Kiran Raj

The Division Bench of the Bombay High Court, comprising Justice A.S. Chandurkar and Justice Rajesh Patil, has set aside the order of the District Judge-2, Pune, which had dismissed an application under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an arbitral award. The Court observed that "the challenge as raised could not have been answered merely by stating that there was a limited scope for interference" and directed that the challenge be reconsidered on its merits. The Bench directed that the matter be remitted back for fresh adjudication within three months.

The Division Bench stated that “it was necessary for the learned Judge to have considered the grounds of challenge and recorded findings on the basis of such challenge by either accepting them or rejecting such grounds”.

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The dispute arose out of a contractual relationship between the appellant, National Agricultural Co-operative Marketing Federation of India Limited (NAFED), and the first respondent, Roj Enterprises (P) Limited (REPL), who entered into two Tie Up Agreements dated 24 March 2004 and 30 April 2004. Under these agreements, NAFED agreed to provide financial assistance to the extent of 80% of the value of stock procured by REPL, with the remaining 20% to be contributed by NAFED itself.

Following differences between the parties, NAFED invoked the arbitration clause, leading to the appointment of a sole arbitrator. The arbitrator, by an award dated 12 February 2019, dismissed NAFED’s claim against REPL and further found that no arbitration agreement existed between NAFED and the second and third respondents. In addition, the arbitrator allowed the counter-claim of REPL and directed NAFED to pay Rs. 33,97,77,369 with interest at 12% per annum with monthly rests.

NAFED challenged the award under Section 34 of the Act of 1996 before the District Judge-2, Pune. However, by judgment dated 22 April 2024, the District Court dismissed the application, holding that there was no ground for interference. This led NAFED to file the present Commercial Arbitration Appeal before the Bombay High Court under Section 37(1)(c) of the Act of 1996.

Senior Advocate Dr. Veerendra Tulzapurkar, appearing for NAFED, argued that the District Court failed to properly address the challenges raised under Section 34 and did not record specific reasons for rejecting key grounds. He submitted that NAFED had raised substantive objections regarding the nature of the Tie Up Agreements, the award of interest beyond the pleadings, contradictions in REPL’s counter-claim, and the finding of coercion concerning affidavit-cum-undertakings. NAFED also contended that the arbitrator mischaracterised the Tie Up Agreements as joint venture agreements, whereas they were, according to NAFED, clearly financial arrangements akin to lender-borrower transactions.

In contrast, Senior Advocate Mr. Ashish Kamat, representing REPL, contended that the District Court correctly applied the limited scope of Section 34, emphasizing that arbitral awards cannot be reviewed on merits unless they suffer from patent illegality or violate public policy. He submitted that the learned arbitrator had considered all relevant material, and no grounds existed to interfere with the findings, especially regarding the nature of the agreements, which were consistent with a joint venture arrangement.

The Bench recorded that the learned District Judge failed to properly engage with the substantive challenges raised by NAFED. Referring to the applicable legal principles under Section 34(2) of the Act of 1996, the Court stated that “the order passed under Section 34 of the Act of 1996 therefore ought to indicate consideration of the challenges raised on the touchstone of Section 34 of the Act of 1996 and at least briefly indicate the reasons for either accepting the same or negating such challenge.”

The Court observed that while the District Judge acknowledged the arguments of both parties, including NAFED’s plea that the arbitrator erred in treating the agreements as a joint venture, there was no substantive judicial reasoning in the impugned order addressing those contentions. The Bench further stated that “the challenge as raised could not have been answered merely by stating that there was a limited scope for interference”.

In respect of NAFED’s contention regarding the contradictory nature of REPL’s counter-claim, the Court noted that while REPL in its submissions had mentioned a 5% estimated profit margin, the arbitrator proceeded to allow a counter-claim assuming a 20% loss of profit, a discrepancy that required judicial attention. The Court remarked that “considering the fact that the ground raised by NAFED was that the counter claim had been allowed notwithstanding contradictory pleadings of REPL… it was necessary for the learned Judge to have considered the said challenge”.

Regarding the award of interest, NAFED contended that REPL had not pleaded for monthly rests, but the arbitrator nonetheless awarded interest on such terms. The Court noted that “this aspect has not been considered by the learned Judge in the impugned judgment when the grant of relief as prayed for in the counter claim was under challenge by NAFED”.

The Bench also recorded NAFED’s challenge to the finding of coercion in obtaining affidavit-cum-undertakings from REPL, stating that this argument was not addressed in the District Court’s judgment.

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The Division Bench allowed the Commercial Arbitration Appeal, set aside the judgment dated 22 April 2024 of the District Judge-2, Pune, and remitted the matter for fresh consideration. The Court directed that “the proceedings in Civil Miscellaneous Application No.1337 of 2019 are restored for being considered afresh under Section 34 of the Act of 1996 in accordance with law”.

The Court stated that it had not examined the substantive merits of either party’s contentions. It recorded that “all grounds of challenge/defence raised are open for being urged in the proceedings under Section 34(2) of the Act of 1996”. The Court further directed that the District Court shall conclude the matter within three months and ordered that the amount deposited by NAFED pursuant to the earlier order shall remain invested and subject to the outcome of the proceedings under Section 34.

Advocates Representing the Parties

For the Appellant: Dr. Veerendra Tulzapurkar, Senior Advocate; Mr. Vaibhav Joglekar, Senior Advocate; Mr. Ankit Tiwari, Advocate; Mr. Sagar Chaurasiya, Advocate; instructed by Shashipal Shankar, Advocate.

For the Respondents: Mr. Ashish Kamat, Senior Advocate; Mr. Ranjeev Carvalho, Advocate; Mr. Rishab Murali, Advocate; Ms. Punita Arora, Advocate; Mr. Puneet Arora, Advocate; instructed by M/s. Arora & Co., Advocates.

Case Title: National Agricultural Co-operative Marketing Federation of India Limited v. Roj Enterprises (P) Limited and Ors.

Neutral Citation: 2025:BHC-AS:10854-DB

Case Number: Commercial Arbitration Appeal No. 15 of 2024

Bench: Justice A.S. Chandurkar, Justice Rajesh Patil

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