Delhi District Court
Mr. Selladurai K vs Pnb Housing Finance Limited on 24 August, 2021
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
OMP (COMM.) No. 201/2019
1. Mr. Selladurai K
s/o Kartharsevai
2. Mrs. Panchavarnam
w/o Mr. Selladurai K
Both residents of
NBO 837/4, Neriperichal
Pooluvappatti, Tirupur
Coimbatore, Tamil Nadu-641602 ...Petitioners
versus
PNB Housing Finance Limited
Registered Office at 9th Floor, Antriksh Bhawan,
22, Kasturba Gandhi Marg, New Delhi-110001 ...Respondent
Date of Institution : 23/11/2019
Arguments concluded on : 24/07/2021
Decided on : 24/08/2021
Appearances : Sh. Reginald Valsalan, Ld. Counsel for petitioners.
Sh. S.P Das, Ld. Counsel for respondent.
JUDGMENT
1. Petitioners had filed the present petition under Section 34 of The Arbitration and Conciliation Act, 1996 (herein after referred as The Act) seeking setting aside of the ex-parte arbitral award dated 24/09/2019 passed by Mr Karunakar Mahalik, Ld. Sole Arbitrator in arbitration case number PNBHFL/ILF/ARB/2019/
128. Ld. Sole Arbitrator awarded sum of Rs.30,00,279.27 with simple interest @ 10% from 15/04/2019 till realization with cost OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 1 of 27 of Rs.30,000/- in favour of respondent/claimant payable by present petitioners jointly and severally.
2. I have heard Sh. Reginald Valsalan, Ld. Counsel for petitioners; Sh. S.P Dass, Ld. Counsel for respondent and perused the record of the case, the arbitral proceedings record, relied upon precedents, filed brief written arguments on behalf of petitioner as well as respondent and given my thoughtful consideration to the rival contentions put forth.
3. Factual matrix of the case of petitioners as well as arguments setup by the petitioners through Ld. Counsel are as follows:-
Parties to the lis entered into an agreement for loan on 28/06/2016 for amount of Rs.24,97,073/- repayable in 120 monthly installments with interest @ 9.80% per annum for repairing and construction of the house of petitioners. It is the case of petitioners that they became aware of the impugned award when they were summoned by Metropolitan Magistrate-
04 (NI Act)-3, Dwarka, Delhi in CC No. 30342/18, PNB Housing Finance Limited vs Selladurai K and Others for 25/09/2019 for dishonor of cheque for the aforesaid loan agreement. Upon enquiries made by petitioners, they became aware of the impugned arbitral award. Petitioners averred that they were not provided opportunity to point out their objection towards the appointment of Ld. Sole Arbitrator. Petitioners also averred that entire arbitral proceedings have been fraudulently conducted on the aid, behest and instigation of respondent with a purpose to burden the petitioners with illegal and unsubstantiated claims.
OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 2 of 27The impugned arbitral award is the outcome of improperly instituted arbitration proceedings. No notice as envisaged under Section 21 of the Act was sent by respondent to petitioners prior to the appointment of Ld. Sole Arbitrator. Petitioners also did not receive any notice of initiation of arbitration proceedings from Ld. Sole Arbitrator, whereas respondent was aware of the legal obligation in order to appoint an acceptable Ld. Sole Arbitrator. The impugned award is non speaking award wherein Ld. Sole Arbitrator had failed to appreciate and elaborate the evidence presented by the claimant and no judicial mind was applied to the evidence presented for adjudication as per law by Ld. Sole Arbitrator. The award is based on the erroneous principle "the version of the claimant being un-rebutted deserves to be accepted as correct". The said reasoning in the impugned award is against the cannons of judicial adjudication and settled law of the country making the award against the public policy of country. Ld Sole Arbitrator was unilaterally appointed by respondent without informing the petitioners. Ld. Counsel for petitioners relied upon the decision of Delhi High Court in the case of Alupro Building Systems Pvt Ltd vs Ozone Overseas Pvt Ltd, O.M.P 3/2015 decided on 28/02/2017 wherein it was held that arbitration proceedings held without service of notice under section 21 of The Act invoking arbitration clause by claimant to the opposite party is invalid. Ld. Counsel for petitioners argued that petitioners neither received any demand notice of respondent nor any notices sent by Ld. Sole Arbitrator, whereas respondent did not place on record any acknowledgment card due to prove service of petitioners nor in the arbitral proceedings record is there any acknowledgment card reflecting proof of OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 3 of 27 service upon the petitioners and in terms of law laid by Delhi High Court in the case of GE Money Financial Services Pvt Ltd vs Subhadra Devi & Anr., FAO 493/2012 decided on 11/12/2012, respondent was required to place on record acknowledgment card to prove service upon the petitioners. Ld. Counsel for petitioners also relied upon the case of Proddatur Cable TV Digi Services vs. Siti Cable Network Ltd., MANU/DE/0178/2020, wherein it was inter alia held by Delhi High Court that unilateral appointment of Ld. Arbitrator is void and the company (respondent) was ineligible to unilaterally appoint an arbitrator. It was prayed to set aside the impugned arbitral award.
