Delhi District Court
M V R Gas & Ors vs Indiabulls Consumer Finance Limited on 12 March, 2021
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
OMP (COMM.) No. 54/2020
1. M V R Gas & Ors
Through its Proprietor B.V Sadanand
S/o Munireddy Venkata Swamy Reddy
C/o No. 801, 9th Main, 3rd Block,
Koramangala, Bangalore,
Karnatak-560034
2. B.V. Sadanand
S/o Munireddy Venkata Swamy Reddy
C/o No. 801, 9th Main, 3rd Block,
Koramangala, Bangalore,
Karnatak-560034
3. S.L Manjula
W/o Badam Venkatswamy Reddy Sadanand
R/o No. 801, 9th Main, 3rd Block,
Koramangala, Bangalore,
Karnatak-560034 ...Petitioners
vs
1. Indiabulls Consumer Finance Limited
Having its registered office at
M-62 & 63, First Floor, Connaught Place,
New Delhi-110001
2. Ms. Bharti Jain,
Sole Arbitrator
Chamber No. 92,
Lawyers Chambers Block,
Patiala House Courts,
Delhi-110001 ....Respondents
Date of Institution : 07/08/2020
Arguments concluded on : 10/02/2021
Decided on : 12/03/2021
Appearances : Sh. Deepak K. Bansal, Ld. Counsel for petitioners.
Sh. Deenanath Thakur, Proxy Counsel for Sh. Ashok Kumar,
Ld. Counsel for respondent no. 1.
OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 1 of 23
JUDGMENT
1. Petitioners have filed the present objection petition under Section 34 of the Arbitration and Conciliation Act, 1996 (herein after referred as The Act) against the impugned arbitral award dated 23/01/2020 passed by Ld. Sole Arbitrator Ms. Bharti Jain (respondent no. 2) in Arb. Case No. ICFL/BL/RB/5442/L-07/05 titled as Indiabulls Consumer Finance Limited vs M V R Gas & Ors. By the impugned arbitral award, Ld. Sole Arbitrator awarded amount of Rs 23,37,906/- with interest @ 36% per annum alongwith applicable taxes from 21/08/2019 till the payment by the petitioners or realization thereof by the claimant/respondent no. 1.
2. Factual matrix of the case of petitioners in brief is that petitioner no. 1 is the proprietorship concern of petitioner no. 2 and petitioner no. 3 is the wife of petitioner no. 2. It is averred that as per respondent no. 1, petitioners have failed to pay the EMIs as per schedule and thereby the dispute arose between them in respect of Loan Agreement dated 28/07/2017 bearing Loan Account No. S000300412 for availing Business Loan facility of Rs 40,24,264/- by petitioners from respondent no. 1. It is further averred that as per the case of respondent no. 1 that as per clause of the loan agreement, all disputes/differences and/or claims are to be settled through Arbitration and Conciliation Act, 1996 and that respondent no. 1 had raised the recall of the loan and demand of the due amount through a notice dated 26/08/2019 of which the petitioners had no knowledge. It is further averred that it the case of respondent no. 1 that respondent no. 1 invoked arbitration proceedings against the petitioners and appointed respondent no. 2 as Sole Arbitrator for adjudication of the matter between the petitioners and respondent no. 1 and respondents had filed their claim for amount of Rs 23,37,906/-, which became due and payable as outstanding on 21/08/2019 with further interest from 21/08/2019 on the said amount at the rate of 36% per annum. It is further averred that as per the award, the notice for the arbitration proceedings as OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 2 of 23 well as to file their appearance and defence/objection has been served upon the petitioners to the last given address through notices dated 09/10/2019, 09/11/2019 and 30/11/2019 through registered AD post and the service was treated to be effected upon the petitioners, however, the same were never received by the petitioners nor any delivery report or acknowledgment has been relied by the arbitration and the same were also not available on the arbitration record. It is further averred that being unaware of any proceedings going against the petitioners, they were unable to participate in the proceedings; moreover the ex parte award was passed by the Ld. Sole Arbitrator of total sum of Rs. 23,37,906/- with interest @ 36% per annum from 21/08/2019 till the date of realization of the award amount; and also to pay respondent no. 1 the cost of the arbitral proceedings including the fee of the arbitrator and other expenses etc. in recovering the award amount; which was unreasonable, arbitrary and extortion in nature. Impugned award has been assailed on the following grounds:
A. The unilateral appointment of the Arbitrator by the respondent is vitiated under under Section 12(5) of The Act, in terms of law laid in the case Perkins Eastman Architects DPC & Anr. Vs HSCC (India) Ltd, 2019 SCC Online SC 1517 as the unilateral appointment of an authority which is interested in the outcome or decision of the dispute is impermissible in law. It can hardly be disputed that the respondent no. 1 will have an interest in the outcome of the dispute.
