Patent Illegality: Bombay High Court Sets Aside an Appellate Award That Decided No Contested Issue
An arbitral award that recites both sides' cases and then picks a winner is not a short award. It is an award with a hole in it. The Bombay High Court has set aside an exchange appellate award on that footing, holding it vitiated by patent illegality because the tribunal left the contested questions undecided.
The Dispute
The matter came before Justice Aarti Sathe in Arbitration Petition No. 380 of 2020. The stockbroker, 5 Paisa Capital Limited, challenged an appellate arbitral award made in the exchange arbitration mechanism in favour of an investor, Ankit Agarwal.
The underlying complaint was a failure of the broker's trading platform. A sole arbitrator awarded the investor Rs 14,30,509 for trading losses and Rs 1,62,162 for 1,260 bonus shares, a total of Rs 15,92,671, and rejected the broker's own claim of about Rs 6.53 lakh. An appellate arbitral tribunal affirmed that outcome.
What the Appellate Tribunal Did
The appellate tribunal held that both parties bore a responsibility to report abnormalities, and then placed liability on the broker on the footing that it had admitted the glitch and had not notified the investor suitably and in time.
The High Court's criticism was not of that conclusion but of how it was reached. The tribunal had largely reproduced the parties' submissions without ruling on their rival contentions, and the award was rendered without giving findings on contentious issues.
The Questions Nobody Answered
Three questions were squarely in issue and were left undecided. Whether the software glitch in fact caused the investor's losses. Whether the broker was justified in liquidating positions under its risk policy. And whether the trades in question were unauthorised.
Each of those is anterior to liability. A broker that admits a platform failure is not thereby liable for every loss booked in the same window, and a finding that it failed to give timely notice does not by itself establish that timely notice would have prevented the loss. The chain has to be found, not assumed.
Why That Is Patent Illegality and Not Merely Thin Reasoning
Sub-section (2A) of section 34 of the Arbitration and Conciliation Act, 1996 permits a court to set aside an award arising out of arbitrations other than international commercial arbitrations where it finds the award vitiated by patent illegality appearing on the face of the award. The proviso bars setting an award aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
That proviso is what usually defeats a challenge of this kind, and it is why the distinction the Court drew matters. The complaint was not that the tribunal reasoned badly or weighed the evidence wrongly. It was that on the decisive questions the tribunal did not reason at all, so there was nothing on the face of the award to review.
The Court Would Not Supply the Missing Findings
Having identified the gap, the Court declined to fill it. It held that it could not decide those issues itself or substitute its own findings, which is a straightforward application of the limits of a section 34 jurisdiction.
Sub-section (4) of section 34 offers the other route in principle, allowing the court on a party's request to adjourn so that the tribunal may resume proceedings or take such other action as will eliminate the grounds for setting aside the award. That route repairs reasons that exist. Where the findings were never made, there is nothing to supplement.
The Relief
The appellate award was set aside. The parties were given liberty to commence fresh arbitration in accordance with law. Any amount deposited in court is to be released within one month of the judgment being uploaded, and there was no order as to costs.
No remand to the same tribunal was made and neither party was held substantively liable. The dispute therefore returns to the beginning, which is the practical cost of an award that decided nothing.
What This Means for Drafting an Award
For a tribunal, the lesson is that issue-wise findings are not a stylistic preference. An award that sets out the submissions, states a conclusion and omits the intermediate findings is exposed on a ground that survives the proviso, because the defect is the absence of adjudication rather than the quality of it.
For a party, the lesson is to frame the issues for decision and to press for them to be answered. A list of issues on the record is what later shows that a contested question went undecided, and it is a cheaper protection than a challenge three years on.
Key Takeaways
The order is of late October 2026: Arbitration Petition No. 380 of 2020, decided by Justice Aarti Sathe in the Bombay High Court.
An exchange appellate award was set aside: It had affirmed a sole arbitrator's award of Rs 15,92,671 against the broker and the rejection of the broker's claim of about Rs 6.53 lakh.
The defect was an absence of findings: The tribunal largely reproduced the parties' submissions and did not rule on their rival contentions.
Three contested questions went undecided: Whether the glitch caused the losses, whether liquidation under the risk policy was justified, and whether the trades were unauthorised.
That is patent illegality under sub-section (2A): Not an erroneous application of the law and not a reappreciation of evidence, both of which the proviso excludes.
The Court would not decide the issues itself: A section 34 court cannot substitute its own findings for findings the tribunal never made.
Fresh arbitration, not remand: Liberty was given to commence fresh arbitration in accordance with law.
Deposits come back within a month: Any amount deposited in court is to be released within one month of the judgment being uploaded, with no order as to costs.
Key Statutory Provisions
Section 34 of the Arbitration and Conciliation Act, 1996: Application for setting aside an arbitral award. Sub-section (2A) permits an award arising out of arbitrations other than international commercial arbitrations to be set aside where the Court finds it vitiated by patent illegality appearing on the face of the award, with a proviso that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence. Sub-section (4) permits the Court, where appropriate and so requested by a party, to adjourn the proceedings so that the tribunal may resume them or take such other action as will eliminate the grounds for setting aside the award. Sub-section (2A) was inserted by the Arbitration and Conciliation (Amendment) Act, 2015.
Sources and References
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.
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