[Cites 18, Cited by 0]
Bombay High Court
Shetty Sushila Anand vs Saraswat Co.Op. Bank Limited on 9 December, 2025
025:BHC-OS:2
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL ARBITRATION PETITION NO. 395 OF 2024
WITH
INTERIM APPLICATION NO.3658 OF 2024
IN
COMMERCIAL ARBITRATION PETITION NO. 395 OF 2024
Shetty Sushila Anand ...Petitioner
V/s.
Saraswat Co-operative Bank Ltd. ...Respondent
______________
Mr. Gaurav Mehta with Ms. Priyanka Fadia i/b. Mr. Shashank N. Fadia
for the Petitioner.
Mr. Chaitanya M. Jadhav i/b. M/s. SC Legal for the Respondent.
______________
CORAM: SANDEEP V. MARNE, J.
Judgment reserved on: 3 DECEMBER 2025.
Judgment pronounced on: 9 DECEMBER 2025.
Judgment:
1) The Petition is filed under Section 34 of the Arbitration
and Conciliation Act, 1996 (the Arbitration Act) challenging the
Award of the learned sole Arbitrator dated 10 October 2023. By the
impugned Award, the learned sole Arbitrator has allowed the claim of
the Respondent-Bank by directing the Petitioner to pay to the
Respondent sum of Rs.7,23,44,313.54 forming part of two loan
outstanding amounts of Rs.2,06,61,658.53 and Rs.5,16,82,655.01 as on
13 October 2022 with future interest @ 6% per annum from 14 October
2022 till realisation. In addition to arbitration fees of Rs.47,300/- and
administrative costs of Rs.9,000/-, the learned Arbitrator has further
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declared that the awarded sum is secured by the equitable mortgage of
the Unit No.7/19, Bharat Industrial Estate at Ram Mandir Road,
Goregaon (East), Mumbai-400 060 and that the Bank can recover the
dues by sale/disposal of the mortgaged property. The learned
Arbitrator has also restrained the Petitioner from transferring,
alienating and /or creating any third-party rights in the mortgaged
property. It is further directed that the awarded sum is also secured by
hypothecation of machinery, furniture, fixtures, dies and tools, stocks
and book debts.
2) M/s. Chetna Metal Industries (CMI) was a proprietary
concern of late Anand Sankappa Shetty, who passed away on 27
September 2013. Petitioner is the widow of late Anand Sankappa
Shetty. The Respondent is a Cooperative Bank registered inter alia
under the Multi State Co-operative Societies Act, 2002 (the MSCS
Act). Petitioner's husband was member of the Respondent-Bank and
Petitioner was a nominal member. The CMI applied for Term Loan of
Rs.2,00,000/- and Cash Credit Limit of Rs.1,00,000/- to the
Respondent, which sanctioned Term Loan of Rs.2,00,000/- and Cash
Credit Limit of Rs.80,000/- vide letter dated 13 June 1984. The loan
facilities were secured by hypothecation of machinery, tools, etc. and
personal guarantee of the Petitioner. A collateral security in the form of
Life Insurance Policies was also given. CMI was the principal borrower
and the Petitioner was the guarantor.
3) According to the Petitioner, the immovable property
bearing Unit No.7/19, Survey Nos.14 and 15, Hiss Nos.3, 7, 8, Bharat
Industrial Estate, Ram Mandir Road, Goregaon (East), Mumbai -400
060 (the Property) was not a collateral security for either of the credit
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facilities. On 26 May 1986, the Respondent-Bank issued notice to the
Petitioner that the loan accounts were in arrears. In the year 1987 the
Respondent-Bank filed dispute before Co-operative Court, Mumbai for
recovery of sum of Rs.1,83,423.14 due under Term Loan and
Rs.58,833.48 under Cash Credit facility aggregating Rs.2,42,256.62.
On 2 December 2002, the Respondent -Bank withdrew the said dispute
for unknown reasons.
4) On 31 December 2009, the Respondent-Bank issued
possession notice for taking physical possession of the property.
Petitioner objected to the notice. After demise of late Anand Sankappa
Shetty, the Respondent-Bank issued symbolic possession notice dated 2
June 2014 and called upon the Petitioner to pay Rs.30,09,389.16 as on
30 September 2003. Petitioner filed Securitisation Application No.517
of 2016 against the Respondent before the Debt Recovery Tribunal-II,
Mumbai (DRT). The Tribunal allowed the Application and restored
possession of the property by order dated 18 March 2021. By notice
dated 14 October 2022, the Respondent called upon the Petitioner to
pay Rs.7.23 crores as outstanding amount in respect of both the loans.
