Delhi District Court
Rebecca Sumitra Francis And Anr vs L And T Housing Finance Ltd on 1 December, 2023
IN THE COURT OF MS. RAVINDER BEDI
DISTRICT JUDGE (COMMERCIAL COURT)-12
CENTRAL DISTRICT, TIS HAZARI COURTS, DELHI.
In the matter of:-
OMP (COMM) NO. 27/19
1. Rebecca Sumita Francis
W/o Samuel Ragland Francis,
2. Samual Ragland Francis
S/o D.A.J. Francis,
Both R/o : No. 41-E, Madhavaram High Road,
Padi, Chennai, Tamil Nadu-600050.
......... Petitioners
VERSUS
L & T Housing Finance Ltd.
Having its Registered Office at :-
Plot No. 177, CST Road, Kalina Santacruz,
East, Mumbai-400098.
Head Office at :-
15th floor, Rupa Solitare,
Office Nos. 1508 & 1509, Building No. A-1, Sector -1,
Mhape Millennium Business Park, Navi Mumbai-400710.
Branch Office:
5th Floor, DCM Building, 16 Barakhamba Road,
Connaught Place,
New Delhi-110001.
........Respondent
OMP (Comm) 27/19 Rebecca Sumita Francis & Ors. vs. L & T Housing Finance Ltd.
Page no.1/13
ORDER
1. Petitioners have filed the present petition raising objections under Section 34 of the Arbitration and Conciliation Act 1996 (hereinafter referred to as 'The Act') for setting aside the ex-parte Arbitral Award dated 17.09.2018 passed by Ld. Sole Arbitrator.
2. The grounds for challenging the impugned Award as stated in the petition are as follows:-
a) Petitioners are not liable for any payment towards Respondent, since loan account allegedly assigned by the erstwhile Citi Corp. India Financial Ltd (CCFIL) to the Respondent by letter of assignment dated 30.11.2013 was without intimation to the Petitioners and they being unaware of any such assignment deed.
b) The sole Arbitrator was appointed unilaterally by the Respondent without consent of Petitioners.
c) Impugned Award is bad because there is no Disclosure as per Section-12 and 5th , 6th & 7th Schedule of the Act, (as inserted in 2016 amendment) made by Sole Arbitrator.
d) The "Home Loan agreement' dated 07.09.2007 Ex.CW-1/3 based on which arbitral proceedings are conducted by ld. Arbitrator does not relate to Petitioners and which shows the name of borrower as one Ponragu. P.R. OMP (Comm) 27/19 Rebecca Sumita Francis & Ors. vs. L & T Housing Finance Ltd.
Page no.2/133. Briefly stated, Petitioners being borrowers availed the financial facilities i.e. loan of Rs. 15,15,286/- against securing Property no.41-E, Madhavaram High Road, Padi, Chennai, Tamil Nadu as mortgaged to Respondent, extended by CCFIL(Respondent- an erstwhile company) through an Agreement. The CCFIL was subrogated by Assignment Deed dated 30.11.2013. The Petitioners agreed to repay the said loan in 171 EMIs of Rs.18,747/- each. The case of Respondent is that Petitioners despite requests and reminders and efforts for amicable settlement persuaded by Respondent on all occasions failed to adhere to the financial discipline of loan repayments. The Respondent recalled the loan facility by issuing a Loan recall Notice dated 31.03.2018. Respondent vide their reference letter 11.04.2018 referred the dispute to arbitration as per clause 10.7(h) of the loan agreement.
Submissions of Ld. Counsel for Petitioners
4. Ld. Counsel for Petitioners submits that alleged Agreement Ex.CW1/3 alongwith arbitral record has been executed at Chennai, (Madras) and Award passed by conducting arbitral proceedings in Delhi is not sustainable. Ld. Counsel further submits that Petitioners were still paying EMIs even during pendency of arbitral proceedings and the terms of Loan agreement had to expire only in July, 2021. In such a situation, in the absence of any notice of Demand or objections from Respondent, sudden invocation of arbitral proceedings was not warranted. He submits that the Petitioners were not served with mandatory Notice under Section-21 of 'the Act' for the purpose of facilitating a consensus on the appointment of an OMP (Comm) 27/19 Rebecca Sumita Francis & Ors. vs. L & T Housing Finance Ltd.
Page no.3/13arbitrator and whole arbitral proceedings are non-est in the eyes of law, being hit by Section 21 of the Act. Reliance is placed upon Alupro Building Systems Pvt. Ltd. Vs. Ozone Overseas Pvt. Ltd. (DOD 28.02.2017) to contend that the requirement of receipt of notice by Respondents in terms of Section 21 of the Act is a condition precedent for the commencement of arbitral proceedings and said mandatory requirement has not been complied with.
5. Another limb of submission of Ld. Counsel for Petitioners is that Ld. Sole Arbitrator had not made any disclosure as required under Section 12 (5) of the Act. He submits that the impugned award is liable to be set aside on this count alone. It is submitted that in case Sole Arbitrator was involved in number of matters by Respondent would itself raise justifiable grounds as to his independence and impartiality. In the absence of any disclosure in writing, this vitiates whole arbitration proceedings as well as impugned Award.
6. Ld. Counsel submits that act of appointment of Arbitrator was unilateral and thus, Arbitrator was ineligible to act and the proceedings are non-est. Reliance is further placed upon the decisions of Perkins Eastman Architects DPC & Anr v. HSCC (India) Ltd. 2020 (20) SCC 760; Ram Kumar & Ors Vs. Shriram Transport Finance Co. Ltd (DOD 05.12.2022) & Gupta Bros India Vs. The Press Trust of India Limited (DOD 02.02.2023) .
OMP (Comm) 27/19 Rebecca Sumita Francis & Ors. vs. L & T Housing Finance Ltd.
Page no.4/13Submissions of Ld. Counsel for Respondent
7. Ld. Counsel for Respondent does not dispute that Ld. Sole Arbitrator has been appointed unilaterally. However, he refers to the Notice dated 12.04.2018 sent by ld. Arbitrator upon Petitioners for initiation of arbitral proceedings. Ld. Counsel submits that the plea of non-intimation of the Assignment deed dated 30.11.2013 taken by Petitioners is without force as Petitioners were duly communicated about the same. