The Delhi High Court on February 27 upheld an arbitration award of ₹28 crore, along with interest and legal expenses, against Bajaj Finance Limited in a dispute concerning a Loan Against Securities (LAS) agreement. (Bajaj Finance Vs Seetha Kumari).Justice Subramonium Prasad, dismissed Bajaj Finance's petition challenging the award, affirming the arbitrator's decision that the financial institution had unlawfully sold pledged securities. The judgment said “In light of facts and circumstances surrounding instant case as well as settled law this Court is of the opinion that the view taken by the Ld. Tribunal is not only plausible but is based on cogent evidence placed before it. Therefore, this Court is precluded from substituting its own conclusion in place of that arrived at by the Ld. Tribunal.”.The case stemmed from a loan facility extended by Bajaj Finance to Seetha Kumari, a stock trader, in 2015. Over time, Kumari secured loans totaling ₹20 crore against pledged shares of Hinduja Global Solutions Ltd. and Jindal Poly Films Ltd. The dispute arose in March 2020 when Bajaj Finance recalled the loan, citing a margin shortfall amid market volatility exacerbated by the onset of the COVID-19 pandemic.Bajaj Finance sold Kumari's pledged securities in July 2020, despite her claims of maintaining adequate margin coverage and making substantial payments to reduce the outstanding loan. Kumari argued that her LAS facility should have been treated as a term loan, making her eligible for the Reserve Bank of India's (RBI) COVID-19 moratorium. Bajaj Finance contested this, asserting that the loan was not a term loan. The core of the dispute revolved around the interpretation of the LAS agreement, specifically clauses related to loan recall and events of default..The arbitrator ruled that Bajaj Finance's recall of the loan and sale of securities were unlawful, awarding Kumari ₹28 crore in compensation, ₹5.34 crore in pre-award interest, and ₹30 lakh for legal expenses. Bajaj Finance filed a petition under Section 34 of the Arbitration and Conciliation Act, challenging the award. .The court upheld the arbitrator's findings, stating that Bajaj Finance did not have an "unbridled right" to sell the shares. The court agreed with the arbitrator's interpretation that the loan could only be recalled and securities sold in the event of a specific default, as outlined in the LAS agreement. The court determined that the arbitrator's interpretation of the contract was a "commercially sensible construction" that aligned with "business common sense.”The court held “The finding of the Arbitrator that unless the conditions stipulated in Clause 4.4 does not exist, the loan cannot be recalled and the borrower cannot be made to pay the loan at the discretion of the lender is based on commercially sensible construction of the contact which is consistent with business common sense.”.The High Court rejected Bajaj Finance's arguments that the arbitrator had erred in applying Section 74 of the Indian Contract Act and had acted beyond its jurisdiction. The court also dismissed claims that the award violated principles of natural justice.“The thrust of the argument of the Petitioner seems to be that the Ld. Tribunal’s action of awarding compensation under Section 74 was erroneous. This argument cannot be sustained for the simple reason that the Ld. Tribunal has taken a plausible view which is grounded in the principle of "reasonable compensation" under Section 73 of the Indian Contract Act,” the judgment held. .The court supported the arbitrators finding that Bajaj Finance had not provided the contractual required three days notice prior to selling the securities. The Court also supported the arbitrators finding that when the shares were sold the loan was secured at 450% of the loan value, greatly above the 85% margin that would have been required for the sale of the shares.The judgment held “The Petitioner did not provide the mandatory three-day notice before selling the securities on 09.07.2020 and 10.07.2020. The Petitioner could not have sold the shares without ascertaining, on the date of the sale, whether the shortfall in margin continued or not since the sale of the shares by the Petitioner was not in spirit of the contract. The Ld. Tribunal was justified in calculating the compensation and awarding the same to the Respondent.”.It thus dismissed Bajaj Finance's plea and upheld the award. .Bajaj Finance was represented by Advocated Surabhi Lal and Rachit Bansal.Seetha Kumar was represented by Advocates Pawan Upadhyay, Rishab Khare and Varun Sharma..Read Judgment