4. The case of the respondent as setup in filed reply and in the arguments by respondent through Counsel is as follows:-
Petitioners have attempted to mislead the Court as like they have preferred an appeal against the impugned arbitral award, whereas there is narrow space under Section 34 of the Act for setting aside of the impugned award since arbitral award does not patently violate the public policy nor has erroneous application of law. Least Court's intervention is necessary to provide for speedy disposal of the case relating to arbitration. Petitioners tried to infract the process of law to linger on the disposal of the case. Petitioners enjoyed and used the money at the cost of respondent and deliberately defaulted in paying the EMIs despite repeated reminders and notices. The arbitration proceedings were conducted as per law and Ld. Sole Arbitrator issued notices thrice i.e., on dates 02/07/2019, 27/07/2019 and 31/08/2019 but petitioners deliberately did not appear before Arbitral Tribunal OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 4 of 27 and such conduct is in violation of Sections 4 and 25 of the Act. Legal demand notice dated 16/04/2019 was sent by respondent to petitioners for payment of the payable due amount which was not paid by petitioners and on arising of dispute due to violation of contract between the parties, respondent wrote letter dated 18/05/2019 to Ld. Sole Arbitrator for his appointment and copy of same was sent to petitioners. Letter of intent dated 10/05/2019 was issued by respondent to Ld. Sole Arbitrator to concur the request of respondent to act as Sole Arbitrator. In view of Section 3 of the Act, petitioners were deemed to be duly served of the aforesaid three notices sent by Ld. Sole Arbitrator and as petitioners did not appear before Arbitral Tribunal, petitioners were validly proceeded ex-parte by the Arbitral Tribunal on 07/09/2019. Respondent/claimant led evidence before Arbitral Tribunal on 07/09/2019 and subsequently arguments were addressed and later on award was passed by Ld. Sole Arbitrator.
Reasonable hearings to petitioners was afforded by Ld. Sole Arbitrator, who despite grant of opportunities failed to appear before Ld. Sole Arbitrator. The award does not suffer any ambiguity or erroneous application of any substantive law. Respondent strictly followed the relevant provisions before initiation of proceedings as well as during the pendency of arbitration case. The award does not patently violate the public policy in any way as apparent from the face of award. Petitioners avoided to pay the admitted liabilities for which they wanted to frustrate the right of respondent being a trustee for public at large. The grounds laid for setting aside of impugned arbitral award by the petitioners are devoid of merits. Ld. Counsel for respondent relied upon the decision of Supreme Court in the OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 5 of 27 case of MMTC Ltd. vs Vedanta Ltd, MANU/SC/0221/2019, submitting that for adjudication of petition under Section 34 of the Act, the court does not sit in appeal over the arbitral award and there are limited grounds for interference including of the ground that award is against the public policy of India and patent illegality or where the finding of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. Ld. Counsel for respondent also relied upon the decision of Supreme Court in the case of Government of India vs Vedanta Limited & Ors., MANU/SC/0689/2020, wherein the finding of the Court was that appellants had not made out as to how the foreign award was in conflict with the basic notions of justice, or in violation of the substantive public policy of India. Ld. Counsel for respondent also relied upon the decisions of Supreme Court in the case of Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India (NHAI), MANU/SC/0705/2019; Surjit Kaur vs Naurata Singh & Ors., MANU/SC/0570/2000 and Avitel Post Studioz Limited & Ors. Vs HSBC PI Holdings (Mauritius) Limited and Ors., MANU/SC/0601/2020. It was prayed by Ld. Counsel for respondent for dismissal of the petition with cost being not maintainable.
