Delhi District Court
M/S Dharamvir And Company vs Delhi Development Authority on 9 February, 2023
IN THE COURT OF MS. RUCHIKA SINGLA,
ADDL. DISTRICT JUDGE-03, NORTH-WEST DISTT.,
ROHINI COURTS, DELHI
Arb. No. : 850/17
In the matter of:
M/s DHARAMVIR AND COMPANY
(Through Sh. Dharamvir Sole Proprietor)
H No. 123, Pocket 9, Sector-24,
Rohini, New Delhi-110085.
........ Petitioner
VERSUS
1. DELHI DEVELOPMENT AUTHORITY
Through its Vice Chairman
Vikas Sadan, I.N.A.
New Delhi-110023.
2. The Executive Engineer
Rohini Project Division no. 13/SD-2,
DDA Office Complex, Deepali Chowk,
Rohini, Delhi-85.
........ Respondent
Date of institution : 20.07.2017
Date on which judgment was reserved : 09.02.2023
Date of pronouncement of the judgment : 09.02.2023
Arb. no. 850/17 Dharamvir & Co. vs. Delhi Development Authority Page no. 14 of 14
JUDGMENT
OBJECTION PETITION UNDER SECTION 34 of THE ARBITRATION AND CONCILIATION ACT, 1996 AGAINST THE AWARD DATED 22.05.2017 PASSED BY THE LD.
ARBITRATOR SH. D.V. RAGHAV. S.E. (ARBN), DDA, DISMISSING THE CLAIMS OF THE PETITIONER.
1. By this judgment, I shall dispose of the objection petition under section 34 of the Arbitration And Conciliation Act, 1996 against the award dated 22.05.2017 passed by the Ld. Arbitrator Sh. D.V. RAGHAV. S.E. (ARBN), DDA, dismissing the claims of the petitioner.
2. Briefly stated the facts of the case are that a tender was invited by the respondent i.e. Delhi Development Authority (hereinafter referred to as "DDA") for maintaince of completed schemes under Rohini Zone SH for improvement of 13.00 meter road in Pocket 1-6, Sector-16, Rohini, Delhi. The tender was awarded to the petitioner vide order dated 16.07.2011. The period for completion of the work was decided as 60 days. The work was actually completed on 24.09.2011. It is stated that the amount which was released by the respondent was on a different rate as agreed between the parties at the time of the beginning of the work. Hence, the petitioner exercised his option for the appointment of an Arbitrator, who decided the claim and made and published his Award on Arb. no. 850/17 Dharamvir & Co. vs. Delhi Development Authority Page no. 14 of 14 22.05.2017.
3. The main grounds for challenge of the award are that the petitioner during the hearing dated 05.08.2016 submitted that he wanted to lead oral evidence on vital issues. However, the Abritrator erroneously concluded that no oral evidence was required. Moreover, no judicial principles / norms were followed by the Arbitrator while adjudicating the controversy. It is asserted that the award of the Arbitrator is in violation of the terms of the Agreement and is in conflict with Public Policy of India. Also, the parties were not permitted by the Arbitrator to make oral submissions and forced to give written submissions. When the petitioner failed to furnish written submissions, he wasn't given any opportunity to address oral arguments, which gives rise to justifiable doubt about his independence and impartiality. The petitioner also filed various letters for change of the Ld. Arbitrator but the same were not considered.
4. Further, it is submitted by Ld. Counsel for the petitioner that the appointment of the Arbitrator was in violation of Section 12 of the Act of 2015. It is submitted that though the Arbitrator was appointed before the coming into force of Act of 2015, but it is a basic principle of natural justice that a party can not be a Judge in its own cause. It is submitted that the sole Arbitrator which was appointed was an official of the respondent. Hence, his impartiality Arb. no. 850/17 Dharamvir & Co. vs. Delhi Development Authority Page no. 14 of 14 could not have been guaranteed at any point of time. In view of the conduct of Ld. Arbitrator wherein he dis-allowed the petitioner to lead evidence and to advance any oral arguments, it can be rightly concluded that he did not adopt an impartial behaviour towards the petitioner.
