The Bombay High Court has quashed an August 2024 arbitral award in a nearly three-decade-old share transfer dispute involving ABB India Ltd and investor Sunil Hariram Jaisingh, setting a significant precedent for SEBI's Online Dispute Resolution (ODR) mechanism. According to the latest court order, Justice Somasekhar Sundaresan held the arbitral tribunal's award to be 'perverse', 'patently illegal' and based on a fundamentally flawed adjudicatory process. The court observed that the tribunal 'abjectly failed to properly adjudicate the matter' and that by contending a 'sacrosanct deadline of 60 days' had to be met without explaining how such period was computed, the tribunal fell into grave error. The judgment represents a strong judicial examination of SEBI's ODR mechanism since its rollout and raises broader questions about the framework's ability to handle complex securities disputes.
The court raised fundamental questions about whether disputes involving serious allegations of fraud can be resolved through the ODR mechanism at all. As per the latest court order, the HC noted that the dispute was not a simple shareholder-company disagreement, but involved shares that had changed hands decades earlier, duplicate certificates had been issued, and the securities were ultimately held by third parties, including institutional investors. The court observed that 'whether a dispute of the instant nature can at all form the subject matter of the ODR mechanism is a wider question that has arisen in the matter'. The judgment cautioned against treating every investor grievance as arbitrable merely because stock exchange bylaws provide for arbitration, questioning how disputes affecting third-party rights, ownership claims, and market participants can be resolved through a narrow bilateral arbitration process without hearing affected stakeholders.
The dispute traces its origins to 175 ABB shares originally held by Jaisingh's father, who died in 1988, according to court records. Jaisingh sought transmission of the shares in 1992, but ABB's then registrar and transfer agent, Tata Consultancy Services (TCS), returned the documents seeking probate of the will. According to the latest court order, Jaisingh subsequently claimed that the original share certificates were misplaced by his lawyer and resurfaced only in 2021. When he approached ABB's current registrar, KFin Technologies, he was informed that the shares had already been transferred, duplicate certificates had been issued and the holdings had been dematerialised in 1998-99. Following bonus issues, stock splits, and ABB's demerger of its power business, the original holding would have translated into 1,550 ABB shares and 310 shares of Hitachi Energy India.
The court was critical of the tribunal's apparent obsession with meeting a 60-day disposal timeline under the ODR framework, as reported in the latest court order. The tribunal conducted only one substantive hearing on July 9, 2024, primarily on ABB's jurisdictional objections, and declined to hold any further hearings, frame issues, permit evidence or allow cross-examination, citing the need to conclude proceedings within the prescribed timeline. Justice Sundaresan observed that pleadings themselves were completed only after the hearing had concluded, and noted that the tribunal never adequately explained how the 60-day period had been computed. The court held that the tribunal had adopted a 'completely irrational, arbitrary and non-judicial approach to adjudication' by deciding the dispute without granting further hearings after pleadings were completed and without fully examining contested questions of fact.
The court held that 'the fraud in issuance of share certificates lies at the heart of the proceedings, making the dispute non-arbitrable', as reported in the latest court order. The judgment noted that the shares had already been transferred to third parties, including institutional investors, and questioned how the shares were transferred and dematerialised. The court called several findings of the tribunal 'perverse' and 'irrational', and set aside the award, allowing ABB's petition. The court also questioned how the restoration of shares could be ordered when current holders of those shares were not parties to the proceedings, and wondered how the company could buy its own shares to restore shares to Jaisingh, except in the case of a buy-back. The court ultimately quashed the arbitral award in its entirety and directed that amounts previously released to Jaisingh through the prevailing mechanism be returned and deposited with the court before being released to ABB.
