Ignoring vital evidence cutting to the root of the matter renders an arbitral award perverse and patently illegal.

The Petitioner (Kantilal), a stockbroker, challenged an appellate arbitral award dated April 8, 2014, which upheld a prior award directing the refund of Rs. 2 crores to Respondent No. 1 (Viveka).

Viveka had opened a trading account through Respondent No. 2 (Akshay), a sub-broker, and authorized one Jignesh Barasara to manage the process.

Viveka signed blank account-opening forms and deposited Rs. 2 crores in 2009.

By July 2010, the account showed a debit balance of ~Rs. 5 lakhs due to losses in the derivatives segment.

In 2012, Viveka filed a complaint with the Economic Offences Wing (EOW), alleging Jignesh had defrauded her by claiming the portfolio was worth Rs. 3.76 crores.

In subsequent arbitration, the tribunals held the trades were unauthorized as there was no prior written authorization for each trade and ordered Kantilal to refund the initial deposit.

Kantilal filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996, arguing the awards ignored vital evidence.

Whether the arbitral tribunals' decision to ignore the EOW complaint and Viveka’s deposition—wherein she admitted to authorizing Jignesh to trade—rendered the findings perverse.

Whether the refusal to call for Viveka’s income tax returns on the grounds of them being "private papers" constituted a failure to consider vital evidence regarding her contemporaneous acceptance of the trades.

Whether the arbitral awards were vitiated by patent illegality for adopting a summary approach that disregarded the nuance of the constituent’s own contradictory stances.

The Court primarily applied Section 34 of the Arbitration and Conciliation Act, 1996, regarding the setting aside of arbitral awards.

It relied on the principle established in Ssangyong Engg. & Construction Co. Ltd. v. NHAI, which holds that an award that ignores vital evidence or is based on no evidence is perverse and liable to be set aside on the ground of "patent illegality".

The Court also referenced the "best judge of evidence" rule, noting that while arbitrators are masters of evidence, they cannot shut out evidence that cuts to the root of the matter.

The Court observed that the core issue was whether Viveka had authorized the trades.

It found that the tribunals committed a grave error by dismissing the EOW complaint as "irrelevant" simply because it was filed after the trades.

The EOW documents were vital because they contained Viveka’s own admission that she had authorized Jignesh to trade on her behalf but was unhappy with the outcome (losses vs. expected profits).

The Court reasoned that authorization of a person to trade is distinct from the regulatory requirement of trade-by-trade authorization; thus, Viveka's admission of granting authority to Jignesh was a foundational fact the tribunals ignored.

Furthermore, the Court criticized the tribunals for refusing to examine Viveka’s tax returns as "private papers," noting that her tax treatment of the losses ante-litem motam (before the dispute) was essential to determine if she had contemporaneously accepted the trades.

The summary rejection of oral evidence and the refusal to reconcile Viveka’s conflicting positions resulted in a perverse finding.

It held that the tribunals' failure to consider vital evidence (the EOW admissions and tax returns) and the adoption of a summary process that ignored the nuance of the authorization constituted patent illegality.

The Court clarified that it was not determining whether the trades were actually authorized, but rather that the adjudicatory process was flawed due to the exclusion of material evidence.

The parties were granted liberty to seek fresh adjudication of their disputes.