Delhi District Court
Sanjoo Khera vs Dewan Housing Finance Corporation Ltd on 6 May, 2024
IN THE COURT OF SH. AJAY KUMAR JAIN:
DISTRICT JUDGE COMMERCIAL COURT 03 - SOUTH EAST
DISTRICT, SAKET COURTS, NEW DELHI.
OMP (COMM) 2/22
SANJOO KHERA
R/o 218, Sukhdev Vihar
New Delhi- 110025 ....Petitioner no. 1.
ASHISH KHERA
R/o 218 Sukhdev Vihar
New Delhi- 110025 ....Petitioner no. 2.
VERSUS
DEWAN HOUSING FINANCE CORPORATION LTD.
Registered Office at 2nd Floor,
Warden House, Sir P.M. Road,
Fort Mumbai- 400001
....Respondent/Claimant
Date of Institution : 04.01.2022
Date of final arguments : 01.05.2024
Date of Judgment : 06.05.2024
Judgment
1. Vide this judgment, I shall decide the petition under section 34 of Arbitration and Conciliation Act, 1996 for setting aside the award dated 14.09.2021 passed by Ld. Arbitrator.
OMP (COMM) 2/22 Dt. 06.05.2024 Pg. 1 of 13 Sanjoo Khera Vs. Dewan Housing Finance Corporation Ltd.
2. Brief facts as culled out of impugned award that the petitioners as borrower and co-borrower approached the respondent/claimant to avail housing loan to tune of Rs. 92,52,905/-, pursuant to which a tripartite agreement dated 05.12.2017 was entered between the claimant, petitioners as well as builder. The petitioners defaulted in making the payments and not cleared the due despite repeated requests and reminders, therefore, the claimant/respondent appointed Sole Arbitrator vide letter dated 20.02.2020, however the petitioners did not appear on the first date of hearing i.e. 20.10.2020, then also not appeared on 24.11.2020, thereafter on 05.01.2021 petitioners were proceeded ex-parte. The petitioners, thereafter appeared through counsel, however, not filed written statement. Therefore, the Ld. Sole Arbitrator going through the documents and statement of account, passed the impugned award. Submissions of counsels
3. Ld. counsel for the petitioners submitted that the impugned award is liable to be dismissed on solely ground that appointment of Sole Arbitrator is unilateral and in violation of Section 12 (5) of Arbitration and Conciliation Act, therefore, the said award is void ab nitio. Furthermore, the Arbitration proceedings conducted at Mumbai in violation of exclusive jurisdiction clause which states that the Delhi Courts had the jurisdiction.
4. Ld. counsel for the respondent/claimant submitted that the petitioners despite number of opportunities and having the knowledge of the proceedings have not participated in the arbitration proceedings.
OMP (COMM) 2/22 Dt. 06.05.2024 Pg. 2 of 13 Sanjoo Khera Vs. Dewan Housing Finance Corporation Ltd. Therefore, at this stage, cannot take the benefit of the objections of unilateral appointment which is to be taken during arbitral proceedings. Furthermore, the petitioners could not locate any patent illegality in the impugned award, therefore, this court cannot interfere in the said award under section 34 of the Arbitration and Conciliation Act. (relied upon 'Arjun Mall Retail Holdings Pvt. Ltd. & Ors. Vs, GUNOCEN INC., FAO (COMM) 31/2021, dt. 23.01.2024').
Arguments heard. Record perused.
5. The arbitration clause of agreement executed between the parties reproduced as under :
" All matters, questions, disputes, differences and/or claims arising out of and /or concerning and /or in connection and/ or in consequences of breaches, termination or invalidity thereof or relating to this Agreement whether or not obligations of either or both parties under this contract be subsisting or completed shall be referred to the Sole Arbitration of the Managing Director, Executive Director (s) or Vice President(s) of the DHFL or any other authorized person to be appointed/nominated by the Managing Director, Executive Director(s), President (s) or Vice President(s) or any other Officer/Executive not below the level of Senior Manager of the DHFL as his nominee. The proceedings of the said arbitration shall be held at the registered office of the DHFL or any other place to be notified for the same by the arbitrator. The decision/award of the Arbitrator so appointed shall be final and binding on the parties to this agreement. The arbitration shall be conducted in accordance with the provisions of Arbitration and Conciliation Act, 1996, Rules thereunder and any amendments thereto, The language of arbitration shall be English."