5. An arbitral award can be set aside on the grounds set out in Section 34 (2) (a), Section 34 (2) (b) and Section 34 (2A) of the Act in view of Section 5 of the Act and if an application for OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 6 of 27 setting aside such award is made by party not later than 3 months from the date from which the party making such application had received the signed copy of the arbitral award or if a request had been made under Section 33 of the Act, from the date on which that request had been disposed of by the Arbitral Tribunal. If the Court is satisfied that the applicant was prevented by sufficient cause from the making the application within the said period of three months it may entertain the application within further period of 30 days, but not thereafter.
6. Section 34 (1) (2), (2A) and (3) of The Arbitration and Conciliation Act, 1996 read as under:-
"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-
(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 OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 7 of 27 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-
(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 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.
(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 OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 8 of 27 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."
7. Normally, the general principles are that Arbitrator is a Judge of the choice of the parties and his decision, unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even by the Court as a Court of law could come to a different conclusion on the same facts.
The Court cannot reappraise the evidence and it is not open to the Court to sit in appeal over the conclusion of the Arbitrator. It is not open to the Court to set aside a finding of fact arrived at by the Arbitrator and only grounds on which the award can be set aside are those mentioned in the Arbitration Act. Where the Arbitrator assigns cogent grounds and sufficient reasons and no error of law or misconduct is cited, the award will not call for interference by the Court in exercise of the power vested in it. Where the Arbitrator is a qualified technical person and expert, who is competent to make assessment by taking into consideration the technical aspects of the matter, the Court would generally not interfere with the award passed by the Arbitrator.
8. Supreme Court in case of Associate Builders vs. Delhi Development Authority, (2015) 3 SCC 49 has held that the interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when conscience of the Court is shocked or when illegality is not trivial but goes to the root of the matter. It is held that once it is found that the arbitrator's approach is neither arbitrary nor OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 9 of 27 capricious, no interference is called for on facts. The arbitrator is ultimately a master of the quantity and quality of evidence while drawing the arbitral award. Patent illegality must go to the root of the matter and cannot be of trivial nature.
9. Supreme Court in case of Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India, 2019 SCC OnLine SC 677 has held that under Section 34 (2A) of The Act, a decision which is perverse while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. A finding based on the documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties and therefore would also have to be characterized as perverse. It is held that a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.
10. Section 4 of The Act provides that a party who knows that any provision of Part-I from which parties may derogate or any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object.
OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 10 of 2711. Section 11 of The Act is with respect to the appointment of the arbitrators by the Supreme Court or as the case may be, by the High Court only.
12. Under Section 12 of The Act, when a person is approached in connection with his possible appointment as an arbitrator, he is bound to disclose in writing any circumstances, 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 subject-matter 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 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. Various grounds are set out in the Fifth Schedule as a guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. The disclosure shall be made by such person in the form specified in the Sixth Schedule. An arbitrator may be challenged by the parties only if any circumstances referred to in Section 12 (3) of The Act subject to Section 13 (4) of The Act exist which provide for an agreement between the parties for such procedure for challenge. If such challenge is unsuccessful, the party may make an application for setting aside an arbitral award in accordance with Section 34 of The Act.
13. Section 14 of The Act provides that the mandate of an arbitrator shall terminate and he shall be substituted by another OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 11 of 27 arbitrator if he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay and he withdraws from his office or the parties agree to the termination of his mandate.
14. Section 15 of The Act provides that the mandate of arbitrator is also terminated if he withdraws from office for any reason or by or pursuant to agreement of the parties. In such an event, the substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. If such an arbitrator is replaced, any hearing previously held may be repeated at the discretion of the arbitral tribunal unless otherwise agreed by the parties. The earlier order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator shall not be invalid unless otherwise agreed by the parties.
