Bangalore District Court
) Safiya M.S W/O Noor Mohammed vs ) M/S Kotak Mahindra Bank Ltd on 16 February, 2023
KABC0A0036992020
IN THE COURT OF XIII ADDL. CITY CIVIL & SESSIONS JUDGE,
MAYOHALL UNIT, BENGALURU (CCH-22)
Present: Sri S. Sudindranath, LL.M., M.B.L.,
XIII ADDL. CITY CIVIL & SESSIONS JUDGE
BENGALURU.
A.S.No.25005/2020
Dated this 16th day of February 2023
Petitioners:- 1) Safiya M.S W/o Noor Mohammed,
Aged about 39 years,
2) Master Mohammed Faaz,
S/o Noor Mohammed,
Aged about 12 years,
Since minor rep. By his mother
& natural guardian Safiya M.S
W/o Noor Mohammed,
Both are residing at No.F-202,
Renaissance Exotica,
Jakkur Plantation,
Jakkur, Bengaluru-64.
(Rep. By Sri A. Muralidhar, Advocate)
V/S
Respondents:- 1) M/s Kotak Mahindra Bank Ltd.,
5th Floor, Samson Towers,
402L, Pantheon Road,
Egmore, Chenai-600008.
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KABC0A0036992020
Its Branch Office at
Kotak Mahindra Bank Limited,
No.22, Kotak House,
Near Trinity Metro Station,
M.G. Road, Bengaluru-01.
2) C. Prasanna Venkatesh,
Hon'ble Sole Arbitrator,
No.1, Sai Nivas, Gems Park Avenue,
Chennai-17.
(Rep. By Sri R.R Advocate for R1, R2 - Exparte)
:: JUDGMENT ::
This is a petition under section 34 of the Arbitration And Conciliation Act filed by the respondents in Arbitration Case No. KB B BK 77/2018 challenging the award dated 07/03/2019 passed by the Learned Sole Arbitrator in said arbitration proceedings allowing the claim of the respondent No. 1 herein (Kotak Mahindra Bank) and holding that respondent No. 1 herein (Kotak Mahindra Bank) is entitled to recover from the petitioners herein a sum of ₹ 15,00,872/= with interest at the rate of 3% per month till date of award and interest at the rate of 12% per annum on the said sum, 3 A.S.No.25005/2020 Orders KABC0A0036992020 from the date of award, till date of realisation and also sum of ₹ 2000 towards arbitrator's fee and expenses.
2. In the course of this Judgment, the parties are referred as per their rank in the arbitration proceedings i.e. the Petitioners herein are referred to as the Respondents and Respondent No. 1 herein as the claimant Bank.
3. The facts in brief are that, the Claimant bank initiated the arbitration, by alleging that the Respondents (petitioners herein) had availed loan (quantum of the loan availed is not forthcoming from the arbitration award) under loan agreement (date of loan agreement is not forthcoming from the award) undertaking to repay the same in monthly instalments and thereafter, defaulted in repayment of the loan and contending that the said dispute is arbitrable, the respondent bank appointed the sole arbitrator.
4. The arbitral award discloses that, the Learned arbitrator entered upon the reference and issued notice to both sides on 4 A.S.No.25005/2020 Orders KABC0A0036992020 13/11/2018 fixing the first date of hearing on 6/12/2018 and on the said date, the claimant bank appeared and filed claim statement and documents, whereas, the respondents (petitioners herein) though legally served did not appear and therefore the learned arbitrator has proceeded ex parte and after examining the representative of the claimant bank as PW 1 and marking Ex. A1 to A6, the learned arbitrator, considering the undisputed evidence of PW 1, has allowed the claim and passed the impugned award holding that claimant bank is entitled to recover from the Petitioners herein a sum of ₹ 15,00,872/= with interest at the rate of 3% per month till date of award and interest at the rate of 12% per annum on the said sum, from the date of award, till date of realisation and also sum of ₹ 2000 towards arbitrator's fee and expenses.
5. Aggrieved by the said award, the respondents of the arbitration proceedings have preferred the present petition under section 34 of the Arbitration And Conciliation Act seeking setting aside of the award.
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6. On filing of the present petition, notices were issued to the respondent No. 1 - bank and the Learned arbitrator who is arrayed as respondent No. 2. The respondent No. 1/claimant bank has entered appearance through counsel but has not filed objections to the main petition and hence, objections of respondent No. 1 to main petition was taken as nil on 26/05/2022. Thereafter, the notice to respondent No. 2 was also duly served by RPAD. At that stage, considering that the respondent No. 2/sole arbitrator has not appeared and produced the arbitration records, this court directed respondent No. 1 at whose instance, the arbitration was initiated to produce the entire arbitration records, but, inspite of grant of sufficient opportunity, the respondent No. 1 failed to produce the arbitration records and therefore, the matter was posted for arguments with the understanding that present petition shall be disposed off on the basis of available records.
