Delhi District Court
Shri Narender Singh vs Shriram Transport Finance Co. Ltd on 17 December, 2020
IN THE COURT OF MS. BARKHA GUPTA
DISTRICT JUDGE (COMMERCIAL), NORTH,
ROHINI COURTS : DELHI.
OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019)
SHRI NARENDER SINGH,
S/o Sh. Hari Singh Thakur.
R/o A930, Jahangirpuri,
North West Delhi,
Delhi110033. ...... Petitioner / Objector.
VERSUS
SHRIRAM TRANSPORT FINANCE CO. LTD.,
431/64/1, Ground Floor, L.D.A. Trust Estate,
Kewal Park Extension, Azadpur,
Delhi110033.
Registered Office at:
Third Floor, Mookambika Complex,
No.4, Lady Desika Road,
Mylapore, Chennai600004. ..... Respondent.
Date of Filing of petition : 18.10.2019
Date of Arguments : 10.12.2020
Date of Decision : 17.12.2020
JUDGMENT
1. The petitioner/objector Shri Narender Singh has filed the petition/objections under Section 34 of the Arbitration and Conciliation Act, 1996 read with Section 10 of the Commercial Courts Act, 2015 for OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
1 of 31 setting aside the Arbitral Award dated 16.07.2019 passed by the Sole Arbitrator namely Shri B.L. Garg in the case bearing Arbitration proceedings No.ARB/BLG/7528/2019 titled as "Shriram Transport Finance Company Limited vs. Narender Singh & Anr".
2. The petitioner/objector has submitted that he is a mechanic and has studied in Hindi medium only upto 9th standard. Further, the respondent, namely Shriram Transport Finance Co. Ltd. is a company, which is Registered under the Companies Act, 1956 having its registered office at the Third Floor, Mookambika Complex No.4, Lady Desika Road, Mylapore, Chennai600004 and having its regional office at 431/64/1, Ground Floor, L.D.A. Trust Estate, Kewal Park Extension, Azadpur, Delhi110033. The petitioner/objector has further submitted that the respondent is engaged in the business of Asset Financing, including Hire Purchase Financing, Loan Financing and Leasing of commercial vehicles etc. 3(a). The petitioner/objector has contended that in the year 2011, he was working as a Mechanic and since, he was interested in entering into the transport business, so, he decided to purchase a used old commercial vehicle i.e. TATA Model LPT 25215 Turbo FBT bearing Registration No.HR 55F 3665, which was manufactured in the year 2007 (hereinafter referred to as the 'vehicle').
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(b) The petitioner/objector has submitted that in fact, the vehicle was initially owned by a person namely Sh. Darbara Singh, who got it financed from IndusInd Bank Ltd. by hypothecating the vehicle.
(c) The petitioner/objector has contended that thereafter, Shri Darbara Singh sold the vehicle to him in the month of November, 2011 and the petitioner/objector got the vehicle partly financed by the respondent vide Loan Agreement No.AZDPRO201040008 for an amount of Rs.6,00,000/ (actual disbursal after deduction is Rs.5,64,000/ and aggregate amount of Rs.7,90,956/). The petitioner/objector has filed the copy of Payment Schedule as issued by the Respondent for the aforesaid Loan Agreement as Annexure A2.
(d) The petitioner/objector has further submitted that after he purchased the vehicle, it was transferred to him and since, the vehicle was financed by the respondent, so the requisite endorsement made to the Respondent. He has also filed the relevant pages of Certificate of Registration of the vehicle as Annexure A3.
4(a). The petitioner/objector has further submitted that he made payments in discharge of his obligations to the respondent for purchasing the vehicle since the year 2012 and has annexed the true OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
3 of 31 copies of the receipts dated 04.02.2012 to 13.10.2014 issued by the Respondent for said payments as Annexure A4.
(b) The petitioner/objector has also submitted that though, during the years 2011 to 2014, he made payments to the respondent towards repayment of the loan, yet the officials of the respondent seized the vehicle from him twice due to certain lapses on his part and the vehicle was firstly seized by the respondent sometimes after December, 2012 and the it was again seized after September, 2014. He has further stated that at the relevant time, the officials of the respondent advised him to make some payment to the respondent, if the petitioner wanted to get back the vehicle and so, he made some payment to the respondent and thereafter, the respondent returned him the possession of the vehicle. He has also annexed the copy of the letter dated 16.10.2014 issued by the respondent to him for returning the possession of the vehicle as Annexure A5.
(c) The petitioner/objector has submitted that thereafter, though, he again started making payments to the respondent, however, due to certain personal setbacks, he could not make the payment to the respondent after 04.10.2016 and hence, on 18.04.2017, the officials of the respondent again seized the vehicle from his possession without any prior notice to him and though, the petitioner/objector expressed his OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
4 of 31 difficulty to the officials of the respondent that he could not pay the installments as he was in deep financial constraints but the officials of the respondent told him that the vehicle would be sold and the amount so received, would be adjusted against the dues of the petitioner/objector. He has also filed the true copy of the receipts dated 20.11.2014 to 10.08.2016 issued by the respondent towards payment made by him regarding the vehicle as Annexure A6.
The petitioner/objector has submitted that when the vehicle in question was lastly seized by the respondent, its market value was about Rs.5,00,000/.
5. The petitioner/objector has submitted that after about two and a half years of seizure of the vehicle, the respondent suddenly sent him a Letter/Notice dated 20.09.2018, vide which, the respondent demanded payment of sum of Rs.4,70,248/ from him, which was stated to be due against him as on 12.09.2018 and the respondent also mentioned in the notice that the payment should be made by the petitioner/objector within seven days, failing which, the arbitration clause would be invoked as per Loan Agreement dated 21.03.2014. Further, the respondent had also mentioned in the said notice that the vehicle was sold at the available market price, yet, the entire loan account could not be settled. The petitioner/objector has filed the copy of said notice dated 20.09.2018 as Annexure A7.
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6. The petitioner/objector has further submitted that the respondent, vide its letter dated 27.09.2018 appointed Shri B. L. Garg, to be the Sole Arbitrator to adjudicate the dispute/differences between it and Shri Narender Singh. The Arbitrator entered into reference and issued letter dated 11.02.2019 to the petitioner/objector herein and fixed the date of hearing as 18.03.2019 for 4.00 pm at A9, Ganpati Apartments, 6, Alipur Road, Civil Lines, Delhi110054.
The petitioner/objector has filed the copy of letter dated 27.09.2018 issued by the respondent appointing Shri B.L. Garg as the Sole Arbitrator as Annexure A8 and has also filed the copy of letter dated 11.02.2019 whereby the Sole Arbitrator entered into reference as Annexure A9. The petitioner/objector has also stated that he appeared before the Sole Arbitrator on 18.03.2019 and thereafter, the case was fixed up for 23.04.2019.
7(a). The petitioner/objector has further submitted that on 23.04.2019, the respondent herein had filed its Statement of Claim alongwith certain documents, including the Power of Attorney of its Authorized Representative, LoancumHypothecation Agreement dated 18.10.2014, Statement of Account and also supplied their copies to the petitioner/objector. The petitioner/objector alongwith his petition/ objections under Section 34 of the Arbitration & Conciliation Act, 1996 OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
6 of 31 has filed their copies alongwith the copy of Statement of Claim filed by the respondent, copy of LoancumHypothecation Agreement dated 18.10.2014 and Statement of Account of the Loan Account of the petitioner, copy of Power of Attorney executed by the Company Secretary of the respondent in favour of Mr. Tekchand Sharma, the Authorized Representative of the respondent as filed by the respondent before the Arbitrator as Annexures A10 to A13.
(b) The petitioner/objector has further contended that the Arbitrator adjourned the matter for 31.05.2019 for response of the petitioner herein. He has also submitted that on 31.05.2019, he could not reach to the venue of Arbitration in time as he got delayed due to his personal reasons and when he reached to the venue, he was informed that the proceedings were closed and he would be informed about the outcome by post. He has also filed the copies of the orders dated 18.03.2019 and 23.04.2019 as Annexure A14.
