Bombay High Court Quashes Arbitral Awards in Sharekhan vs. Darshini Shah Case

Court Finds Arbitral Tribunal's Findings on Brokerage Rates to be Patently Illegal and Contrary to Contractual Clauses

In a significant ruling, the Bombay High Court, presided over by Justice Sandeep V. Marne, has set aside the arbitral awards in the case of Sharekhan Limited versus Darshini Shah, finding them to be egregiously perverse and in conflict with the public policy of India. The court's decision addressed the contentious issue of brokerage rates charged by Sharekhan, a registered stockbroker, to its client, Darshini Shah.

The arbitration dispute arose when Darshini Shah, a client of Sharekhan, challenged the brokerage rates charged by the company after resuming trading in 2021. The sole arbitrator and the appellate arbitral tribunal had previously ruled in favor of Shah, directing Sharekhan to pay the respondent an amount of Rs. 4,87,513 as a difference in brokerage charges. The tribunals based their findings on the applicability of a National Stock Exchange (NSE) circular dated February 10, 2020, which stipulated requirements for handling inactive trading accounts.

Justice Marne found the reliance on the NSE circular to be misplaced, noting that the circular did not pertain to brokerage rate adjustments but rather to the classification and handling of inactive accounts. The court criticized the arbitral tribunals for not recognizing that the contractual agreement between the parties clearly outlined the conditions under which reduced brokerage rates would apply, specifically contingent upon the payment of annual maintenance charges (AMC).

The court further highlighted that the failure to pay AMC charges from 2013 onwards should have automatically resulted in the discontinuation of the reduced brokerage scheme, contrary to the findings of the arbitral tribunals. The judgment emphasized that the tribunals' findings were irrational and ignored the clear contractual terms agreed upon by both parties.

Justice Marne underscored the principle that contracts must operate as a whole and cannot be selectively enforced, rebuking the notion that the contractual obligations could be negated by the non-compliance with the NSE circular.

In conclusion, the court set aside the awards of both the sole arbitrator and the appellate arbitral tribunal, ruling that they were unsustainable and in direct conflict with the public policy of India. The court refrained from awarding costs against the respondent, acknowledging Sharekhan's intent to prevent similar liabilities in future cases.

This judgment serves as a crucial reminder of the importance of adhering to the specific terms outlined in contractual agreements and the limitations of external regulations in altering such terms without explicit contractual provisions.

Bottom Line:

The findings of Sole Arbitrator and Appellate Arbitral Tribunal regarding brokerage rates charged by stock broker are set aside due to patent illegality, irrationality, and conflict with contractual clauses and public policy of India.

Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 34 and 28(3)

Sharekhan Limited v. Darshini Shah, (Bombay) : Law Finder Doc Id # 2819796