13 June 2024 Arbitration Law >> Business & Commercial Law   |   Property/Real Estate Law >> Property & Real Estate  

A recent court judgment has shed light on a loan default case where the lender, after invoking arbitration, faced challenges to the arbitrator's award. The dispute centered on a loan of Rs. 2.85 Crore secured by collateral assets (trucks).

Background:

The borrower defaulted on the loan, leading the lender to initiate arbitration proceedings. Following the default, the lender sold the collateral trucks for Rs. 1.10 Crore and reduced its claim to Rs. 1.72 Crore. However, the borrower contested this by filing a counterclaim of Rs. 2.35 Crore, alleging the assets were undervalued during the sale. The lender's actions were challenged on several grounds. The borrower argued that the counterclaim was filed within the stipulated timeframe and rightfully fell under the arbitrator's jurisdiction. Additionally, they contested the arbitrator's decision to question the sale process without considering the lender's contractual rights regarding collateral sale upon default. Furthermore, the borrower claimed they never received a complete copy of the counterclaim, hindering their ability to prepare a proper response. They also argued that the award was passed in their absence without proper notification.

Court's Observations on the Award:

The court's analysis revealed significant issues with the arbitration process. The award, it found, relied on an unverified valuation report submitted by the borrower to claim the sale undervalued the assets. The court pointed out that the valuer's opinion, as presented in the report, lacked supporting oral evidence, which is a crucial element in such cases.

The court further highlighted the procedural irregularity of not allowing the borrower to respond fully to the counterclaim due to an incomplete copy. Even if the arbitrator prioritized documentary evidence, the valuer's testimony was deemed essential for a fair assessment.

Conclusion:

Due to the arbitrator's reliance on the unsubstantiated valuation report, the court admitted the borrower's petition challenging the award. However, the court clarified the legal grounds for a stay on the award's execution. The borrower sought an unconditional stay, but the court explained such stays are only granted in exceptional circumstances, such as proven fraud during the arbitration process. The court acknowledged that another provision allows considering stay provisions for money decrees outlined in the Civil Procedure Code. 

  Arbitration and Conciliation Act, 1996