Delhi High Court
Simmi Sethi vs Fullerton India Credit Co Ltd. on 8 April, 2022
Author: Vibhu Bakhru
Bench: Vibhu Bakhru
NEUTRAL CITATION NO: 2022/DHC/001367
$~45 to 47
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision: 08.04.2022
+ O.M.P. (COMM) 334/2021 and IA No. 14577/2021
SIMMI SETHI ..... Petitioner
Through: Mr Jaswinder Singh, Advocate.
Versus
FULLERTON INDIA CREDIT CO LTD. ..... Respondent
Through: Counsel (appearance not given).
AND
+ O.M.P. (COMM) 335/2021 and IA No. 14579/2021
SUNIL SETHI ..... Petitioner
Through: Mr Jaswinder Singh, Advocate.
Versus
M/S. FULLERTON INDIA CREDIT CO. LTD. ..... Respondent
Through: Counsel (appearance not given).
AND
+ O.M.P. (COMM) 336/2021 and IA No. 14581/2021
UPPER INDIA TRADING CO. DELHI P. LTD. ..... Petitioner
Through: Mr Jaswinder Singh, Advocate.
Versus
M/S. FULLERTON INDIA CREDIT CO. LTD. ..... Respondent
Through: Counsel (appearance not given).
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
O.M.P. (COMM) 334/2021, 335/2021 & 336/2021 Page 1 of 8
This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/001367
VIBHU BAKHRU, J. (ORAL)
1. The petitioners have filed the present petition impugning an Arbitral Award dated 23.12.2019 (hereafter 'the impugned award') rendered by an Arbitral Tribunal constituted of a Sole Arbitrator. The petitioners contend that the impugned award is void ab initio as the learned Arbitrator was ineligible to act as an Arbitrator. The learned Sole Arbitrator was appointed unilaterally by the respondent without concurrence or prior information to the petitioners.
2. The respondent company is a Non-Banking Financial Company engaged in the business of providing loans and financial facilities. During the course of its business, the respondent had advanced certain loans to Upper India Trading Company Private Limited [the petitioner in OMP(COMM) 336/2021]. The parties had thereafter, entered into a Facility Agreement dated 29.02.2016, which was also signed by Ms Simmi Sethi, Mr Sunil Sethi and Mr Raghav Sethi as co-borrowers. In terms of the said Facility Agreement, the respondent had agreed to provide finance not exceeding ₹10,88,00,000/- (Rupees ten crores eighty eight lacs only) at a floating interest rate of 6.55% less than benchmark prime lending rate, which at the material time was mentioned as 17.80%.
3. The respondent claims that the petitioners had defaulted in performing their repayment obligations.
4. The Facility Agreement includes an Arbitration Clause that reads O.M.P. (COMM) 334/2021, 335/2021 & 336/2021 Page 2 of 8 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/001367 as under:
"20 ARBITRATION 20.1 Any and all disputes, differences and/or claims arising out of these presents or as to the construction, meaning or effect hereof, or as to the rights and liabilities of the parties hereunder shall be settled in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any statutory amendments thereof, and the same shall be referred to arbitration of a sole arbitrator to be appointed by the Lender. In the event of death, refusal, neglect, inability or incapability of the persons so appointed to act as an arbitrator, the Lender may appoint a new arbitrator. The award including the interim award/s of the arbitrator shall be final and binding on all parties concerned. The arbitrator may lay down from time to time the procedure to be followed by him in conducting arbitration proceedings and shall conduct arbitration proceedings in such manner as he considers appropriate. The Borrower irrevocably agrees that for enforcing their under section 20 (Arbitration), the competent courts in the place as set out in Schedule II shall have non-exclusive jurisdiction and both the parties hereto submit to the same.
20.2 The parties agree with respect to such arbitration that:
(a) The arbitration proceedings shall be conducted in English.
(b) The placed of arbitration shall be as specified in Schedule II.
(c) The arbitration award shall be final and binding on the parties, and enforceable in accordance with its terms. The arbitrators shall state reasons for their findings in writing. The O.M.P. (COMM) 334/2021, 335/2021 & 336/2021 Page 3 of 8 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/001367 Parties agree to be bound thereby and to act accordingly.
(d) When any dispute occurs which is submitted to arbitration, except for the matter under dispute, the Parties shall continue to exercise their remaining respective rights and fulfill their remaining obligations under this Agreement."
5. The respondent claims that it had issued a letter dated 06.08.2019 invoking the Arbitration Clause and appointing the learned Sole Arbitrator. By the same letter, the respondent also called upon the petitioners to pay an amount of ₹10,40,32,450.77/- within a period of seven days of the receipt of the said letter and further, clarified that if the entire amount demanded was paid then the Arbitrator would not proceed with the arbitration. The said letter was also addressed to the learned Arbitrator.
6. The petitioners claimed that they had not received the said notice dated 06.08.2019.
7. It is stated that on receipt of the said letter, the Arbitrator convened a hearing, which was held on 22.08.2019 at the chambers of the learned Arbitrator at Patiala House Courts. None was present on behalf of the petitioners at the said hearing. The proceedings of the said hearing indicate that the learned Arbitrator had made a declaration that he was "independent and impartial and had no relationship or interest of any kind in any of the parties or in relation to the subject matter in disputes". However, he also disclosed that the respondent had appointed him as an arbitrator in more than two matters in the last two years. He O.M.P. (COMM) 334/2021, 335/2021 & 336/2021 Page 4 of 8 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/001367 also issued further directions for completion of pleadings and fixed the next date of hearing on 20.09.2019.