5. Ld. Counsel for the respondent has opposed the objections. It is submitted that the award has been passed by Ld. Arbitrator after following all the procedures established by law and ensuring the fairness in the trial. It is submitted that just because the Arbitrator was the official of the DDA does not mean that he was partial or has not acted as per the procedure of law. The allegations are vague and false. Further, before the filing of the present objections, the petitioner has not complied with the provision of Section 34 (5) of the Act, 1996. Hence, the objections are not maintainable. Ld. Counsel has relied upon judgment titled as: National Insurance Co. Ltd. Vs. M/s Boghara Polyfab Pvt. Ltd.
6. Before going into the merits of the case, the court must opine as to whether the present objections are liable to be dismissed for non compliance of Section 34(5) of the Act. The said provision provides that an application to set aside an arbitral award only after issuing a prior notice to the other party. Further, such an application should be accompanied by an affidavit by the applicant endorsing Arb. no. 850/17 Dharamvir & Co. vs. Delhi Development Authority Page no. 14 of 14 compliance of the said requirement. However, it has been observed by the Hon'ble Supreme Court in State of Bihar Vs. Bihar Rajya Bhumi Vikas Bank Samiti AIR 2018 SC 3862 that the said provision is directory and not mandatory. It was observed that the vested right of a party to challange an award under Section 34 of the Act can not be taken away for non compliance of issuance of prior notice before filing of arbitration petition. To construe such a provision as mandatory would defeat the advancement of justice as applications filed without adhering to requirements of Section 34 (5) would scuttle the process of justice by burying the element of fairness. Hence, in view of the above observations, the objections can not be dismissed on this ground alone.
7. The main grounds of challenge of the Award are that no opportunity was given to the petitioner to lead evidence despite repeated requests or to advance oral arguments thereby violating principles of natural justice and public policy of India. The other challenge was pertaining to the independence and impartiality of the Arbitrator and it was claimed that his conduct was malafide.
A. Applicability of the Arbitration and Conciliation (Amendment) Act, 2015
8. In Board of Control for Cricket in India v. Kochi Arb. no. 850/17 Dharamvir & Co. vs. Delhi Development Authority Page no. 14 of 14 Cricket Pvt. 21 Ltd. and Ors. AIR 2018 SC 1549, the Apex Court explained that there are two rounds of proceedings, one which are initiated before an arbitrator and the second which are initiated in the court. It was explained that if the proceedings in the court by way of Section 34 or 36 are commenced after the amendment, then it is the Amendment Act, 2015 which shall be applicable even though the arbitral award to which the objections under Section 34 pertain may have been made before the Amendment Act became effective i.e. 23.10.2015. In the present matter, the Award was also made after the date of coming into force of the Amendment Act, 2015.
9. In Sangyong Engineering and Construction Co. Ltd. v. National Highway Authority of India (NHAI) 2019 (VIII) AD SC 189 it was again reaffirmed and clarified that the amendment introduced to Section 34 of the Act w.e.f. 23.10.2015 would apply to all such applications filed after October 23, 2015 even if the underlying arbitration itself was commenced prior to the Amendment.
10. In the present case, the Arbitrator SE (Arbitrator), DDA has been appointed as Sole Arbitrator by Engineer Member, DDA vide letter dated 17.07.2014. Ld. Arbitrator entered into arbitration vide letter dated 22.07.2014 wherein a reference was made to the letter of Engineer Member DDA empowering him to proceed with the reference. The arbitrator commenced his proceedings on 22.07.2014.
Arb. no. 850/17 Dharamvir & Co. vs. Delhi Development Authority Page no. 14 of 14 The arbitration award was delivered on 22.05.2017 and the Objections under Section 34 have been filed on 19.07.2017 i.e. after 23.10.2015. Therefore, Section 34 as amended by Amendment Act, 2015 would be applicable. The objections in regard to the Award need to be considered in the light of Amendments brought by Amendment Act, 2015.
B. Appointment of Arbitrator under the Arbitration and Conciliation Act as amended in 2015: Independence and competence.
11. The basic question is that whether an officer of the respondent Department is competent to be appointed as an Arbitrator in matters where the Respondent is a party to the Lis.