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7. Thereafter, I have heard the arguments of learned counsel for petitioners. In spite of grant of sufficient opportunity, the learned counsel for respondent No. 1 has not advanced arguments and hence, arguments of respondent No. 1 is taken as nil and the matter was reserved for judgment.
8. I have perused the records of the case.
9. The only point that arises for my consideration is;
Whether the present petition deserves to be allowed and the impugned arbitral award requires to be set aside under section 34 of the Arbitration And Conciliation Act?
10. My answer to the above point is in the affirmative for the following;
:: REASONS ::
11. As already noted supra, the arbitration records are not produced in the present case and therefore, the present petition is being disposed off on the basis of available records. 7 A.S.No.25005/2020
Orders KABC0A0036992020 The only record which is available is the certified copy of the award (obtained by the petitioners herein from the file of Ex. No. 25324/2019, pending before this court for execution of the impugned award) which is produced along with the Petition. Apart from the copy of the award, there is no other record available either regarding the claim made by the Claimant Bank or regarding the proceedings before the Learned Sole Arbitrator or in respect of the documents produced and the oral evidence adduced by PW 1 before the Learned arbitrator.
12. From the facts narrated in the award which is impugned herein, it is forthcoming that, the claim was preferred before the Learned arbitrator by Claimant Bank on the ground that the bank sanctioned loan (the quantum of loan is not forthcoming from the award) to the Petitioners herein (in the award the petitioner No. 1 herein is described as borrower and petitioner No. 2 is described as guarantor) as per the loan agreement (the date of loan agreement is not forthcoming 8 A.S.No.25005/2020 Orders KABC0A0036992020 from the award) and borrower undertook to repay the same in equated monthly instalments and thereafter, defaulted in repayment of the monthly installments which resulted in the claimant bank determining the agreement and issuing notice to the borrower to repay the total amount outstanding including interest and charges and in spite of the notice, the borrowers did not come forward to repay the loan and relying upon the clause 11.6 of the loan agreement which provides that, claims and disputes arising out of the agreement, unless it falls within jurisdiction of DRT, shall be settled by single arbitrator to be appointed by the bank and the arbitration shall be held in Chennai, the bank has appointed the Learned sole arbitrator who as noted supra, has entered upon the arbitration and considering the undisputed evidence of PW 1 since the respondents were placed ex parte, the learned arbitrator has passed the impugned award.
13. In the present petition, the grounds raised for challenging the arbitration award are that, the very 9 A.S.No.25005/2020 Orders KABC0A0036992020 Constitution of the arbitral tribunal is contrary to law since no opportunity was given to the petitioners to nominate their arbitrator, no cause of action has arisen in Chennai and hence the arbitration seat in Chennai is defective, notice of the arbitration was not served upon the petitioners. These grounds are in respect of the constitution of the arbitral tribunal and violation of principles of natural justice. Apart from these grounds, the legal grounds raised are that, the petitioner No. 2 who is described as guarantor in the award is a minor and therefore, the impugned award which imposes liability upon the minor is illegal and contrary to fundamental principles of Indian law. It is further contended that, there is absolutely no finding recorded by the learned arbitrator and the arbitration award is a non-speaking order. Finally, it is contended that, the rate of interest ordered by the learned arbitrator at 3 percent per month from date of arbitration proceedings till date of award is excessive and contrary to section 31 (7) (b) of the Arbitration And Conciliation Act, 1996.
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14. As already noted supra, the Respondent No. 1 herein (Claimant Bank) has not filed objections to the present petition, inspite of grant of sufficient opportunity.
15. At the outset, it is to be noted that, the grounds on which an arbitral award can be set aside under section 34 of the Arbitration And Conciliation Act, 1996 are limited and it is only on satisfaction of the said grounds that an arbitral award can be set aside and the court considering a petition under section 34 of the act cannot sit as a court of appeal over the findings of the Learned arbitrator. Therefore, it is necessary to refer to the grounds on which arbitral award can be set aside under section 34 of the act which are as follows;
34. Application for setting aside arbitral award.--(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3). (2) An arbitral award may be set aside by the Court only if
--
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(a) the party making the application 4[establishes on the basis of the record of the arbitral tribunal that]--
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that--12 A.S.No.25005/2020
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(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
1 [Explanation 1.--For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,--
(i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.--For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.] 2 [(2-A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the court, if the court finds that the award is vitiated by patent illegality appearing on the face of the award:
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Orders KABC0A0036992020 Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.] (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) xxxx.