15. Under Section 16 of The Act, the arbitral tribunal is empowered to rule on its own jurisdiction including ruling on any objection with respect to the existence or validity of arbitration agreement. Such plea shall be raised not later than the submission of the statement of defence. If such plea is rejected by the arbitral tribunal, it has to proceed with the arbitral proceedings and declare an award. If plea of jurisdiction is accepted by the arbitral tribunal, the respondent may file an appeal under section 37 of The Act. If plea of jurisdiction is not accepted, the respondent may challenge such ruling along with award under section 34 of The Act.
OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 12 of 2716. Supreme Court in case of TRF Ltd. vs Energo Engg. Projects Ltd., (2017) 8 SCC 377 has held that by virtue of section 12(5) of The Act, if any person, who falls under any of the category specified in the Seventh Schedule shall be ineligible to be appointed as an Arbitrator. It is held that the amended law under Section 11(6-A) of The Act requires the Court to confine examination of the existence of an arbitration agreement notwithstanding the judgment of the Supreme Court or the High Court while considering an application under section 11(6) of The Act. The designated arbitrator whose ineligibility to act as an arbitrator by virtue of amendment to Section 12 of The Act by the Arbitration and Conciliation (Amendment) Act, 2015, does not have power even to nominate any other person as arbitrator. The Supreme Court and High Court in certain circumstances have exercised jurisdiction to nullify the appointments made by the authority in such situation.
17. Supreme Court in case of Bharat Broadband Network Ltd vs United Telecoms Ltd, (2019) 5 SCC 755 after construing Section 12(5) of The Act read with Fifth, Sixth and Seventh Schedule held that the Managing Director of the party, who was a named arbitrator, could not act as arbitrator nor could be allowed to appoint another arbitrator. The disclosure of a prospective arbitrator has to be made in the form specified in the Sixth Schedule and the ground stated in the Fifth Schedule are to serve as a guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. Any prior agreement to the contrary is wiped out by the non-obstante clause in Section 12(5) of The Act the moment OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 13 of 27 any person whose relationship with the parties or the counsel or the subject matter of the dispute falls under the Seventh Schedule. The sub-section then declares that such person shall be ineligible to be appointed as arbitrator. Such ineligibility can be removed by an express agreement in writing. It was held that learned arbitrator had become de jure ineligible to perform his function as an arbitrator.
18. Supreme Court in the case of Perkins Eastman Architects DPC vs HSCC (India) Ltd., 2019 SCC Online SC 1517 has held that in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. The person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015. Supreme Court has set aside the appointment of an arbitrator appointed by one of the parties having exclusive right to appoint and appointed an independent arbitrator in the application filed under Section 11(6) of The Act.
19. In the case of Proddatur Cable TV Digi Services vs. Siti Cable Network Ltd., 2020 SCC Online Del 350, it was inter alia held by Delhi High Court that following ratio of the judgment in the case of Perkins (supra), it is clear that a unilateral appointment by an authority which is interested in the outcome or decision of the dispute is impermissible in law. When the Arbitration Clause empowers the Company to appoint Sole OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 14 of 27 Arbitrator, it can hardly be disputed that the Company acting through its Board of Directors will have an interest in the outcome of the dispute. The appellant had filed the petition under Section 14 and 15 of The Act seeking declaration that the mandate of the arbitrator appointed by the respondent be terminated and an arbitrator be appointed by High Court in the provisions of The Act. Following ratio of the judgments in Perkins (supra) and Bharat Broadband Network Limited (supra), the mandate of the Arbitrator was found terminated de jure and since the present arbitrator had become unable to perform her functions as an arbitrator, her mandate was terminated and another independent Sole Arbitrator was appointed to substitute the previous arbitrator.
20. In the case of M/s Omcon Infrastructure Pvt. Ltd. Vs India Bulls Investment Advisors Ltd, OMP (T) (Comm.) 35/2020 and IA 6153/2020 decided on 01/09/2020 by Hon'ble Ms. Justice Rekha Palli of Delhi High Court, wherein petition was filed under Section 14 and 15 of The Act, seeking termination of the mandate of Ld. Arbitrator unilaterally appointed by the respondent and also quashing of order passed by Ld. Arbitrator, deciding the application of petitioner under Section 12 of The Act, the ratio of the decision in case of Perkins (supra) was applied and held that once the Managing Director of the respondent Company was ineligible to appoint the arbitrator, the same would also bar the Company itself from unilaterally appointing the sole arbitrator and reference was also made to the decision of Proddatur Cable TV Digi Services (supra). Therein also the mandate of the Ld. Arbitrator was terminated and new OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 15 of 27 independent Sole Arbitrator was appointed.
