Monika Ajeet Mulay vs Abhyudaya Co.Op. Bank Limited
- Court
- Bombay High Court
2026:BHC-OS:12620
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMMERCIAL ARBITRATION PETITION NO. 843 OF 2024
Mr. Ajeet Madhukar Mulay
Age : 56 years, Occupation : Business
Residing at Shivneri Bungalow, Govind Nagar,
Bansilal Nagar, Aurangabad 431 001 ... Petitioner.
Versus
1. Abhyudaya Co-Operative Bank Limited
Having its administrative office at
K.K. Tower, Abhyudaya Bank Lane,
Off. G.D. Ambedkar Marg, Parel Village,
Parel, Mumbai 400 012
2. Mr. Bhushan Pundlikrao Patil
Residing at Plot no. 26, Jay Nagar,
New Osmanpura, Aurangabad 431 005
3. Mr. Kunal Gopichand Pawar
Residing at At Post Hingoli (Khurd)
Taluka – Chalisgaon,
District- Jalgaon 424102
4. Mr. Sanjay Bhanwarlal Mandhana
Residing at 6-39, Chanakyapuri Phase II,
Shahanoormiya Darga Road,
Aurangabad 431005
5. Mrs. Anita Bhushan Patil
Residing at Plot no. 26, Jay Nagar,
New Osmanpura, Aurangabad 431 005
6. Mr. Sunil Laxman Somwanshi
Residing at A-1-11, Bhosale Paradise,
Opp. Range Hills Road, Bhosale Nagar,
... Respondents.
Pune 411 020
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WITH
COMMERCIAL ARBITRATION PETITION NO. 849 OF 2025
Monica Ajeet Mulay
Age : 53 years, Occupation : Business,
Residing at Shivneri Bungalow, Govind Nagar,
... Petitioner.
Bansilal Nagar, Aurangabad 431 001
Versus
1. Abhyudaya Co-operative Bank Limited
Having its administrative office at
K.K. Tower, Abhyudaya Bank Lane,
Off. G.D. Ambekar Marg, Parel Village,
Parel, Mumbai 400 012
2. Nirmangold Plasttech Private Limited
Having its registered office at Gut no.17,
Sultanpur Shivar, Near Jikthan phata,
Taluka – Gangapur, District- Aurangabad
3. Bhushan Pundlikrao Patil
Residing at Plot no. 26, Jay Nagar,
New Osmanpura, Aurangabad 431 005
4. Anita Bhushan Patil
Residing at Plot no. 26, Jay Nagar,
New Osmanpura, Aurangabad 431 005
5. Ajeet Madhukar Mulay
Shivneri Bungalow, Govind Nagar,
Bansilal Nagar, Aurangabad 431 001
6. Shekhar Bhushan Patil
Residing at Plot no. 26, Jay Nagar,
New Osmanpura, Aurangabad 431 005 ... Respondents.
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WITH
COMMERCIAL ARBITRATION PETITION NO. 1053 OF 2025
Ajeet Madhukar Mulay
Age : 56 years, Occupation : Business
Residing at Shivneri Bungalow, Govind Nagar,
... Petitioner.
Bansilal Nagar, Aurangabad 431 001
Versus
1. Abhyudaya Co-Operative Bank Limited
Having its administrative office at
K.K. Tower, Abhyudaya Bank Lane,
Off. G.D. Ambekar Marg, Parel Village,
Parel, Mumbai 400 012
2. Nirmangold Plasttech Private Limited
Having its registered office at Gut no.17,
Sultanpur Shivar, Near Jikthan phata,
Taluka – Gangapur, District- Aurangabad
3. Bhushan Pundlikrao Patil
Residing at Plot no. 26, Jay Nagar,
New Osmanpura, Aurangabad 431 005
4. Anita Bhushan Patil
Residing at Plot no. 26, Jay Nagar,
New Osmanpura, Aurangabad 431 005
5. Monica Ajeet Mulay
Shivneri Bungalow, Govind Nagar,
Bansilal Nagar, Aurangabad 431 001
6. Shekhar Bhushan Patil
Residing at Plot no. 26, Jay Nagar,
... Respondents.
New Osmanpura, Aurangabad 431 005
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—————
Mr. Rahul Totala a/w. Ms. Vidisha Rohira and Ms. Iqra Qureshi for the
Petitioner.
Mr. Sanjiv Punalekar a/w. Mr.Yogesh Mishra i/by PRS Legal for
Respondent No.1.
—————
Coram : Sharmila U. Deshmukh, J.
Reserved on : April 17, 2026
Pronounced on : June 09, 2026
JUDGMENT :
1. The Petitioners in this group of petitions are guarantors of
financial assistance availed by M/s Nirmangold Alloys Private Limited
and M/s.Nirmangold Plasttech Private Limited, who are sister
concerns. The challenge is to the Arbitration Awards alongwith the
orders passed in the applications filed by the Petitioners in the
arbitration proceedings. The Learned Sole Arbitrator was appointed
under Section 84 of the Multi-State Co-operative Societies Act, 2002
(for short, “ MSCS Act” ) in applications filed by Abhyudaya
Co-operative Bank Ltd. for recovery of the outstanding amounts.
Common submissions were advanced by learned counsel for the
parties and the Petitions are being disposed of by this common
judgment.
FACTUAL MATRIX:
2. Commercial Arbitration Petition No.843 of 2024 has been filed
by Ajeet Madhukar Mulay, who was the original Opponent No.5 in
Arbitration Case No.ARB/ACB/VNL/2064 of 2022. The Claimant in the
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arbitration case is Abhyudaya Co-operative Bank Limited. The
principal borrower was M/s. Nirmangold Alloys Private Limited, which
was undergoing corporate insolvency process and in view of the
moratorium was not impleaded as party. Ajeet Mulay was impleaded
in his capacity as guarantor alongwith other guarantors and Directors
of M/s. Nirmangold Alloys Private Limited, who had given personal
guarantee for repayment of the debt..
3. Commercial Arbitration Petition No.849 of 2025 has been filed
by Monica Ajeet Mulay who was the original Opponent No.6 in
Arbitration Case No ARB/ACB/VNL/2065 of 2022. The Claimant was
Abhyudaya Co-operative Bank Limited and the principal borrower was
M/s.Nirmangold Plasttech Private Limited, the sister concern of M/s.
Nirmangold Alloys Private Limited. Monica Ajeet Mulay was
impleaded in the capacity of guarantor alongwith other guarantors
including Ajeet Mulay and Directors of M/s. Nirmangold Plasttech
Private Limited, who had given personal guarantee for repayment of
the debt.
4. Commercial Arbitration Petition No.1053 of 2025 is filed by
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Ajeet Mulay challenging the impugned Award of 12 February, 2024,
which is already the subject matter of Arbitration Petition No.843 of
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2024, and for setting aside the order dated 28 April, 2023 passed by
the Learned Arbitrator in application below Exhibit 24 filed by the
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Petitioner under Section 12 r/w Section 13 of the Arbitration and
Conciliation Act, 1996 (for short, “ Arbitration Act” ), the order dated
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25 January, 2024 passed in application below Exhibit 41 seeking
opportunity of cross-examination of witness in Arbitration Case
No.2065 of 2022 and also seeks the relief of framing of issues in
Arbitration Case No.2065 of 2022.
5. Arbitration Case No.2064 of 2022 arises of arbitration
proceedings invokved by the Disputant Bank seeking recovery of
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outstanding amount of Rs.34,18,53,481.21 w.e.f 1 May, 2022 till
payment or realisation. The facts borne out of the impugned
Arbitration Award is that M/s. Nirmangold Alloys Private Limited was
the principal borrower, who had availed cash credit facility, letter of
credit facility and term loans from the Respondent No.1-Bank in the
year 2015. There was rescheduling of seven term loans in April, 2019
at the request of the principal borrower. The rescheduled term loans
were secured by hypothecation of stock and book debts and plant and
machinery and all the credit facilities were secured by mortgage of
immoveable properties. The documents executed by the guarantors in
respect of the financial assistance availed by the principal borrower
are set out in the Statement of Claim which included letters of
guarantee and undertaking.
6. Due to default in repayment, the credit facility accounts of the
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Company were classified as NPA and notices were issued to the
principal borrower and the guarantors which was not complied with.
Hence, the Dispute came to be filed under Section 84 of MSCS Act.
7. During the pendency of arbitration proceedings, in view of the
Petitions filed by the Opponent Nos.1 and 4 i.e. Bhushan Patil and
Anita Patil under Section 94 of IB Code, the Learned Sole Arbitrator
held that as moratorium had commenced, the arbitration cannot be
proceeded against the Opponent Nos.1 and 4.
8. The impugned Award records the stand taken by the present
Petitioner raising an objection to the jurisdiction of the Tribunal. It
was contended that the documents of guarantee, arbitration
agreement and deeds of mortgage are insufficiently stamped and
unenforceable in law. During corporate insolvency resolution process,
it was revealed by the forensic audit team appointed through the
Resolution Professional that there was fraud by the Company and
therefore, there is no legally enforceable debt against the Petitioner.
The deed of guarantee is vitiated by fraud which is not non- arbitrable.
The membership of the Bank and the execution of consent letters was
denied. It was contended that the Petitioner is not signatory to the
restructured credit facility and on restructuring of credit facility all
prior sanctioned letters stood cancelled and the surety stand
discharged, the contract being varied.
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9. In Arbitration Case No.2065 of 2022, Ajeet Mulay and Monica
Muley both were impleaded as party. Similar defence was raised by
the Petitioners and in addition it was contended that the Bank had
filed Company Petition No. 382 of 2022 against M/s. Nirmangold
Plasttech Pvt. Ltd under Section 7 of IB Code, which was reserved for
orders and the Bank has also put up the principal borrower’s property
for auction. An objection was taken about the Bank pursuing same
cause of action in multiple fora.
10. In both the arbitration proceedings, the Petitioners had filed an
application under Section 12 r/w Section 13 of the Arbitration Act
claiming that the sole Arbitrator has failed to make mandatory
disclosures, that the Sole Arbitrator was appointed for 55 arbitrations
and the disclosures stated that there were only 19 on going
arbitrations. It was contended that the Arbitrator has served in other
arbitrations where the Bank was a party which gives rise to justifiable
doubts regarding the independence and impartiality of the Arbitrator.
The Petitioners also filed application seeking permission to cross
examine the Bank’s witness, which was rejected.
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11. The Petitioners had filed an application on 6 February, 2024
seeking framing of issues in Arbitration Case No 2065 of 2022 in view
of subsequent filing of written statement pursuant to consent
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minutes of order dated 19 October, 2023 passed in the Petition filed
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in this Court. It is not shown that any order was passed on the said
application.
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IMPUGNED AWARD DATED 12 FEBRUARY, 2024 IN ARBITRATION
CASE NO.2064 OF 2022 AND ARBITRATION CASE NO.2065 OF
2022:
12. The Learned Sole Arbitrator has rendered broadly identical
findings in both the arbitration proceedings, which can be summarised
as under:
(a) The arbitration cannot be proceeded against the
Opponent Nos.1 and 4 i.e. Bhushan Patil and Anjali Patil in
view of commencement of moratorium upon filing of
Petition under Section 94 of IB Code.
(b) The Affidavit of Evidence of the Bank’s witness proves the
documents and hence the Bank’s claim is duly proved.