8. The petitioners claim that they received a copy of the said proceedings, albeit, after much delay.
9. The respondent filed its Statement of Claims before the Arbitral Tribunal. The respondent also claims that hearings were held before the Arbitral Tribunal on 18.10.2019; 13.11.2019 and 06.12.2019. The record of proceedings reflects that the Statement of Claims was filed and a copy of it was sent to the petitioners. The proceedings also contained directions for sending a copy of the record of proceedings to the petitioners. However, the petitioners denied that they had received the Statement of Claims or copy of any proceedings conducted by the learned Arbitrator.
10. The petitioners did not participate in the proceedings before the Arbitral Tribunal and were not represented at any of the hearings scheduled by the Arbitral Tribunal. The arbitral proceedings culminated in the Arbitral Tribunal rendering the impugned award ex parte.
Reasons and Conclusion
11. There is some controversy between the parties whether notice of invocation of arbitration; Statement of Claims; or copy of the procedural orders passed by the Arbitral Tribunal were delivered to the petitioners. Whilst, the respondent claims that the notice of invocation of arbitration dated 06.08.2019 under Section 21 of the A&C Act was O.M.P. (COMM) 334/2021, 335/2021 & 336/2021 Page 5 of 8 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/001367 sent to the petitioners by post, the petitioners have disputed receiving any such notice. The respondent had attached postal slips indicating dispatch of post to the petitioners. However, there is no acknowledgement of receipt and the respondent has also not filed any tracking report.
12. The respondent has also filed postal slips to establish that it had sent the Statement of Claims to the petitioner. However, the receipt of the same is also disputed. It is material to note that the postal slips indicate the weight of the article as 20 grams. However, it is not disputed that the weight of the Statement of Claims as well as annexures is in excess of 20 grams.
13. Although there is a controversy as to whether the petitioners had received the notice dated 06.08.2019 for invocation of the arbitration or the Statement of Claims, it is not necessary to examine the same in any further detail. This is because certain facts necessary to decide these petitions are admitted. There is no dispute that the respondent did not seek concurrence of the petitioners before proceeding to unilaterally appoint the learned Arbitrator. It is also relevant to note that the learned Arbitrator did not make a complete disclosure. He disclosed that the respondent had appointed him as an Arbitrator in more than two matters in a period of two years prior to 22.08.2019. However, this does not disclose the total number of matters in which he was appointed as an arbitrator. Merely stating 'more than two matters' is ambiguous.
14. It is settled that it impermissible for the respondent to unilaterally O.M.P. (COMM) 334/2021, 335/2021 & 336/2021 Page 6 of 8 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/001367 appoint the Arbitrator without concurrence of the petitioners. In TRF Ltd. v. Energo Engineering Projects Ltd.: (2017) 8 SCC 377, the Supreme Court had held that by virtue of Section 12(5) of the A&C Act, the Managing Director of one of the parties was ineligible to act as an arbitrator and therefore, was also ineligible to appoint an arbitrator. In Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd.:
Arbitration Application No.32/2019, decided on 26.11.2019, the Supreme Court following the aforesaid rationale of TRF Ltd. v. Energo Engineering Projects Ltd. (supra) held that even if the arbitration clause did not contemplate the Chairman cum Managing Director to act as an arbitrator but only as an authority to appoint the sole arbitrator, it was impressible for him to do so as the same would fall foul of Section 12(5) of the A&C Act. Following the aforesaid decisions, a Coordinate Bench of this Court in Proddatur Cable TV Digi Services v. Citi Cable Network Limited: (2020) 267 DLT 51 held that it was impermissible for a party to unilaterally appoint an arbitrator.
15. In Bharat Broadband Network Limited v. United Telecoms Limited: (2019) 5 SCC 755, the Chairman cum Managing Director of Bharat Broadband Network Ltd. (BBNL) had appointed an arbitrator. The parties had participated in the arbitral proceedings. However, thereafter, BBNL had filed an application before the arbitral tribunal requesting him to withdraw from the proceedings. The arbitrator rejected the said application. Aggrieved by the same, BBNL filed a petition under Sections 14 and 15 of the A&C Act praying that the mandate of the learned arbitrator be terminated as the appointment was O.M.P. (COMM) 334/2021, 335/2021 & 336/2021 Page 7 of 8 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/001367 contrary to the decisions rendered in TRF Ltd. v. Energo Engineering Projects Ltd. (supra). This Court rejected the said petition holding that BBNL was estopped from challenging the arbitrator as its Chairman cum Managing Director had appointed the arbitrator.
16. BBNL successfully appealed to the Supreme Court. The Supreme Court held that an appointment made by an ineligible person is itself void and since such appointment relates to the eligibility of an Arbitrator, the appointment of the arbitrator would be void ab initio.
17. In Abraham Memorial Education Trust v. Prodigy Development Institution: OMP(COMM) 391/2020, decided on 23.03.2021, a Coordinate Bench of this Court has held that an award made by an arbitrator unilaterally appointed by a party would be void ab initio.
18. The learned counsel appearing for the respondent did not contest the proposition that the unilateral appointment of the Arbitrator by the respondent falls foul of Section 12(5) of the A&C Act.
19. In this view, the Arbitral Award having been rendered by an Arbitrator ineligible to act as such, cannot be sustained.
20. The impugned award is, accordingly, set aside.
VIBHU BAKHRU, J
APRIL 08, 2022
RK Click here to check corrigendum, if any
O.M.P. (COMM) 334/2021, 335/2021 & 336/2021 Page 8 of 8
This is a digitally signed Judgement.