21. Section 21 of The Act provides that unless and otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which the request for that dispute to be referred to the arbitration is received by the respondent. Limitation in respect of which a request is made by one party to other party to refer such dispute to the arbitration stops when such notice is received by other party.
22. Bombay High Court in the case of Bhanumati J. Bhuta vs Ivory Properties & Hotels Pvt. Ltd., 2020 SCC Online Bombay 157 has held that the arbitral proceedings commence in respect of dispute when notice invoking of arbitration agreement is received by other side and not when such notice is only served upon the Arbitral Tribunal. The onus is on the applicant who had issued such notice to prove the delivery of such notice upon the other side.
23. In the case of International Nut Alliance LLC vs Beena Cashew Company, 2014 SCC Online Mad 425, it was inter alia held that before composition of arbitrators, a notice to the other party is very much essential.
24. In the arbitral proceedings record is a copy of loan recall/demand notice dated 16/04/2019 sent by Counsel of respondent purportedly to petitioners for recall/foreclosure of loan in question, demanding Rs.30,00,279.27 to be payable by petitioners as on 15/04/2019 with further interest within seven OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 16 of 27 days of the receipt of the notice, failing which respondent shall be constrained to exercise the rights and remedies available with them to initiate appropriate proceedings of recovery suits, cheque bouncing and arbitration proceedings as per law. Accordingly, aforesaid recall/demand notice dated 16/04/2019 cannot be said by any figment of imagination to be a notice under Section 21 of the Act mandatorily requiring request for that dispute to be referred to the arbitration as it contained the notice period of seven days for the petitioners to make the payment from the date of receipt of said notice. Also on the last page of said recall/demand notice dated 16/04/2019 there are four speed post receipts pasted of dates 20/04/2019 for purported dispatch of said notice at two addresses each of the petitioners. Whereas the aforesaid notice dated 16/04/2019 in the description of addresses of petitioners finds mention complete particulars of petitioners with PIN CODE 641602 but neither particulars of petitioners nor correct PIN CODE of their addresses are there in aforesaid speed post receipts i.e., (i) RLARU410319470IN addressed to R S, CHENNAI, PIN:600001; (ii) RL A RU410319483IN addressed to P S, COIMBATORE HO, PIN:641001; (iii) RL A RU410319497IN addressed to SELLADURAI, COIMBATORE HO, PIN:641001 and (iv) RL A RU410319506IN addressed to SELLADURAI, COIMBATORE HO, PIN:641001. It reflects that speed post articles were dispatched to addresses as mentioned in the aforesaid speed post receipts at wrong PIN CODES 600001 and 641001 addresses instead of correct PIN CODE 641602 addresses of the petitioners. In this fact of the matter, the loan recall/demand notice dated 16/04/2019 cannot be deemed to be OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 17 of 27 served upon the present petitioners.
25. On arbitral proceedings record is a letter of intent for appointment of Ld. Sole Arbitrator bearing date 10/05/2019 addressed to Ld. Sole Arbitrator by authorized signatory/ representative of respondent finding mention of the intent of respondent for appointment of Ld. Sole Arbitrator to adjudicate the dispute of subject loan agreement between the parties to the lis. Said two pages letter in the schedule though mentions the names of the petitioners as borrower and co-borrowers but nowhere describes of sending of copy of the same to the petitioners, whereas at the bottom of second page of said letter dated 10/05/2019 are four speed post receipts of date 15/05/2019 pasted bearing (i) RL A RD063981260IN addressed to PANCHAVARNAM, COIMBATORE, PIN:641620; (ii) RL A RD063981154IN addressed to SELLA, COIMBATORE, PIN:641602; (iii) RL A RD063981145IN addressed to SELLA, COIMBATORE, PIN:641602 and (iv) RL A RD063981137IN addressed to PANCHAVARNAM, COIMBATORE, PIN:641602. Neither the complete addresses of the petitioners are in the speed post receipts nor the tracking report of the speed post articles is enclosed with it nor the letter of intent dated 10/05/2019 in the body finds mention of dispatch of copy of the same to the present petitioners. Even the first speed post receipt, aforesaid, finds incorrect PIN CODE of address of petitioner no. 2, as stated above. Whereas aforesaid speed post receipts at serial nos. 2 and 3 do not find mention of the complete name of petitioner no. 1.
OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 18 of 2726. In the arbitral proceedings record there is also a letter dated 18/05/2019 of respondent addressed to Ld. Sole Arbitrator with copies to petitioners with the subject of reference for appointment of arbitrator initiation of arbitration proceedings against the petitioners and requesting Ld. Sole Arbitrator to convey his concurrence to act as Sole Arbitrator and to initiate arbitration proceedings. On the second and third pages of aforesaid letter dated 18/05/2019 are four speed post receipts of date 21/05/2019 pasted viz., (I) RL A RD199601598IN addressed to SEEKAYRAI K, COIMBATORE, PIN:641004;
(ii) RL A RD199601607IN addressed to SEELAUDRAI K, COIMBATORE, PIN:641004; (iii) RL A RD199601584IN addressed to PANCHRANAMS, COIMBATORE, PIN:641004 and (iv) RL A RD199601451IN addressed to PANHCVRANAMS, COIMBATORE, PIN:641004. There are no tracking reports placed on record of sending of speed post articles vide aforesaid four speed post receipts. The copy of letter dated 18/05/2019 purportedly sent by speed post to wrong PIN CODE addresses of petitioners cannot be deemed to be served upon the petitioners, as per Section 3 of the Act.
27. In the arbitral proceedings record is the copy of notice of appearance dated 07/05/2019 of Ld. Sole Arbitrator addressed to petitioners on their two addresses each whereas the four postal receipts of speed post dated 28/05/2019 pasted on them there is mention of description of petitioners and their addresses as (i) RL A RU439182897IN addressed to PANCHAVARNAM, COIMBATORE HO, PIN:641001; (ii) RL A RU439182906IN addressed to PANCHAVARMAN, COIMBATORE HO, OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 19 of 27 PIN:641001; (iii) RL A RU439182910IN addressed to SEELADURAI, COIMBATORE HO, PIN:641001 and (iv) RL A RU439182923IN addressed to SELLADURAI, COIMBATORE HO, PIN:641001. Aforesaid notice dated 07/05/2019 at the fag end of it finds mention of following declaration:-
"DECLARATION IN TERMS OF SECTION 12 (1)(b) I declare that I am not aware of any circumstances which are likely to disqualified by me to act as Sole Arbitrator. I also declared that I am independent of each of the parties and intend to remain so, To the best of my knowledge there are no circumstances past or present that might be such a nature that may call into question my independence or impartially in the eyes of the parties.
I further declare that I have no relationship with or interest in any of the parties or in relation to the subject matter in dispute whether financial business, professional or other kind or in the outcome of the award. I further declare that there are no circumstances which are likely to affect my ability to devote the sufficient time to the Arbitration and in particular my ability to finish the entire arbitration within 12 months and render an award within 03 months.
Given under the hand and seal of the under signed and office copy retained.
KARUNAKAR MAHALIK SOLE ARBITRATOR Sd./-"
28. In the arbitral proceedings record also is the copy of notice of appearance dated 02/07/2019 addressed by Ld. Sole Arbitrator to the present petitioners on their two addresses each whereas on the four postal receipts of speed post dated 05/07/2019 pasted on them there is mention of description of petitioners and their addresses as (i) RL A RD130689604IN addressed to SHELLADURAI, COIMBATORE, PIN:641601; (ii) RL A RD130689618IN addressed to SELLADURAI, OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 20 of 27 COIMBATORE, PIN:641601; (iii) RL A RD130689581IN addressed to PANCHAVARNAM, COIMBATORE, PIN:641601 and (iv) RL A RD130689595IN addressed to PANCHAVARNAM, COIMBATORE, PIN:641601.
29. In the arbitral proceedings record also is the copy of notice of appearance dated 27/07/2019 addressed by Ld. Sole Arbitrator to the present petitioners on their two addresses each whereas the four postal receipts of speed post dated 09/08/2019 pasted on them there is mention of description of petitioners and their addresses as (i) RL A RD199462159IN addressed to SELLADUARIK, COIMBATORE, PIN:600001; (ii) RL A RD199462128IN addressed to PANCHAVRANMS, COIMBATORE, PIN:600001; (iii) RL A RD199462131IN addressed to PANCHAVRANMS, COIMBATORE, PIN:600001 and (iv) RL A RD199462145IN addressed to SELLADUARIK, COIMBATORE, PIN:600001.