(c) The petitioner/objector has also submitted that on 20.07.2019, he received the Arbitral Award dated 16.07.2019 as passed by the Arbitrator and has also filed the copy of postal receipts vide which, the Arbitral Award was sent to him as Annexure A15. He has further contended that he got shocked when he came to know that the Arbitrator had passed the Award against him and hence, he applied for OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
7 of 31 obtaining the copy of Arbitral Award and has also filed the copy of his said application as Annexure A16.
(d) The petitioner/objector has further submitted that on receiving the Arbitral Award, he came to know that on 04.07.2019, the Authorized Representative of the respondent herein had adduced ExParte evidence by way of affidavit and he had also filed certain documents i.e. Power of Attorney in favour of Authorized Representative of the respondent as Ex.CW1/1, Loan Agreement dated 18.10.2014 as Ex.CW1/2, Notice dated 20.09.2018 as Ex.CW1/3 and Statement of Account as on 12.09.2018 as Ex.CW1/4. The petitioner/objector has also filed the copy of the affidavit of Sh. Tekchand, who was examined by the respondent before the Arbitrator as PW1 as Annexure A17.
(e) The petitioner/objector has submitted that the case before the Arbitrator was adjourned for 16.07.2019 for final arguments and pronouncement of Arbitral Award and has alleged that the Arbitrator did not give him any opportunity nor sent him any notice about the factum of proceeding him as ExParte and further, the Arbitrator hastily concluded the proceedings, which raise doubt on the conduct of the Arbitrator. He has filed the copies of orders dated 31.05.2019, 04.07.2019 and 16.07.2019 as Annexure A18.
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8. The petitioner/objector has further submitted that later on, he came to know that the said Sole Arbitrator was a frequent 'Stock Arbitrator' for the respondent and the same Arbitrator had also passed similar ExParte Awards in other case in favour of the respondent, wherein the same Respondent was involved.
He has also filed the true copies of certain orders in similar applications/petitions filed under Section 34 of the Arbitration Act,1996 by other petitioners whereby the Awards passed by the said Sole Arbitrator in other arbitration proceedings involving the same Respondent were challenged as Annexure A19 (colly.)
9. The petitioner/objector has prayed that the Arbitral Award dated 16.07.2019 may be set aside on various grounds as mentioned in Para no.25 of his petition/objections including the ground that the Sole Arbitrator had failed to make the disclosure as mandated by Section 12 of the Act and as such, the petitioner was deprived of the opportunity under Section 12 read with Section 13 of the Act to challenge the authority of the Arbitrator.
The petitioner/objector has also submitted that the said Arbitrator is a 'Stock Arbitrator' for the respondent and his nondisclosure under Section 12 of the Act is a ground to set aside the Arbitral Award being opposed to the fundamental policy of Indian Law.
The petitioner/objector has prayed that accordingly, the OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
9 of 31 Arbitral Award dated 16.07.2019 may be set aside and his petition/ objections under Section 34 of the Arbitration and Conciliation Act, 1996, may be allowed and a sum of Rs.20,000/ towards costs may also be awarded in his favour.
10(a). The respondent namely, M/s Shriram Transport Finance Co. Ltd. has filed its reply to the said petition/objections wherein it has submitted that the objections filed by the petitioner/objector do not fall within the purview of Section 34(2) of the Arbitration and Conciliation Act, 1996 and hence, the petition/objections is liable to be dismissed as it is based on false and frivolous notions.
The respondent has denied the allegations levelled by the petitioner on it in totality and has stated that the petitioner has not approached the court with clean hands.
(b) The respondent has also submitted that the petition/ objections are hit by the provisions under Section 34(3) of the Act as it is neither filed within three months of knowledge of the Arbitral Award nor the petitioner / objector has filed any application for condonation of delay in filing the objections and hence, the objections are barred by limitation.
The respondent has denied the averments, contentions and allegations in totality leveled by the petitioner / objector and has prayed that the petition/objections under Section 34 of the Arbitration & OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
10 of 31 Conciliation Act, 1996, may be dismissed being devoid of any merits.
11. I have heard final arguments as advanced by Advocate Ms. Ruhini Dey, Learned counsel for the petitioner / objector and Advocate Shri Abhishek Kaushik, learned counsel for the respondent and have given my thoughtful consideration to the rival submissions made by them. I have also gone through the material as placed on record.