12. The Arbitrator in the present case was earlier Sh. S.K. Jain and later Mr. D. V. Raghav. Both were at the post of Superintendent Engineer (Arbitration). Both were an employee of Delhi Development Authority. Section 12 (5) of the Amendment Act, 2015 provides that where 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 he shall be ineligible to be appointed as an Arbitrator.
Clause 1 & 5 of Seventh Schedule read as under:
"1.The Arbitrator is an employee, consultant, Arb. no. 850/17 Dharamvir & Co. vs. Delhi Development Authority Page no. 14 of 14 advisor or has any other past or present business relationship with a party.
2. ......
3. .....
4. .....
5. The Arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration."
13. The Fifth Schedule to the Act enumerates the grounds which may give rise to justifiable doubts of this nature. However, the Seventh Schedule mentions those circumstances which would attract the provisions of sub-section (5) of Section 12 and ipso facto without anything further, would nullify any prior agreement to the contrary. If an Arbitrator is an employee, a consultant, an advisor or has any past or present business relationship with a party, he is rendered ineligible to act as an Arbitrator. Likewise, that person is treated as incompetent to perform the role of Arbitrator, who is a manager, director or part of the management or has a single controlling influence in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration. Similarly, persons who regularly advised the appointing party or affiliate of the appointing party are incapacitated. A comprehensive list is enumerated in Schedule 5 and Schedule 7 of the Amendment Arb. no. 850/17 Dharamvir & Co. vs. Delhi Development Authority Page no. 14 of 14 Act, 2015.
14. In Aravali Power Company Pvt. Ltd. v M/S. Era Infra Engineering Ltd (2017) 15 SCC 32 (which was post the Amendment Act, 2015) it was observed that in cases governed by 1996 Act as it stood before amendment, the fact that the named Arbitrator is an employee of one of the parties is not ipso facto a ground to raise presumption of bias or impartiality or lack of independence on his part. However, in cases governed after the Amendment Act, 2015 if an Arbitration clause finds foul with the amended provisions the appointment of the Arbitrator even if apparently in conformity with the arbitration clause in the agreement, it would be illegal and the court would be within its powers to appoint such Arbitrator as may be permissible. It was further observed that as per Sub-section (5) of Section 12 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, he shall be ineligible to be appointed as an Arbitrator. Similar were the observations made by the Apex Court in Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Limited (2017) 4 SCC
665.
15. It was held by in Ellora Paper Mills Limited Vs. The Arb. no. 850/17 Dharamvir & Co. vs. Delhi Development Authority Page no. 14 of 14 State of Madhya Pradesh Civil Appeal no. 7697 of 2021, decided on 04.01.2022 by Hon'ble Supreme Court of India that:
"7. ... Therefore, as per Amendment Act, 2015 - Sub-section (5) of Section 12 read with Seventh Schedule, all of them have become ineligible to become arbitrators and to continue as arbitrators. Section 12 has been amended by Amendment Act, 2015 based on the recommendations of the Law Commission, which specifically dealt with the issue of "neutrality of arbitrators". To achieve the main purpose for amending the provision, namely, to provide for "neutrality of arbitrators", sub-section (5) of Section 12 lays down that 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, he shall be ineligible to be appointed as an arbitrator.
In such an eventuality, i.e., when the arbitration clause is found to be foul with the amended provision, the appointment of the arbitrator would be beyond the pale of the arbitration agreement, empowering the Court to appoint such an arbitrator as may be permissible. That would be the effect of the non obstante clause contained in sub-section (5) of Section 12 and the other party cannot insist upon the appointment of the arbitrator in terms of the arbitration agreement.
8. An identical question came to be considered by this Court in the case of Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited (supra), and after considering the decisions of this Court in the case of TRF (supra) and other decisions on the point, in paragraphs 13, 14 and 15, it is observed and held Arb. no. 850/17 Dharamvir & Co. vs. Delhi Development Authority Page no. 14 of 14 as under:
14. It is further observed and held by this Court in the aforesaid decision that independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which apply to all judicial and quasi-judicial proceedings. It is further observed that it is for this reason that notwithstanding the fact that relationship between the parties, to the arbitration and the arbitrators themselves are contractual in nature and the source of an arbitrator's appointment is deduced from the agreement entered into between the parties, notwithstanding the same non-
independence and non-impartiality of such arbitrator would render him ineligible to conduct the arbitration. It is further observed that the genesis behind this rational is that even when an arbitrator is appointed in terms of contract and by the parties to the contract, he is independent of the parties.