3 [(5) xxx.
(6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub- section (5) is served upon the other party.] (Emphasis Supplied)
16. At the outset, before considering whether any of the grounds of section 34 of the Act are satisfied in this case, it is necessary to see whether the present petition is filed within the period of limitation. In this regard, Section 34 (3) of the 14 A.S.No.25005/2020 Orders KABC0A0036992020 Act is clear that any petition under section 34 seeking setting aside of the award has to be filed within 3 months from the date of intimation of the award to the affected party and thereafter, the court has the discretion to condone the delay of additional 30 days, but, thereafter no petition under section 34 can be entertained.
17. In the case on hand, the award is dated 07/03/2019.
18. However it is crucial to note that, the limitation of 3 months begins to run not from the date of the arbitration award but from the date of intimation of the same to the parties. In the case on hand, there is no material to show that, after the passing of the award, the learned arbitrator had intimated the same to the petitioners herein. On the other hand, in the present petition, at paragraph 7 it is specifically stated that, the copy of the award was not received from the learned arbitrator and the petitioner No. 1 came to know about the award only on receiving the notice in 15 A.S.No.25005/2020 Orders KABC0A0036992020 Ex. No. 25324/2019 and thereafter, she applied for certified copy of the award and at paragraph 20 of the petition, it is stated that, the petitioner No. 1 received the copy of the arbitration award only on 20/03/2020. It is to be noted that, the respondent No. 1 - bank has not filed any objections opposing these petition averments. The certified copy of the award produced along with the present petition substantiates the say of petitioner No. 1 that, she received the certified copy of the Award only on 20/03/2020. Therefore, under section 34 (3) of the act, the limitation period begins to run from 20/03/2020, which should be considered as the date of intimation of the award to the Petitioners. Therefore, the period of 3 months would end on 20/06/2020. However, it is to be noted that, as per the ruling of Hon'ble Apex Court in Suo-Motu Writ Petition No. (C) 03/2020 dated 10/01/2022, it held as follows;
"The order dated 23.03.2020 is restored and in continuation of the subsequent orders dated 08.03.2021, 27.04.2021 and 23.09.2021, it is directed that the period from 15.03.2020 till 28.02.2022 shall stand excluded 16 A.S.No.25005/2020 Orders KABC0A0036992020 for the purposes of limitation as may be prescribed under any general or special laws in respect of all judicial or quasi judicial proceedings."
(Emphasis Supplied)
19. Therefore, since the period of limitation in the present case ended on 20/06/2020, as per the aforestated law of Hon'ble Apex Court, the period of limitation stands automatically extended up to 28/02/2022. In view of the same, the present petition filed on 22/12/2020 is within the period of limitation.
20. Before considering the grounds raised in the present petition for seeking setting aside of the arbitral award, I deem it expedient to consider whether this court has jurisdiction to entertain the present petition, because the seat of arbitration is in Chennai. There are 2 sections of the Arbitration And Conciliation Act which deal with which court has jurisdiction to entertain the challenge to arbitration award. They are as follows;
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Section 42. : Jurisdiction.--Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court.
21. Therefore, from plain reading of above statutory provisions, it is clear that, the court which can entertain the petition under the Act is the court which would have the jurisdiction over the subject matter, in case suit had been brought, subject to one exception that, where any arbitration application is filed before any court, all subsequent petitions or applications arising out of the said arbitration, shall be filed before the same court.
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22. In the case on hand, there is no objections raised by the respondent No. 1 [claimant bank] that, at any point of time, any application or petition arising out of the same arbitration was filed before any other court, other than the Bangalore court. In the case on hand, when, as per the cause title of the arbitration award, the address of the borrowers is shown as Bangalore, which means that, the loan was availed in Bangalore and therefore, certainly, the Bangalore court would have jurisdiction to entertain a suit in respect of the same subject matter and therefore, this court has the jurisdiction to entertain the present petition challenging the impugned arbitration award.
23. In considering the grounds raised in present petition, challenging the arbitration award, the first ground raised is that, the Constitution of the arbitral tribunal and the seat of the arbitration is improper, since, there are no option given to the borrowers/petitioners to nominate the arbitrator and when the entire cause of action has arisen in Bangalore, 19 A.S.No.25005/2020 Orders KABC0A0036992020 holding the arbitration in Chennai is not proper. As against this, in the arbitration award which is impugned herein at paragraph 3C of page 4 of the award, the learned arbitrator has extracted clause 11.16 of the loan agreement as follows;
"Unless the same falls within the jurisdiction of the Debts Recovery Tribunals established under the recovery Of Debts Due To Bank And Financial Institution Act 1993, any and all the claims and disputes arising out of or in connection with this agreement or its performance shall be settled by a single arbitrator to be appointed by the bank. The arbitration shall be held in Chennai, in accordance with the provisions of the Arbitration And Conciliation Act, 1996."
