Delhi High Court
Satnam Singh vs Nsic on 22 April, 2009
Author: Shiv Narayan Dhingra
Bench: Shiv Narayan Dhingra
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Reserve: April 06, 2009
Date of Order: April 22, 2009
+ OMP 372/1999
% 22.04.2009
Satnam Singh ...Petitioner
Through : Mr. L.C. Goyal, Ms. Partibha Kumari and Ms. Jyoti Bansi,
Advocates
Versus
NSIC ...Respondent
Through: Mr. A.K. Thakur, Mr.R.K. Mishra and Mr. Rajeev Arora,
Advocates
AND
+ OMP 373/1999
%
Jaspal Singh ...Petitioner
Through : Mr. L.C. Goyal, Ms. Partibha Kumari and Ms. Jyoti Bansi,
Advocates
Versus
NSIC ...Respondent
Through: Mr. A.K. Thakur, Mr.R.K. Mishra and Mr. Rajeev Arora,
Advocates
JUSTICE SHIV NARAYAN DHINGRA
1. Whether reporters of local papers may be allowed to see the judgment?
2. To be referred to the reporter or not?
3. Whether judgment should be reported in Digest?
JUDGMENT
1. By this common order, I shall dispose of the above two petitions whereby, petitioners have assailed an award dated 8th September 1999 passed by the Sole Arbitrator thereby awarding a sum of Rs.82,77,485 in favour of Claimant (Respondent herein) along with 24% interest in respect of the disputes between the parties under the lease agreements dated 22 nd OMP 372 & 373 of 1999 Page 1 Of 15 February 1993 and dated 9th July 1993.
2. Brief facts relevant for the purpose of deciding these petitions are that petitioner Satnam Singh had filed applications with the respondent for obtaining equipments under the Leasing Scheme. These applications of the petitioner were allowed and respondent agreed for supply of machinery/ equipments under the equipment lease agreements dated 22nd February 1993 and 9th July 1993. The petitioner/ deposited three months rental as interest free security with the respondent to be refunded on termination or expiry of the lease agreements after adjusting the outstanding rentals. The lease agreements dated 22nd February 1993 and 9th July 1993 signed between the parties created a binding contract between the parties. On the date of lease agreement of 22nd February 1993, the value of the equipment was Rs.72,66,900/-. The petitioner Satnam Singh was to pay quarterly lease amount of Rs.3,63,345/- for a period of five years and thereafter was to pay the residual value of equipment being Rs.7,56,960/-. Similarly, under lease agreement dated 9th July 1993 the lease value of equipment was Rs.13,98,300/- and the quarterly rent was Rs.69,950/-. The petitioner was to pay 20 quarterly installments of above amount. Petitioner Jaspal Singh stood guarantor for regular payment of installments by Satnam Singh and handed over title deeds of his property No.3006 Sector-19 D, Chandigarh with claimant and created an equitable mortgage in favour of claimant. The equitable mortgage was created to secure the lease money and to ensure due performance of contract.
3. After entering into these lease agreements, the petitioner got delivery of the equipments, however, petitioner failed to abide by the terms of the OMP 372 & 373 of 1999 Page 2 Of 15 lease agreements and did not adhere to the payment of installments, as agreed between the parties. The respondent/claimant gave a notice to the petitioners regarding irregularities in payments of lease rentals and asked the petitioners to clear all arrears and pay the lease rental regularly. However, the petitioners showed their financial difficulties and did not pay the lease money as agreed between the parties. Several cheques issued by the petitioners to the respondent/claimant towards lease rental got dishonoured and returned uncashed. The respondent vide a legal notice dated 12th February 1998 asked the petitioner to clear the arrears along with interest as agreed upon and demanded a sum of Rs.86,63,007/- i.e. the due amount.
4. The lease agreement contained an arbitration clause according to which in the event of disputes between the parties, the matter was to be referred to Arbitrator. The arbitration clause contained in the lease agreement reads as under:-
31. ARBITRATION: (i) If any dispute or difference arises between the Corporation and the Lessee with regard to the construction, meaning and effect of these presents or any part thereof or any other matter under these presents, interpretation or termination of this agreement, the same shall be referred to the Sole Arbitration of the Chairman of the Corporation or such officer as he may appoint to be the Arbitrator. There would be no objection that the Arbitration is an employee of the Corporation, that he had to deal with the matters to which this agreement relates or that in the course of his duties as an employee of the Corporation he has expressed his views on all or any of the matters in dispute of difference. The award of the Chairman or the officer so appointed by him shall be final and binding on the parties OMP 372 & 373 of 1999 Page 3 Of 15 hereto this agreement.