B. As per own disclosure dated 28/09/2019 of Ld. Sole
Arbitator with regard to her connection and
financial/professional relationship with respondent no. 2, it is revealed that 80 references were sent by respondent no. 1 to respondent no. 2 for adjudication and thus Ld. Sole Arbitrator had a significant financial interest in the respondent no. 1 or the outcome of the case and clearly hit by Seventh Schedule of Section 12(5) of The Act.OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 3 of 23
C Ld. Sole Arbitator was also the part of the empaneled firm/office for respondent no. 1 i.e., Rahul Bhardwaj & Co. which has sent the alleged loan recall cum demand notice to the petitioners on behalf of respondent no. 1 and also sent the certified copy of the arbitration records to the Counsel of the petitioner when it was applied to Ld. Sole Arbitator, which clearly reflects that even the entire arbitration record has been prepared and maintained by respondent no. 1 and its Counsel in house and no actual arbitration proceedings has ever taken place.
D. Since the Ld. Sole Arbitator has became de jure unable to perform her functions as an Arbitrator, the mandate of the present arbitrator should be terminated. E. Ld. Sole Arbitator despite knowing the fact that there are reasonable doubts on the fairness of the arbitration proceedings and to the impartiality of Ld. Sole Arbitator as Ld. Arbitrator was assigned with 80 number of references by the respondent no. 1 which indicates an in-house arbitrator or likewise working of the sole arbitrator, still proceeded with the present case in utmost biased manner, also thereby deliberately failed to make effective service upon the petitioners so as to deprive them from their right of being heard.
F. The appointment and disclosure letters dated 20/09/2019 and 28/09/2019 respectively neither show any receiving of either party nor any postal receipt between the respondent nos. 1 and 2 are the part of the records which clearly indicates that the Ld. Sole Arbitator was working as in-house arbitrator for respondent no. 1.
G. Respondent no. 1 has antecedents of appointing sole arbitrator, who is virtually an in-house arbitrator in several OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 4 of 23 arbitration matters flouting all the rules of Arbitration and Conciliation Act, 1996.
H. The petitioners have not been provided proper chance of being heard and also to place their objections in regard to make them jointly and severally liable for the recovery. I. Ld. Sole Arbitrator was being biased, failed to take note that the respondent no. 1, despite being aware that the petitioners are residents of Bangalore, deliberately filed the arbitration proceedings in Delhi for making it sure that the petitioner, who is already facing some health issues, even if received the summons could not visit Delhi frequently to pursue the case and it would be easier to get passed an ex parte award. The alleged transaction took place in Bangalore only, however, alleged loan agreement, which is otherwise a standard form of agreement have the clause to having the arbitration place in Delhi just to deprive the petitioners from their right of being heard.
J. Ld. Sole Arbitator failed to take note of the fact that even the alleged recall cum demand notice dated 26/08/2019 was never been served upon the petitioners.