(c) The Opponents are members of the Bank and the
documents of consent letters of surety, letters of
guarantee, promissory notes are duly signed by the
Opponents.
(d) Petitioners did not apply for handwriting expert and his
admitted signature can be compared with the signature
of the documents and there is no mismatch.
(e) As per the guarantee executed by the Petitioners, the
available rights under Section 133, 134, 135, 139 and 141
of Indian Contract Act, 1872 stand waived and
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restructuring of facilities was permitted. There is no
discharge from the liability.
(f) In view of Section 2(4) of Arbitration Act, Part I of
Arbitration Act applies to MSCS Act as the enactment is
an arbitration agreement and the contention of
insufficiency of stamp duty on arbitration agreement is
rejected.
(g) In so far as insufficiency of stamp duty on guarantee
agreement and mortgage deed are concerned, Section 4
of Maharashtra Stamp Act is applicable where there are
several instruments and the principal instrument is
chargeable with duty. Registering Authority has not
raised any dispute about insufficiency of stamp duty.
Petitioners have not raised any dispute at the execution
of the documents regarding insufficiency of stamp duty
and have agreed in writing that no objection will be raised
for insufficiency of stamp duty.
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ORDER DATED 28 APRIL, 2022 PASSED ON APPLICATION FILED
UNDER SECTION 12 r/w Section 13 OF ARBITRATION ACT :
13. The Learned Sole Arbitrator in view of the decision of this Court
in Kalpesh Shantikumar Mehta and others vs. NKGSB Co-op. Bank
Ltd. and Anr. and KSM Multi trade LLP and other vs. NKGSB Co-op.
1
Bank Ltd. and Anr. held that in statutory arbitration neither Entry 22
nor Entry 24 of Fifth Schedule affects the appointment made in
1 2023 SCC OnLine Bom 3215
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multiple matters by the Registrar. The Learned Sole Arbitrator held
that mandatory disclosure has been made.
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ORDER DATED 25 JANUARY, 2024 PASSED ON APPLICATION
SEEKING OPPORTUNITY TO CROSS EXAMINE THE BANK’S
WITNESS:
14. The Bank led evidence of one R.S. Gurav by filing an affidavit of
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evidence dated 15 September, 2023 and application was moved by
the Petitioners seeking permission to cross examine the witness.The
learned Arbitrator held that the matter pertains to banking
transaction and the application filed by the Petitioners for cross-
examination does not disclose any reason for cross-examination. It
held that the Petitioners have to prove their defence. The notification
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dated 24 January, 2023 and suspension of the board of directors by
the said notification is an admitted fact and the notification itself
permits the normal activities of the Bank to go on and the notification
does not assist the case of Petitioners’s application for cross
examination.
SUBMISSIONS:
15. Mr. Totala, Learned counsel appearing for the Petitioners
submits that the Learned Arbitrator has not framed issues and
conducted two separate arbitrations simultaneously without consent
of the parties at Mumbai despite the Petitioners residing at
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Aurangabad. He points out the identical findings in both the Awards
to submit that the findings in the Awards are copy pasted and suffers
from non application of mind.
16. He submits that two of the guarantors had filed Petitions under
Section 94(1) of IB Code, which results in stay of the debt and hence
the arbitration proceedings could not have been proceeded with
against the Petitioners. He submits that the Learned Arbitrator stayed
the proceedings only against Bhushan Patil and Anjali Patil and not
against the Petitioners. He would further submit that Bhushan Patil
and Anjali Patil had suppressed the fact that by order dated 16th
September, 2023, the application of Bhushan Patil was dismissed with
liberty to file fresh application and thereafter fresh application was
filed. He submits that considering the imposition of moratorium, the
Learned Arbitrator stayed the proceedings only against them, which is
contrary to the settled position of law.
17. He submits that prior to filing of the statement of claim,
Nirmangold Alloys Private Limited went into insolvency and under
Section 14 of the IB Code, moratorium was imposed qua the debt and
hence the arbitration proceedings could not have proceeded even
against the present Petitioners.
18. He submits that the Arbitrator has violated the principles of
natural justice by denying the Petitioners leave to cross examine the
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Bank’s witness and denying opportunity of filing evidence. He points
out that the Learned Arbitrator has held that the Petitioner has not
adduced any evidence and that his reply can be considered as
evidence. He submits that the Petitioner filed his written statement
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on 20 October, 2023 after the issues were framed and despite the
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application dated 6 February, 2024 requesting for framing of issues,
the Learned Arbitrator has rejected the same on the ground that CPC
is not applicable.
19. He submits that the Arbitration Award suffers from patent
illegality as it is based on unverified and unproved documents and
that the original documents were not even produced on record. He
submits that the impugned Awards hold that the claims are proved
based on unproven documents, which is contrary to law and
fundamental policy, which constitutes patent illegality justifying
setting aside of the Awards under Section 34(2)(b) of Arbitration Act.
20. He would further point out that in the statement of defence
specific objections were taken to the jurisdiction as the Petitioners
were not members of the Bank, the insufficiently stamped deeds of
guarantee, the issue of fraud which according to him is non arbitrable,
the denial of execution of documents.
21. He would submit that the Learned Arbitrator has adopted an
unscientific approach by comparing the Petitioners’ signatures with
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naked eye, whereas an expert ought to have been appointed under
Section 26 of Arbitration Act and in view of specific case of the
signatures being forged.
22. He would submit that pending the arbitration, an administrator
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came to be appointed on 3 November, 2023 and there was no fresh
authorisation from the administrator to continue with the arbitration.
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He would submit that the Award was passed on 12 February, 2024,
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whereas the term of 12 months was expired on 3 March, 2022 and no
extension was granted.
