Arbitral Award Can Be Set Aside Only Against Guarantor of Hire Purchase Agreement

Respondent No.1 Finance Company invoked arbitration of the Hire Purchase Agreement with the respondent no.2.

The arbitral proceedings were reserved for Award on 30.1.2008 and it was passed on 4.8.2012.  The petitioner was not served with the copy of the Award.  However, as per the order dated 19.3.2014 of the High Court, the Arbitrator had given packet of certified copy of the Award to the Petitioner.

the Petitioner stands discharged as a surety owing to a variance in the contract. The Petitioner retired from Munis Forge on 28.09.2006 and, therefore, is not liable under the purported Deed of Guarantee. Respondent Nos. 1 and 2 varied the terms of the contract by a letter dated 17.09.1998, whereby the schedule of delivery was amended. The said amendment was not communicated to the Petitioner. Accordingly, it is  submitted that, under Section 133 of the Indian Contract Act, 1872, the surety stands discharged from the alleged liability owing to the variance in the terms of the contract.

In the instant case, this Court finds that the Arbitrator has failed to deal with the submissions of the guarantor, particularly those concerning the discharge of his liability under Sections 133 and 139 of the Indian Contract Act, 1872. The matter remained pending before the Arbitrator for more than four and a half years after the award was reserved, and the Arbitrator has failed to consider and address the submissions advanced on behalf of the Petitioner. In view of the above, the arbitral award is set aside only to the extent of the Petitioner.

This Court, in the case of Lokmanya Multi Purpose Co-operative Society Ltd. v. Melwyn Anthony Vaz and Another, reported in 2026 BHC GOA:160, in Appeal under Arbitration No. 19 of 2017, by order dated 30.01.2026, similarly applied the law laid down in Gayatri Balasamy (supra) and Komal Narula (supra) and set aside the arbitral award only to the extent of the guarantor who had challenged the award. Although the amount was recoverable jointly from the borrowers and the other guarantors, the Court held that, since the plea of violation of the principles of natural justice had been raised only by the Petitioner therein, the award was liable to be set aside only to that extent.

Judgment dated 29.10.2026 of the High Court of Bombay in Arbitration Petition No.1469 of 2014 of Manish Mehta   Vs.  India Cements Capital & Finance Limited