(ii) The venue of the arbitration shall be at Delhi or at any other place where Regional offices of the Corporation is situated, at the discretion of the Chairman and the courts at the places of respective Regional offices alone shall have exclusive jurisdiction."
5. The petitioners after receipt of notice from the respondent instead of clearing the arrears filed a suit at Chandigarh for permanent and mandatory injunction against the respondent/claimant. The respondent /claimant moved an application under Section 8 of the Arbitration & Conciliation Act, 1996 telling the Court that the suit was not maintainable and it should stay the suit. The respondent appointed Shri Rameshwar Datta, Estate Officer in NSIC Limited, vide letter dated 18th May 1998, as the Arbitrator in terms of the arbitration clause. The arbitrator so appointed accepted the appointment as an Arbitrator vide his letter dated 16th June 1998 and declared that he had no financial or other interest in any of the parties to the disputes. The copy of the letter dated 18th May 1998 appointing Arbitrator was sent to the petitioners by the respondent/claimant. The Arbitrator also sent a copy of his letter dated 16th June 1998 to the petitioners. The Arbitrator appointed by the respondent proceeded with the claim and passed an award on 8th September 1999 thereby allowing the claims of the claimant. It is this award which is the subject matter of challenge through these petitions.
6. The petitioners initially filed objections challenging the award on the ground that there was a fraud played in the appointment of the Arbitrator. The Arbitrator was appointed by the Claimant/respondent despite the fact that the suit filed by the petitioners was pending before the learned Civil Judge, Chandigarh and an application under Section 8 of the Arbitration & OMP 372 & 373 of 1999 Page 4 Of 15 Conciliation Act made by the Claimant was also pending. Hence, the appointment itself was illegal and resulted into a fraud. The other ground taken by the petitioners for challenging the award was that the Arbitrator did not enter into upon the reference for nearly seven months and this conduct of the Arbitrator reflected his bias towards the Claimant. The Arbitrator otherwise met with an accident and became critically ill before 5 th April 1999. It is submitted that the Arbitrator was not in a position to apply his mind on 20th July 1999 or afterwards i.e. on 8th September 1999. The Arbitrator acted as per the wishes of the claimant/ respondent and instead of awarding agreed rate of interest of 18% per annum, awarded interest @ 24% per annum which shows biased attitude of the Arbitrator. It is pleaded that the whole award was a fraud because of this.
7. The award has also been challenged on the ground that the Arbitrator misconducted himself as he had not followed the law and the facts of the proceeding. After issuing notice for 5th April 1999, the Arbitrator met with an accident and no proceedings took place on 5th April 1999. Thus the notice sent prior to 5th April 1999 was meaningless. The arbitral proceedings which took place on 6th July 1999 were null and void due to this reason and the petitioners being proceeded ex parte on 20th July 1999, was illegal.
8. The other ground taken by the petitioners is that the lease agreement and the alleged award were not enforceable as the Arbitrator had lack of inherent jurisdiction for conducting arbitral proceedings. The subject matter was situated in Chandigarh and only court at Chandigarh would have jurisdiction. It is submitted that the petitioner had paid Rs.38,71,500/- to the respondent No.1 and the same has not been accounted for by the Arbitrator.
OMP 372 & 373 of 1999 Page 5 Of 15 The lease agreements dated 22nd February 1999 and 9th July 1999 were null and void ab initio and the waste papers because the agreements were totally one-sided and in favour of the claimant/ respondent No.1 and the petitioners who had to take machinery on loan were merely asked to sign blank printed forms in the margin and thus these agreements were not enforceable.
9. The petitioners later on amended their objections so as to bring them within scope of Section 34. The amended objections/ recasted objections also mentioned the same grounds little differently. The only additional ground stated by the petitioners is that the Arbitrator failed to appreciate that there was no reference before the Arbitrator to be decided. Since the jurisdiction of the Arbitrator had been challenged, the Arbitrator had no authority to proceed against the petitioners ex parte. The Arbitrator should have decided jurisdiction issue first before proceeding further with the reference. The Arbitrator failed to inform the petitioners about the proceedings dated 6th July 1999 when they were proceeded ex parte. Similarly, the Arbitrator failed to ensure due service of the proceedings dated 6th July 1999 and 20th July 1999. One of the objections is that the Arbitration agreements were made under the Arbitration Act, 1940 so the proceedings initiated under the Arbitration Act, 1996 were illegal. No proceedings under the Act of 1996 could be initiated without giving a notice under Section 21 read with Section 85 of the Act but no such notice was given under the Act and the award was, therefore, null and void. The petitioners also stated that the Arbitrator took into consideration hypothetical data and gave an award in respect of dues calculated on approximate basis and the penal charges with effect from 1 st April 1997 to 31st January 1999 have been wrongly awarded. It is, therefore, prayed that the award be declared null and void.
OMP 372 & 373 of 1999 Page 6 Of 15
10. A perusal of record of the Arbitrator would show that the Arbitrator sent a copy of his letter dated 16.6.1998 to the petitioner signifying his acceptance of appointment as Arbitrator. The petitioner sent him a notice dated 1st July 1998 through an advocate Mr. Raman Mahajan telling the Arbitrator and the respondent that a civil suit filed by the petitioners against the respondent was pending and an application under Section 8 of the Arbitration & Conciliation Act, 1996 filed by the respondent was also pending. The respondent/ claimant has lost its right to appoint the Arbitrator, therefore, the letter dated 18th May 1998 appointing the Arbitrator should be withdrawn. The Arbitrator was also advised not to accept the reference and refrain from proceeding with the matter as his appointment as an Arbitrator was not accepted by the petitioners. However, the respondent after ensuring about the legal position and after consulting its legal advisors came to conclusion that the Arbitrator was rightly appointed and the proceedings can continue and did not withdraw the letter. In the meantime, the petitioner wrote another letter dated 9th August 1998 to the Arbitrator telling him that he had financial interest with the respondent therefore he should not act as arbitrator. He was again told that unless the suit of petitioners was not finally decided, the Arbitrator should refrain from entering into the reference. The Arbitrator, however, sent letter dated 11th January 1999 to the petitioners telling the petitioners that he was not aware of any circumstances which would debar him from acting as an Arbitrator. He also declared that he had no financial or other interest with any of the parties and he called upon the parties to file their claims /counter claim along with documents within 15 days from the receipt of letter along with list of witnesses. He asked the parties to remain present either in person or through their attorney on 1 st February 1999 at 4 pm at NSIC Bhawan, Okhla Industrial Estate, New Delhi. In response OMP 372 & 373 of 1999 Page 7 Of 15 to this letter of 11th January 1999, the petitioner again wrote to the Arbitrator refusing him to recognize as an Arbitrator and told him that the act of the Arbitrator in proceeding with the arbitral proceedings and asking for filing claim/ counter claim amounted to contempt of Court. A copy of reply filed by the petitioner in the Court of Mr. K.G. Garg, SJIC, Chandigarh also shows that the petitioners took the same stand before the Civil Judge by alleging that act of Mr. Rameshwar Datta, Estate Officer accepting reference during pendency of the suit before the Court, was an act of overreaching the Court.
11. The respondent filed its claim before the Arbitrator. On 23 rd February 1999 i.e. on the date fixed when none appeared for the petitioners. The Arbitrator again sent a notice to the petitioners that the matter would be taken up on 5th April 1999. In response to the notice, the petitioners wrote him a letter of 1st April 1999 telling him that his appointment as Arbitrator was not acceptable to them. Since a civil suit filed by them was pending at Chandigarh, he (the Arbitrator) should refrain from proceeding with arbitration. In the meantime, the learned Arbitrator met with an accident and for three months could not hold proceedings and he held proceedings on 6th July 1999. Since the petitioner had made it clear to the Arbitrator that they would not appear and had written letters to him to this effect, the Arbitrator proceeded ex parte against the petitioners and fixed the date of evidence of the respondent as 20th July 1999. A copy of proceedings 6th July 1999 was sent to the petitioners. The ex parte evidence was taken on record on 20 th July 1999 and the award was pronounced on 8th September 1999.
12. The counsel for the petitioner, though had not taken this objection that the Arbitrator, an Estate Officer of the respondent's corporation, had already OMP 372 & 373 of 1999 Page 8 Of 15 retired from service of respondent when he passed the award, but during arguments, raised this contention. He submitted that the award was vitiated for this reason alone. The other grounds addressed during arguments are the same as raised in the objections.
13. A perusal of record of the arbitral proceedings would show that the petitioners not only had the knowledge about the appointment of the Arbitrator and the Arbitrator's entering into reference, but the petitioners also wrote letters to the Arbitrator telling the Arbitrator that he should not act as Arbitrator and should not enter upon the reference. The petitioners deliberately did not appear before the Arbitrator nor filed reply to the claim of the claimant and took the plea that since a suit filed by them was pending in the Civil Court at Chandigarh, petitioners do not recognize the Arbitrator.