K. Ld. Sole Arbitator has also failed to take note of the fact that even neither the endorsement/appointment letter dated 20/09/2019 nor the disclosure letter dated 28/09/2019 which was allegedly endorsed to the petitioners also was never served upon the petitioners and for the reason of the same no proof of service is available on the records, hence the said arbitration proceedings are void ab-initio. L. Ld. Sole Arbitator being biased to the respondent no. 1, deliberately failed to take resource of any other alternative or all mode of service alongwith registered AD post, such as Dasti, approved courier by private agencies or speed post of OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 5 of 23 Indian Post, which clearly suggest that the respondents never intended for a fair hearing and give the petitioner chance of being heard and the entire process was done in haste just to pass an ex parte award in favour the respondent no. 1 and that not a single service report or acknowledgment of any of the petitioners are available on the record which also raised reasonable doubt if the notices were sent on correct addresses or not. Therefore, the biasness of the respondent no. 2 towards the respondent no. 1 are clearly visible, established and proved herein.
M. Ex parte award passed by Ld. Sole Arbitator with an interest of 36% on the claimed amount is an unjustified, as well as an exorbitant rate of interest which is malafide, arbitrary and penal in nature, violating the norms of Arbitration Act and the Rate of Interest Guidelines prescribed by RBI as well as also against the guidelines framed by Hon'ble Supreme Court in the case Vedanta Ltd vs Shenzhen Shahdong Nuclear Power Construction Company Ltd., C.A No. 010394 of 2018 regarding the determination of interest while passing an award.
N. Passing of such an exorbitant rate of interest in ex parte award clearly shows that there might be purported lack of independence and impartiality.
O. The biasness of Ld. Sole Arbitrator is also apparent from the fact that Ld. Sole Arbitator allowed the application under Section 17(1) on the very first date of the arbitration proceeding in haste and that too without issuing notices or giving the opportunity to be heard to the petitioner vide order dated 09/10/2019.
P. The copy of the award allegedly sent to the petitioner on 07/02/2020 as per the receipts affixed on the award while the OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 6 of 23 award stated to have been passed on 23/01/2020 which clearly indicated the reasonable delay of more than two weeks to send the copy to the petitioner and the same also raises reasonable doubt on the fairness of the arbitration proceedings.
Q Ld. Sole Arbitator failed to take note of the fact that even otherwise the alleged agreement is a standard form of the documents to which every applicant of the loan must have to mandatorily sign whether they want to accept any condition or note. The sole arbitrator has further failed to take note of the fact that the said agreement not duly and effectively signed and under the seal of the respondent no. 1 by respondent no. 1 nor it has any witness to the signing of the agreement, which creates doubt on the genuineness of the agreement or conditions mentioned therein.
It was prayed to set aside the impugned award.
3. In filed reply, respondent no. 1 controverted the submissions and grounds of petition. It was averred that petition of the petitioners is not maintainable either on facts or in law and is liable to be dismissed as the petitioners have not come before this Court with clean hands. The petitioners have presented distorted and incorrect version of the facts in order to misguide and mislead the Court and that the present petition is nothing but an abuse of the process of law. It is further averred that the petition is not maintainable and is liable to be dismissed as the same has been filed by the petitioners with malafide intention and by adopting arm-twisting methods to coerce the respondent no. 1 to accept its illegal and unlawful demands. It is further averred that present petition is barred by limitation. It is further averred that as per explanation 3 to the Fifth Schedule, reference of arbitration to a specialized pool of arbitrators shall not be invalid for the said reason. It is further averred that the facts and circumstances of this case are totally OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 7 of 23 different from facts of case of Perkins Eastman Architects DPC (supra) as in the instant case Managing Director of the company is not directly involved in referring