12. The respondent Shri Transport Finance Co. Ltd. has also taken an objection that the petition/objections u/s 34 of the Arbitration & Conciliation Act, 1996, filed by petitioner/objector Shri Narender Singh, is barred by limitation being filed after three months of knowledge of Arbitral Award.
It needs to be discussed that the Arbitral Award under challenge was passed on 16.07.2019 and as per the contention of the petitioner/objector, he received the copy of the Arbitral Award dated 16.07.2019 as sent to him by post by the Arbitrator on 20.07.2019 and thereafter, he filed the present objections on 18.10.2019 and hence, in view of above, the aforesaid contention of the respondent is not tenable and the objections under section 34 of the Arbitration & Conciliation Act, 1996, are not barred by limitation.
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13. Before proceeding further, it would be appropriate to discuss the provisions of Section 12(1) of the Arbitration and Conciliation Act, 1996, which provides as under :
"(1) When a person is approached in connection with his possible appointment as an Arbitrator, he shall disclose in writing any circumstances, -
(a) such as the existence either direct or indirect, of any past or present, relationship with or interest in any of the parties or in relation to the subjectmatter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and
(b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months.
Explanation 1. The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an Arbitrator.
Explanation 2. The disclosure shall be made by such person in the form specified in the Sixth Schedule. (2) An Arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in subsection (1) unless they have already been informed of OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
12 of 31 them by him.
(3) An Arbitrator may be challenged only if
(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or
(b) he does not possess the qualifications agreed to by the parties.
(4) A party may challenge an Arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.
(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subjectmatter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an Arbitrator :
Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub section by an express agreement in writing."
14. Section 21 of the Arbitration and Conciliation Act, 1996 provides that : "unless otherwise agreed by the parties, the arbitral proceedings, in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent."
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15. Section 34(2) of the Arbitration and Conciliation Act, 1996 provides the grounds for setting aside the Arbitral Award, which are as under :
"34. Application for setting aside arbitral award - (2) An arbitral award may be set aside by the Court only if
(a) the party making the application furnishes proof 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 OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
14 of 31 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
(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.
[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 OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
15 of 31 to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute] [(2A) 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:
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.]"
16. Fifth Schedule of the Arbitration and Conciliation Act, 1996, provides following grounds, which give rise to justifiable doubts as to the independence or impartiality of the Arbitrators : Arbitrator's relationship with the parties or counsel
1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.
2. The arbitrator currently represents or advises one of the parties or an affiliate of one of the parties.
3. The arbitrator currently represents the lawyer or law firm acting as counsel for one of the parties.
4. The arbitrator is a lawyer in the same law firm which is representing one of the parties.
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5. The arbitrator is a manager, director or part of the management or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration.
6. The arbitrator's law firm had a previous but terminated involvement in the case without the Arbitrator being involved himself or herself.
7. The arbitrator's law firm currently has a significant commercial relationship with one of the parties or an affiliate of one of the parties.
8. The arbitrator regularly advises the appointing party or an affiliate of the appointing party even through neither the Arbitrator nor his or her firm derives a significant financial income therefrom.
9. The arbitrator has a close family relationship with one of the parties and in the case of companies with the persons in the management and controlling the company.
10. A close family member of the arbitrator has a significant financial interest in one of the parties or an affiliate of one of the parties.
11. The arbitrator is a legal representative of an entity that is a party in the arbitration.
12. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.
17(a). Now, in the case in hand, it is discussed even at the cost of OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
17 of 31 repetition that the petitioner/objector Shri Narender Singh has challenged the Arbitral Award dated 16.07.2019 passed by the sole Arbitrator on various grounds as discussed.
