Bombay High Court Sets Aside NSE Arbitration Awards Against 5 Paisa Capital, Rules Trading Platform Glitch Dispute Requires Findings On Material Issues Before Liability
Bombay High Court Quashes ₹15.92 Lakh Stockbroker Arbitration Award For Patent Illegality, Holds Unreasoned Findings On Trading Glitch And Investor Losses Cannot Alone Sustain Liability
Facts
5 Paisa Capital Limited, an NSE- and SEBI-registered stockbroker, provided online trading facilities to client Ankit Agarwal under an October 2016 Member-Client Agreement. Between 18 September and 4 October 2018, a software glitch allegedly inflated margins and holdings in his account. The broker squared off positions following margin shortfalls and demanded approximately ₹6.53 lakh; Agarwal disputed trades, square-offs and losses. In NSE arbitration, the sole arbitrator rejected the broker’s recovery claim and partly allowed the investor’s counterclaim: ₹14,30,509 for trading losses plus ₹1,62,162 concerning 1,260 Adani Gas bonus shares. An appellate arbitral tribunal affirmed, directing payment of ₹15,92,671. The broker challenged both awards under Section 34 of the Arbitration and Conciliation Act, 1996.
Issues
Whether the appellate arbitral tribunal adequately adjudicated the parties’ substantive disputes before imposing liability for losses associated with excess margin; whether a mere finding of failure to disclose a trading-system glitch established causation and full liability; whether unresolved questions on trade authorisation, contract notes, risk-policy square-offs, email discrepancies and bonus shares rendered the awards patently illegal; and the permissible judicial remedy under Section 34.
Petitioner’s Arguments
5 Paisa argued that the tribunals had not determined who placed the trades, whether they were unauthorised, or whether the alleged glitch caused the investor’s losses. It cited 22 orders and 302 consequential square-off trades, margin-warning SMS messages, its contractual Risk Policy and the investor’s continued trading through his credentials. It contended that the difference between email addresses was a typographical mistake, that the bonus-share sale was contractually permitted against a debit balance, and that the counterclaim lacked proved loss quantification. Without findings on these dispositive matters, the appellate award was non-speaking and patently illegal.
Respondent’s Arguments
Agarwal maintained that he depended on the broker’s online terminal and that incorrect margin statements and trades in the futures-and-options segment were attributable to 5 Paisa rather than to him. He disputed proper advance warning before the broker sold securities and squared off positions. He argued that the stockbroker’s technical failure and breach of obligations caused his financial losses, that the arbitral tribunals had assessed the documents, and that Section 34 does not permit a rehearing of factual issues merely because the broker disagreed with the award.
Analysis of the Law
Section 34 of the Arbitration and Conciliation Act permits intervention only on defined grounds, including patent illegality appearing on the face of a domestic award; courts cannot routinely reassess evidence or replace a reasonable arbitral view. Sections 31(3) and 34 require legally sufficient reasoning on material questions, while Section 34(4) cannot be used to manufacture findings that the arbitrator never made. In this dispute, the decisive inquiry was not merely whether a technical glitch existed but whether the contractual duties, trades, margin calls and resulting loss established liability. An unreasoned assumption of causation is distinct from a permissible adverse factual finding.
Precedent Analysis
I-Pay Clearing Services (P) Ltd. v. ICICI Bank Ltd., (2022) 3 SCC 121, was central: omission of findings on contentious issues cannot be cured simply by supplementing reasons, and may justify setting aside rather than remittal. Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1, addresses the necessity of intelligible reasons. Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, explains patent illegality and perversity where vital evidence is disregarded. The parties also cited Kotak Securities v. Gajanan Ramdas Rajguru and Reliance Securities v. Vivek Sharma on the allocation of trading-glitch risk, but the Court deliberately did not resolve those merits-based comparisons.
Court’s Reasoning
Justice Aarti Sathe found that the appellate tribunal had largely reproduced the parties’ submissions and then assigned the entire loss to the broker because it had not suitably notified clients of the acknowledged glitch, although it also faulted the investor for not reporting anomalies. The tribunal did not decide whether the glitch generated additional credit, whether it caused particular trades and losses, what duty to notify arose under the agreement, or whether timely notice would have prevented loss. Nor did it determine the relevance of the disputed email address or whether the Risk Policy authorised square-offs and bonus-share sales. Those were missing adjudicatory findings, not merely sparse reasons; Section 34 could not empower the Court to decide them afresh.
Conclusion
The petition was allowed and the impugned arbitral outcome set aside for patent illegality and absence of findings on issues going to the root of the dispute. The Court ordered the release, within one month from upload of its judgment, of any money deposited in Court, made no order as to costs and permitted the parties to commence fresh arbitration in accordance with law. It did not hold either party substantively liable for the disputed trades, margin shortfalls or investor losses. The ruling reinforces that arbitral finality requires meaningful adjudication, not merely an operative conclusion.
Case: 5 Paisa Capital Limited v. Ankit Agarwal
Court: High Court of Judicature at Bombay (Original Side)
Case Number: Arbitration Petition No. 380 of 2020; 2026:BHC-OS:23549
Judge: Justice Aarti Sathe
Date: 30 October 2026 (reserved 1 October 2026)
Result: Section 34 petition allowed; NSE arbitral awards set aside; liberty to initiate fresh arbitration; no costs.