the matter to arbitration. The legal department of the respondent in case of default by the borrowers takes a call as regards initiation of any legal action/arbitration. The legal department refers the dispute for arbitration to specialized lawyers who are acting as Arbitrator for different financial institutions. In the present case also when the petitioner failed to maintain financial discipline and defaulted in payment of EMI, the legal department of respondent no. 1 referred the matter for arbitration to respondent no. 2, who is acting as arbitrator for various reputed Banks, NBFC, and Companies. The respondent no. 1 after finding her a neutral person and capable arbitrator having extensive domain expertise referred the present matter to Ld. Sole Arbitrator, respondent no. 2, for arbitration. The present petition filed by the petitioners is not maintainable and is liable to be dismissed as the petitioners are trying to mislead this Court by stating wrong, false and misleading facts. It is averred that the arbitration notices dated 09/10/2019, 09/11/2019 and 30/11/2019 were sent to the petitioners through registered post at the address mentioned in Loan Agreement, which was provided by the petitioners at the time of executing the loan agreement but despite the same, petitioner failed to appear before Ld. Sole Arbitrator. It is further averred that award has been passed by Ld. Sole Arbitrator after appreciating the pleadings and evidence and is a reasoned order and does not suffer from any legal or other infirmity. It is further averred that on 20/07/2020, Counsel for the respondent no. 1 received a call from the office of Ld. Sole Arbitrator requesting for taking the envelope of certified copy of arbitration proceedings for posting the same to the opposite Counsel i.e., petitioner's Counsel and on 21/07/2020, Counsel of respondent no. 1 received the packed envelope of certified copy of arbitration proceedings from the office of Ld. Sole Arbitrator and the same was couriered from his office, thus the courier agency of the Counsel prepared receipt in the name of Rahul Bhardwaj and not in the name of respondent no. 2, Ld. Sole Arbitrator and the envelope containing the certified copies was stamped with OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 8 of 23 the seal of Ld. Sole Arbitrator. Ld. Counsel for respondent no. 1 filed the courier receipt as proof before Ld. Sole Arbitrator on 22/07/2020. It is averred that arbitration proceedings had been initiated at Delhi as per Loan Agreement, which has been duly executed by the petitioners out of free will and volition. The petitioner after enjoying the fruits of the said loan, are now raising false and frivolous pleas. It is further averred that interest rate has been determined by Ld. Sole Arbitrator as per the duly executed loan agreement and law and the order under Section 17(1) has been passed by Ld. Sole Arbitrator on the basis of merits of the case. It is further averred that it is not the case of the petitioners that they have executed the loan agreement under duress and coercion, rather the petitioners admit that the loan facility has been availed by them. It was prayed for dismissal of the petition.
4. I have heard Sh. Deepak K. Bansal, Ld. Counsel for petitioners, Sh. Deenanath Thakur, Proxy Counsel for Sh. Ashok Kumar, Ld. Counsel for respondent no. 1 and perused the relied upon precedents and records of the case as well as filed arbitral proceedings record and given my thoughtful consideration to the rival contentions put forth.
5. Ld. Counsel for petitioner argued in terms of the filed objections. Also was argued that reliance placed upon by Ld. Counsel for respondent no. 1 in his reply on explanation 3 that the Fifth Schedule has to be read with explanation 3, which allegedly make it clear that Fifth Schedule is not applicable to arbitrator belonging to specialized pool and the reliance placed upon the cases of (i) G. Vijayaraghavan vs M.D Central Warehousing Corpn. & Ors., 86 (2000) DLT 844 Delhi High Court ; (ii) Steel Authority of India Ltd. vs British Marine PLC in O.M.P. (T) (Comm.) 48/2016 & I.A No. 7759/2016 (for stay) decided on 20.10.2016 by Hon'ble Mr. Justice S. Muralidhar of Delhi High Court; (iii) HRD Corporation (Marcus Oil and Chemical Division) vs Gail (India) Limited (Formerly Gas Authority of OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 9 of 23 India Ltd.), in Civil Appeal No. 11127 of 2017 decided on 31/08/2017 by Supreme Court of India and (iv) HPS Ahulwalia vs Emaar MGF Constructions Private Limited in ARB. P. 33/2018 decided on 17.01.2018 by Hon'ble Mr. Justice