The Central Registrar of Co-operative Societies, New Delhi passed
order dated 18 October 2022 under sub-section (4) of Section 84 of the
MSCS Act appointing the sole Arbitrator. Respondent-Bank filed its
statement of claim. Petitioner also filed statement of defence. Issues
were framed based on pleadings. Parties led evidence in support of
their respective cases. The learned sole Arbitrator has rendered Award
dated 10 October 2023, operative portion of which reads thus:-
a) The claim is allowed with costs & charges.
b) It is hereby declared and ordered that the Opponents No.1 and 2
are jointly and/or severally liable to pay tot he Disputant a sum of
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Rs.7,23,44,313.54 (Rupees Seven Crore Twenty Three Lacks Forty
Four Thousand Three Hundred Thirteen and Paise Fifty Four Only)
sum of ODPUB/252 for Rs.2,06,61,658.53 and SLPUB/29 for
Rs.5,16,82,655.01 (loan accounts) as on 13.10.2022 with future
interest @ 6% p.a. w.e.f. 14.10.2022 till realization and Arbitration's
fees of Rs.47,300.00 as also Administrative cost of Rs.9,000.00
c) It is declared that the abovesaid sum is secured by the Equitable
Mortgage of the Unit No.7/19, Bharat Industrial Estate at Ram
Mandir Road, Goregaon (East), Mumbai- 400 060, therefore the
Disputant can recover the dues by selling/disposing off the said
mortgaged property i.e. Unit No.7/19, Bharat Industrial Estate at
Ram Mandir Road, Goregaon (East), Mumbai - 400 060. The
Opponents are hereby restrained from transferring, alienating
and/or in any way creating any third-party right/interest in respect
of this property, till realization of entire dues, without consent of
Disputant.
d) It is hereby declared that the above said sum is secured by the
Hypothecation of Machinery, Furniture, Fixtures, Dies & Tools,
Stocks and book Debts as claimed and it can be sold for recovery of
above said sum.
Aggrieved by the Award dated 10 October 2023 the Petitioner has filed
the present Petition under Section 34 of the Arbitration Act.
5) Mr. Mehta, the learned counsel appearing for the
Petitioner would submit that the impugned Award is perverse, patently
illegal and contrary to public policy of India being in contravention of
fundamental policy of Indian Law and in conflict with the most basic
notions of morality and justice. That rate of interest under sanction
letter was 13.5% p.a. for Term Loan and 14% p.a. for Cash Credit and
the interest was payable at quarterly rest. However, in the notice dated
14 October 2022 interest was computed at 18.30% on monthly rest.
That the Arbitrator has blindly awarded sum of Rs.7.23 crores as on 10
October 2023 and claim in notice dated 14 October 2022 without
bothering to consider contractual rate of interest agreed between the
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parties. Mr. Mehta would further submit that the Arbitrator erred in
relying on handwritten entries in computerised statement of claim i.e.
'unapplied interest' of Rs.2.05 crores and 5.15 crores without providing
any breakup. That as per contractually agreed rate of interest computed
at quarterly rest, the amount outstanding under Term Loan is
Rs.30,06,944/- and amount payable under Cash Credit facility is
Rs.11,79,772/- as against huge sum of Rs.7.23 crores awarded by the
sole Arbitrator. Mr. Mehta would further submit that the learned
Arbitrator has committed patent illegality in granting declaration of
mortgage in respect of the property in absence of any prayer in the
Statement of Claim. That no mortgage in respect of the property was
ever created. That the document relied upon by the Bank for deposit of
title deed is unsigned and vague. Mr. Mehta would further submit that
the two LIC policies were assigned in favour of the Respondent as
collateral for the loans. That those policies had matured in 1998-99 and
the Bank has not given credit in respect of the said matured policies.
Relying on judgments of the Apex Court in Indian Railways Catering
and Tourism Corp. Ltd. V/s. Brandavan Food Productions 1 and
Batliboi Environment Engineers Ltd. Vs HDCL 2 Mr. Mehta would
pray for setting aside the impugned Award. He would also invite
attention of the Court to Constitution Bench judgment of the Gayatri
Balasamy V/s. ISG Novasoft Technologies Limited 3 in support of his
contention that the rate of interest can be modified by this Court by
severing bad part of the Award.
