HC Sets Aside Arbitral Award Granting Reimbursement of Labour Court Liability

Case Details: Veejay Lakshmi Engineering Works Ltd. vs. GTN Enterprises Ltd. - [2026] 186 taxmann.com 260 (HC -Madras)

Judiciary and Counsel Details

• K. Govindarajan Thilakavadi & P. Velmurugan, JJ.
• P.R. Ramakrishnan &  R. Bharath Kumar for the Appellant.
• Rahul Balaji for the Respondent.

Facts of the Case

In the instant case, the appellant and the respondent, both engaged in cotton yarn manufacturing, entered into a Memorandum of Understanding (MoU) and a Slump Sale Agreement under which the appellant sold its spinning unit to the respondent. Before the sale, the appellant had terminated 12 workers and industrial disputes were raised.

The Labour Court set aside the termination of 9 workers and directed reinstatement with back wages. The respondent paid Rs. 32 lakhs to the workers and sought reimbursement from the appellant under the MoU and Slump Sale Agreement.

However, the appellant denied liability, citing section 25FF of the Industrial Disputes Act, 1947. The Respondent initiated arbitration, and the arbitrator directed the appellant to pay Rs. 25.65 lakhs with interest.

The appellant’s Section 34 of the Arbitration and Conciliation Act, 1996 petition was dismissed by the Commercial Court. Then, an appeal was made before the High Court.

High Court Held

The High Court held that, since dispute was non-arbitrable in view of the Industrial Disputes Act, 1947 and a subsisting the Labour Court award, the arbitrator exceeded jurisdiction by effectively overriding the Labour Court award and granting reimbursement beyond contractual scope, and section 25FF of the Industrial Disputes Act, 1947 made the respondent liable for workmen, arbitral award was liable to be set aside under section 34(2) of the Arbitration and Conciliation Act, 1996. Therefore, the Commercial Court erred in sustaining the award.

List of Cases Referred to

• Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1 (para 12)
• Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. (2011) 5 SCC 532 (para 12)
• Dushyant Janbandh v. Hyundai Autoever India Pvt. Ltd. 2024 SCC Online SC 3691 (para 12)
• Vimal Kishor Shah v. Jayesh Dinesh Shah (2016) 8 SCC 788 (para 12)
• Kingfisher Airlines Ltd. v. Capt. Prithvi Malhotra Instructor [2013] 11 taxmann.com 693 (Bombay) (para 12).