Tribunal may treat statement of defence as counterclaim to award compensation, prioritizing substance over procedural form.

The Respondent (investor) opened a trading account with the Petitioner (stockbroker) and purchased shares under a Margin Trading Facility (MTF)

Due to a technical glitch—the Petitioner mistakenly uploaded the individual PAN of a partner instead of the firm's PAN—the mandatory pledge of purchased shares failed, leading to the shares being auctioned by the Exchange to the investor’s detriment

The Petitioner admitted the mistake but offered only minimal compensation

Under the SEBI Online Dispute Resolution (ODR) mechanism, a Conciliator issued a Failure Report, noting an "admissible claim value" of ₹75,00,000 solely for the purpose of determining arbitration fee slabs

Both parties misconstrued this report as an "award"

The Petitioner challenged the report before an Arbitral Tribunal

The Respondent filed a Statement of Defence (SOD) claiming ₹75,00,000 but did not file a formal counterclaim

The Majority Arbitral Award treated the SOD as a counterclaim and awarded the Respondent ₹23.30 lakhs plus interest, based on the share price on the date the Petitioner rectified the error

The Petitioner challenged the award under Section 34 of the Arbitration and Conciliation Act

Section 34 of the Arbitration and Conciliation Act, 1996, which limits judicial interference to cases of patent illegality or conflict with public policy

SEBI Master Circular for Online Dispute Resolution dated 31 July 2023 (specifically Paras 17-20), which stipulates that a Conciliator’s ascertainment of claim value is intended only for fee computation and does not bind the arbitrator

Regarding the quantification of damages, the court applied the principle that if the factum of loss is established but the exact quantum is difficult to prove, the Arbitral Tribunal may use "guesswork" or a "rough and ready formula," as established in M/s. Construction & Design Services v. Delhi Development Authority and Board of Control for Cricket in India v. Kochi Cricket Private Ltd.

The Court found that the proceedings were characterized by a mutual misconception where both the stockbroker and the layman investor treated the Conciliator’s administrative report as a binding award

The Court held that the Majority Arbitral Award correctly prioritized the substance of the Respondent’s pleadings over their form, noting that the Respondent—appearing in person—had clearly detailed the loss and sought compensation in its SOD

The Petitioner’s contention that the Respondent had explicitly declined to file a counterclaim was dismissed; the Court viewed this as a misunderstanding by the Respondent who believed the ₹75 lakh was already "awarded"

The Petitioner’s admission of the technical error was critical

The Court determined that the Tribunal’s decision to calculate loss based on the share price at the time the error was corrected (rather than the purchase-sale difference) was a "conservative approach" and not irrational

Given the admitted liability, the award was deemed just and reasonable within the peculiar facts of the case

The Court held that while the Conciliator’s report does not constitute an award, the Arbitral Tribunal did not commit a patent illegality by treating a Statement of Defence as a counterclaim in circumstances where both parties were misled by procedural terminology

The Court further held that since the Petitioner admitted the error that caused the loss, the Tribunal's quantification of damages was a permissible exercise of its adjudicatory power and did not warrant interference under the restrictive standards of Section 34