6. It is categorically mentioned in the said clause that the sole arbitrator shall be unilaterally appointed without having the consent of the OMP (COMM) 2/22 Dt. 06.05.2024 Pg. 3 of 13 Sanjoo Khera Vs. Dewan Housing Finance Corporation Ltd. petitioners, therefore, appointment of the arbitrator is in violation of Section 12 (5) of the Arbitration and Conciliation Act.
7. Hon'ble Delhi High Court in case title 'Man Industries (India) Limited Vs. Indian Oil Corporation Limited, OMP (COMM) 252/2018, dt. 01.06.2023' after considering the catena of judgments held as under :
"....11. He submits that in the present case, the petitioner has never challenged the eligibility of the learned Sole Arbitrator to adjudicate on the disputes between the parties. He submits that, in fact, the learned Arbitrator was appointed at the request of the petitioner. The learned Arbitrator before entering upon the reference submitted his disclosure as required under Section 12 of the Act. The petitioner never raised any objection to the eligibility of the learned Sole Arbitrator. Thereafter, the petitioner, in fact, twice filed applications under Section 29A of the Act seeking extension of the mandate of the learned Arbitrator. He submits that the filing of the application under Section 29A of the Act by the petitioner would, in fact, satisfy the Proviso to Section 12(5) of the Act and the ineligibility, if at all, attached to the learned Sole Arbitrator would be waived.
12. On the merits of the Arbitral Award, he submits that the agreement between the parties provides for a „Delay Delivery Discount‟ of a maximum of 10% of the total contract value. In the present case, the learned Arbitrator has found the petitioner guilty of delay in making supply of the pipes. Thereafter, in terms of the judgment of the Supreme Court in M/s Construction & Design Services v. Delhi Development Authority, (2015) 14 SCC 263, the learned Arbitrator has observed that the contract in question, being of public interest, there can be a presumption of the delay having resulted in damages to the respondent on account of such delay. He submits that the view taken by the learned Arbitrator is a plausible view and this Court in exercise of its limited jurisdiction under Section 34 of the Act would not be entitled to interfere in the same.
13. I have considered the submissions made by the learned counsels for the parties.
14. At the outset, it is important to emphasize that the respondent has not disputed that, though in terms of the Arbitration Agreement and on the request of the petitioner, the learned Arbitrator was OMP (COMM) 2/22 Dt. 06.05.2024 Pg. 4 of 13 Sanjoo Khera Vs. Dewan Housing Finance Corporation Ltd.
appointed by the respondent alone. The Arbitration Agreement between the parties was contained in Clause 4.26.1 of the Special Conditions of Contract attached to the Purchase Order and is reproduced hereinbelow :-
"4.26.1 Any dispute or difference of any kind at any time(s) between the Purchaser and the vendor arising out of in connection with or incidental to the contract (including any dispute or difference regarding the interpretation of the contract or the termination thereof, or resulting from a termination thereof), shall be referred to arbitration by a Sole Arbitrator appointed by the General Manager. The provisions of the Arbitration & Conciliation Act, 1996 and all statutory re-enactments and modifications thereof and the Rules made thereunder shall apply to all such arbitrations. The venue of the arbitration shall be New Delhi (India)."
(Emphasis Supplied)
15. The petitioner invoked the Arbitration Agreement vide its notice dated 15.01.2016, requesting as under:-
"We, therefore, in terms of Arbitration Clause request you to nominate a person to act as an Arbitrator. Please ensure that names being proposed meet the requirement of independence and impartiality as envisaged in the Arbitration and Conciliation (Amendment) Ordinance, 2015."