23. He submits that despite the specific contention that the
Petitioners had not signed the membership form, the Learned
Arbitrator has held that the Petitioners have become members of the
Bank. He would further point out the requirements of membership
set out in Section 25 of the MSCS Act and would submit that the
Learned Arbitrator has held the Petitioners to be members only on
the basis of forms produced by the Bank.
24. He would further submit that the arbitration Award grants
injunction against the mortgaged property which is non arbitral
dispute. He would further submit that one of the guarantors had filed
FIR against the company and the Bank, and issue of fraud is non
arbitrable. He would further point out that the Learned Arbitrator
though held that the fraud is not an arbitrable dispute has thereafter
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held that the money lent by the disputant Bank was not money of any
wrongful gain but it is public money.
25. He would further point out that the findings of the learned
Arbitrator that the guarantee itself permits for restructuring of
facilities and therefore it cannot be accepted that the guarantor is
discharged from the liability is contrary to statute and is patently
illegal.
26. He points out that in so far as insufficiency of stamp duty in
respect of seven guarantee agreements and six mortgage deeds, the
Learned Arbitrator has held that it is the borrower, who has to bear
the burden of stamp duty and that the Petitioner in writing has
agreed that he will not raise any objection for insufficiency of stamp
duties, which is contrary to statute. In support, he relies upon the
following decisions:
(i) Vedansh Hospitality and Resorts Ltd. and Ors. vs. New
2
India Co-operative Bank Ltd. & Ors. ,
(ii) M/s. Divya Enterprise and Ors. in Capri Global Capital
Limited vs. M/s.Divya Enterprise (Partnership Firm) and
3
Ors. ,
4
(iii) Deepti Prakash Ghare vs. NKGSB Co.Op. Bank Ltd. ,
(iv) Neepa Real Estate Pvt. Ltd. vs. State of Maharashtra
5
and Ors. ,
2 Arbitration Petition No.484 of 2012 dated 29.01.2013
3 IA(L)No.25700 of 2025 in Com.Suit (L) No.23360 of 2025 dated 09.10.2025
4 Comm.Arbitration Petition (L) No.6358 of 2022 dated 07.01.2023
5 Writ Petition No.1395 of 2023 dated 13.12.2025
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(v) M/s. Hotel Sea Point Pvt. Ltd. Puri vs. M/s. Blueline
6
Resorts Pvt. Ltd. ,
(vi) Rajlaxmi Multistate Credit Co-op. Society Ltd. Vs. Smt.
7
Ashwini Anand Anchatwar and Ors. ,
(vii) Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd.
8
and Ors. ,
(viii) Naresh Kanayalal Rajwani and Ors. vs. M/s. Citi
9
Financial Consumer Finance India Ltd. ,
10
(ix) Vidya Drolia & Ors. vs. Durga Trading Corporation ,
11
(x) DJO v. DJP and Ors. ,
(xi) Sukhbir Singh v. Hindustan Petroleum Corporation
12
Ltd. ,
13
(xii) Prema Amarlal Gera v. Memon Co-operative Bank Ltd. ,
14
(xiii) M/s Narinder Singh and Sons vs. Union of India, ,
(xiv) Serosoft Solutions Pvt. Ltd. vs. Dexter Captial Advisors
15
Pvt. Ltd. ,
16
(xv) Tata Capital Ltd. v. Geeta Passi and Ors. ,
17
(xvi) Smt. Sunita vs. Smt. Parmjeet Kaur ,
18
(xvii) S. Madhan vs. A Venkateshwaran ,
(xviii) Bi-water Penstocks Ltd. v. Municipal Corporation of
19
Greater Bombay and Anr. ,
6 AIR 2025 ORISA 105
7 Arbitration Appeal No.116 of 2025 dated 17.03.2026
8 (2011) 5 SCC 532
9 Arbitration Petition No.427 of 2013 dated 17.08.2025
10 (2021) 2 SCC 1
11 2024 SGHC (I) 24
12 2020 SCC OnLine Del 228
13 2017 SCC OnLine Bom 72
14 Civil Appeal No.6734 of 2021 dated 18.11.2021
15 Civil Appeal Nos.51-52 of 2025 dated 03.01.2025
16 2024 SCC OnLine Bom 1897
17 (2025) 3 ADJ 226
18 MANU/TN/9314 /2022
19 Appeal No.457 of 2002 dated 24.11.2010
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(xix) BRS Ventures Investments Ltd. vs. SREI Infrastructure
20
Finance Ltd. and Anr. ,
(xx) V. Shankar and Anr. vs. The Authorised Officer and
21
Anr. .
27. Mr. Punalekar, Learned counsel appearing for the Respondent
No.1 Bank submits that the Learned Arbitrator has not granted non
arbitrable reliefs as the relief of debt adjudication falls under Section
84 of the MSCS Act and all other reliefs are ancillary reliefs. He
submits that there are two arbitration disputes of two borrowers who
are related entities and were heard together wherein the pleadings
were similar, if not identical, and that is the reason for identical
reasoning in both the Awards which does not vitiate the Awards.
28. He submits that the request for cross-examination was made at
the end of the proceedings and there was no case made out for cross
examination in the application filed by the Petitioners. He submits
that in so far as absence of admission and denial of documents is
concerned, there is no prejudice caused to the Petitioners.
29. He submits that the disclosures given by the Arbitrator was in
substantial compliance of the law. He would further submit that the
moratorium under Section 14 of the IB Code was not applicable to the
Petitioners. He would submit that insofar as the objection that no
consent of the Petitioner was taken to conduct arbitration petition is
20 Civil Appeal No.4565 of 2021 dated 23.07.2024
21 SARFASESI Application No.470 of 2022 dated 12.02.2024
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concerned, the Arbitrator was appointed by the Central Registrar and
no prejudice is caused to the Petitioners by holding the proceedings
at Mumbai. He submits that the written statement itself was filed
belatedly and the application for framing of issues was not submitted
till the end of the proceedings.