14. Section 8 of the Arbitration and Conciliation Act, 1996 makes it mandatory for the Court or the judicial authority before which the an action is brought in a matter, which is the subject matter of an Arbitration agreement, not to entertain the suit/ petition and to refer the parties to the Arbitration. Section 8 does not put a bar on the parties from appointing an Arbitrator. A party that moves an application under Section 8 informing the Court that there was an arbitration agreement and the suit should not be entertained and the plaintiff should be sent to Arbitrator, does not loss right to appoint an Arbitrator under the arbitration agreement. Even during pendency of an application under Section 8, either party has a right to appoint an Arbitrator in accordance with the terms of the Arbitration agreement and to proceed further with the Arbitration. Making of an application under Section 8 does not amount to stay of the Arbitral proceedings nor does it take away the OMP 372 & 373 of 1999 Page 9 Of 15 jurisdiction of the Arbitrator to act. The objection taken by the petitioners regarding jurisdiction of the Arbitrator because of pendency of an application under Section 8 or because of the pendency of the suit before the civil court at Chandigarh is a baseless and frivolous objection and cannot be a ground for setting aside the award.
15. The other objection taken by the petitioners regarding Arbitrator being an interested party is also baseless. The arbitration agreement as reproduced above in paragraph 4, shows that at the time of entering into the contract, the petitioner was made aware as to who will be the Arbitrator. The petitioner has failed to bring forth any fact which would show that the Arbitrator was biased or he had not acted impartially or he had any interest in the subject matter. Merely because the Arbitrator was an employee of the respondent/claimant would not debar the Arbitrator from acting in the matter, more so when the arbitration agreement specifically provided about the identity of the Arbitrator. The petitioner is bound by the arbitration agreement and the contract between the parties. Therefore, this objection is not sustainable.
16. The other contention of the petitioner that the petitioner was not informed of the proceedings and the venue of the arbitration is equally baseless in view of the correspondence made by the petitioner with the Arbitrator and with the respondent. The petitioner was very well aware of the arbitral proceedings and the reference and was also aware of the venue of arbitration. The petitioner in fact had been writing letters to the Arbitrator at the same venue. The petitioner deliberately refused to participate in the Arbitral proceedings and therefore cannot take this objection for setting aside OMP 372 & 373 of 1999 Page 10 Of 15 the award.
17. The other objection taken by the petitioner is regarding non-issuance of notice by the Arbitrator after the Arbitrator proceeded ex parte against the petitioners. This is factually incorrect. The arbitral record would show that a copy of the proceedings was sent to the petitioners after the petitioners were proceeded ex parte and the matter was fixed for ex parte evidence. The plea taken by the petitioners is, therefore, baseless. The petitioner has relied upon Bal Kishan v. Mohini Finance Co. 2007 V AD (Delhi) 97. This case relied upon by the petitioner is of no help to the petitioner since the facts and circumstances of the present case are altogether different. In the present case, the Arbitrator at every stage informed the petitioners about the proceedings and the petitioners at every step had been telling the Arbitrator not to proceed with the matter further and not to commit contempt of Court. I consider that it was not for the petitioners to decide whether the Arbitrator was committing contempt of court or not. The petitioners were supposed to appear before the Arbitrator and file their reply to the claims and contest the claims. Since the petitioners refused to contest the claims, the petitioners now cannot take the plea that the proceedings before the Arbitrator stood vitiated. An ex parte award is a good award where it is passed after due notice to the respondent and respondent refuses to appear before the Arbitrator on the plea that he does not submit to the jurisdiction of the Arbitrator or he does not recognize the Arbitrator to be rightly appointed. An arbitral award can be set aside under Section 34(2) only where the parties making an application was not given proper notice of the appointment of the Arbitrator or of the Arbitral proceedings or otherwise was unable to present his case. In the present case, the receipt of notice of appointment of the OMP 372 & 373 of 1999 Page 11 Of 15 Arbitrator is admitted from the correspondence of the petitioners. The receipt of notice of initiation of the arbitral proceedings is also admitted in view of the letters written by the petitioners to the Arbitrator asking the Arbitrator not to proceed further with the arbitration as it would tantamount to contempt of Court. A party cannot keep on threatening the Arbitrator of contempt of Court and keep on refusing to appear before the Arbitrator. If such an act is done by a party then it is done to its own peril. In the present case, the petitioners kept on threatening that they would not appear before the Arbitrator, the petitioners did so at their own peril. They cannot be allowed to say that they were not having proper notice. A willful abstention from the arbitral proceedings does not amount to non service of notice. A willful abstention from arbitration proceedings would only mean that the petitioners have to be prepared to suffer the consequence of willful abstention. The case of the petitioners is also not covered under 'otherwise unable to present his case'. The petitioners deliberately did not appear before the Arbitrator on the ground that the petitioners' suit was pending before the Civil Court, Chandigarh while the petitioners were very well aware that the Civil Court at Chandigarh had not stayed the arbitral proceedings and the Arbitrator was continuing with the proceedings. The inability to present the case before the Arbitrator must be such which is not invented or created by the party or is not carved out for the purpose of attracting the provisions of Section 34(2) for filing an application to set aside the award. Whether a party was unable to present his case would depend upon the facts and circumstances of each case. In the present case, the petitioner had deliberately not appeared before the Arbitrator and it is not a case where the petitioner was unable to appear before the Arbitrator.
