Bombay High Court Sets Aside Hire-Purchase Award Only Against Guarantor After 4½-Year Delay Left His Defences Unaddressed

The petitioner was a guarantor under a hire-purchase agreement dated 7 January 1998 between Respondent No. 1 and Respondent No. 2.

Respondent No. 1 invoked arbitration in 2003.

After the matter was reserved for judgment on 30 January 2008, the arbitrator made an award on 4 August 2012.

The petitioner challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, contending, among other things, that the award did not address his defences as guarantor and that the delay in making it had affected the arbitrator’s consideration of the case.

The Court ultimately set aside the award only insofar as it concerned the petitioner.

Under Sections 4 and 16(2) of the Arbitration and Conciliation Act, 1996, an objection to the composition of an arbitral tribunal must ordinarily be raised before the tribunal within the prescribed time; failure to do so may amount to waiver.

The Court relied on State of Maharashtra v. Morya Infrastructure Private Limited, applying the principles in Quippo Construction Equipment Limited v. Janardan Nirman Private Limited and Narayan Prasad Lohia v. Nikunj Kumar Lohia.

Section 31(3) requires an arbitral award to state reasons, subject to statutory exceptions.

Delay in delivering an award is not, by itself, a ground under Section 34 to set it aside; under M/s. Lancor Holdings Limited v. Prem Kumar Menon, each case must be examined to determine whether the delay affected the tribunal’s consideration of the evidence and arguments.

Sections 133 and 139 of the Indian Contract Act, 1872, address discharge of a surety due to variation of the contract and conduct or omission by the creditor that impairs the surety’s remedy.

Under Gayatri Balasamy v. ISG Novasoft Technologies Limited, an award may be set aside in part where the impugned portion is severable.

The Court held that the petitioner had not raised his objection to the arbitrator’s appointment at the required stage and had participated in the proceedings; the objection was therefore waived.

However, the award followed a delay of more than four and a half years after the matter was reserved, and it did not address the petitioner’s specific defences concerning his liability as guarantor, including alleged variation of the agreement and impairment of his remedies under Sections 133 and 139 of the Contract Act.

The award also referred to the petitioner’s evidence but later stated that he had led none.

Applying Lancor Holdings, the Court treated the delay not as an independent ground for setting aside the award, but as having affected the arbitrator’s examination of the petitioner’s submissions.

Because the challenge and the defects related to the petitioner’s liability, the Court found the award could be set aside to that extent alone.

It set aside the arbitral award only insofar as it concerned the petitioner, leaving it undisturbed against the other parties, and disposed of the petition accordingly.