6) Petition is opposed by Mr. Jadhav, the learned counsel
appearing for the Respondent-Bank. He would submit that the learned
2025 SCC OnLine SC 2369
2024(2) SCC 375
2025 SCC OnLine SC 986
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Arbitrator has considered the entire evidence and material on record
for delivering a well-reasoned Award. That in absence of any element
of perversity, there is no warrant for interference in the impugned
Award. He would submit that the Arbitrator has rightly awarded rate
of interest @ 18.30% at quarterly rest since the sanction letter itself
contained a clear stipulation that the terms and conditions for credit
facilities were subject to change by the Bank at its discretion as per the
changes in the money market conditions. That prime lending rate is
based on cost of funds to the Bank and that therefore rate of interest
for lending can always vary from time to time according to the market
conditions.
7) So far as declaration issued by the Arbitrator in respect of
the mortgage is concerned, Mr. Jadhav would submit that a specific
prayer was made for such declaration in prayer clauses (c) and (g) of
statement of claim. He would further submit that mortgage for deposit
of title deed was made vide instrument dated 10 October 1985. He
would submit that the Award does not suffer from any infirmity and
that therefore the Petition is liable to be dismissed.
8) Rival contentions of the parties now fall for my
consideration.
9) The case arises out of extremely old loan transaction
sanctioned and disbursed vide sanction letter dated 13 June 1984, by
which CMI was sanctioned Term Loan of Rs.2,00,000/- and Cash
Credit Limit of Rs.80,000/- According to the Respondent-Bank, the
outstanding amounts under both credit facilities were not repaid. It
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appears that the Respondent Bank started recovery proceedings since
26 May 1986. It first filed case before Co-operative Court, Mumbai for
recovery of amount of Rs.1,83,423.14 due under Term Loan and
Rs.58,833.48 due under Cash Credit facility. However, after about 15
long years, the Respondent -Bank withdrew the said case for reasons
not known at this juncture. Thereafter there was hiatus for about 7
years and Respondent-Bank renewed its efforts for recovery of
outstanding loan amounts by directly issuing possession notice under
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI Act) on 31
December 2009 threatening to take physical possession of the property.
The Petitioner resisted the same and nothing happened for almost four
years. In the meantime, Petitioner's husband and proprietor of CMI
passed away on 27 September 2013. After death of her husband, Bank
renewed its efforts to recover the outstanding amounts under the loan
account and took over symbolic possession of the property vide notice
under Section 13(2) of the SARFAESI Act on 2 June 2014. At that
time, outstanding amount was indicated as Rs.30,09,389.16 as on 30
September 2003. The notice dated 2 June 2014 was set aside by the
DRT by order dated 18 March 2021.
10) In the above background the Respondent-Bank initiated
arbitration proceedings by seeking appointment of the Arbitrator under
Section 84 of the MSCS Act. The arbitral proceedings have resulted in
the impugned Award under which the learned sole Arbitrator has
awarded aggregate amount of Rs.7,23,44,313.54 in favour of the
Respondent-Bank in addition to declaration of security on equitable
mortgage over the property.
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11) The first ground of attack by the Petitioner to the
impugned Award is ignorance of terms and conditions of sanction
letter by the learned Arbitrator while allowing the claim of the
Respondent-Bank. It would therefore be apposite to reproduce the
relevant terms and conditions of sanction letter dated 13 June 1984 as
under:-
AND/8/RGN/III/BSP/3483 13.06.1984.
TO
M/s. Chetna Metal Industries Unit No.7. Bharat Ind. Estate,
Ram Mandir Road,
Goregaon(East),
BOMBAY-400 063.
WITHOUT PREJUDICE
Dear Sirs,
Re: Financial Accommodation.
The Committee at its Meeting held on 7th June 1984
considered your proposal for Term Loan of Rs. 2.00 lakhs and Cash
Credit Limit of Rs. 1.00 lakh.
I am directed to inform you that the said proposal has
been sanctioned with few modifications on the following terms and
conditions:-
1) Limit : a) Term Loan Rs. 2.00 lakhs
b) Cash Credit limit Rs. 0.80 lakh.
2) Security : Term Loan
a) Hypothecation of existing machinery and machinery be
purchased, Furniture/Fixtures, Dies & Tools.
b) Personal guarantee of Mrs. Shetty, wife of the
proprietor.
Cash Credit
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a) Hypothecation of Stocks & Book Debts
b) Personal guarantee of Mrs.Shetty, wife of the proprietor.
Common Security -Collateral- Life Insurance Policy of Rs. 1.00 lakh
in the names of the proprietor and his wife.
3) Margin : 30% of Stocks.
40% of Book Debts.
40% of machinery/Furniture/Fixtures.