It needs to be mentioned at this juncture that though, a number of points have been raised by the petitioner/objector in his petition/objections filed u/s 34 of the Arbitration & Conciliation Act, 1996, however, the most crucial aspects in itself are sufficient to discuss the Award in question as under :
Non compliance of provisions of Section 12 of the Arbitration & Conciliation Act, 1996 by the learned Arbitrator:
The amendment in the Act was incorporated in Section 12 of the Act with effect from 23.10.2015, as per which, it has become mandatory for the Arbitrator to make disclosure regarding his relations with the parties, any circumstances creating any doubt about his independence and impartiality, devotion of time, his qualifications etc. before entering into the reference. Further, the Arbitrator is also bound to give his disclosure, as per form specified in 6th schedule of the Act and the grounds as mentioned in the 5th schedule becomes guiding factors to determine whether any justifiable ground exists regarding the independence and impartiality of the Arbitrator. Similarly, certain circumstances as mentioned in 7th schedule of the Act are also required to be disclosed by the Arbitrator to the parties.
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(b) In the case in hand, the respondent namely, 'Shri Ram Transport Finance Limited', admittedly, vide its letter dated 27.09.2018 apprised Shri B. L. Garg that he has been appointed and nominated by the respondent as the 'Sole Arbitrator' to adjudicate the disputes and differences as have arisen between Shriram Transport Finance Co. Ltd. and Shri Narender Singh (Hirer) (who is the petitioner/objector herein) and to pass the Award. Further, vide said letter, the Arbitrator was also requested to hold the Arbitration proceedings in the matter and to inform the respondent i.e. petitioner/objector herein about the date and venue for such proceedings so as to enable him to submit his claim before the learned Arbitrator and requested the Arbitrator to enter into reference. On the basis of same, the learned Sole Arbitrator started proceedings and he issued notice to the petitioner/objector herein on 11.02.2019 interalia mentioning therein that he was appointed as Sole Arbitrator by Shriram Transport Finance Co. Ltd. vide its letter dated 27.09.2018, by invoking the Arbitration Clause of its Loan Agreement No. AZDPRO410170003 to decide the dispute that has arisen between Shri Ram Transport Co. Limited and Shri Narender Singh.
The Arbitrator also mentioned in the said letter that the hearing in the above arbitration proceedings would be held on 18.03.2019, at 4:00 p.m. at A9, Ganpati Apartments, 6, Alipur Road, Civil Lines, Delhi110054 and asked the parties to file their Statement of Facts / Counter Statement of Facts, if any, alongwith the documents in OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
19 of 31 support thereof on the said date, place and time and also mentioned that if any of the party fails to attend the hearing, the Arbitrator shall be at liberty to conduct the proceedings, ExParte.
(c) It needs to be discussed that it is accordingly, amply clear that as such, the learned Arbitrator did not furnish the mandatory declaration under section 12 of the Arbitration & Conciliation Act, 1996 at the initial stage and further, the Arbitrator, even during pendency of the Arbitration proceedings before him also did not furnish the said mandatory declaration.
(d) In this regard, reliance is placed upon the ratio decendi in the case titled as Alupro Building Systems Pvt. Ltd. Vs. Ozone Overseas Pvt. Ltd. OMP 3/2015 as decided by the Hon'ble High Court of Delhi on 28.02.2017. In the said case, the petitioner i.e. Alupro Building Systems Private Limited, had challenged the impugned Award dated 14.11.2014 passed by the sole Arbitrator in the disputes between the petitioner and the respondent namely Ozone Overseas Private Limited, arising out of the four Purchase Orders ('Pos') for the supply of materials for the execution of various works awarded by the Delhi Metro Rail Project to the petitioner.
The objection of the petitioner was that the respondent straightway filed its claim before the Arbitrator and the Arbitrator OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
20 of 31 promptly issued notice to the petitioner. The petitioner contended before the Hon'ble High Court that the Arbitrator failed to disclose that he had also adjudicated other disputes of the same respondent as an Arbitrator and the petitioner also submitted that the respondent had appointed the very same person as its Arbitrator in the other claims of the respondent against other persons as well. The petitioner also gave the details of the other persons wherein the respondent had appointed the same person as the sole Arbitrator. The petitioner had also submitted before the Hon'ble High Court that the Arbitrator lacked jurisdiction to conduct proceedings as there was no valid reference of the dispute to Arbitration and further, the Arbitral Award reveals lack of judicial approach by the Arbitrator and the Arbitrator did not act in a bonafide manner.