16. On the above request, the respondent appointed the learned Arbitrator vide letter dated 15.02.2016.
17. Relying upon its earlier judgment in TRF Limited (supra), the Supreme Court in Perkins Eastman Architects DPC (supra) has held that the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a Sole Arbitrator. A party to the Agreement, therefore, would be disentitled to make any appointment of an Arbitrator.
18. In Bharat Broadband Network Limited (supra), the Supreme Court held that Section 12(5) of the Act provides for de jure inability of an Arbitrator to Act as such. The only way in which this ineligibility can be removed is by fulfilling the conditions in the Proviso to Section 12(5) of the Act, which states that parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing. The "express agreement in writing" has reference to a person who is interdicted by the Seventh Schedule, but who is OMP (COMM) 2/22 Dt. 06.05.2024 Pg. 5 of 13 Sanjoo Khera Vs. Dewan Housing Finance Corporation Ltd.
stated by the parties (after the disputes have arisen between them) to be a person in whom they have faith notwithstanding the fact that such person is interdicted by the Seventh Schedule. It was held that where the Arbitrator is unable to perform his function, being ineligible under Section 12(5) of the Act, the appointment of the Arbitrator itself was void.
19. In Govind Singh (supra), a Division Bench of this Court considering the above judgments held that even if the party does not raise an objection to the appointment of the Arbitrator and participates in the arbitral proceedings without raising any objection to the appointment of the Arbitrator, it is not a waiver of such party‟s right under Section 12(5) of the Act. It was further held that an Arbitral Award passed by an Arbitrator who is ineligible to act as an Arbitrator cannot be considered as an Arbitral Award at all. The ineligibility of an Arbitrator goes to the root of his jurisdiction and the Arbitral Award cannot be considered as valid.
20. In MS Bridge Building Construction Co. Pvt. Ltd. (supra), a learned Single Judge of this Court, relying upon the above judgments, rejected the plea of the respondent therein that the petitioner therein having filed applications for extension of the mandate of the Arbitrator is deemed to have waived the applicability of Section 12(5) of the Act and cannot assail the Award on that ground.
21. In JMC Projects (India) Ltd. (supra), another learned Single Judge of this Court again rejected the plea of the respondent observing that the filing of applications for extension of time for continuance and completion of the arbitral proceedings, or applications to the Arbitrator for extension of time to file the affidavit of evidence etc., cannot constitute an "agreement in writing" within the manner of the Proviso to Section 12(5) of the Act.
22. In view of the above authorities, there can be no doubt that the learned Arbitrator appointed by the respondent was de jure ineligible to act as such. The petitioner by its participation in the arbitration proceedings or by its filing of applications under Section 29A of the Act seeking extension of the mandate of the learned Arbitrator, cannot be said to have waived the ineligibility of the learned Arbitrator under Section 12(5) of the Act, and, therefore, the Arbitral Award passed by the learned Arbitrator is invalid.
OMP (COMM) 2/22 Dt. 06.05.2024 Pg. 6 of 13 Sanjoo Khera Vs. Dewan Housing Finance Corporation Ltd.
23. The only question, therefore, left to be considered by this Court is whether the petitioner can now be allowed to agitate the above ground by way of an amendment application, which admittedly has been filed much beyond the period prescribed in Section 34(3) of the Act.