4) Interest: a) Term Loan: 13 ½ % per annum with quarterly rests.
b) Cash Credit: 14% per annum with quarterly rests.
5) Period : a) Term Loan Repayable on demand but not late than 60
months.
b) Cash Credit - Repayable on demand subject to review
within six months from the close of the accounting year
of the firm.
6) Repayment: Term Loan -Repayable by 40 monthly instalment of
Rs. 3,000/- each and 20 monthly instalment of Rs.4,000/- each.
7) Valuation : a) Stocks to be valued at cost or market price
whichever is less,
b) Book debts not more than 3 months old,
c) Hypothecated machinery/furniture/fixtures, Dies
& Tools to be valued at cost or written down value
whichever is less.
(emphasis added)
12) Thus, the Term Loan of Rs.2,00,000/- was sanctioned and
disbursed at interest rate of 13.5% per annum, payable at quarterly rest.
Cash Credit amount of Rs.80,000/- was to be paid with interest of 14%
per annum payable at quarterly rest. However, according to the
Petitioner the Respondent-Bank has charged interest @ 18.30 %
payable at monthly rest as is clear from paragraph 1 of the Statement
of Claim, which reads thus:-
1. I say that, I am aware of the fact of case on the basis of the
documents executed by the Defendants and records and files
available with the said Disputant Bank. I have authority to file the
present Claim Affidavit in the said Arbitration Case as I am Power of
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Attorney Holder of the Disputant Bank. I say that the Disputant has
filed Arbitration Case against the Defendant for recovery of sum of
Rs.7,23,44,313.54 (Rupees Seven Crore Twenty Three Lacs Forty
Four Thousand Three Hundred Thirteen and Paise Fifty Four Only)
with further interest at the rate of @ 18.30% per annum with
monthly rest as prayed in the Dispute.
13) The sole Arbitrator has apparently not taken into
consideration the rate of interest agreed under the sanction letter.
However, lower rate of interest chargeable against the borrower has
been noticed in paragraph 16 of the Award when reference is made by
the Arbitral Tribunal to Dispute Application filed before the Co-
operative Court in the year 1987. Relevant observations in paragraph
16 of the impugned Award read thus:-
16. ... The Disputant Bank had filed its claim on 29/4/1987 under
section 91 to 96 of Maharashtra State Cooperative Societies Act
1960 before the Cooperative Court-II Mumbai, being Dispute
Application being Case No.CC-II/331 of 1987, for recovery of sum
of Rs.1,83,423.14 in Term Loan account and Rs.58,833.48 in CC
account as on 31st March 1987 with further interest thereon @
13.5% per annum and 15% per annum respectively from 1 st April
1987.
14) The Arbitral Tribunal has thereafter not bothered to
conduct any enquiry as to why and how the Respondent -Bank could
charge exorbitant rate of interest at 18.30% on the Petitioner. To make
things worst, the lower rates of 13.50% and 14% were payable at
quarterly rest whereas the Respondent-Bank has computed interest at
monthly rest. On account of double whammy of higher rate of interest
of 18.30% coupled with the compounding at monthly rest, principal
loan amounts of Rs.2,00,000/- + Rs.80,000/- =2,80,000/- has swollen
to Rs.7,23,44,313.54. The Arbitral Tribunal did not even bother to
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enquire as to why principal amount of Rs.2,80,000/- could soar upto
7.23 crores in 38 years.
15) The breakup of 7.23 crores is indicated in Bank's notice
dated 14 October 2022 was as under:-
SR. No. NATURE OF RATE OF INTEREST OUTSTANDING
FACILITY INCLUSIVE OF
INTEREST AS
ON 13.10.2022
1. Cash Credit 18.30% Rs.2,06,61,658.53
(9028500100000252)
2. Term Loan 18.30% Rs.5,16,82,655.01
(028700100000029)
Total Rs.7,23,44,313.54
16) However, if the Account Statement produced by the
Respondent-Bank before the Arbitral Tribunal is taken into
consideration, it is seen that in respect of Cash Credit account the
amount due as on 11 October 2022 was reflected as Rs.82,524.53 to
which figure of 2,05,79,074/- was added in handwriting towards
'Unapplied Interest as on 13/10/2022' . Similar is the case in respect of
Term Loan account where amount due in the Account Statement is
shown as Rs.1,56,727.01 to which figure of Rs.5,15,25,928.00 was
added as 'Unapplied Interest as on 13/10/2022' in handwriting. The
learned sole Arbitrator has blindly accepted the above figures without
even bothering to seek particulars thereof from the Respondent -Bank.