30. He submits that the objection to jurisdiction on the ground of
Petitioners not being the member of the Respondent has been
sufficiently negated by the membership proof which is already
produced on record. He submits that it is not the case of the
Petitioners that the membership forms are forged.
31. He submits that the Petitioner’s submission on illegal findings
on forgery signature by comparing documents is an afterthought and
that the Petitioner has consciously joined the loan transactions. He
submits that the ruling of the Learned Arbitrator on the unstamped
agreement and the documents being proved is reasoned and proper
warranting no interference as there is also a registered mortgage
signed by the Petitioner admitting the availment of loan.
32. He would further submit that there can be no discharge of
guarantor considering the convenants of personal guarantee. He
would submit that the statement of accounts was duly certified and
therefore there were no necessity of leading evidence to prove
amounts claimed in the statement of claim.
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33. He submits that appointment of an administrator does not
result in invalidating earlier Acts and Resolutions of the Bank. He
submits that the issues which are now being raised by the Petitioner
in the present petition were not at all raised during the arbitration
and therefore cannot be considered by this Court under Section 34 of
the Arbitration Act.
34. He submits that insofar as Monica Mulay is concerned, there is
no fresh deed of guarantee taken after restructuring, however, her
guarantee was continuing guarantee and she did not ask for release
and the Bank has not specifically released the guarantee. He submits
that insofar as the stamping of deed of guarantee is concerned, as the
document says that the payment will be made on demand, the same is
in the nature of promissory note. He submits that the stamp duty was
paid on the loan agreement which was the principal document.
35. In rejoinder, Mr. Totala would submit that there is no
answer to the moratorium qua the debt or on the aspect of non
arbitrability on issues of mortgage. He submits that the submission
before the Learned Arbitrator that the deed of guarantee was in
nature of indemnity in which case loss will have to be proved. He
submits that different contentions were raised but the Awards are
copy pasted.
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REASONS AND ANALYSIS:
36. Mr. Totala has mounted a multi pronged attack on the
impugned Awards assailing each and every finding of the Learned
Arbitrator including seeking factual appraisal. Section 34(2)(a) of the
Arbitration Act enumerates the specific grounds on which the
arbitration award can be set aside by the Court. Section 34(2)(b)
provides that the award may be set aside if the subject matter of the
dispute cannot be settled by arbitration as per applicable law or the
arbitral award is in conflict with public policy of India. Explanation I
clarifies the eventualities in which an arbitral award can be said to be
in conflict with the public policy i.e. if (a) it’s making is induced by
fraud, corruption or in violation of Section 75 or Section 81 of
Arbitration Act, (b) when it is in contravention of fundamental policy
of India law or (c) when it conflicts with the most basic notions of
morality or justice. Explanation II provides that no review on the
merits shall be undertaken when determining a contravention of
fundamental policy of Indian Law. Section 34(2A) introduced by
Amendment Act of 2016 provides an additional ground of patently
illegality appearing on the face of the Award for setting aside
domestic Award. The proviso clarifies that the award shall not be set
aside merely on the ground of erroneous application of the law or by
re-appreciation of evidence.
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37. The impugned Awards are challenged broadly on the following
grounds:
(a) conduct of arbitration proceedings despite the
moratorium imposed under IB Code by disregarding the
judicial pronouncements.
(b) violation of principles of natural justice by refusing leave
to cross examine the Banks’ witness.
(c) finding of proof of claim based on unverified and
unproved forged documents which are unstamped
agreements.
(d) contravention of provisions of The Indian Contract Act,
1872 which discharges guarantor upon material alteration
of the contract without consent of surety.
(e) patent illegality as no evidence led by Bank to prove the
debt as claimed and failure to consider that by reason of
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cancellation of license of the Bank on 24 November,
2023, the witness had no authority to file evidence on
behalf of the Bank.
(f) absence of jurisdiction as Petitioners are not members of
the Bank.
(g) adjudication of matters inherently non arbitrable by
issuance of directions contained in clauses (D), (E) and (F)
of operative part of the impugned Awards.
(h) non application of mind evident from copy pasted reasons
in the impugned awards.
(i) Non framing of issues and conduct of two separate
arbitration proceedings simultaneously without consent
of parties at head office of Bank despite the Petitioners
residing at Aurangabad.
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(j) Non compliance with Section 12 of the Arbitration Act as
the disclosure is defective.
38. In Ssangyong Engineering and Construction Company Ltd. vs
22
National Highway Authority of India (NHAI) , the Hon’ble Apex
Court considered the scope of interference pre and post 2015
amendment to the Arbitration Act. It held that the expression “public
policy of India” contained in Section 34 would now mean the
‘fundamental policy of Indian law as explained in paragraph 18 and 27
23
of Associate Builders vs. Delhi Development Authority . Paragraph
27 of Associate Builders (supra) holds that the binding effect of the
judgement of superior court being disregarded would be equally
violative of the fundamental policy of Indian law.
39. The principal borrower in Arbitration Case No No.2065 of 2022
was M/s. Nirmangold Plasttech Private Limited whereas in Arbitration
Case No.2064 of 2022, the principal borrower was M/s. Nirmangold
Alloys Private Limited which was admitted to insolvency and was
undergoing corporate insolvency resolution process under the IB
Code.
40. Two of the guarantors i.e. Bhushan Pundlikrao Patil and Anita
Bhushan Patil claimed benefit of the interim moratorium under
Section 96 of IB Code premised on filing of Petitions under Section 94
of the IB Code for personal insolvency. Under the statutory provisions
22 (2019) 15 SCC 131
23 (2015) 3 SCC 49
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of IB Code, the filing of applications under Section 94 of IB Code
triggers an interim moratorium in relation to all the debts from the
date of filing of the application and during the interim moratorium
any legal action or proceeding pending in respect of any debt shall be
deemed to have been stayed.