OMP 372 & 373 of 1999 Page 12 Of 15
18. The petitioners contended that the Arbitrator got retired on 20th February 1999 while the award was passed on 8th September 1999 thus the award was a nullity. The petitioner relied upon Union of India v. Jagat Ram Trehan 1996 (36) DRJ 366 [DB]. In the cited case the Arbitration Clause specifically provided that the Arbitrator shall cease to act as Arbitrator on being transferred or vacating the office. The Arbitrator in that case was on deputation as Arbitrator and during the proceedings he was transferred on 20th November 1990, however, he passed the award on 5th December 1990. In view of the peculiar arbitration clause wherein it was provided that arbitral proceedings shall cease, the Court held that in view of this clause, the Arbitrator had become functuous officio.
19. The circumstances and the facts of the present case are altogether different from Jagat Ram's case (supra). In the present case, the arbitration clause did not provide that in case of retirement or transfer, the arbitration proceedings shall come to standstill. In the present case, the arbitral proceedings were to be conducted either by the Chairman of the Corporation himself or he could designate any officer of the Corporation as Arbitrator. The person he designated was Shri Rameshwar Datta by name. At the time when he was designated, he was working as an Estate Officer and he entered into the reference having been appointed as sole Arbitrator under the agreement. Even if he retired, there was no restrain upon him from continuing to act as an Arbitrator as the arbitration agreement did not provide that a new arbitrator had to be appointed in case of retirement or transfer or relinquishment of office by the Arbitrator. The Court should not interfere in the arbitration award on such flimsy and whimsical grounds. The basic approach of the Courts towards arbitration award is to support rather than OMP 372 & 373 of 1999 Page 13 Of 15 destroy it merely on some technical grounds. The supervisory role of the Courts is only to ensure that the principles of natural justice are followed and to see that while making an award, law of the land is followed. The scheme and purport of the Arbitration Act is of keeping the supervisory role of the Courts at minimum level and an award cannot be set aside on such grounds as taken by the petitioner in this case. Even if the Arbitrator in this case has retired, there was no bar on the Arbitrator from completing the award. The Arbitrator was appointed by name and not by office. Apart from this, the petitioner had not brought on record any document to show that the learned Arbitrator had retired before making the award. Moreover, this ground has been taken by the petitioners only during arguments. The petitioner has not taken this ground in the objections.
20. The petitioners' other contention that the Arbitration Act, 1940 was applicable is not tenable since in this case, the arbitration was invoked after coming into force of the new Act and only provisions of Section 1996 would apply and not the provisions of Act of 1940 would apply. The petitioner himself has filed the instant petition under Section 34 of the Arbitration & Conciliation Act, 1996 and he has not filed objections under Section 1940 Act. Thus, this objection is a frivolous and baseless objection.
21. The award passed by the Arbitrator is based on evidence and facts. Except for the interest part, which seems to be little on the higher side, I find nothing wrong in the award. The Arbitrator has granted 24% interest on the award amount from the date of claim till realization. In the year 1999, the interest regime was in that region. The bank lending rate which used to be around 18 to 21 % in 1998-99. The Arbitrator awarded this rate of interest OMP 372 & 373 of 1999 Page 14 Of 15 keeping in mind the interest regime at that time. However, I consider that looking into the fact that the interest rates changed drastically afterwards, it would be appropriate if the rate of interest as awarded by the Arbitrator is reduced from 24% per annum to 12% per annum from the date of passing of the award till realization. It is ordered accordingly.
22. With above modification in the interest part, the other objections raised by the petitioner are hereby dismissed. The petition stands disposed of. In the facts and circumstances, the parties are left to bear their own costs.
April 22, 2009 SHIV NARAYAN DHINGRA J. rd OMP 372 & 373 of 1999 Page 15 Of 15