24. In Hindustan Construction Company Limited (supra), the Supreme Court has held that the effect of Section 34(3) of the Act is not to completely rule out any amendment being allowed to be made in the application for seeking setting aside of the Award howsoever material or relevant it may be. The Court held as under:-
"29. There is no doubt that the application for setting aside an arbitral award under Section 34 of the 1996 Act has to be made within the time prescribed under sub-section (3) i.e. within three months and a further period of thirty days on sufficient cause being shown and not thereafter. Whether incorporation of additional grounds by way of amendment in the application under Section 34 tantamounts to filing a fresh application in all situations and circumstances. If that were to be treated so, it would follow that no amendment in the application for setting aside the award howsoever material or relevant it may be for consideration by the court can be added nor existing ground amended after the prescribed period of limitation has expired although the application for setting aside the arbitral award has been made in time. This is not and could not have been the intention of the legislature while enacting Section 34.
30. More so, Section 34(2)(b) enables the court to set aside the arbitral award if it finds that the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force or the arbitral award is in conflict with the public policy of India. The words in clause
(b) "the court finds that" do enable the court, where the application under Section 34 has been made within prescribed time, to grant leave to amend such application if the very peculiar circumstances of the case so warrant and it is so required in the interest of justice."
25. In Lion Engineering Consultants (supra), the Supreme Court held that even without an amendment in the petition, a plea of lack of jurisdiction of the Arbitrator can be raised even though no such objection was raised under Section 16 of the Act.
OMP (COMM) 2/22 Dt. 06.05.2024 Pg. 7 of 13 Sanjoo Khera Vs. Dewan Housing Finance Corporation Ltd.
26. In Hindustan Zinc Limited (HZL) (supra), the Court held that if there is an inherent lack of jurisdiction of the Arbitrator, the plea can be taken up any stage and also in collateral proceedings. Such plea can be taken even where the party has consented to the appointment of the Arbitrator.
27. Applying the above principles to the facts of the present case, the plea of the Arbitrator being de jure ineligible to act as such is a plea of lack of jurisdiction. This plea can be allowed to be raised by way of an amendment and even without the same.
28. In Friends and Friends Shipping Pvt. Ltd. (supra), relied upon by the learned counsel for the respondent, the grounds that were sought to be added by way of an amendment were on the challenge to the neutrality of the Arbitrator. A ground to demonstrate fraud was also sought to be inserted. The Court, in fact, distinguished the judgment of the Supreme Court in Ellora Paper Mills Limited v. State of Madhya Pradesh, (2022) 3 SCC 1, by observing as under:-
"8. At the outset it is necessary to bear in mind that by way of the proposed amendment the grounds which are now being sought to be inserted have absolutely no foundation in the petitioner's application preferred under Section 34 of the Arbitration Act. As has been rightly noticed by the learned District Judge at no point of time any objection about neutrality of the Arbitrator was raised by resorting to Section 12, 13 or 15 of the Arbitration Act. This needs to be emphasized for the sole reason to ascertain as to if, the proposed amendment merely intends to add some facts to the pending challenge to the award or is it that it is intended to put forth absolutely new challenge xxxxx
10. True it is that in the matter of Ellora Paper Mills Limited (supra), the Section 12(5) which is inserted in the year 2015 has been held to govern a pending arbitration proceeding.
However, it is to be borne in mind that it was a proceeding which was initiated under Sections 11, 14 and 15 and although the Arbitral Tribunal was constituted many years ago it had never commenced its proceeding. This is not the fact situation in the matter in hand. In this matter, without raising any objection at any earlier point of time on account of neutrality of the arbitrator by resorting to Sections 12, 13 and 14, an award has been passed and even it has been put OMP (COMM) 2/22 Dt. 06.05.2024 Pg. 8 of 13 Sanjoo Khera Vs. Dewan Housing Finance Corporation Ltd.
to execution. Therefore, the petitioner is not entitled to derive any benefit from the decision in the matter of Ellora Paper Mills Limited (supra) as well."
29. The above judgment would, therefore, not come to the aid of the respondent, as in the present case, the objection on the learned Arbitrator is under Section 12(5) of the Act and of him being de jure ineligible to act as an Arbitrator.
30. In view of the above, it has to be held that the learned Arbitrator was de jure ineligible to act as such and the Award passed by the learned Arbitrator is void and unenforceable. The same is, therefore, set aside.