Navin Chawla of Delhi High Court were misplaced and not applicable to the present case. It was also argued that the appointment of an arbitrator was done by the respondent unilaterally and not from any kind of panel whatsoever and petitioner was never given any option to choose and to consent to any arbitrator available on the alleged panel/pool of arbitrator suggested by respondent. Also was argued that the dispute in question is not covered under maritime or commodities arbitration and even otherwise the explanation 3, aforesaid is not applicable either to present case or to the respondent company, which is a financial institution. Also was argued that there was nothing on record to show that Ld. Sole Arbitrator had any specific qualification apart from being an arbitrator and practicing Advocate and had ever been part to any authorized small, specialized or specific pool of arbitrator related to financial institution based on any specific qualification. Also was argued that mandatory notice was not duly served upon the petitioners before invoking arbitration proceedings in accordance with Section 21 of the Act as the postal receipts reflect the sent notices to Pin Code 560001, whereas address of petitioner falls under Pin Code 560034. Notices sent to incorrect address cannot be served and even slight change of address takes them to some other place. No track report of notices was placed on record to reflect the service of notices upon the addressees. Reliance was placed upon the case of Alupro Building Systems Pvt. Ltd. vs Ozone Overseas Pvt Ltd., MANU/DE/0495/2017 wherein it was held that arbitration proceedings held without due notice by claimant under Section 21 of the Act invoking the arbitration clause is invalid. The arbitration proceedings deem to have commenced from the date of service of notice under Section 21 of the Act. For non service of notice of invoking arbitration proceedings as per Section 21 of the Act makes the impugned award liable to be set aside. Also was argued that notices purportedly dispatched by Ld. Sole Arbitrator were so OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 10 of 23 dispatched at wrong address with wrong Pin Code and not at the correct address of petitioner and at the correct Pin Code; so there can be no presumption of service of notices upon the petitioner. Reliance was placed upon the decision of Bombay High Court in the case of Madhav Vishwanath vs Bendale Brothers, MANU/MH/2411/2018 wherein it was held that service is not an empty formality or procedural ritual but the soul of the service is to have the knowledge of the proceedings by the contesting party. Steps might have been taken for the service as per procedure but when the communication is absent, then the knowledge cannot be presumed. The presumptions of deemed service comes into picture only to fill up the gaps of procedural law. It was also argued that even otherwise not in a single order, the arbitrator has mentioned about whether the service was effective presumed referring any reason or acknowledgement for service and accordingly there is no finding of the arbitrator regarding her satisfaction about the service through registered post/speed post after considering the track reports or acknowledgement. Notices and copy of award sent by Ld. Sole Arbitrator or respondent no. 1 were never served upon the petitioners, whereas petitioners were proceeded ex parte by Ld. Sole Arbitrator, which was not correct and award was passed without due service of notice itself sets up a ground for petitioners to seek setting aside of the award. It was also argued that petitioner came to know about the award first time only on 22/07/2020 when the Counsel for the petitioner received the certified copy of the award with arbitration proceedings and within period of limitation the present petition under Section 34 of the Act was filed. It was also argued that the entire record was in possession, maintained and prepared by respondent no. 1 only and was manipulated one before filing it to the Court. Also was argued that even though as per the alleged loan agreement, the interest was @ 19% per annum but without any proper reasoning Ld. Sole Arbitrator passed award with interest @ 36% per annum, as prayed by respondent no. 1, which was per contra to the law laid in the case of Vedanta Ltd. vs Shenzhen Shahdong Nuclear Power Construction Company Ltd., OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 11 of 23 MANU/SC/1159/2018.
6. Ld. Counsel for the respondent argued in terms of the filed reply, stating that grounds of petition are merit-less and deserve to be dismissed.