17) The Arbitral Tribunal has thus travelled beyond the terms
of sanction letter dated 13 June 1984. Faced with the difficulty that the
impugned Award is in contravention of the agreed rate of interest and
the manner of charging the interest, Mr. Jadhav has relied upon
following condition in sanction letter dated 13 June 1984:-
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Please note that the said terms and conditions are subject to change
by the Bank at its discretion from time to time as per the changes in
money market conditions.
18) Firstly, the Arbitrator has not utilised the above condition
for awarding interest higher than the one agreed upon in sanction letter
dated 13 June 1984. Secondly, the above condition is not a license to
the Bank to charge interest at its whims and caprices and contrary to
the terms and conditions of the sanction letter. Even otherwise, there
was no evidence on record about prime lending rate or cost of funds to
the Respondent-Bank. Therefore, reliance by Mr. Jadhav on above
quoted stipulation does not assist the case of the Respondent- Bank.
19) In my view, the impugned Award, to the extent of
allowing interest @ 18.30% computed on monthly rest, is clearly
invalid. As the Award ignores the terms and conditions of the contract
between the parties, it falls foul to public policy of India doctrine. In
recent judgment in Indian Railways Catering and Tourism Corp. Ltd.
(supra) the Apex Court has summarised grounds for setting aside
Arbitral Award in paragraphs 63 to 66 as under:-
63. Pertinently, Section 34(2)(b)(ii) provides that if the Court finds
that an arbitral award is in conflict with the public policy of India,
the Court would be justified in setting it aside. Explanation 1, as it
presently reads, and Explanation 2 were inserted by the
Amendment Act No. 3 of 2016 with retrospective effect from
23.10.2015. Explanation 1 provides that, for the avoidance of
doubt, it is clarified that an award is in conflict with the public
policy of India only if its making was induced or affected by fraud
or corruption or was in violation of Sections 75 or 81 of the Act of
1996 or it is in contravention with the fundamental policy of Indian
law or it is in conflict with the most basic notions of morality or
justice. Explanation 2 provides that, for the avoidance of doubt, the
test as to whether there is a contravention with the fundamental
policy of Indian law shall not entail a review on the merits of the
dispute.
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64. In Ssangyong Engineering and Construction Company Limited
vs. National Highway Authority of India((2019) 15 SCC 131), this
Court dealt with the expression 'most basic notions of morality or
justice' mentioned in Explanation 1. It was opined that the breach
must be of some fundamental principle of justice, substantively or
procedurally, which shocks the Court's conscience. On facts, this
Court found that the award created a new contract by applying a
Circular that was not even placed before the arbitral tribunal. It was,
therefore, opined that a fundamental principle of justice was
breached, viz., that unilateral alteration of a contract cannot be
foisted upon an unwilling party nor can a party to an agreement be
made liable to perform a bargain not entered into with the other
party. This Court held that such course of conduct was contrary to
fundamental principles of justice followed in this country and
shocked its conscience. It was, however, cautioned that this ground
would be available in exceptional circumstances only and under no
circumstance can a Court interfere with an award on the ground
that justice, in its opinion, was not done.
65. Again, in PSA Sical Terminals Private Limited vs. Board of
Trustees of V.O. Chidambranar Port Trust, Tuticorin, and others
((2023) 15 SCC 781), this Court found that the arbitral tribunal had
thrust a new term into the agreement between the parties and
thereby created a new contract for them. Referring to Ssangyong
Engineering (supra), this Court affirmed that rewriting a contract
for the parties would be a breach of the fundamental principles of
justice, entitling a Court to interfere as it would shock its conscience
and would fall within the exceptional category.
66. A little later, in State of Chhattisgarh and another vs. SAL
Udyog Private Limited7, a 3-Judge Bench of this Court dealt with
the issue as to what would constitute 'patent illegality' appearing on
the face of the award, in terms of Section 34(2A) of the Act of
1996. Reference was made to the earlier decisions in Associate
Builders v. Delhi Development Authority8 and Ssangyong
Engineering (supra) and it was held that the failure of the arbitral
tribunal to decide in accordance with the terms of the contract
governing the parties would certainly attract the 'patent illegality'
ground as the said oversight amounted to gross contravention of
Section 28(3) of the Act of 1996, which enjoined the arbitral
tribunal to take into account the terms of the contract while making
the award.