41. The Learned Arbitrator accepted the imposition of statutory
moratorium and stayed the arbitration proceedings qua Bhushan Patil
and Anita Patil, however, continued the proceedings as against the
other guarantors including the Petitioners. Mr. Totala has pointed out
that upon earlier application of Bhushan Patil being dismissed, a fresh
application was filed by him. The position of law which has been
settled by judicial pronouncements of this Court as well as the
Hon’ble Apex Court in the context of interim moratorium under
Section 96 of IB Code is that the moratorium is imposed on the debt
and not the debtors. The filing of the personal insolvency applications
extends the benefit of moratorium not only to the applicants but has
the effect of keeping all the debts in abeyance.
42. In Tata Capital Ltd. vs. Geeta Passi and Anr. (supra), the
Petition therein challenged the order of Learned Arbitrator which had
kept in abeyance the proceedings in view of the moratorium under
Section 96 of IB Code. In the facts of that case, the Arbitrator stayed
the arbitration proceedings against the proprietor and one of the
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guarantor. The other guarantors filed an application seeking
indefinite stay in view of Section 96(1)(b)(i) of IB Code, which came to
be allowed. This Court considered the statutory definition of “debt”
under IB Code. It held that the expression “any person” used in
defining “debt” would mean that no distinction can be drawn between
principal borrower or guarantor. It further held that when Section 96
speaks of moratorium in respect of “any debt”, the same would mean
the entire debt irrespective from whom it is due.
43. The Learned Single Judge noted the decision of Hon’ble Apex
Court in the case of State Bank of India Vs. V. Ramkrishnan and
24
Anr. , which had distinguished the moratorium as contemplated
under Sections 14 and 96 of the IB Code to hold that protection of
moratorium under Section 96 is greater than that of Section 14, in
that pending legal proceedings in respect the “debt” and not the
debtor are stayed and as such moratorium is in respect of debt and
not the debtor. The Learned Single Judge of this Court held in
paragraph 10 and 12 as under:
“ 10. Once this is so, then when the National Company Law
Tribunal granted a moratorium under section 96 of the
Insolvency and Bankruptcy Code in favour of Mr. Tarun Kapoor
who was the principal borrower being the proprietor of SMC and
Mrs. Pavan Kapoor, being the guarantor, the same will have to be
construed as a moratorium in respect of the entire "debt". It is
the "debt",and its entitlement which has been claimed to be put
24 (2018) 17 SCC 394
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before the learned arbitrator, for decision, in the arbitration
proceedings. The claim does not make any distinction between a
"debt" ,vis-a-vis Mr. Tarun Kapoor as a principal debtor, or the
other parties thereto as the guarantors or even considering their
coextensive liability. The "debt",is the debt of SMC/Tarun Kapoor
as principal borrowers as well as of the guarantors. The "debt",
for the purpose of the moratorium, cannot be severed into the
"debt" of the principal borrower or for that matter of one of the
guarantors on the one hand, and the debt of the other
guarantors, in this case the legal heirs of original respondent No.
4, Mr. B.L. Passi. Though it can be said that the liability of original
respondent No. 4, late Mr. B.L. Passi, was co-terminus with the
principal borrower and the other guarantors, the liability of the
present respondents, would be restricted to the assets of late
Shri B.L. Passi, to the extent to which they would inherit the
same. Be that as may, a distinction cannot be carved out, in
respect of the "debt",award in respect of which is claimed in the
arbitration proceedings, for the purpose of continuation of the
arbitral proceedings, between the liability of the principal
borrower/guarantor who have been granted a moratorium and
the others who have not approached the National Company Law
Tribunal, as the word "debt",as used in section 96 of the National
Company Law Tribunal, has to be held to be the "debt", in its
entirety and not otherwise. (Emphasis supplied)
12. It is also necessary to note that there is no provision in the
Arbitration and Conciliation Act, 1996 for splitting up of
arbitration proceedings, by conceiving of a situation of the
arbitration proceedings being stayed against some of the parties
and going ahead against some. The arbitration proceedings will
have to be decided in their entirety against all the parties and the
entitlement of the claimant and the liabilities of the respective
respondents, will be determined on the basis of evidence which
may be led therein, which cannot be on a piecemeal basis.”
25
44. In the case of Dilip B. Jiwrajka Vs. Union of India , , the
Hon’ble Apex Court considered the impact of moratorium under
25 (2024) 5 SCC 435
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Section 14 versus the interim moratorium under Section 96 of
Arbitration Act. The Hon’ble Apex Court held that the crucial words
which are used in clause (b)(i) and (ii) of Sub-section (1) of Section 96
are “in respect of any debt” as opposed to a debtor and that Clause (b)
of Sub-section (1) indicates that the purpose of interim moratorium is
to restrain the initiation or the continuation of legal action or
proceedings as against the debt. The Hon’ble Apex Court
contradistinguished the provisions of Section 96 from Section 14 of IB
Code to hold that the protection mandate of Section 96 of the
Insolvency and Bankruptcy Code is therefore in respect of ‘debt’ and
not the debtor.
45. The continuation of the arbitration proceedings by the Learned
Arbitrator against the Petitioners despite the interim moratorium
imposed qua the debt constitutes grant of relief in respect of an
presently unenforceable debt. It is settled that the expression
“fundamental policy of Indian law” must amount to breach of some
legal principle or legislation which is so basic to Indian law that it is
not susceptible of being compromised. It refers to the principles and
legislative policy on which Indian statutes and laws are founded and
connotes the basic and substratal rationale, values and principles
which form the bedrock of laws in our country. (See Vijay Karia and
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26
Ors. vs Prysmian Cavi E Sistemi SRL and Ors.)