24. It is to be noted that, in the present petition, the above extracted arbitration clause is not disputed. Therefore, it follows that, when the petitioners are not disputing the arbitration clause as extracted above, which provides for arbitration by arbitrator to be nominated by the bank and also provides the seat of arbitration is Chennai, it follows that, the petitioners cannot contend that the constitution of the arbitral tribunal is bad for not giving opportunity to the petitioners to nominate arbitrator nor can the petitioners 20 A.S.No.25005/2020 Orders KABC0A0036992020 object to the holding of the arbitration in Chennai. Therefore, this ground raised by the petitioners cannot be accepted.
25. The 2nd ground raised is that, the petitioners did not have proper notice of the arbitration, since, no notice was served on them, either regarding the appointment of arbitrator or the date fixed for arbitration and in this regard it is contended that the petitioner No. 1 became aware of the award only on receiving the notice from this court in Ex. No. 25324/2019 which was filed to execute the said arbitration award.
26. In this regard, the arbitral award states that, statutory notice of hearing was issued to the parties on 13/11/2018 fixing 1st date on 06/12/2018 and the respondents (petitioners herein) though being legally served did not appear either in person or through counsel (paragraph 1 of the impugned award). It is further stated at paragraph 2 that, all notices were sent to the last known address of respondents by 21 A.S.No.25005/2020 Orders KABC0A0036992020 registered letter acknowledgement due which constitutes due service and in this regard reference is made to section 3 of the act which lays down that, a written communication is deemed to have been received if it is sent to the addressee's last known place of business, habitual residence or mailing address by registered letter or by any other means which provides a record of the attempt to deliver it.
27. Therefore, from the very statement made in the arbitral award it is clear that, in order to constitute due service of the arbitration hearing and proceedings upon the respondents of the arbitration, there should be a record of the attempt to deliver the notice to the respondents. However, in the case on hand, in spite of grant of sufficient opportunity, the respondents have not produced the records of the arbitration proceedings to prove that, the notice of arbitration proceedings and hearing date was issued to the respondents. On the other hand, the petitioner No. 1 has contended that, she never received any notice and she became aware of the 22 A.S.No.25005/2020 Orders KABC0A0036992020 award only on receiving the notice of execution petition. It is to be noted that, the respondent No. 1 although entered appearance through counsel has not filed objections to the main petition. Further, as noted supra, the arbitration records ought to have been produced to show that the notice of arbitration was issued by registered post to the petitioners herein. In the absence of producing the arbitration records to show the dispatch of notice by registered post to the petitioners herein, it has to be held that, the Petitioners did not have notice of the arbitration proceedings.
28. It is to be noted that, the words used by section 34 (2) of the act is that, the party making the application should establish on the basis of the records of the arbitral tribunal that, inter alia, the party making the application was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case. The respondents herein cannot defeat the intent of the statute by simply failing to produce arbitral records itself. 23 A.S.No.25005/2020
Orders KABC0A0036992020 Therefore, when the records of the arbitration proceedings are not produced to show that, the notices were issued to the petitioners herein by registered post to the correct address, it has to be held that, the petitioners have made out the ground laid down in section 34 (2) (a) (iii) of the act that they did not have proper notice of the arbitration proceedings. Therefore this constitutes a valid ground for setting aside the impugned award.
29. Apart from this, another contention raised in the present petition is that, admittedly, the petitioner No. 2 herein who is described as guarantor in the impugned award is a minor and therefore, the award passed against a minor is void. In this regard, perusal of the cause title of the arbitration award discloses that, the petitioner No. 2 herein is described as "Guarantor 1: Mohammed Faaz - Minor". Therefore, the learned arbitrator was well aware that the petitioner No. 2 herein is a minor. In spite of being aware of the said fact the learned arbitrator has passed the award 24 A.S.No.25005/2020 Orders KABC0A0036992020 against the respondents/petitioners holding them jointly and severally liable to pay the award amount with interest.