7. Ld. Counsel for respondent relied upon the following precedents:
1. G. Vijayaraghavan vs M.D Central Warehousing Corpn. & Ors., 86 (2000) DLT 844 Delhi High Court ;
2. HPS Ahulwalia vs Emaar MGF Constructions Private Limited in ARB. P. 33/2018 decided on 17.01.2018 by Delhi High Court;
3. Steel Authority of India Ltd. vs British Marine PLC in O.M.P (T) (Comm.) 48/2016 & I.A No. 7759/2016 (for stay) decided on 20.10.2016 by Delhi High Court and
4. HRD Corporation (Marcus Oil and Chemical Division) vs Gail (India) Limited (Formerly Gas Authority of India Ltd.), in Civil Appeal No. 11127 of 2017 decided by Supreme Court of India on 31/08/2017.
8. 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.
9. An Arbitral Award can be set aside on the grounds set out in Sections OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 12 of 23 34(2)(a), (b) and (2A) of the Act in view of Section 5 of the Act.
10. Section 34 (1), (2) and (2A) 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 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-
OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 13 of 23(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.
11. I advert to the impugned award. At the outset, the impugned award records that the claimant sent letter of intent/reference letter dated 20/09/2019 to appoint said Tribunal to arbitrate the dispute which arose between the parties and in this regard disclosure letter dated 28/09/2019 in the prescribed format under Sixth Schedule as per Section 12(1) of the Act, in connection with the said Tribunal's possible appointment as Sole Arbitrator was issued to the addressee(s) mentioned in the schedule of letter of intent/reference letter.
12. Above referred letter of intent/reference letter dated 20/09/2019 is at page nos. 3 and 4 of the arbitral proceedings record and is addressed by OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 14 of 23 Mr. Vipin Saroha, Authorized Representative of Indiabulls Consumer Finance Limited (formerly IVL Finance Limited) to respondent no. 2, nominating her as Sole Arbitrator and referring the present dispute for arbitration and under authority by virtue of Board Resolution dated 30/12/2017 passed by Board of Directors of respondent. Though at the foot of aforesaid reference letter, there is mention of copy of this reference letter to be sent to the borrowers for information and commencement of arbitral proceedings under Section 21 of the Act but in the arbitral proceedings record there is no proof of service of said letter upon the petitioners/borrowers and no speed post receipt, tracking report or proof of service of petitioners by any other mode is placed in the arbitral proceedings record.
13. At page nos. 5 and 6 of the arbitral proceedings record is the disclosure dated 28/09/2019 under the Act purportedly sent by Ld. Sole Arbitrator to petitioners as well as respondent no. 1, whereas the speed post receipt stapled on it inter alia for petitioner no. 1 contains the mention of its dispatch on 01/10/2019 as:
"M V R GAS, GUNTUR, PIN:522001"
Apparently neither the said disclosure was sent to proper address of petitioner no. 1 with proper Pin Code. Also in the said disclosure there is mention in row 5 as:
"That presently the undersigned has no past or present relationship whether Financial, Business, Professional, or other kind with the concerned parties which is likely to give rise to justifiable doubts as to my independence or impartiality except the block of more than 80 references sent alongwith the present reference."
14. 1st Arbitration Notice dated 09/10/2019 is at page nos. 7 and 8 of the arbitral proceedings record and there is inter alia speed post receipt purportedly for petitioner no. 3 and it finds mention of having sent to "S L MANJULA BANGLORE GPO, PIN:560001"
OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 15 of 23Accordingly, the Pin Code on said speed post receipt for petitioner no. 3 is not correct, as per the Pin Code of address of petitioner no. 3, which should have been 560034.