The Delhi High Court on February 27 upheld an arbitration award of ₹28 crore, along with interest and legal expenses, against Bajaj Finance Limited in a dispute concerning a Loan Against Securities (LAS) agreement. (Bajaj Finance Vs Seetha Kumari).Justice Subramonium Prasad, dismissed Bajaj Finance's petition challenging the award, affirming the arbitrator's decision that the financial institution had unlawfully sold pledged securities. The judgment said “In light of facts and circumstances surrounding instant case as well as settled law this Court is of the opinion that the view taken by the Ld. Tribunal is not only plausible but is based on cogent evidence placed before it. Therefore, this Court is precluded from substituting its own conclusion in place of that arrived at by the Ld. Tribunal.”.The case stemmed from a loan facility extended by Bajaj Finance to Seetha Kumari, a stock trader, in 2015. Over time, Kumari secured loans totaling ₹20 crore against pledged shares of Hinduja Global Solutions Ltd. and Jindal Poly Films Ltd. The dispute arose in March 2020 when Bajaj Finance recalled the loan, citing a margin shortfall amid market volatility exacerbated by the onset of the COVID-19 pandemic.Bajaj Finance sold Kumari's pledged securities in July 2020, despite her claims of maintaining adequate margin coverage and making substantial payments to reduce the outstanding loan. Kumari argued that her LAS facility should have been treated as a term loan, making her eligible for the Reserve Bank of India's (RBI) COVID-19 moratorium. Bajaj Finance contested this, asserting that the loan was not a term loan. The core of the dispute revolved around the interpretation of the LAS agreement, specifically clauses related to loan recall and events of default..The arbitrator ruled that Bajaj Finance's recall of the loan and sale of securities were unlawful, awarding Kumari ₹28 crore in compensation, ₹5.34 crore in pre-award interest, and ₹30 lakh for legal expenses. Bajaj Finance filed a petition under Section 34 of the Arbitration and Conciliation Act, challenging the award. .The court upheld the arbitrator's findings, stating that Bajaj Finance did not have an "unbridled right" to sell the shares. The court agreed with the arbitrator's interpretation that the loan could only be recalled and securities sold in the event of a specific default, as outlined in the LAS agreement. The court determined that the arbitrator's interpretation of the contract was a "commercially sensible construction" that aligned with "business common sense.”The court held “The finding of the Arbitrator that unless the conditions stipulated in Clause 4.4 does not exist, the loan cannot be recalled and the borrower cannot be made to pay the loan at the discretion of the lender is based on commercially sensible construction of the contact which is consistent with business common sense.”.The High Court rejected Bajaj Finance's arguments that the arbitrator had erred in applying Section 74 of the Indian Contract Act and had acted beyond its jurisdiction. The court also dismissed claims that the award violated principles of natural justice.“The thrust of the argument of the Petitioner seems to be that the Ld. Tribunal’s action of awarding compensation under Section 74 was erroneous. This argument cannot be sustained for the simple reason that the Ld. Tribunal has taken a plausible view which is grounded in the principle of "reasonable compensation" under Section 73 of the Indian Contract Act,” the judgment held. .The court supported the arbitrators finding that Bajaj Finance had not provided the contractual required three days notice prior to selling the securities. The Court also supported the arbitrators finding that when the shares were sold the loan was secured at 450% of the loan value, greatly above the 85% margin that would have been required for the sale of the shares.The judgment held “The Petitioner did not provide the mandatory three-day notice before selling the securities on 09.07.2020 and 10.07.2020. The Petitioner could not have sold the shares without ascertaining, on the date of the sale, whether the shortfall in margin continued or not since the sale of the shares by the Petitioner was not in spirit of the contract. The Ld. Tribunal was justified in calculating the compensation and awarding the same to the Respondent.”.It thus dismissed Bajaj Finance's plea and upheld the award. .Bajaj Finance was represented by Advocated Surabhi Lal and Rachit Bansal.Seetha Kumar was represented by Advocates Pawan Upadhyay, Rishab Khare and Varun Sharma..Read Judgment
