Rs 15.92 lakh NSE award against 5 Paisa Capital set aside: appeal panel copied arguments, decided nothing
Justice Aarti Sathe held that the NSE Appellate Arbitral Tribunal, which confirmed a 2019 award making the broker pay a client Rs 15,92,671 over trades placed on a software glitch, reproduced the submissions of both sides verbatim and answered none of eight live questions, a patent illegality under Section 34(2A) that a court cannot cure by supplying findings or ordering a remand.
A stock exchange appellate tribunal that reproduces what both sides argued and then announces a result has not decided anything, the Bombay High Court held on 30 October 2026. Justice Aarti Sathe set aside an NSE appellate award that had confirmed a Rs 15,92,671 award against the broker 5 Paisa Capital Ltd in favour of its client Ankit Agarwal.
The ruling turns on a glitch in the broker's trading software in September and October 2018 that showed an excess holding in the client's demat account and gave him more margin than he was entitled to. Seven years and three forums later, the question of who bears the resulting loss remains open, and the parties may start arbitration afresh.
Sixteen days of phantom margin
Agarwal opened a trading account with 5 Paisa on 25 October 2016 under a Member-Client Agreement, and traded online with his own login. The agreement bound both sides to the NSE bye-laws, including their dispute resolution machinery. Contract notes and margin statements went to his registered email address.
Between 18 September and 4 October 2018, the disputed period, the broker's software reflected an inflated holding in his demat account. The broker says trade logs and IP addresses show that every trade in that window was his. From 3 September to 11 October 2018 it sent text messages warning that his margin cover had fallen below 20 per cent.
On 1 October 2018 his debit balance stood at Rs 1,45,34,795 and his gross holding value cover at 19.41 per cent. Under Clause 14 of the broker's risk policy a cover below 20 per cent made a client at risk, and the broker squared off his positions.
Even after that, the debit was Rs 1,03,21,756 and the cover 6.15 per cent. A Clause 15 intimation went out, further positions were squared off, and a debit of Rs 6,55,695 remained. A notice of 5 October 2018 demanded it.
Complaint, counter-complaint, two awards
Instead of paying, Agarwal complained to the NSE on 9 October 2018 and sought Rs 15 lakh in compensation. An Investor Grievance Resolution Panel sat on 2 November 2018 and found the square-off in line with the policy and his claim untenable. He then went to SEBI with 16 queries, later 35 more, which the broker answered in writing.
The broker invoked NSE arbitration on 18 February 2019 for Rs 6,53,166. Agarwal counterclaimed Rs 15,00,509.31 on 1 April 2019, alleging that trades in the disputed period were not his, that the broker had placed them, and that he had not received contract notes or SMS alerts for every trade.
On 6 June 2019 the sole arbitrator rejected the broker's claim and allowed the counterclaim in part. He found the broker's responses evasive, its typographical-error explanation for a second email address unacceptable, and its debit figures inconsistent across emails. He awarded Rs 14,30,509, plus Rs 1,62,162 for 1,260 bonus shares of Adani Gas Ltd the broker had sold.
The NSE Appellate Arbitral Tribunal heard the broker's appeal on 23 September 2019 and dismissed it on 17 October 2019. Its reasoning ran to one paragraph.
Both sides had a duty to report any abnormality in the trading system, it said, and the client should have flagged his positions. But the broker admitted the glitch and had not notified clients in time, so it bore the loss.
Mr Kunal Katariya, instructed by Dua Associates, argued the Section 34 petition for 5 Paisa. Mr Pranil Pawar appeared for Agarwal.
Patent illegality against re-appreciation
Mr Katariya's case was that neither award decided the issues pressed. The broker had shown 22 orders producing 302 square-off trades under a risk policy the client had accepted at account opening, and no one had examined them. The counterclaim had been allowed only because the broker's reply was a denial.
There was no finding on who executed the trades, whether any were unauthorised, how the glitch caused the loss, or how the Rs 14,30,509 figure was reached. The client knew of the extra margin from SMS alerts, never disputed that knowledge, and traded in substantial volumes on it, while other customers reported the problem to the support team.
On the bonus shares, the account opening form allowed the broker to sell securities at its discretion whenever the account was in debit. A pending SEBI complaint did not suspend that right, and neither award dealt with the point.
He relied on this court's ruling in Kotak Securities v. Gajanan Ramdas Rajguru, decided on 3 December 2025, where a broker could not pocket profits a client made on erroneous margin. By the same logic, he said, losses on erroneous margin could not be shifted to the broker.
