Court Directs Reinitiation of Arbitration Proceedings, Imposes Costs on CDSL for Baseless Allegation
In a significant judgment, the Bombay High Court has set aside an arbitral award that accused petitioners of forum shopping, finding the tribunal's conclusion irrational and patently illegal. The case involved Nimish Chandulal Shah and others, who had filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, challenging the arbitral award dated April 29, 2024. The petitioners had sought the restoration of their securities or compensation from Central Depository Services (India) Ltd. (CDSL) after their securities were allegedly sold illegally by Edelweiss Custodial Services Ltd.
Justice Sandeep V. Marne found that the arbitral tribunal's refusal to adjudicate the petitioners' claims on the grounds of forum shopping was unsupported by the facts of the case and contrary to the public policy of India. The court noted that mere participation in regulatory proceedings by one of the petitioners did not constitute forum shopping, as the regulatory proceedings were distinct from the arbitration claims.
The court emphasized that the doctrine of election, which requires the existence of two or more remedies, did not apply in this case because the petitioners did not have the option to sue Edelweiss directly in the regulatory proceedings. Furthermore, the tribunal's reliance on the judgment in Union of India v. Cipla Limited was misplaced, as the factual scenario of the case did not demonstrate functional similarity between the arbitration and regulatory proceedings.
In a related observation, the court highlighted the inconsistency in the tribunal's approach by referring to a similar case involving another client, Mrs. Karuna Gupta, where the tribunal had allowed her claims on the merits and rejected the forum shopping objection. Justice Marne concluded that such inconsistencies in the tribunal's findings added to the arbitrariness of the award.
The court ordered the arbitral tribunal to reinitiate the proceedings and adjudicate the claims on their merits. Additionally, it directed CDSL to pay Rs. 3,00,000 as costs to the petitioners, noting that the baseless allegation of forum shopping led to unnecessary prolongation of the dispute resolution process.
Bottom Line:
Arbitration - Petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging arbitral award - Arbitral Tribunal's finding of forum shopping held to be irrational and patently illegal - Mere intervention in regulatory proceedings does not foreclose independent right to seek remedy in arbitration - Doctrine of election and functional similarity in proceedings discussed and found inapplicable.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 34, Depositories Act, 1996 Section 16