15. 3rd Arbitration Notice dated 30/11/2019 is at page nos. 75 and 76 of the arbitral proceedings record and inter alia therein are the stapled speed post receipts purportedly sent to petitioners but with respect to the speed post receipts addressed to petitioner no. 1 and 3 there the Pin Code mentioned is 560001 and with respect to the speed post receipt of petitioner no. 2, the Pin Code is mentioned 522001 and also GUNTUR (and not Bangalore). Apparently these three speed post receipts do not contain the proper Pin Code 560034 of address of petitioners. The said 3 rd Arbitration Notice dated 30/11/2019 was finding mention of the text that in case addresses viz. Petitioners did not appear on 21/12/2019 before Ld. Sole Arbitrator, matter will be decided ex parte on the basis of material available on record. As per arbitral proceedings record, on 21/12/2019 Ld. Sole Arbitrator had proceeded with the matter ex parte. Apparently aforesaid 3rd Arbitration Notice was not sent to the correct addresses of petitioners having correct Pin Code for service, whereas based upon its alleged service upon the petitioners, Ld. Sole Arbitrator proceeded the matter ex parte on 21/12/2019.
16. The original arbitral award is at page nos. 84 to 92 of arbitral proceedings record and at page no. 92, there are three speed post receipts stapled of sending of the copy of the said award to the present petitioners on 07/02/2020 but the Pin Code mentioned on all three speed post receipts is 560001, whereas the proper and correct Pin Code of the address of the present petitioners is 560034. Apparently contents sent vide speed post receipts dated 07/02/2020 were not sent on correct address of petitioners with correct Pin Code to presume service of copy of the award upon the present petitioners.
OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 16 of 2317. At page no. 96 of the arbitral proceedings record is the noting of Ld. Sole Arbitrator dated 22/07/2020 for having received the courier receipt from claimant's Counsel with respect to dispatch of certified copy of arbitration proceedings by courier to the Counsel for present petitioners on 21/07/2020 and is stapled the courier receipt of DTDC having consignment no. Z46396009. Copy of same courier receipt has been enclosed with the petition by the present petitioners with the envelope received through courier containing inter alia the signed copy of award on 22/07/2020. The petition was filed on 07/08/2020. Accordingly, the present petition has been filed well within period of limitation of three months from receipt of signed copy of the impugned award.
18. 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 (including those giving rise to justifiable doubts as to his independence or impartiality) 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 OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 17 of 23 the Act. The Fifth Schedule of the Act embodies the grounds giving rise to justifiable doubts as to the independence or impartiality of Arbitrator and it includes Arbitrator's relationship with the Counsel for party.
19. Section 14 of the Act provides that the mandate of an arbitrator shall terminate and he shall be substituted by another 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.
20. 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.
21. Supreme Court in case of HRD Corporation (Marcus Oil and Chemical Division) vs GAIL (INDIA) Limited, 2017 SCC Online SC 1024 has held that if the learned arbitrator fails to file disclosure in terms of 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 OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 18 of 23 tribunal on that ground.
22. Supreme Court in case of TRF Ltd. vs Energo Engg. Projects Ltd., (2017) 8SCC 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.
23. 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 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 OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 19 of 23 perform his function as an arbitrator.
24. Supreme Court in the case of Perkins Eastman Architects DPC (supra) 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 had 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.
25. In the case of Proddatur Cable TV Digi Services vs Siti Cable Network Limited 2020 SCC Online Del 350 : (2020) 267 DLT 51, it was inter alia held 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 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.
OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 20 of 2326. 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, wherein petition was filed under Section 14 and 15 of the Act, seeking termination of the mandate of Ld. Arbitrator unilaterly appointed by the respondent and also quashing of order passed by Ld. Arbitrator, rejecting 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 independent Sole Arbitrator was appointed.
27. It is the fact of the matter that Ld. Sole Arbitrator was appointed by reference letter dated 20/09/2019 of Mr. Vipin Saroha, Authorized Representative of respondent no. 1. When disputes and differences arise between the parties, a party to the Arbitration Agreement as defined under Section 2 (1) (h) of the Act has to issue a notice invoking Arbitration Agreement and has to call upon the opponent to appoint an arbitrator in accordance with the Arbitration Agreement. A party who invokes the arbitration can suggest the name of few arbitrators and may call upon the opponent to agree to one of the names suggested by that party or to suggest any other names if the names suggested by that party is not agreeable by the other party within thirty days from the date of receipt of said notice. Section 43 (2) of the Act provides that for the purposes of Section 43 of the Act and The Limitation Act 1963, the arbitration proceedings shall be deemed to have commenced on the date referred in Section 21 of the Act.