20) In the present case, the Arbitral Tribunal has clearly
written fresh terms of contract between the parties and has foisted a
new commercial bargain on the parties. In PSA Sical Terminals Private
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Limited vs. Board of Trustees of V.O. Chidambranar Port Trust,
Tuticorin, and others4 the Apex Court has held that the Award can be
set aside if it thrusts a new term into the agreement between the parties
and has thereby created a new contract for them. In Batliboi
Environment Engineers Ltd. (supra) the Apex Court has held in
paragraphs 41 and 44 as under:
41. Subsequently, in ONGC Ltd. v. Western Geco International
Ltd.,34 a three Judge Bench of this Court observed that the Court,
in Saw Pipes Ltd., did not examine what would constitute
'fundamental policy of Indian law'. The expression 'fundamental
policy of Indian law' in the opinion of this Court includes all
fundamental principles providing as basis for administration of
justice and enforcement of law in this country. There were three
distinct and fundamental juristic principles which form a part and
parcel of 'fundamental policy of Indian law'. The first and the
foremost principle is that in every determination by a court or an
authority that affects rights of a citizen or leads to civil
consequences, the court or authority must adopt a judicial
approach. Fidelity to judicial approach entails that the court or
authority should not act in an arbitrary, capricious or whimsical
manner. The court or authority should act in a bona fide manner
and deal with the subject in a fair, reasonable and objective
manner. Decision should not be actuated by extraneous
considerations. Secondly, the principles of natural justice should
be followed. This would include the requirement that the arbitral
tribunal must apply its mind to the attending facts and
circumstances while taking the view one way or the other. Non-
application of mind is a defect that is fatal to any adjudication.
Application of mind is best done by recording reasons in support
of the decision. As noticed above, Section 31(3)(a) of the A&C35
states that the arbitral award shall state the reasons on which it is
based, unless the parties have agreed that no reasons are to be
given. Sub-clauses (i) and (iii) to Section 34(2) also refer to
different facets of natural justice. In a given case sub-clause to
Section 34(2) and sub-clause (ii) to clause (b) to Section 34(2) may
equally apply. Lastly, is the need to ensure that the decision is not
perverse or irrational that no reasonable person would have
arrived at the same or be sustained in a court of law. Perversity or
irrationality of a decision is tested on the touchstone of
Wednesbury principle of reasonableness. At the same time, it was
cautioned that this Court was not attempting an exhaustive
(2023) 15 SCC 781)
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enumeration of what would constitute 'fundamental policy of
Indian law', as a straightjacket definition is not possible. If on
facts proved before them, the arbitrators fail to draw an inference
which ought to have been drawn or if they have drawn an
inference which on the face of it, is untenable resulting in
injustice, the adjudication made by an arbitral tribunal that enjoys
considerable latitude and play at the joints in making awards, may
be challenged and set aside.
44. The decision of this Court in Associate Builders elaborately
examined the question of public policy in the context of Section
34 of the A&C Act, specifically under the head 'fundamental
policy of Indian law'. It was firstly held that the principle of
judicial approach demands a decision to be fair, reasonable and
objective. On the obverse side, anything arbitrary and whimsical
would not satisfy the said requirement.
21) In my view, the impugned Award, to the extent of award
of interest of 18.30% and charging the interest at monthly rest, suffers
from lack of judicial approach on the part of the learned Arbitrator,
who has failed to act in fair, reasonable or objective manner. The award
of huge amount of Rs.7.23 crores by the Arbitral Tribunal is arbitrary
and whimsical. Therefore, this part of the Award is liable to be set
aside.
22) So far as the declaration of security and equitable
mortgage in operative clause (c) of the impugned Award is concerned,
it appears that no substantive prayer was made by Respondent-Bank for
declaration of any such mortgage. It would be apposite to reproduce
the prayers in the Statement of Claim as under:-
a. Main Reliefs.
In view of the facts mentioned above the Disputant prays that this
Hon'ble Tribunal may be pleased to pass an Order in favour of the
Disputant granting the following reliefs:
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a. The present reference is adjudicated u/s 84 of the Multi State
co- operative Societies Act, 2002. That it be declared that all the
Opponents 1 and 2 are jointly and / or severally liable to pay to
the Disputant an amount of Rs.7,23,44,313.54 (Rupees Seven
Crore Twenty Three Lacs Forty Four Thousand Three
Hundred Thirteen and Paise Fifty Four Only) sum of
ODPUB/252 for Rs.2,06,61,658.53 and SLPUB/29 for
Rs.5,16,82,655.01 loan accounts of balance as on 13.10.2022
With future interest @ 18.30% w.e.f. 14.10.2022 (as per the
statement of accounts furnished) till final payment and /or
realization as per the particulars of Claim.
