In a landmark judgment delivered on March 7, 2025, the Bombay High Court, presided over by Justice A.S. Chandurkar and Justice Rajesh Patil, set aside a lower court’s ruling and directed a fresh reconsideration of a challenge to an arbitral award in the case of National Agricultural Co-operative Marketing Federation of India Limited (NAFED) vs. Roj Enterprises (P) Limited (REPL) & Ors. The ruling in Commercial Arbitration Appeal No. 15 of 2024 highlights the judiciary’s responsibility to thoroughly examine challenges to arbitral awards under the Arbitration and Conciliation Act, 1996, rather than dismissing them solely on the grounds of limited scope of interference.
Background of the Case
The dispute originated from two Tie Up Agreements dated March 24, 2004, and April 30, 2004, between NAFED, a cooperative society with its registered office in New Delhi and a branch in Mumbai, and REPL, a private company based in Pune. Under these agreements, NAFED committed to financing 80% of the value of stock procured by REPL, with NAFED contributing the remaining 20%. When disputes arose, NAFED invoked the arbitration clause on March 17, 2008, leading to the appointment of a sole arbitrator.
On February 12, 2019, the arbitrator dismissed NAFED’s claims against REPL and ruled that claims against REPL’s directors, Mr. Suresh G. Motwani and Mr. Rajendra Narhar Kulkarni (respondents 2 and 3), were not maintainable due to the lack of an arbitration agreement with them. The arbitrator also allowed REPL’s counterclaim, ordering NAFED to pay Rs. 33,97,77,369 with 12% interest per annum, calculated with monthly rests, citing REPL’s alleged loss of profit.
NAFED challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, before the District Judge-2, Pune, in Civil Miscellaneous Application No. 1337 of 2019. On April 22, 2024, the District Judge dismissed the application, affirming the arbitral award. NAFED then appealed to the Bombay High Court under Section 37(1)(c) of the Act, filing Commercial Arbitration Appeal No. 15 of 2024.
Parties and Legal Representation
- Appellant: National Agricultural Co-operative Marketing Federation of India Limited (NAFED), represented by Senior Advocate Dr. Veerendra Tulzapurkar, assisted by Senior Advocate Mr. Vaibhav Joglekar, Mr. Ankit Tiwari, Mr. Sagar Chaurasiya, and advocates from Shashipal Shankar.
- Respondents:
- Roj Enterprises (P) Limited, Pune, represented by Senior Advocate Mr. Ashish Kamat, along with Mr. Ranjeev Carvalho, Mr. Rishab Murali, Ms. Punita Arora, Mr. Puneet Arora, and advocates from M/s. Arora & Co.
- Mr. Suresh G. Motwani, Mumbai.
- Mr. Rajendra Narhar Kulkarni, Pune. (Respondents 2 and 3 were represented alongside REPL by the same counsel.)
Important Legal Issues Involved
The appeal raised several critical legal issues concerning the interpretation and enforcement of the arbitral award:
- Nature of the Tie Up Agreements: NAFED argued that the agreements were loan/finance arrangements, not joint ventures or partnerships as held by the arbitrator. REPL countered that the agreements reflected a joint enterprise, citing NAFED’s active participation and the absence of loan-specific terms.
- Validity of the Counterclaim: NAFED challenged the arbitrator’s allowance of REPL’s counterclaim for loss of profit, alleging inconsistencies in REPL’s pleadings (5% profit in arguments vs. 20-21% claimed) and lack of evidence.
- Award of Interest: NAFED contested the arbitrator’s grant of 12% interest with monthly rests, arguing it exceeded REPL’s pleadings, which sought only 12% per annum without monthly rests.
- Coercion in Undertakings: NAFED disputed the arbitrator’s finding that affidavits-cum-undertakings from REPL were obtained under coercion, claiming no evidence supported this and that REPL raised the issue belatedly in 2015.
- Scope of Judicial Review: The central issue was whether the District Judge adequately addressed NAFED’s challenges under Section 34, or merely dismissed them by invoking the limited scope of interference.
Court’s Decision and Key Observations
The Bombay High Court allowed NAFED’s appeal, quashing the District Judge’s judgment dated April 22, 2024, and remanding the matter for fresh consideration under Section 34. The court refrained from ruling on the merits, leaving all issues open for the lower court to adjudicate.
A pivotal observation by Justice A.S. Chandurkar, writing for the bench, underscored the court’s reasoning:
“Merely by stating that the scope for interference under Section 34(2) of the Act of 1996 was limited and that re-appreciation of evidence was not permissible, the challenge has been turned down. In our view, 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. Such exercise was expected to be undertaken within the permissible limits of Section 34(2) of the Act of 1996.”
The court emphasized that while the scope of interference under Section 34 is narrow—limited to grounds like patent illegality or violation of public policy—courts must not shy away from judicial scrutiny merely by citing this limitation. It noted that the District Judge failed to address specific challenges, such as the nature of the Tie Up Agreements, inconsistencies in REPL’s counterclaim, and the arbitrator’s findings on coercion and interest, despite these being raised in NAFED’s written arguments.
The court further observed:
“The challenge as raised could not have been answered merely by stating that there was a limited scope for interference or that the findings were based on appreciation and application of legal provisions without indicating the manner in which the same was done.”
To ensure expeditious resolution, the court directed the District Judge to decide Civil Miscellaneous Application No. 1337 of 2019 within three months from March 7, 2025, keeping NAFED’s deposited amount in escrow pending the outcome.