30. It is pertinent to mention that in the entire arbitral proceedings record there are no tracking reports with respect to any article dispatched vide aforesaid speed post receipts to depict their delivery to their addressees. As aforesaid copies of aforesaid three notices dated 07/05/2019, 02/07/2019 and 27/07/2019 purportedly dispatched by Ld. Sole Arbitrator to the addressee petitioners on their two addresses each have on them the speed post receipts which find mention wrong PIN CODE addresses of the petitioners. Any article sent by speed post to petitioners at wrong PIN CODE address cannot be deemed to be served. More so when for the same there is no tracking report OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 21 of 27 enclosed for delivery of such articles upon the addressee. Also in the arbitral proceedings record there is no acknowledgment card pertaining to service of said notices dispatched by registered post. The postal receipts do not show the complete addresses of the petitioners and in fact these postal receipts of the notices sent by Ld. Sole Arbitrator reflect wrong PIN CODE of addresses of petitioners. Presumption of delivery of the three notices dated 07/05/2019, 02/07/2019 and 27/07/2019 of Ld. Sole Arbitrator upon petitioners cannot be drawn accordingly since there is no proof on record of sending such notices to correct PIN CODE addresses of petitioners. Presumption of delivery of notices can be drawn only when notice is sent to the complete address and not to an incomplete or wrong address as per law laid in the case of GE Money Financial Services Pvt Ltd vs Subhadra Devi & Anr. (supra).
31. Delhi High Court in the case of Alupro Building Systems Pvt Ltd vs Ozone Overseas Pvt Ltd (supra) inter alia held that where a notice under Section 21 of the Act invoking arbitration clause is not served upon the other party by the party invoking the said clause and the arbitration proceedings are held then in absence of any agreement by the petitioner for waiving of requirement of notice under Section 21 of the Act, the impugned arbitral award would be opposed to the fundamental policy of Indian law since the mandatory requirement of the Act stands not complied and ground under Section 34 (2)(b) (ii) of the Act is attracted and such impugned award could be set aside on this ground.
OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 22 of 2732. It is fact of the matter that Ld. Sole Arbitrator did not send any requisite disclosure in accordance with Section 12 of the Act in the form specified in the Sixth Schedule to the petitioners disclosing in writing any circumstances, 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 subject matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality in accordance with the Act and which are likely to affect his ability to finish the entire arbitration within 12 months.
33. Ld. Sole Arbitrator proceeded present petitioners ex-parte in arbitral proceedings vide order dated 31/08/2019 without proper service of the aforesaid three notices dated 07/05/2019, 02/07/2019 and 27/07/2019 upon the petitioners as discussed in detail above.
34. Respondent has not filed before Ld. Sole Arbitrator or before this Court any document/material depicting of sending any request/letter to petitioners seeking acceptance of petitioners of Ld. Sole Arbitrator from any panel of Ld. Sole Arbitrators to be appointed for adjudicating the dispute between the parties. Per contra, it was unilateral appointment of Ld. Sole Arbitrator by respondent vide letter dated 18/05/2019 of respondent without any acceptance of petitioners of appointment of Ld. Sole Arbitrator for adjudicating the disputes between the parties to the lis.
OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 23 of 2735. In the case of Impex Corporation & Others vs Elenjikal Aquamarine Exports, 2007 SCC Online Ker 125, it was inter alia held that where no proper and sufficient notice is given to a party by the arbitrator, there is violation of principle of natural justice and these are also violation of Section 18 and 25 of The Act.
36. Supreme Court in the case of M/s Voestalpine Schienen GMBH Vs. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665 has construed Section 12(5) of The Act (as amended) and also the Seventh Schedule to The Act and has held that under Section 12(5) of The Act, notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. It is held that in such an eventuality, when the arbitration clause finds foul with the amended provisions i.e. Section 12(5) of The Act, the appointment of an arbitrator would be beyond pale of arbitration agreement, empowering the Court to appoint such arbitrator(s), as may be permissible. Other party cannot insist for appointment of an arbitrator in terms of the arbitration agreement. In such situation, that would be the effect of non-obstante clause contained in Section 12(5) of The Act.