28. Section 21 of the Act provides that unless and otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 21 of 23 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.
29. Disclosures of Ld. Sole Arbitrator, as they are at page nos. 5 and 6 of the arbitral proceedings record, find mention that block of more than 80 references were sent to her alongwith the present reference by the claimant. Reliance placed upon by Ld. Counsel for the respondent no. 1 in his reply on explanation 3 that the Fifth Schedule has to be read with explanation 3, which allegedly make it clear that Fifth Schedule is not applicable to arbitrator belonging to specialized pool and the reliance placed upon the cases of (i) G. Vijayaraghavan vs M.D Central Warehousing Corpn. & Ors. (supra) ; (ii) Steel Authority of India Ltd. vs British Marine PLC (supra); (iii) HRD Corporation (Marcus Oil and Chemical Division) vs Gail (India) Limited (supra) and (iv) HPS Ahulwalia vs Emaar MGF Constructions Private Limited (supra) were misplaced and not applicable to the present case. Appointment of respondent no. 2 as Ld. Sole Arbitrator was done by the respondent no. 1 through Authorized Representative on the basis of Board Resolution of respondent no. 1 unilaterally and not from any kind of panel whatsoever and petitioners were never given any option to choose and to consent to any arbitrator available on the alleged panel of arbitrator suggested by respondent. The dispute in question is not covered under maritime or commodities arbitration and even otherwise, the explanation 3, aforesaid is not applicable, either to present case or to the respondent no. 1 company, which is a financial institution. There is nothing on record to show that Ld. Sole Arbitrator had any specific qualification apart from being an arbitrator and practicing advocate and had ever been part to any authorized small, specialized or specific pool of arbitrators related to financial institutions based on any specific qualifications; so the respondent no. 1 company had no right to appoint any arbitrator unilaterally, despite having OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 22 of 23 arbitration clause of the loan agreement in its favour. Hence the respondent no. 1 company had no right to appoint an arbitrator unilaterally in terms of the law laid in the cases of (i) M/s Voestalpine Schienen GMBH (supra); (ii) HRD Corporation (Marcus Oil and Chemical Division) (supra); (iii) TRF Ltd. vs Energo Engg. Projects Ltd.; (iv) Bharat Broadband Network Limited (supra); (v) Perkins Eastman Architects DPC (supra); (vi) Proddatur Cable TV Digi Services (supra) and (vii) M/s Omcon Infrastructure Pvt. Ltd. (supra). The appointment of Ld. Sole Arbitrator was against the principles of impartiality as envisaged under Section 12 of the Act. Even the mandatory disclosure in terms of Fifth and Seventh Schedule of the Act in format of Sixth Schedule of the Act was not conveyed by Ld. Sole Arbitrator to the petitioners. Also no proper notice containing the request that dispute is to be referred to the arbitration sent by claimant/respondent no. 1 was received by petitioners in terms of Section 21 of the Act. Before proceeding petitioners ex parte; there was no proper service of 3rd Arbitration Notice dated 30/11/2019 by Ld. Sole Arbitrator upon the petitioners. Petitioners were unable to present their case as well before Ld. Sole Arbitrator. Accordingly, the impugned arbitral award is liable to be set aside, also in terms of Section 34(2)(a)(iii) of the Act.
30. For the foregoing reasons, the petition is allowed and the impugned award is set aside.
31. The parties are left to bear their own costs.
32. File be consigned to record room.
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
on 12th March, 2021. Patiala House Court, New Delhi.
(Deepika) OMP (COMM.) No. 54/2020 M V R Gas & Ors. vs. Indiabulls Consumer Finance Limited & Anr. Page 23 of 23