As per mandate of this judgment, the award passed by the arbitrator who is unilaterally appointed, is void ab initio and also unenforceable and unexecutable.
8. Hon'ble Delhi High Court in case title 'Kotak Mahindra Bank Ltd. Vs. Narendra Kumar Prajapat, Neutral Citation Number :
2023:DHC:3705-DB, EFA(COMM) 3/2023, dt. 17.05.2023' held as under :
"..5. In the present case, the learned Commercial Court had found that the arbitrator appointed by the claimant (DH Finance Company) was ineligible to be appointed as an arbitrator by virtue of Section 12(5) of the A&C Act as interpreted by the Supreme Court in the aforementioned decisions.
6. The learned counsel appearing for the appellant does not seriously dispute that the arbitrator unilaterally appointed by the claimant was ineligible to be appointed as an arbitrator by virtue of Section 12(5) of the Act. He has largely focused his contentions on assailing the decision of the learned Commercial Court to award costs. It was also contended that the respondent was aware of the appointment of the arbitrator and had not raised any objection to such appointment; therefore the respondent is now precluded from challenging the impugned award.
7. We find little merit in the aforesaid contentions. The proviso OMP (COMM) 2/22 Dt. 06.05.2024 Pg. 9 of 13 Sanjoo Khera Vs. Dewan Housing Finance Corporation Ltd.
to Section 12(5) of the A&C Act is unambiguous. A party can waive its right to object to the ineligibility of an arbitrator under Section 12(5) of the A&C Act but the same is subject to two conditions. First, that the waiver is required to be by and done by an express agreement in writing; and second, that such agreement is entered into after the disputes have arisen. Unless both the aforesaid conditions are satisfied, there can be no waiver of the ineligibility of an arbitrator.
8. In Bharat Broadband Network Limited v. United Telecoms Limited: (2019) 5 SCC 755, the Supreme Court had authoritatively held that waiver of a right to object to ineligibility of an arbitrator under Section 12(5) of the A&C Act cannot be inferred by conduct of a party. Such waiver can only be by an express agreement in writing. The Court had also clarified that "the expression 'express agreement in writing' refers to an agreement made in words as opposed to an agreement which is to be inferred by conduct".
9. In view of the above, the failure, if any, on the part of the respondent to object to the unilateral appointment of the sole arbitrator, cannot be construed as waiver of his right under Section 12(5) of the A&C Act.
The award rendered by an arbitrator who is ineligible to be appointed as such cannot be enforced.
11. In HRD Corporation v. GAIL (India) Ltd.: (2018) 12 SCC 471, the Supreme Court held as under:
"Since ineligibility goes to the root of the appointment, Section 12(5) read with the Seventh Schedule makes it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes "ineligible" to act as arbitrator. Once he becomes ineligible, it is clear that, under Section 14(1)
(a), he then becomes de jure unable to perform his functions inasmuch as, in law, he is regarded as "ineligible". In order to determine whether an arbitrator is de jure unable to perform his functions, it is not necessary to go to the Arbitral Tribunal under Section 13.
Since such a person would lack inherent jurisdiction to proceed any further, an application may be filed under Section 14(2) to the Court to decide on the termination of his/her mandate on this ground."
[emphasis added]
OMP (COMM) 2/22 Dt. 06.05.2024 Pg. 10 of 13
Sanjoo Khera Vs. Dewan Housing Finance Corporation Ltd.
12. In Govind Singh v. M/S Satya Group Pvt Ltd & Anr.:
2023/DHC/000081 this court held as under:
"In view of the above, the remaining question to be addressed is whether an arbitral award rendered by a person who is ineligible to act as an arbitrator is valid or binding on the parties. Clearly, the answer must be in the negative. The arbitral award rendered by a person who is ineligible to act as an arbitrator cannot be considered as an arbitral award. The ineligibility of the arbitrator goes to the root of his jurisdiction. Plainly an arbitral award rendered by the arbitral tribunal which lacks the inherent jurisdiction cannot be considered as valid. In the aforesaid view, the impugned award is liable to be set aside as being wholly without jurisdiction."