b. That Hon'ble Authority may be pleased to order all the
opponents 1 and 2 to pay Jointly and severally to the Disputant
an amount of Rs.7,23,44,313.54 (Rupees Seven Crore Twenty
Three Lacs Forty Four Thousand Three Hundred Thirteen and
Paise Fifty Four Only) sum of ODPUB/252 for
Rs.2,06,61,658.53 and SLPUB/29 for Rs.5,16,82,655.01 loan
accounts of balance as on 13.10.2022 With future interest @
18.30% w.e.f. 14.10.2022 till the final payment and/or
realization.
c. That in the final decision in this matter an order of
attachment may please be passed in respect of following
securities being
Details of mortgaged and Hypothecation Property.
1. Equitable mortgage of Unit No.7/19, Bharat
Industrial Estate, at Ram Mandir Road, Goregaon
(East), Mumbai - 400 060
2. Hypothecation of Machinery, furniture dyes and
tools.
3. Hypothecation of Stocks and Debtors.
d. That this Hon'ble Tribunal be pleased to order and declare
that in the event of there being any deficiency in the net sale
proceeds and / or net recoveries and / or net realization order
personnel decree against Opponents towards satisfaction of the
Disputant dues claimed herein.
e. That in execution of an Interim order and or Award that may
be passed by this Hon'ble Authority, the Disputant kindly be
permitted to execute the same as Authorized person of this
Authority.
f. For cost of this Application.
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g. For such further and other relief's as the nature and
circumstances of the case may require.
23) Thus, there was no substantive prayer for declaration of
mortgage. Mr. Jadhav has attempted to suggest that prayer (c) in the
statement of claim covered even the prayer for mortgage. I am unable
to agree. In prayer (c) the Respondent-Bank only prayed for an order of
attachment in respect of movable and immovable properties. There is
no prayer for declaration of existence of subsisting mortgage. Faced
with this position, Mr. Jadhav would contend that prayer of declaration
of mortgage is granted by considering the prayer clause (g) of
statement of claim. In my view, prayer clause (g) can at best be used
only for molding relief and not for grant of substantive relief, which is
totally absent in the claim. Grant of claim in absence of prayer would
constitute valid ground for setting aside this part of the impugned
Award. Accordingly, the Award, so far as the operative clause (c) is
concerned, is liable to be set aside.
24) So far as non-grant of credit in respect of LIC policies is
concerned, the Arbitral Tribunal has held in paragraph 21 of the
Award as under:-
21. This issue pertains to the LIC policy which was the collateral
security. This issue is again raised by the Opponent. In her cross
examination she states that she is not aware of assignment of LIC
policies and she came to know in respect of that from her Advocate.
She further states in her cross examination that she is not aware of
the procedure for encashing/ liquidating the policy and whether her
consent is required for liquidation of policy. It reveals from record
that the Opponent has never raised the plea in respect of LIC policy
by sending any communication to the Disputant, nor in her written
statement before the Cooperative court also. The written statement
also contains a vague statement that "These Opponents
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categorically state that considering the EMIS paid by these
Opponents and the adjustment of the money received against the
LIC policy, there is a high probability that the entire dues of the
Disputant have already been cleared'. Therefore, this issue as it is
framed casting the liability on the Disputant to prove in respect of
LIC policy's appropriation is redundant in absence of specific
pleading and accordingly I have recorded my finding.
25) In absence of proper pleadings and evidence on record,
the Arbitral Tribunal found it difficult to record a conclusive finding of
the Bank encashing maturity value of LIC policies. The Arbitral
Tribunal has therefore rightly rejected the Petitioner's defence for non-
grant of credit towards LIC policies. It appears that the Respondent-
Bank has not encashed the concerned LIC policies therefore Petitioner
would be at liberty to approach the LIC and claim the amount of
maturity by following appropriate process applicable to lost originals in
respect of concerned LIC policy.
26) Petitioner has presented the computation of amount due
in respect of both the credit facilities by applying the correct rate of
interest (under the sanction letter) calculated at quarterly rest. The
calculations are based on the balance indicated in the statement of
account as on 06 July 2000 of Rs.1,56,727/- in respect of Term Loan
account and in the statement of accounts as on 4 September 2002 of
Rs.75,261 in respect of cash credit account. These statements were
produced by Respondent's witness Mr. Yatish Samant with his
Affidavit of Evidence before the learned Arbitrator which are at Pg.