(e) The Hon'ble High Court in the aforesaid case laid down that : "25. a plain reading of the above provision indicates that except where the parties have agreed to the contrary, the date of commencement of arbitration proceedings would be the date on which the recipient of the notice (the petitioner herein) receives from the claimant a request for referring the dispute to arbitration. The object behind the provision is not difficult to discern. The party to the arbitration agreement against whom a claim is made, should know what the claims are. It is possible that in response to the notice, the recipient of the notice may accept some of the claims either wholly or in part, OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
21 of 31 and the disputes between the parties may thus get narrowed down. That is one aspect of the matter. The other is that such a notice provides an opportunity to the recipient of the notice to point out if some of the claims are time barred, or barred by any law or untenable in fact and / or that there are counter claims and so on.
26. Thirdly, and importantly, where the parties have agreed on a procedure for the appointment of an Arbitrator, unless there is such a notice invoking the arbitration clause, it will not be possible to know whether the procedure as envisaged in the arbitration clause has been followed. Invariably, arbitration clauses do not contemplate the unilateral appointment of an Arbitrator by one of the parties. There has to be a consensus. The notice under Section 21 serves an important purpose of facilitating a consensus on the appointment of an Arbitrator.
27. Fourthly, even assuming that the clause permits one of the parties to choose the Arbitrator, even then it is necessary for the party making such appointment to let the other party know in advance the name of the person it proposes to appoint. It is quite possible that such person may be 'disqualified' to act an Arbitrator for various reasons. On receiving such notice, the recipient of the notice may be able to point out this defect and the claimant may be persuaded to appoint a qualified person. This will avoid needless wastage of time in arbitration proceedings being conducted by a person not qualified to do OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
22 of 31 so. The second, third and fourth reasons outlined above are consistent with the requirements of natural justice which, in any event, govern arbitral proceedings.
28. Lastly, for the purposes of Section 11(6) of the Act, without the notice under Section 21 of the Act, a party seeking reference of disputes to arbitration will be unable to demonstrate that there was a failure by one party to adhere to the procedure and accede to the request for the appointment of an Arbitrator. The trigger for the Court's jurisdiction under Section 11 of the Act is such failure by one party to respond.
29. Of course, as noticed earlier, parties may agree to waive the requirement of such notice under Section 21. However, in the absence of such express waiver, the provision must be given full effect to. The legislature should not be presumed to have inserted a provision that serves a limited purpose of only determining, for the purposes of limitation, when arbitration proceedings commenced. For a moment, even assuming that the provision serves only that purpose viz. Fixing the date of commencement of arbitration proceedings for the purpose of Section 43(1) of the Act, how is such date of commencement to be fixed if the notice under Section 21 is not issued? The provision talks of the 'Respondent' receiving a notice containing a request for the dispute "to be referred to arbitration". Those words have been carefully chosen. They indicate an event that is yet to happen viz. The reference of OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
23 of 31 the disputes to arbitration. By overlooking this important step, and straightway filing claims before an Arbitrator appointed by it, a party would be violating the requirement of Section 21, thus frustrating an important element of the parties consenting to the appointment of an Arbitrator.
30. Considering that the running theme of the Act is the consent or agreement between the parties at every stage, Section 21 performs an important function of forging such consensus on several aspects viz. The scope of the disputes, the determination of which disputes remain unresolved; of which disputes are timebarred; of identification of the claims and counterclaims and most importantly, on the choice of Arbitrator. Thus, the inescapable conclusion on a proper interpretation of Section 21 of the Act is that in the absence of an agreement to the contrary, the notice under Section 21 of the Act by the claimant invoking the arbitration clause, preceding the reference of disputes to arbitration, is mandatory. In other words, without such notice, the arbitration proceedings that are commenced would be unsustainable in law."
(f) Further, in para47 of the aforesaid judgment, the Hon'ble High Court also held that "Turning to the case on hand, there is no denial that at the time, he entered upon reference, the Arbitrator was OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
24 of 31 adjudicating at least one of the claims of the Respondents in other arbitration proceedings. Admittedly, he did not disclose this fact at any time at the commencement of or during the arbitration proceedings. This fact was discovered later by the petitioner. The averment on this aspect in the present petition has not been denied by the respondent. In the circumstances, the Court is of the view that this is yet another ground on which the impugned Award is liable to be set aside as it is opposed to the fundamental policy of Indian law. It attracts the ground under Section 14(1) read with Section 15(1), viz. the Arbitrator being rendered de jure incapable of acting as such. It also attracts Section 34(2)(b)(11) of the Act."