13. The Learned Commercial Court has held that an award rendered by a person who is ineligible to act as an Arbitrator by virtue of the provisions of Section 12(5) of the A & C Act is a nullity and, therefore, cannot be enforced. It has accordingly dismissed the enforcement petition under Section 36 of the A&C Act with the cost quantified as ₹25,000/-.
14. This Court finds no infirmity with the aforesaid view. A person who is ineligible to act an Arbitrator, lacks the inherent jurisdiction to render an Arbitral Award under the A&C Act. It is trite law that a decision, by any authority, which lacks inherent jurisdiction to make such a decision, cannot be considered as valid. Thus, clearly, such an impugned award cannot be enforced.."
9. This view is reiterated by Hon'ble Division Bench of Delhi High Court in case title 'Mercedes Benz Financial Services India Pvt. Ltd. Vs. M/s Khokher Enterprises, 2024 Latest Caselaw 2 Del' which is reproduced as under :
'.....3. The issue involved in the present case is covered by the earlier decision delivered by this court in Kotak Mahindra bank Vs. Narendra Kumar Prajapat: EFA(COMM) 3/2023 dated 17.05.2023. This Court had held that an award rendered by a person who is ineligible to act as an arbitrator by virtue OMP (COMM) 2/22 Dt. 06.05.2024 Pg. 11 of 13 Sanjoo Khera Vs. Dewan Housing Finance Corporation Ltd.
of Section 12(5) of the A&C Act- is a nullity, and, therefore, cannot be enforced. This court is informed that a Special Leave Petition preferred against the said decision (being SLP(Civil) No. 47322/2023) was dismissed by the Hon'ble Supreme Court by an order dated 12.12.2023.
4. The learned counsel appearing for the appellant submits that the respondents had not appeared before the learned Commercial Court and set up this objection. Thus, the Court could not reject the application for enforcement of the Arbitral Award on the aforesaid ground. We find no merit in this contention.'
10. The present case, the respondent/claimant appointed Sole Arbitrator unilaterally which is in violation of section 12 (5) of Arbitration and Conciliation Act. No waiver exists in terms of section 12 (5) in the present case, therefore, the award becomes void ab nitio and non est in law. The award is non executable. The issue of executability of the award in violation of section 12 (5) is also decided by Hon'ble Kerala High Court in case title 'Hedge Finance Private Limited Vs. Bijish Joseph, OP (C) No. 1263 of 2022 dated 02.08.2022' and Hon'ble High Court of Calcutta in case titled 'Cholamandalam Investment and Finance Company Ltd. Vs. Amrapali Enterprises and Anr., EC 122 of 2022, dt. 14.03.2023'. Therefore, the impugned award in question is void ab nitio and non est as well as not a legal decree.
11. The arbitration proceedings are initiated without the consent of the petitioners in violation of Section 12 (5) of the Arbitration and Conciliation Act also thus impugned award is non-est and void abnitio. The entire arbitration proceedings stand vitiated. The impugned award is OMP (COMM) 2/22 Dt. 06.05.2024 Pg. 12 of 13 Sanjoo Khera Vs. Dewan Housing Finance Corporation Ltd. not sustainable and liable to be set aside. Accordingly, the impugned award dated 14.09.2021 is set aside. Petition is allowed and disposed of accordingly.
12. File be consigned to Record Room after due compliance. Announce in the open court on 06th May 2024 (Ajay Kumar Jain) District Judge, (Commercial Court-03) South-East, Saket Courts, Delhi OMP (COMM) 2/22 Dt. 06.05.2024 Pg. 13 of 13 Sanjoo Khera Vs. Dewan Housing Finance Corporation Ltd.