30. Law is settled that contract by a minor is void. In this regard, reference may be made to the law laid down by Hon'ble Apex Court in the case of Independent Thought v. Union of India, (2017) 10 SCC 800 : (2018) 1 SCC (Cri) 13 : 2017 SCC OnLine SC 1222 at page 862, as follows;
130. Under the provisions of the aforesaid Acts a person, who is a minor and not a major, is not entitled to deal with his property. The property of such a minor can be sold or transferred only if such sale or transfer is for the benefit of the minor and after the permission of the court. Section 11 of the Contract Act, 1872 provides that only a person who has attained the age of majority and is of a sound mind is competent to enter into a contract. A contract entered into by a minor is treated to be a void contract.
(Emphasis Supplied)
31. In the light of the above well-settled position of law, there was no question of a minor standing as a guarantor/surety for the principal borrower. Such being the case, the learned arbitrator although aware that, the petitioner No. 2 herein was a minor has passed the award 25 A.S.No.25005/2020 Orders KABC0A0036992020 imposing liability jointly and severally on petitioner No. 2 to pay the award amount and therefore, the only conclusion to be drawn is that, the award is opposed to fundamental policy of Indian law and contract law and on this ground also, the award is liable to be set aside.
32. Apart from this, I also find that, the contention raised in the petition that, there is absolutely no reasoning or findings recorded by the learned arbitrator, deserves acceptance. As already noted supra, in the entire award, even the quantum of loan advanced, the date of the loan agreement and other particulars are not stated. The learned arbitrator although refers to Ex. A5 as the statement of accounts maintained by the claimant bank in the regular course of business has not even bothered to mention what was the amount found due to the claimant bank, as per the said statement of accounts. The entire burden of reasoning of the learned arbitrator is found in one sentence at paragraph 7 of the award wherein the learned arbitrator has observed that, "there is nothing 26 A.S.No.25005/2020 Orders KABC0A0036992020 available on records produced to disprove or deny the claim of the claimant, as well as the documents executed by the respondents". The learned arbitrator has not recorded any finding as to what was the loan amount taken by the respondents, what was EMI, and what was the balance amount due by the respondents (Petitioners herein) to the claimant bank as per the statement of accounts as on the date of filing of the claim statement. Without recording findings on these points, passing the award by simply allowing the claim on the ground that, there is nothing on record to disbelieve the same amounts to total non- application of mind by the learned arbitrator and in fact, it is clear that, without mentioning any particulars, the Award is passed in cyclostyled format. Be that as it may, the award passed without recording any findings, is a nonspeaking award. It is fundamental policy of Indian law that every judicial / quasi judicial order should be supported by reasons. Therefore, the conclusion is that, when there is absolutely no findings or reasonings recorded in the 27 A.S.No.25005/2020 Orders KABC0A0036992020 impugned Award and when the records of the arbitration proceedings are not produced for this court to verify that the arbitration award correctly reflects the amount due by the respondents (Petitioners herein) to the claimant bank, in such circumstances, the court has no option but to set-aside the arbitration award on the ground of total non-application of mind and for being a nonspeaking award i.e. by holding that the passing of award in such a manner is opposed to basic notions of morality and justice and therefore, the ground under section 34 (2) (b) (ii) read with Explanation 1 (iii) is attracted and therefore, this is another ground for setting aside the impugned award.
33. Another ground raised is regarding excess interest awarded which is contended to be in contravention of section 31 (7) (b) of the act but since for the reasons noted supra, I am of the view that entire award is liable to be set aside, there is no need to consider the said ground which only deals with 28 A.S.No.25005/2020 Orders KABC0A0036992020 setting aside of the interest component of the award, on the ground of excessive rate of interest.
34. Accordingly, for all the above discussed reasons, I hold that, the present petition is entitled to succeed on aforestated grounds and accordingly, the arbitral award is liable to be set aside and answering the point for consideration in the affirmative, I proceed to pass the following;
:: ORDER ::
The petition under section 34 of the Arbitration And Conciliation Act is allowed.
Consequently the arbitral award dated 07/03/2019 passed by the Learned Sole Arbitrator in Arbitration Case No. KB B BK 77/2018 holding that respondent No. 1 herein is entitled to recover Rs. 15,00,872.67/= from the petitioners herein with interest at the rate 29 A.S.No.25005/2020 Orders KABC0A0036992020 of 3% per month till date of award and interest at rate of 12% p.a. from date of award till realization and also recover Rs. 2000/= towards arbitrator's fee and expenses, is hereby set aside.
[Dictated using Dragon Professional Speech Recognition Software Version 15.3, transcript revised, corrected, signed and then pronounced by me in open court on this the 16th day of February, 2023] (Sri. S. Sudindranath) XIII ADDL.CITY CIVIL AND SESSIONS JUDGE MAYOHALL UNIT; BANGALORE