326 and 329 of the paper-book before me. The computation of interest
based on balance indicated in the statement are as under:-
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Loan Account A/c Interest Calculations from 06.07.2000 till
29 13.10.2022
Balance as on 06.07.2000- 13.5% quarterly rests
Rs.1,56,727 [pg.329] [per contract]
30,06,944
Loan Account A/c Interest Calculations from 04.09.2002 till
252 13.10.2022
Balance as on 04.09.2002- 14% quarterly rests
Rs.75,261[Pg.326] [per contract]
11,79,772
27) In my view, the Award therefore is unsustainable qua
operative clauses (b) and (c). However, instead of setting aside the
Award in entirety, it would be appropriate to severe bad part of the
Award from the good part. The Constitution Bench in Gayatri
Balasamy (supra) has held that Court exercising power under Section
34 of the Arbitration Act can modify the Arbitral Award when the
Award is severable, by severing the "invalid" portion from the "valid"
portion of the Award. The Apex Court has further held that the Court
can also modify the rate of interest. It is held in paragraphs 72, 73 and
85 as under:
72. The next question that arises is: do courts possess the power to
declare or modify interest, especially post award interest? In respect
of pendente lite interest, Section 31(7)(a) (Annexure A), states that
unless otherwise agreed by the parties, the arbitral tribunal may
include in its sum for the award, interest, at such rate it deems
reasonable on whole or part of the money for whole or part of the
period on which the cause of action arose and the date on which the
award is made. In respect of post-award interest, Section 31(7)(b)
(Annexure A) states that unless an award provides for interest on a
sum directed to be paid by it, the sum will carry an interest at a 2%
higher rate than the current rate of interest prevalent on the date of
the award, from the date of the award till the date of payment. The
explanation defines the expression
'current rate of interest'.
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73. There can be instances of violation of Section 31(7)(a), and the
pendente lite interest awarded may be contrary to the contractual
provision. We are of the opinion that, in such cases, the court while
examining objections under Section 34 of the 1996 Act will have two
options. First is to set aside the rate of interest or second, recourse
may be had to the powers of remand under Section 34(4).
xxx
85. Accordingly, the questions of law referred to by Gayatri
Balasamy (supra) are answered by stating that the Court has a
limited power under Sections 34 and 37 of the 1996 Act to modify
the arbitral award. This limited power may be exercised under the
following circumstances:
I. when the award is severable, by severing the "invalid"
portion from the "valid" portion of the award, as held in
Part II of our Analysis.
II. by correcting any clerical, computational or typographical
errors which appear erroneous on the face of the record, as
held in Part IV and V of our Analysis
III. post award interest may be modified in some circumstances
as held in Part IX of our Analysis; and/or
IV. Article 142 of the Constitution applies, albeit, the power
must be exercised with great care and caution and within
the limits of the constitutional power as outlined in Part
XII of our Analysis.
(Emphasis added)
28) In my view therefore, as held by the Apex Court in
paragraph 73 of the Judgment in Gayatri Balasamy (supra) this Court
has two options of either setting aside rate of interest or to take
recourse to power of remand under Section 34(4) of the Arbitration
Act. However, since the contractually agreed rate of interest vide
sanction letter dated 13 June 1984 is available on record, it is not
necessary to have recourse to provisions of Section 34(4) of the
Arbitration Act. Instead, it would be appropriate to award
contractually correct rate of interest. This is how the bad part of Award
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under operative clause (b) can be modified by awarding the due
amount by charging correct rate of interest. Similarly, operative clause
(c) of the Award being invalid, that part of Award can be set aside as
the same is not inseparably intertwined with the rest of the Award.
29) I accordingly proceed to pass the following order:-
(a) Operative clause (b) of the Award is set aside and it
is instead directed that Petitioner/original Opponent Nos.1
and 2 are jointly and severally liable to pay to the
Respondent-Bank sum of Rs.30,06,944/- for Loan
Account No. SLPUB/29 and Rs.11,79,772/- for Loan
Account No. ODPUB/252 aggregating Rs.41,86,716/- as
on 13 October 2022 with future rate of interest @ 6% p.a.
w.e.f. 14 October 2022 till realisation of the amount.
(b) Operative clause (c) of the Award is set aside.
30) Arbitration Petition is partly allowed to the above extent.
Considering the facts and circumstances of the case, I deem it
appropriate not to award any costs in the present Petition.
31) In view of disposal of the Arbitration Petition nothing
survives in the Interim Application and the same is also disposed of.
[SANDEEP V. MARNE, J.]
Signed by: Megha S. Parab
Designation: PA To Honourable Judge 9 December 2025
Date: 10/12/2025 15:28:44