15. In the case of Bharat Broadband Network Limited (Supra), it is observed that Sub-section (5) of Section 12 read with Seventh Schedule made it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes 'ineligible' to act as an arbitrator. It is further observed that once he becomes 'ineligible', it is clear that he then become dejure unable to perform his functions inasmuch as in law, he is regarded as 'ineligible'. It further is observed in the said decision that where a person becomes ineligible to be appointed as an arbitrator there is no question of challenge to such arbitrator before Arb. no. 850/17 Dharamvir & Co. vs. Delhi Development Authority Page no. 14 of 14 such arbitrator in such a case i.e. a case which falls under Section 14(1)(a) of the Act gets attracted inasmuch as the arbitrator becomes, as a matter of law (i.e., de jure), unable to perform his functions under Section 12(5), being ineligible to be appointed as an arbitrator and this being so, his mandate automatically terminates, and he shall then be substituted by another arbitrator."
16. In the light of law as enumerated above it can be summed up that any Officer himself or an employee appointed by him to act as an Arbitrator, is disqualified to be an Arbitrator. The Ld. Arbitrator in the present case is the Superintendent Engineer (Arbitration) who had been appointed by Engineer Member, DDA on behalf of DDA who suffers from a dejure disqualification according to Section 12 read with Schedule 7 and the arbitration award so delivered by him is liable to be set aside on this ground itself.
C. Award is violative of Public Policy of India and Principles of Natural Justice:
17. The award has also been assailed on the grounds that the Arbitrator did not consider the documents of the petitioner and also did not give any opportunity to the petitioner to lead any evidence in support of its claim and has violated principles of natural justice and Public Policy of India.
18. The grounds to challenge an Award have been enumerated Arb. no. 850/17 Dharamvir & Co. vs. Delhi Development Authority Page no. 14 of 14 in S.34 of the Amendment Act, 2015. The scope of challenge has been explained in Sangyong Engineering and Construction Co. Ltd. (supra) wherein it was observed that the grounds of challenge of an award under Section 34 have been amended by Amendment Act, 2015. The amended Sub Section 2A of Section 34 which was added by way of amendment rules as follows:
"34. Application for setting aside arbitral award-
XXX XXX XXX (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 re appreciation of evidence."
19. It was observed that it is now clear that the expression "public policy of India" as contained in Section 34 would now mean the "fundamental policy of Indian law" as explained in Associate Builders vs Delhi Development Authority (2015) 3 SCC 49 i.e. the fundamental policy of Indian law would be relegated to the Renusagar Power Co. Ltd. v. General Electronic Co., 1994 Supp (1) SCC 644 understanding of this expression. However, principles of natural justice as contained in Section 18 and 34(2) (a) (iii) of Arb. no. 850/17 Dharamvir & Co. vs. Delhi Development Authority Page no. 14 of 14 1996 Act shall continue to be the ground of challenge of an award as is provided in the case of Associate Builders (Supra). It was noted that the ground for interference in so far as interest of India is concerned; it has been deleted and therefore no longer survives. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". This would apply only to such arbitral awards that shock the conscience of thr court and that can be set aside on this ground.
20. In the present case, it is a matter of record that Ld. Arbitrator did not permit the petitioner to lead evidence. He gave his finding that the oral evidence was not required to be led. In the opinion of the court, this amounts to violation of the principles of natural justice. Hence, the Award has been passed in violation of public policy. Hence, for the reasons discussed above, the arbitral award is hereby set aside. Parties to bear their own cost. File be consigned to Record Room.
Announced in open court Digitally signed
on 9th February, 2023. RUCHIKA by RUCHIKA
SINGLA
SINGLA Date: 2023.02.09
16:14:02 +0530
(RUCHIKA SINGLA)
Addl. Distt. Judge-03, North-West Distt.,
Rohini Courts, Delhi.
This judgment contains 14 pages and each
page is checked and signed by me.
Arb. no. 850/17 Dharamvir & Co. vs. Delhi Development Authority Page no. 14 of 14