Since SATCO sold the 10,000 ARBL shares on the BSE and to Bajaj ‘gave credit’ in adjusting the sale proceeds (Rs 20,01,014.80) of these shares, therefore, if the shares are to be refunded, Bajaj “should have been asked” by the sole arbitrator to ‘return’ the sale proceeds (Rs 20,01,014.80) to SATCO.

90. On its own, and even if it had been pleaded, this argument had to fail. The so-called ‘unbalancing’ was created by SATCO by itself generating the loss by the illegal sale of 65,000 shares and then trying to recoup or cover up this loss from the two margins: (i) by selling the 10,000 ARBL shares on BSE; and (ii) adjusting the cash margin. In other words, SATCO created the loss and took the sale proceeds to itself.

91. What is being suggested is that SATCO will give back those 10,000 shares only if Bajaj pays for them, i.e., if SATCO is allowed to continue this wholly illicit adjusting or covering up of a loss that SATCO itself caused.

92. Nothing even remotely resembling this was ever pleaded anywhere by SATCO. Mr Chinoy urged us to hold that some pleading should be held to mean just this, viz., that SATCO had sought such an order. He went to the extent of posing a question: how else could SATCO have sought it?

93. It is not our function to advise parties on how they should frame their pleadings. We take them as we find them. An argument in the alternative was possible, and is certainly not unknown to law, given that there was a specific claim, untied to any repayment, for return of the 10,000 ARBL shares.

94. Notably, Bajaj did seek a physical delivery of the accreted 65,000 shares in prayer (a) of the statement of claim, but against payment (because he had not paid for them before SATCO began selling them). Prayer (d) was for delivery of 10,000 shares without payment since Bajaj owned these shares already. The two prayers read: (a) that this Honorable Tribunal may be pleased to order and direct the Respondent to deliver 9,75,000 shares of ARBL to the Applicant as and by way of transferring the said shares to the Applicant’s dematerialized account and/or physically handing them over to the Applicant along with duly signed transfer deeds, against a payment of Rs 1,05,63,398.10 effected by the Applicant to the Respondent;

(d) that this Honorable Tribunal may be pleased to order and direct the Respondent to deliver 1,50,000 shares of ARBL to the Applicant as and by way of transferring the said shares to the Applicant’s dematerialized account and/or physically handing them over to the Applicant along with duly signed transfer forms.

95. Paragraph 11(b) of the statement of claim contains the relevant averments in regard to prayer clause (d). Paragraph 18 of the written statement purport to answer this claim. It has only denials. There is no averment even in the alternative that to ‘balance the equation’ prayer clause (d) can only be granted against payment.

96. For the reasons we have discussed, there could not have been any such pleading by SATCO.

97. This is why we said that on its own the argument is untenable.

98. But the argument also posits something far deadlier, and infinitely more dangerous, at least from our perspective. This is the corollary argument that the sole arbitrator ‘ought’ to have ‘understood the implications’ — ones that never occurred to SATCO in arbitration or in the Section 34 Petition or even while filing the Section 37 appeal — of not ‘balancing the equation’. It is impossible to accept any such submission. It would literally eviscerate the Arbitration Act and every judgment of the Supreme Court and of this court on the permissible grounds of challenge. It would open up every single award to challenge on grounds never canvassed and never taken. Indeed, we dare say that even in a regular First Appeal, no such plea could be countenanced.

99. No other argument was canvassed before us.

G. CONCLUSIONS

100. In our considered view, and for the reasons we have discussed at length, the Appeal must fail.

101. The entire edifice of the appeal is built on a fundamentally flawed premise — that a Section 37 appeal is a full-envelope appeal on facts and law and can bypass the Section 34 order appealed against and go directly to the award.

102. Even more alarmingly, the appeal’s canvas, as argued before us, asks that we interfere with the award on a ground never taken there (or later, even to the stage of the grounds in the memorandum of appeal). We must hold that the award is vulnerable on some theory of what was implicit or what should have been understood — viz., that SATCO was entitled to payment for the 10,000 collateralized shares it sold; and never mind that SATCO never pleaded this in its defence or in a single ground anywhere. This is what is said to be a ‘miscarriage of justice’, ‘perversity’ and so forth.

103. It is nothing of the kind. As Mr Khambata points out, the argument of an ‘unbalanced equation’ is a complete afterthought. It is inconceivable, he says, and we think rightly that a point such as this would not have occurred to SATCO when there was a specific prayer for it (prayer (d) in arbitration); even more so when this was in direct contrast to other prayer (a) for 65,000 shares with accretions against payment by Bajaj. Had Bajaj sought those 65,000 shares without offering to make payment, then that would have been an unbalanced equation. But the 10,000 shares were Bajaj’s, bought and paid for, and held as collateral. All that SATCO now attempts is to wholly escape the inevitable consequences of the two sales (of 65,000 shares and 10,000 shares) being held illegal. As Ms Sonal says, by raising this argument, SATCO tries to make a virtue of its own sin and to take advantage of its own wrongful dealing.

104. For SATCO, it may even be worse, for the argument of an ‘unbalanced equation’ and the demand for payment means that SATCO accepts that its sale of the 10,000 shares was wrong.

SATCO cannot argue otherwise; to do so would require a meritbased review of the evidence as to whether SATCO was able to prove insufficiency of margin justifying the sale (inter alia) of the 10,000 shares. Knowing this, SATCO raises this argument for the first time — and a very late stage, and forming no part of its case in arbitration, in the Section 34 Petition or in the Section 37 appeal — of an ‘unbalanced equation’.

105. The appeal is entirely without merit. It is dismissed. In the facts and circumstances of the case, there will be no order as to costs.

106. After pronouncement of judgment, Mr Jeejeebhoy requests for continuance of the previous stay.

107. The stay is continued for a period of eight weeks from today. (Neela Gokhale, J) (G. S. Patel, J)