(g) In the aforesaid case, the Hon'ble High Court held that in fact, there was real danger that the said Arbitrator was biased and also took into consideration that at the time, when the said Arbitrator entered into reference, the Arbitrator had adjudicated at least one of the claims of the respondents in other arbitration proceedings. The Hon'ble High Court also took note that the Arbitrator did not disclose this fact at any time at the commencement of or during the arbitration proceedings to the petitioner and the petitioner discovered it only later on. The Court also held that under Section 14(1) read with Section 15(1) of the Act, the Arbitrator was rendered de jure incapable of acting as such and it also attracted provisions of Section 34(2)(b)(11) of the Act.
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25 of 31 18(a). The Hon'ble High Court of Delhi in the case titled as Dream Valley Farms Pvt. Ltd. vs. Religare Finvest Limited 2016 SCConline Del 5584, laid down that submitting of declaration under section 1201) of the Act is now mandatory for a person who is approached in connection with his possible appointment as an Arbitrator with effect from 23.10.2015 and that the declaration should be truthful and not misleading.
(b) The Hon'ble High Court of Delhi in the case titled as Shakti Bhog Foods Ltd. Vs. Kola Shipping Ltd. and Ors. bearing OMP No.194/2009 decided on 21.08.2012, laid down that failure by the Arbitrator to disclose material facts concerning its having being an Arbitrator on behalf of the respondent in the arbitration on the related issues involving it gives rise to justifiable doubt as to independence and impartiality of the Arbitrator and the Hon'ble High Court set aside the Award.
19. In the case titled as Meenu Arora and Ors. Vs. Dewan Housing Finance Corporation Ltd. bearing Commercial Arbitration Petition No.396 of 2017 decided on 04.03.2019, the Hon'ble High Court of Bombay declared the impugned Arbitral Award as illegal as the test of independence and impartiality in appointment of the Arbitrator was clearly breached considering the provisions of Section 12 read with OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
26 of 31 Item 22 of the Fifth Schedule of the Act.
The Hon'ble High Court also noted that the Arbitrator, after coming into force of the said amended provisions of the Act, had agreed to adjudicate the disputes and differences between the parties, when he was already involved in the professional relationship with the respondents and that too, in more than three cases as on the date of his appointment as Arbitrator. The Hon'ble High Court observed that the Arbitrator, therefore, could not have accepted the appointment to adjudicate the disputes and differences between the parties.
It also needs to be discussed that the Hon'ble High Court in para25 laid down that "...a unilateral appointment of the Arbitrator on the part of the Respondent would be required to be held to be illegal and invalid considering the provisions of Section 11, subsection 5 of the Act which were clearly attracted on such disagreement on the part of the parties. It was necessary for the Petitioners to approach the High Court under Section 11(6) of the Act."
20. In the case titled as Perkins Eastman Architects DPC and Ors. Vs. HSCC (India) Ltd. bearing Arbitration Application Nos.32, 34 and 35 of 2019 decided on 26.11.2019, the Hon'ble Supreme Court interalia laid down that "In Voestalpine MANU/SC/0053/2015 : (2015) 3 SCC 800", this Court has dealt with the independence and impartiality of the Arbitrator as under :
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20. Independence and impartiality of the Arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which applied to all judicial and quasijudicial proceedings. It is for this reason that notwithstanding the fact that relationship between the parties to the arbitration and the Arbitrators themselves are contractual in nature and the source of an Arbitrator's appointment is deduced from the agreement entered into between the parties, notwithstanding the same nonindependence and nonimpartiality of such arbitrator (through contractually agreed upon) would render him ineligible to conduct the arbitration. The genesis behind this rational is that even when an arbitrator is appointed in terms of contract and by the parties to the contract, he is independent of the parties. Functions and duties require him to rise above the partisan interest of the parties and not to act in, or so as to further, the particular interest of either parties. After all, the Arbitrator has adjudicatory role to perform and, therefore, he must be independent of parties as well as impartial. The United Kingdom Supreme Court has beautifully highlighted this aspect in Hashwani v. Jivraj MANU/UKSC/0091/2011 :
(2011) 1 WLR 1872 : 2011 UKSC 40 in the following words :
(WLR p. 1889, para 45)
45. ... the dominant purpose of appointing an Arbitrator or Arbitrators is the impartial resolution of the OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
28 of 31 dispute between the parties in accordance with the terms of the agreement and, although the contract between the parties and the Arbitrators would be a contract for the provision of personal services, they were not personal services under the direction of the parties.
