Court finds violation of fundamental policy of Indian law and principles of natural justice, setting aside awards under Section 34 of the Arbitration and Conciliation Act, 1996.
In a significant judgment, the Bombay High Court has quashed the arbitral awards against Abhyudaya Co-Operative Bank Limited, citing violations of fundamental policy of Indian law and principles of natural justice. The judgment was delivered by Justice Sharmila U. Deshmukh in a series of petitions filed by Ajeet Madhukar Mulay and Monica Ajeet Mulay, who acted as guarantors for loans availed by M/s Nirmangold Alloys Private Limited and M/s Nirmangold Plasttech Private Limited.
The petitioners challenged the arbitration awards on multiple grounds, including the continuation of arbitration proceedings despite a moratorium under the Insolvency and Bankruptcy Code (IB Code), refusal to allow cross-examination of the Bank's witness, and enforcement of mortgage by sale, which was deemed non-arbitrable. The court found that the continuation of arbitration proceedings against the petitioners violated the interim moratorium provisions of the IB Code, which apply to the debt rather than the debtor.
Justice Deshmukh noted that the refusal to permit cross-examination of the Bank's witness was a breach of the principles of natural justice, as it denied the petitioners a fair hearing. The court emphasized the importance of equal treatment and the right to a full opportunity to present one's case, as enshrined in Sections 18 and 24 of the Arbitration and Conciliation Act, 1996.
The court also highlighted that the enforcement of the mortgage by sale, as directed by the arbitral tribunal, contravened the Supreme Court's judgment, which held that enforcement of a right in rem, such as a mortgage, must be adjudicated by the courts and not through arbitration.
As a result, the Bombay High Court set aside the arbitral awards dated February 12, 2024, in Arbitration Case Nos. 2064 and 2065 of 2022, providing a significant precedent for the interpretation of arbitration proceedings in the context of insolvency and the fundamental rights of parties involved.
Bottom line:-
Arbitration - Violation of fundamental policy of Indian law and principles of natural justice leading to setting aside of arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996.
Statutory provision(s): Arbitration and Conciliation Act, 1996 - Sections 34, 18, 24; Insolvency and Bankruptcy Code - Section 96; Indian Contract Act, 1872 - Sections 133, 134, 135, 139, 141; Maharashtra Stamp Act - Section 4.
Ajeet Madhukar Mulay v. Abhyudaya Co-Operative Bank Limited, (Bombay) : Law Finder Doc id # 2919648