46. The impugned Awards resulting in enforcement of debt, which
by reason of the statutory interdict is incapable of being enforced
albeit temporarily, runs contrary to the fundamental principles of
Indian law which recognises enforcement of laws in respect of legally
enforceable debts. The impugned Awards disregard the binding
judicial pronouncements of this Court as well as the Hon’ble Apex
Court, are violative of fundamental policy of Indian law and are liable
to be set aside under Section 34(2)(b)(ii) of Arbitration Act.
47. The other ground on which the impugned Awards cannot be
sustained is the violation of principles of natural justice by refusing
the Petitioners the right to cross examine the Bank’s witness.
48. The Bank led the evidence of its witness by filing Affidavit of
Evidence and application came to be filed by the Petitioners seeking
permission to cross examine the witness. The Learned Arbitrator has
gone into the sufficiency of reasons for cross examination to reject
the application and has held that the burden is upon the Petitioners to
prove the defence .
49. Section 18 of Arbitration Act provides that the parties shall be
treated with equality and each party shall be given a full opportunity
to present his case. Section 24 of Arbitration Act provides that in
26 (2020 11 SCC 1)
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absence of an agreement between the parties, the arbitral tribunal
shall decide whether to hold oral hearings for the presentation of
evidence or for oral argument or whether the proceedings shall be
conducted on the basis of documents and other materials. The proviso
to Section 24(1) of the Arbitration Act provides that the arbitral
Tribunal shall hold oral hearings on a request by a party.
50. In Sukhbir Singh vs Hindustan Petroleum Corporation Ltd.
(supra), the Delhi High Court considered the challenge to the
arbitration award on the ground of failure to permit cross
examination. After examining the statutory scheme of Section 24 of
Arbitration Act, the Delhi High Court held in paragraph 44 as under:
“44. From the aforesaid materials, and upon an interpretation
of Section 24 consistent with the requirements of natural
justice, I am of the view that the first proviso to Section 24(1)
requires a party’s request for oral hearings at the stage of
evidence or arguments to be granted. Unless the right to
require oral evidence or oral arguments have been waived by a
prior agreement to the contrary between the parties, the
proviso to Section 24(1) expresses a legislative preference for
the grant of oral hearing at the request of either party….”
51. The provisions of Section 24 vesting discretion in the Arbitral
Tribunal to decide the manner of conduct of proceedings is subject to
the request by a party seeking oral hearing. Even accepting the
discretion vested in the Arbitral Tribunal, in the present case, the
Learned Sole Arbitrator had permitted the Bank to lead evidence and
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thus the decision was to hold oral hearings. The principle of equal
treatment mandates the liberty of cross examination to the opposite
party. Equally important was the right of cross examination as the
Learned Arbitrator based on the evidence of the Bank’s witness and
the documents produced by the witness, has rendered a finding of
the Bank’s claim being proved. The Learned Arbitrator after rejecting
the Petitioner’s application has observed that the Petitioners had not
led evidence and treated the written statement as evidence.
52. In the written statement, there are specific denials to the
execution of the letters of guarantee/demand promissory
note/undertaking etc. and plea of the documents being forged. The
Learned Arbitrator has compared the signatures on the admitted
documents to hold that the documents have been executed by the
Petitioners.
53. The impugned Awards shows that the Learned Sole Arbitrator
has arrived at a finding that (a) in view of the evidence of the Bank’s
witness, the documents are proved, (b) comparison of the Petitioners’
admitted signatures with the signatures on the documents shows that
the documents were executed by the Petitioners and (c) the contents
of the documents show due execution by the Petitioners.
54. The finding of proof of claim was interlinked with the proof of
execution of the documents by the Petitioners. Mr. Totala has
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submitted that the original documents were not even produced on
record, which has not been disputed by Mr. Punalekar. It is evident
that the execution of documents by the Petitioners was contested
fact which required oral evidence and the Petitioner’s request for
cross examination of the witness was reasonable. The Learned
Arbitrator while rejecting the application has held that the Petitioners
are required to prove their defence. One of methods of proof of the
defence is cross-examination of the Banks’ witness.
55. The Hon’ble Apex Court in the case of M/s. Narinder Singh and
Sons vs. Union of India (supra), has held that the lack of full
opportunity as envisaged by Section 18 of the Act impedes a fair and
just decision and had consequently set aside the Award in terms of
clause (iii) to Section 34(2)(a) as well as clause (ii) to Section 34(2)(b)
of Arbitration Act.
56. Under Section 18 of the Arbitration Act, the parties have to be
given a full opportunity of presenting its case. The right of cross
examination is an integral aspect of audi alteram partem rule. The
refusal of permission for cross examination violates the right of fair
hearing and equal treatment making out a ground under Section 34(2)
(a)(iii) of Arbitration Act.
57. The impugned Awards hold the Bank’s claim to be proved by
relying on the evidence adduced by the Bank. The refusal of
permission to cross examine the Bank’s witness renders the findings
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arrived at by the Learned Arbitrator qua the evidence patently illegal
being a decision based on no evidence. The impugned Award is thus
liable to be set aside under Section 34(2-A) of Arbitration Act.
58. In so far as the challenge on the ground of discharge of surety
by reason of variance in terms of contract by restructuring/
enhancement of credit facilities is concerned, the Learned Arbitrator
has held that the guarantee executed by the Petitioners gave consent
for making any variance, change or modification as the Bank may think
fit and thus held that there was waiver of all the rights available under
Sections 133, 134, 135, 139 and 141 of Indian Contract Act, 1872.
