IMPORTANT POINT
An arbitrator's reliance on an unproven valuation report constitutes a patent illegality, and parties must be afforded a fair opportunity to respond to claims and counterclaims in arbitration proceedings.

JUDGMENT

Firdosh P Pooniwalla, J. - The present Petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996 ('the Arbitration Act'), challenging in part the Arbitral Award dated 23rd November, 2023 passed by the learned Arbitrator. By the impugned Award, the learned Arbitrator allowed the claim of Petitioner No.1 (Claimant) for a sum of Rs.59,97,210/-. At the same time, the Arbitrator allowed the Counter Claim filed by Respondent Nos. 1 to 3 for a sum of Rs.1,25,69,768/- and, accordingly, after giving credit for the claim amount, directed Petitioner No.1 to pay Respondents a sum of Rs.65,72,558/-.

2. The facts, as narrated by the Petitioner, are as under:-

(a). A Loan Agreement dated 29th January, 2010 was executed between L & T Finance Company as the lender and Respondent No.1 whereunder the lender advanced a loan of sum of Rs.2,85,70,000/-, for a term of 34 months, together with interest at the rate of 6.26% p..a. The Loan Agreement provided that any delay in payment of loan amounts would be subject to the Delay Payment Charges. The loan facility was to be secured by hypothecation of assets for the purpose of which the facility was availed. On the occurrence any event of default, the lender was entitled to sell/ transfer/ assign the assets in such manner as the lender may deem fit by public auction or by private treaty or otherwise howsoever and appropriate the proceeds thereof towards repayment of all the outstanding amounts. If the sale proceeds were not sufficient to meet all the dues, Respondent No.1 was liable to pay for any deficiencies after appropriation.

(b). Under the said Loan Agreement, the disputes and differences between the parties in respect of the Loan Agreement were referred to Arbitration.

(c). On 29th January, 2010, a Demand Promissory Note was executed by Respondent No.1 in favour of the lender undertaking to repay R.2,85,70,000/- with interest at the rate of 6.26 % p.a.

(d). Further, a Deed of Guarantee dated 29th January, 2010 was entered into by Respondent No.2 in favour of Respondent No.1.

(e). A Deed of Guarantee dated 29th January, 2010 was also entered into by Respondent No.3.

(f). Further, a Deed of Hypothecation dated 3rd February, 2010 was executed by Respondent No.l in favour of the lender in respect of 5 Volvo FM 400 Tippers (Assets) as security in terms of the Loan Agreement.

(g). The Respondents committed default in repaying the loan and, therefore, by its Advocate's notice dated 1st June, 2011 issued to Respondent Nos. 1 to 3, the lender demanded payment of outstanding dues of Rs.2,82,49,868/-, invoked Arbitration and appointed Respondent No.4 as Sole Arbitrator

(h). On 28th June, 2011, a Statement of Claim was filed by the Original Claimant for recovery of a sum of Rs.2,82,49,868/-.

(i). The Respondent's Advocate addressed a letter dated 29th November, 2012 to the Arbitrator objecting to his appointment and further calling upon him not to proceed with the matter.

(j). By a letter dated 29th April, 2013 addressed to the Arbitrator, the Respondents submitted a Valuation Report dated 8th October, 2012 in respect of the assets. It is the case of the Petitioner that this Valuation Report was furnished only to the Arbitrator and not to the Petitioner.

(k). The Original Claimant addressed a letter dated 21st November, 2014 to the Arbitrator intimating him of the sale of the assets for a sum of Rs. 1.10 Crores, and in view thereof reduced its to Rs.1,72,49,868/-.

(l). By its letter dated 24th November, 2014, the Arbitrator noted the sale of assets by the Original Claimant and fixing the next date of hearing on 19th December, 2014.

(m). On 19th December, 2014, an Arbitration Meeting was held, where the Original Claimant was present and the Respondent was absent. The Arbitrator recorded that the hearing of the disputes had concluded. However, on account of repeated letters from the Respondents, the next date of hearing was fixed on 12th June, 2015 with directions to the Respondents to r