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Arbitral Award – Unconditional stay – Interplay of two provisos to Section 36(3) of AA

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On 29.1.2010, the loan agreement was executed by L & T Finance Company to the lender respondent no.2 for Rs.2,85,7000/- for a term of 34 months with interest and subject to delay payment charges.  There was clause for dispute resolution by arbitration.

By the notice dated 1.6.2011, the arbitration clause was invoked and demand for outstanding dues was made.   Respondent no.4 was appointed as the Sole Arbitrator.

On 28.6.2011, the statement of claim was filed.   Various stages as mentioned in various clauses of para 2 of the judgment had taken place.   In the meanwhile, the claimant had filed intimation dated 21.11.2014 of sale of assets of the respondents.  However, the counter claim in respect of undervaluation of said sale was filed on 5.12.2017.

On 23.11.2017, the Award was passed. Allowed the counter claim of Rs.1,25,69,768/- and after giving credit for the said amount, directed the petitioner to pay Rs.65,72,558/- to the Respondents.

This was challenged in the High Court.   Section 34 petition was admitted.

HELD, on unconditional stay to the impugned order, if the case does not fall under the second proviso, the Court can consider unconditional stay to the Award under the first proviso.   Under the proviso the Court has discretion to grant unconditional stay without deposit of the decretal amount.  In this case, the entire claim of the respondents was granted by the Arbitrator on valuation report which was not proved. Therefore, grant of claim by the Arbitrator relying on the valuation report is perverse and amounts to a patent illegality on the face of the Award.   Therefore, there is sufficient cause for granting an unconditional stay of the Award.   If unconditional stay is not granted, then the petitioner would suffer loss as it would have to make payment in respect of a claim which has been perversely granted by the Arbitrator for the reasons mentioned in the judgment.

Judgment dated 13.6.2024 of the Bombay High Court in I.A. (L) No.6246 of 2024 in Commercial Arbitration Petition (L) No.5565 of 2024 of CFM Asset Reconstruction Ltd and another   Vs. M/s. SAR Parivahan Pvt Ltd and others.

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