59. The question as to whether the Petitioners had agreed to waive
their rights is required to be considered in the context of terms
contained in the deed of guarantee. The Learned Arbitrator has
examined the terms of the guarantee to hold that there is waiver. An
examination into the aspect of terms of the guarantee would involve
factual appraisal and merit based review of the Awards, which is
impermissible. It also needs to be borne in mind that mere
contravention of substantive law of India does not afford a ground
under Section 34 of Arbitration Act.
60. The finding of the Learned Arbitrator on the issue of
insufficiency of stamps on the mortgage deed and letters of
guarantee is based on the provisions of of Section 4 of the
Maharashtra Stamps Act, which governs the stamp duty for single
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transaction completed using multiple instruments and provides for
payment of full duty only on primary document while the ancillary
documents incurred on nominal stamp duty. The Learned Arbitrator
has noted that the provisions grant liberty to the parties to determine
for themselves which of the instruments so employed shall be
deemed to be the principal instrument and it is not the contention
that such liberty has not been availed.
61. An inquiry into the insufficiency of the stamps on the
documents would entail an inquiry into the issue as to which is the
principal document and whether the same has been duly stamped,
which enters into the realm of fact finding inquiry. Such an inquiry not
conducted before the Learned Arbitrator cannot be permitted to be
conducted under Section 34 of Arbitration Act.
62. The objection to jurisdiction was premised on the ground that
the Petitioners are not members of the Respondent No.1-Bank. The
learned Arbitrator has considered the affidavit of evidence filed by
the Respondent No.1-Bank to hold that the Petitioners have become
members of the Disputant-Bank as the relevant application forms for
the membership of the Disputant Bank duly signed by the Petitioners
along with the personal information are placed on record. The
Learned Arbitrator is the master of the quality and quantity of
evidence and this Court cannot go into the adequacy of the evidence
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or re-appreciate the findings to substitute its own view. The Bank has
placed documentary evidence on record which has been considered
by the Learned Arbitrator to render a finding about the Petitioner’s
membership, which cannot be interfered in view of limited scope of
interference under Section 34 of Arbitration Act.
63. The contention as regards failure to provide true and correct
disclosure under Section 12 of the Arbitration Act as a ground of
challenge must be shown to fall within the exhaustive and codified
statutory framework of Section 34 of Arbitration Act. If the incorrect
disclosure hides a conflict of interest, the same would create
justifiable doubts about the Arbitrator’s impartiality. It needs to be
noted that the present case is of statutory arbitration and the
Learned Sole Arbitrator has been appointed by the Commissioner of
Co-operation and Registrar of Co-operative Societies. The
appointment is challenged as being hit by Entry 24 of Schedule V of
the Arbitration Act. The Learned Arbitrator has considered the
decisions of this Court holding that the mere fact that the Arbitrator
is appointed under Section 84 of MSCS Act in more than 3 arbitration
is not a ground to create doubt about its independence and
impartiality. I do not find any case made out under Section 34 of
Arbitration Act to set aside the impugned Awards on this ground.
64. The impugned Awards declare the subsistence of the Bank’s
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charge over the mortgaged properties and permits the disposal of the
mortgaged property for recovery of the dues. It further injuncts the
Petitioners from creating third party rights in respect of the
mortgaged/hypothecated properties and directs the attachment of
the properties till sale and realisation thereof. These directions have
been assailed as being non arbitrable. By the said directions the
Learned Sole Arbitrator has directed enforcement of the mortgage by
sale. The Hon’ble Apex Court has held in Booz Allen and Hamilton
Inc. vs SBI Home Finance Ltd. (supra) that the enforcement of right of
mortgage is enforcement of right in rem, which will have to be
decided by the Courts of law and not by Arbitral Tribunals.
65. The said directions cannot be said to be ancillary reliefs
granted and disregards the binding effect of the decision of Hon’ble
Apex Court in Booz Allen and Hamilton Inc. vs SBI Home Finance Ltd.
(supra).
66. In so far as the awards being copy pasted, the Petitioners had
raised substantially common defences and resultantly, the findings
are identical. I am also not inclined to consider the other issue as to
conduct of both the proceedings simultaneously which does not fit in
the scheme of statutory challenge under Section 34 of Arbitration Act.
In so far as the leading of evidence by the witness in absence of
authorisation, no such objection was raised before the Learned
Arbitrator.
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67. In light of the above discussion, the conclusion is summarised as
under:
(a) The continuation of the arbitration proceedings against
the Petitioners despite the stay of “debt” under Section
96 of IB Code on the applications filed by the other
guarantors disregards the binding judicial
pronouncement of Hon’ble Apex Court and this Court and
is violative of fundamental policy of Indian law under
Section 34 (2)(b)(ii) of Arbitration Act.
(b) The refusal of opportunity of cross examination to the
Petitioners violates the principles of natural justice and
Section 18 and Section 24 of Arbitration Act. Resultantly
the impugned Awards are liable to be set aside under
Section 34(2)(a) (iii) of Arbitration Act.
(c ) An examination into the aspect of terms of the guarantee
would involve factual appraisal and merit based review of
the Awards, which is impermissible. A mere contravention
of substantive law of India does not afford a ground
under Section 34 of Arbitration Act.
(d) The findings of the Arbitral Tribunal on the sufficiency of
stamp duty requiring factual appraisal cannot be gone
into by this Court under Section 34 of Arbitration Act.
(e) The findings of Arbitral Tribunal that the Bank’s claim
stands proved is based on no evidence and suffers from
patent illegality under Section 34 (2-A) of Arbitration Act.
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69. In view of the above, the Petitions succeed. The impugned
th
Awards dated 12 February, 2024 passed in ARB/ACB/VNL/2065 of
2022 and in ARB/ACB/VNL/2064 of 2022 are hereby quashed and set
aside.
[Sharmila U. Deshmukh, J.]
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Signed by: Sanjay A. Mandawgad
Designation: PA To Honourable Judge
Date: 09/06/2026 20:25:51