He cited Dyna Technologies (P) Ltd v. Crompton Greaves Ltd, (2019) 20 SCC 1, and Associate Builders v. DDA, (2015) 3 SCC 49, for the proposition that unintelligible reasoning or findings on no evidence make an award perverse, and Erach Khavar v. Nirmal Bang Securities on a client who fails to object within a reasonable time.
Mr Pawar answered that Section 34 does not permit re-appreciation of evidence, and that an affirming appellate forum need not repeat every finding below. His client was wholly dependent on the broker's terminal, which during the disputed period sent none of its usual pop-ups about excess limits or rejected orders.
The broker had itself confirmed that no F&O trades were executed by the client, yet raised claims in that segment. The glitch defence was a ploy, and the sole arbitrator had rightly doubted that any glitch existed given the absence of written notice. The square-off without prior notice breached NSE bye-laws and Regulations 4.5.2 and 4.5.3.
He relied on the Delhi High Court in Reliance Securities Ltd v. Vivek Sharma, 2010 SCC OnLine Del 3748, for a trading member's liability to compensate for glitch losses, and said Kotak Securities arose on different facts. The counterclaim merely restored the client to his pre-glitch position.
Submissions reproduced, nothing adjudicated
Justice Sathe began by accepting that Section 34 permits interference only in exceptional circumstances. Counsel for the broker had taken her through the operative parts of both awards. Having read them, she found that the appellate award in particular had been passed without any findings on the issues canvassed.
The central question, she said, was whether the loss from trading on glitch-generated margin should fall on the broker or the client. That required the appellate tribunal to examine the facts and the record. Instead it reproduced the submissions verbatim and recorded only that both parties had a duty to notify each other of abnormalities.
A mere reproduction of submissions could not amount to an adjudication. The award did not disclose what weighed with the tribunal in accepting one contention and rejecting the other, nor the material issues arising for decision. It “fails to disclose the adjudicatory findings themselves” (para 19), going beyond mere inadequacy of reasons.
The court, she added, cannot supply missing findings or conduct an independent adjudication of the merits under Section 34. That was exactly why the absence of findings warranted interference rather than deference.
Eight questions the tribunal never answered
The judgment lists what the appellate tribunal left undecided. Did the glitch actually give the client excess margin or credit, and were his trades and losses attributable to it? Did the Member-Client Agreement oblige either side to report a glitch on the platform?
Had the broker in fact failed to inform the client, and was it obliged to monitor and warn him of the erroneous margin and the exposure it carried? Would timely communication have prevented or reduced the losses? Could a bare finding that both sides failed to report justify loading the entire loss on the broker?
Two more concerned the record. Was the broker right that the wrong email address in its statement of claim was a typographical error, all other correspondence having used the correct one? And was it entitled under its risk policy to square off the account and sell the client's shares without consent while the account was in debit?
These were the rival contentions, and none had been considered. The court could not take them up itself, and was therefore constrained to set the appellate award aside as one rendered without findings on contentious issues.
Why there was no remand
The judge drew on I-Pay Clearing Services (P) Ltd v. ICICI Bank Ltd, (2022) 3 SCC 121, where the Supreme Court declined to remit an award with no finding on a contentious point. Section 34(4) lets a tribunal fill gaps in the reasoning behind an existing finding; where no finding exists, no amount of reasons can cure the defect.
She held that the award could not be sent back to the sole arbitrator under the guise of additional reasons unless the parties consented. Absence of findings on the rival contentions and the evidence was a patent illegality going to the root, and perversity of that kind is a ground under Section 34(2A).
For that she cited Ssangyong Engineering and Construction Co Ltd v. NHAI, (2019) 15 SCC 131, and Associate Builders: a finding on no evidence, or one that ignores vital evidence, is perverse, and an unreasoned award contravenes Section 31(3).
Section 34 stops the court from re-appreciating evidence or substituting its view for a plausible one, she acknowledged. But here the appellate tribunal had reached no view at all. The award “suffers from the vice of being a non-speaking award” (para 24), and the merits authorities cited by both sides did not need to be addressed.
Order
The petition was allowed. The appellate arbitral award of 17 October 2019, which upheld the sole arbitrator's award of 6 June 2019, was set aside for patent illegality, the unanswered issues being those listed in paragraph 20 of the judgment.
Any amount deposited in court is to be released within one month of the judgment being uploaded on the court's website. Interim applications do not survive. There was no order as to costs, and the parties are at liberty to initiate fresh arbitration in respect of the dispute in accordance with law.
The matter was reserved on 1 October 2026 and pronounced on 30 October 2026.