Bombay High Court Sets Aside Arbitral Award Over 4.5-Year Delay In Pronouncement

The Bombay High Court has set aside an arbitral award against a guarantor in a hire-purchase financing dispute, holding that an unexplained delay of over four-and-a-half years in pronouncing the award had impaired the arbitrator's examination of his defences.

Justice Arun R. Pedneker observed:

“The Award, per se, appears to have been affected by the inordinate delay of four and half years, which has impaired the Arbitrator's examination of the matter qua the contentions raised specific to the guarantor.”

The dispute arose from a hire-purchase agreement dated January 7, 1998, under which India Cements Capital & Finance Limited extended a loan facility to Munis Forge Limited, with Manish Mehta standing as guarantor.

The lender invoked arbitration on May 21, 2003. The sole arbitrator reserved the matter for judgment on January 30, 2008, but pronounced the award only on August 4, 2012, without recording reasons for the delay.

Challenging the award under Section 34 of the Arbitration and Conciliation Act, 1996, Mehta argued that the arbitrator had failed to consider his defences.

He contended that the lender and borrower had altered the machinery delivery schedule in September 1998 without his consent, discharging him as surety under Section 133 of the Indian Contract Act, 1872. He also invoked Section 139, arguing that the lender's conduct had impaired his remedy against the borrower.

Mehta further pointed out that the borrower had offered a one-time settlement of ₹30.35 lakh in July 1999, which the lender rejected five years later before claiming ₹66.74 lakh after levying 36% penal interest.

The lender argued that delay alone was insufficient to invalidate the award and that Mehta had waived his objection to the arbitrator's appointment.

The High Court agreed that the appointment objection had been waived but found the award virtually unreasoned. The arbitrator had acknowledged Mehta's affidavit-in-chief but subsequently recorded that he had led no evidence, without addressing his substantive defences.

Relying on the Supreme Court's ruling in Lancor Holdings, the court held that the delay had affected the arbitrator's examination of Mehta's defences.

Since the borrower had not challenged the award, the court set it aside only insofar as Mehta was concerned.

For Petitioner (Manish Mehta): Advocates Nidhi Chauhan, Akshay Naidu.

For Respondent (India Cements Capital & Finance Limited): Advocates Saakshi Jha, Manish M. Bohra.