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2025 Supreme(Telangana) 1447
IN THE HIGH COURT FOR THE STATE OF TELANGANA, HYDERABAD
P. SAM KOSHY, N. TUKARAMJI, JJ.
M/s. Hindustan Fluro Carbons Ltd. Rep. by its Managing Director, Hyderabad - Appellant
Versus
M/s. Rockwell Industries Ltd. And Another – Respondents
C.M.A. No. 918 OF 2018 and COM.C.A. No.16 of 2020
Decided On : 12-06-2025
For the Appellant : Mr. Y. Venkateshwarlu
For the Respondents: Mr. Prabhakar Sripada, leaned Senior Counsel appeared on behalf of Mr.Setty Ravi Teja, counsel.
The acceptance of an arbitrator's appointment by one party constitutes a waiver of later objections, and enforcement actions against a 'sick industry' require prior regulatory approval.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Sections 9 and 34 - Dispute arose from an arbitration over a supply agreement where the appellant failed to deliver gas. Respondent invoked arbitration, resulting in an award against appellant. Appellant contested the validity of the award claiming procedural impropriety and objection to the arbitrator's appointment - The court confirmed the arbitral award, emphasizing that the appellant's early acceptance of the arbitrator rendered later objections invalid. (Paras 23, 28)
(B) Sick Industrial Companies (Special Provisions) Act, 1985 - The court addressed the implications of the appellant being a 'sick industry' and upheld the statutory immunity from enforcement actions against it during recovery proceedings. (Paras 36-39)
Facts of the case:
The appellant, a public sector undertaking, failed to supply gas as per an agreement, leading to arbitration proceedings where an award of Rs. 2,69,00,000/- was issued against it. The appellant later disputed the award on jurisdiction grounds and procedural defects.
Findings of Court:
The court found the appointment of the arbitrator valid, underscoring that the appellant's participation in proceedings undermined its objections. The continuous legal protection afforded to 'sick industries' was noted, curbing enforcement actions.
Issues: The court reviewed the validity of the arbitral award and the jurisdiction of the Commercial Court over Section 9 applications.
Ratio Decidendi: The court held that the appellant's voluntary participation in the arbitration negated its objections and that procedural safeguards were appropriately followed. Enforcement actions against a sick company require regulatory consent.
Result: Appeals dismissed.
JUDGMENT :
N. Tukaramji, J.
We have heard Mr. Y. Venkateswarlu, learned counsel for the appellant, and Mr. Prabhakar Sripada, learned Senior counsel appearing on behalf of Mr. Setty Ravi Teja, counsel for respondent No.1.
2. Since both appeals arise out of disputes involving the same parties and pertain to interconnected issues stemming from arbitration proceedings, they were heard conjointly. Accordingly, this common judgment is rendered in disposal of both appeals.
3. Civil Miscellaneous Appeal No. 918 of 2018 has been filed by M/s Hindustan Fluorocarbons Limited, Hyderabad, challenging the decree and order dated 27.02.2017 passed in Arbitration O.P. No. 708 of 1998 by the learned Chief Judge, City Civil Court, Hyderabad.
4. Commercial Court Appeal No. 16 of 2020 has been preferred by the same appellant—M/s Hindustan Fluorocarbons Limited Hyderabad—who was the respondent in C.O.P. No. 42 of 2019 assailing the order dated 05.02.2020 passed by the learned Judge, Commercial Court-cum-XXIV Additional Chief Judge, City Civil Court, Hyderabad.
5. Brief Statement of Facts:
(a) The appellant, M/s Hindustan Fluorocarbons Limited Hyderabad, a public sector undertaking under the Government of India, is engaged in the manufacture of Polytetrafluoroethylene (PTFE). Respondent No.1, M/s Rockwell Industries Limited Secunderabad, entered into a supply agreement with the appellant for the purchase of Chlorodifluoromethane (CFM-22) gas. Pursuant to the said agreement, Respondent No.1 placed an order and remitted full payment for the same. However, the appellant failed to supply the gas, allegedly causing substantial financial loss to Respondent No.1.
Alleging breach of contractual obligations and resultant damages, Respondent No.1 invoked the arbitration clause contained in the agreement and appointed Respondent No.2 as the sole arbitrator and asked the appellant for consent. The appellant though agreed in the first instance, later objected to this appointment. Despite the objection, Respondent No.2 proceeded to act as sole arbitrator and passed an arbitral award dated 14.03.1998, directing the appellant to pay a sum of Rs. 2,69,00,000/-, along with interest at the rate of 18% per annum.
Aggrieved by the award, the appellant filed Arbitration O.P. No. 708 of 1998 under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”), seeking to set aside the award on the grounds of lack of jurisdiction and invalid unilateral appointment of the arbitrator.
By order dated 31.10.2001, the learned Chief Judge, City Civil Court, Hyderabad, allowed the appellant’s petition and consequently set aside the arbitral award. However, upon an appeal preferred by Respondent No. 1, this Court, while allowing the appeal, set aside the said order passed under Section 34 of the Act, and remanded the matter to the Chief Judge for fresh consideration in accordance with law. Pursuant to the remand, the learned Chief Judge, by a subsequent order dated 27.02.2017, dismissed the appellant’s petition filed under Section 34 and upheld the validity of the arbitral award.
Aggrieved by this order, the appellant has preferred the present Civil Miscellaneous Appeal No. 918 of 2018, challenging the dismissal of its Section 34 petition and the affirmation of the arbitral award.
(b) In parallel, Respondent No.1 instituted C.O.P. No. 42 of 2019, asserting that though the petition under Section 34 was dismissed, citing the appellant’s continued failure to satisfy the award, filed the petition under Section 9 (1) of the Act, seeking a direction to the appellant to furnish a bank guarantee for Rs. 12,90,59,567/-, along with other incidental reliefs.
Upon evaluation of the pleadings and supporting materials, the Commercial Court-cum-XXIV Additional Chief Judge, City Civil Court, Hyderabad, allowed the petition with costs and directed the appellant to furnish, within thirty (30) days, either (i) security or third-party security to the satisfaction of the C