21. Similarly, Cour de Cassation, France, in a judgment delivered in 1972 in Consorts Ury, underlined that :
an independent mind is indispensible in the exercise of judicial power, whatever the source of that power may be, and it is one of the essential qualities of an Arbitrator.
22. Independence and impartiality are two different concept. An Arbitrator may be independent and yet, lack impartiality, or vice versa. Impartiality, as is well accepted, is a more subjective concept as compared to independence.
Independence, which is more an objective concept, may, thus, be more straightforwardly ascertained by the parties at the outset of the arbitration proceedings in light of the circumstances disclosed by the Arbitrator, while partiality will more likely surface during the arbitration proceedings."
21(a). Mandatory notice not issued by the respondent before invoking Arbitration proceedings: In the case in hand, the letter dated 27.09.2018 issued by the respondent to the Arbitrator, if read in entirety reveals the intention of OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
29 of 31 the respondent, as per which, not a single word is mentioned in this notice that the respondent ever disclosed its intention to the petitioner/objector herein to invoke the Arbitration clause of the agreement. Even, the copy of letter dated 27.09.2018 issued/sent by the respondent herein namely, Shriram Transport Finance Co. Ltd. to the learned Arbitrator was also not sent by Shriram Transport Finance Co. Ltd. to Sh. Narender Singh. Hence, as such, there was no compliance of provisions of section 21 of the Arbitration & Conciliation Act, 1996, by the respondent namely, Shriram Transport Finance Co. Ltd. and it is also clear that as per record, no prior notice was sent to the petitioner/objector herein by the respondent before actually invoking the arbitration clause by the respondent.
(b) The Hon'ble High Court of Delhi in case titled as Alupro Building Systems Pvt. Ltd. Vs. Ozone Overseas Pvt. Ltd. OMP 3/2015 on 28.02.2017 held that the arbitration proceedings held without a notice by the respondent to the petitioner/objector herein under section 21 of the Arbitration & Conciliation Act, 1996, invoking the arbitration clause is invalid.
22. Hence, in view of clear proposition of Section 12 of the Arbitration & Conciliation Act, 1996 and settled proposition of law, non submission of mandatory declaration makes the proceedings of the OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
30 of 31 Arbitrator illegal. It is also clear from the documents as placed on record by the petitioner/objector that there is no denial that at the time when the Sole Arbitrator entered upon reference in the present case, he was adjudicating atleast one of the claims of the respondent in other Arbitration proceedings and admittedly the Arbitrator did not disclose this fact at any time at the commencement of or during the arbitration proceedings to the petitioner/objector herein, which fact was discovered later by the petitioner/objector and the averments on these aspects in the present petition/objections have not been denied by the respondent. Further, as already discussed, the provisions under Section 21 of the Act have also not been complied with.
Accordingly, in view of totality of facts and circumstances of the case, on the basis of material as placed on record and in view of settled proposition of law, the petition/objections under section 34 of the Arbitration & Conciliation Act, 1996, filed by the petitioner/objector Sh. Narender Singh is allowed and the Arbitral Award dated 16.07.2019 is hereby set aside. File be consigned to the Record Room, as per rules after compliance of necessary legal formalities. Announced today i.e. on 17.12.2020. (BARKHA GUPTA) District Judge (Commercial Court) North:ROHINI:DELHI/17.12.2020 OMP (COMMERCIAL) NO. 33/2019 (Old No.657/2019) Sh. Narender Singh Vs. Shriram Transport Finance Co. Ltd.
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