The court held that a finding of coercion in an arbitral award stands if supported by evidence, but interest awarded contrary to the claim constitutes patent illegality.

Judgment:

1) The Petition challenges the Award of the learned sole Arbitrator dated 2 May 2024 under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act). By the impugned Award, the learned Arbitrator has held that the Respondent is entitled to recover amount of Rs.4,05,558/- on account of four fixed deposit receipts in possession of the Petitioner-Bank w.e.f. 19 March 2001 and total of Rs.14,07,409/- received under eight LIC policies from the date of maturity of each policy with 17.5% interest p.a. with quarterly rests till the date of the Award. The learned Arbitrator has further directed that upon failure to pay the awarded sum and interest, the same shall carry additional interest of 1% p.a. with quarterly rests till realisation. The learned Arbitrator has also awarded costs of arbitration to the Respondent.

2) Petitioner is a Multi-State Co-operative Bank registered under the Multi State Co-operative Societies Act, 2002 (MSCS Act). Petitioner-Bank had extended financial facilities to M/s. A. S. Constructions from time to time. In order to secure those facilities, Respondent is alleged to have furnished personal guarantee and had also created security interest by creating charge over flat, LIC policies and fixed deposit receipts. In the year 2001, Petitioner-Bank filed Dispute before the Co-operative Court for recovery of dues against the principal borrower and the Respondent in his capacity as guarantor/security provider. Correspondingly, Respondent also filed independent Dispute Application No.605 of 2005 before the Co- operative Court, Thane for release of security documents, as well as for discharge of its guarantee. By two separate orders dated 25 October 2017, the Co-operative Court allowed Petitioner-Bank’s Dispute Application while rejecting Respondent’s Dispute Application. Respondent filed appeal before the Co-operative Appellate Court in respect of order arising out of his Dispute Application No. 605 of 2005, which appeal was dismissed on 26 November 2018. Review Application filed by the Respondent was also rejected on 31 March 2022. So far as order dated 25 October 2017 passed in Bank’s Dispute Application No. 327 of 2005 is concerned, Respondent preferred Appeal before the Co-operative Court. According to the Petitioner, the Appeal was filed urging only the ground of discharge of guarantee under Section 139 and 141 of the Indian Contract Act, 1872 and Respondent did not raise the issue of coercion in securing handwritten letter dated 7 April 1998. The appeal preferred by the Respondent was allowed by the Co- operative Appellate Court holding that guarantee furnished by the Respondent stood discharged. Based on the order passed by the Co- operative Appellate Court, Respondent invoked arbitration against the Petitioner under Section 84 of the MSCS Act and filed his Statement of Claim for recovery of amount of fixed deposit receipts and LIC policies. The learned sole Arbitrator has allowed the claim filed by the Respondent by impugned Award dated 2 May 2024 directing the Petitioner to pay sum of Rs.4,05,558/- in respect of fixed deposit receipts and Rs.14,07,409/- in respect of LIC policies along with interest of 17.5% p.a. Aggrieved by the impugned Award, the Petitioner-Bank has filed the present Petition.

3) Mr. Shadab Jan, the learned counsel appearing for the Petitioner would submit that the impugned Award is contrary to fundamental policy of India as the learned sole Arbitrator had readjudicated the issue of coercion which was already conclusively determined by the Co-operative Court and whose findings have attained finality. That the issue of coercion thus operated as res judicata and could not have been re-adjudicated by the Arbitral Tribunal. That the issue of res judicata though not reflected in the pleadings and though a specific issue was not framed, the Arbitral Tribunal has ultimately decided the objection. That therefore the Petitioner is entitled to urge the ground of res judicat