37. Supreme Court in case of HRD Corporation (Marcus Oil and Chemical Division) vs. Gail (India) Limited (Formerly Gas Authority of India Ltd.), 2017 SCC OnLine SC 1024 has held that if the learned arbitrator fails to file disclosure in terms of OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 24 of 27 section 12(1) of The Act read with Fifth Schedule of The Act, the remedy of the party aggrieved in that event would also be to apply under section 14(2) of The Act to the court to decide about the termination of the mandate of the arbitral tribunal on that ground.
38. As aforesaid, there is non compliance of the elicited mandate of Section 12 of The Act by Ld. Sole Arbitrator as he did not send the disclosure in prescribed form specified in the The Act to the present petitioners embodying existence or otherwise of the grounds giving rise to justifiable doubts as to his independence or impartiality of arbitrator including arbitrator's relationship with the claimant/Counsel for claimant.
39. Supreme Court in case of Surjit Kaur vs Naurata Singh & Ors.(supra), had interpreted Section 12(3) of The Specific Relief Act, 1963. Reliance of Ld. Counsel for Respondent on said precedent for present case is misplaced.
40. In the case of Avitel Post Studioz Limited & Ors. Vs HSBC PI Holdings (Mauritius) Limited and Ors.(supra), validity of arbitration proceedings in case of allegations of fraud and misrepresentation in Foreign Final Award were appreciated by Supreme Court for purpose of prima facie view to decide petition under Section 9 of The Act. Reliance of Ld. Counsel for Respondent on said precedent for present case is of no help for dismissal of present petition.
41. In view of law laid down in the cases of (i) TRF Ltd.
OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 25 of 27(supra); (ii) Bharat Broadband Network Limited (supra); (iii) Perkins Eastman Architects DPC (supra); (iv) HRD Corporation (supra); (v) Proddatur Cable TV Digi Services (supra) and (vi) M/s Omcon Infrastructure Pvt. Ltd. (supra), no arbitrator can be unilaterally appointed by the respondents/claimants. In this case at the outset vide letter dated 18/05/2019 addressed by authorized signatory/representative of respondent, Ld. Sole Arbitrator was unilaterally appointed by respondent without any acceptability of petitioners for adjudicating the dispute between the parties to the lis. Notice under Section 21 of the Act invoking arbitration clause was not served upon the petitioners by the respondent, party invoking the said clause and the arbitration proceedings were held then in absence of any agreement by the petitioner for waiving of requirement of notice under Section 21 of the Act, so the impugned arbitral award is opposed to the fundamental policy of Indian law since the mandatory requirement of the Act stands not complied with and ground under Section 34 (2)(b) (ii) of the Act is attracted. Even the mandatory disclosure in terms of The Act in the form specified as per Sixth Schedule was not conveyed by Ld. Sole Arbitrator to petitioners. Petitioners were not given proper notice for appointment of Ld. Sole Arbitrator. The impugned award is accordingly liable to be set aside under (A) Section 34(2)(a)(iii) of The Act; (B) Section 34(2)(a)(v) of The Act; (C) Section 34 (2)(b) (ii) of the Act and (D) Section 34 (2A) of The Act; as the impugned award is also vitiated by patent illegality appearing on the face of the award, as elicited in detail herein above. Reliance placed upon the cases of Associate Builders (supra), Ssangyong Engineering & Construction Co.
OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 26 of 27Ltd. (supra), International Nut Alliance LLC (supra), Impex Corporation & Others (supra) and Alupro Building Systems Pvt Ltd vs Ozone Overseas Pvt Ltd (supra).
42. For the foregoing reasons, the petition is allowed and the impugned award is set aside.
43. The parties are left to bear their own costs.
44. File be consigned to record room.
Digitally signed by GURVINDER GURVINDER PAL SINGH
PAL SINGH Date: 2021.08.24
13:00:25 +0530
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
th
On 24 August, 2021. Patiala House Court, New Delhi.
(DK) OMP (COMM.) No. 201/2019 Mr. Selladurai K & Anr. vs PNB Housing Finance Limited Page 27 of 27