The court upheld the arbitral award of Rs.28 crores and interest for unlawful loan recall, emphasizing reasonable compensation principles based on contract terms and market realities.

JUDGMENT :

SUBRAMONIUM PRASAD, J.

1. The challenge in the present petition under Section 34 of the Arbitration & Conciliation Act, 1996 ("Arbitration Act") is to an Award dated 20.02.2024 (hereinafter referred to as the impugned award) passed in favour of the Respondent, whereby the Respondent was awarded a sum of Rs.28 crores along with interest of Rs.5,34,83,836/- and legal expenses of Rs.30,00,000/-.

2. The Petitioner, Bajaj Finance Ltd., is a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of India (RBI). The Petitioner is engaged in the business of lending and financing, including offering Loan Against Securities (LAS) to individuals and entities.

3. The Respondent, Seetha Kumari, is an Indian citizen and stock trader who availed a loan facility from the Petitioner under a Loan Against Securities Agreement (LAS Agreement).

4. The dispute in the present proceedings arises out of the recall of the LAS facility and the subsequent sale of pledged securities by the Petitioner to recover outstanding dues, which the Respondent contends was unlawful and in breach of contractual obligations.

5. The facts, shorn of unnecessary details, are as follows:

a. The Petitioner (Bajaj Finance) and Respondent (Seetha Kumari) were engaged in a relationship as borrower and lender respectively since the year 2015. On 18.07.2015, Petitioner granted a loan facility of Rs.10 Crores to the Respondent against Securities vide sanction letter dated 18.07.2015. A Loan-cum-Pledge-cum-Guarantee Agreement was entered into between the parties on 21.07.2015. The Respondent was granted additional loan of 10 Crores for a period of 24 months vide sanction letter 02.05.2019 and Loan-cum-Pledge-cum-Guarantee Agreement dated 04.05.2019 was entered into. Accordingly, the total sanctioned loan was 20 crores, which was secured against securities in the form of 6,00,000 shares in two listed companies namely 2,00,000 shares of Hinduja Global Solutions Ltd. (hereinafter referred to as Hinduja) and 4,00,000 shares of Jindal Poly Films Ltd(hereinafter referred to as Jindal) with a margin of 100% to the satisfaction of the Respondent.

b. In accordance with the contractual covenants contained in the agreement executed between the Parties, the Respondent was required to maintain a margin of 100% throughout the tenure of the loans.

c. As per Clause 4 under Article II of the Agreement, the Petitioner had the discretion to recall the loan and liquidate pledged securities in the event of:

i. Borrower’s failure to comply with any of the requirements under the agreement or breach of any of its provisions.

ii. Failure in payment of any interest when due to the lender.

iii. Fail to pay any amount when due to (a) the lender under any other agreement; (b) any other person

iv. Failure to maintain or provide margin when called upon the lender.

v. An event of occurrence of default as specified in Article V of the Agreement (emphasis supplied)

d. On 02.03.2020, the value of Hinduja shares declined significantly, and the stock was been placed under the Additional Surveillance Measure (hereinafter referred to as ASM) category by the National Stock Exchange (hereinafter referred to as NSE). On 18.03.2020, the Respondent provided additional securities to compensate fo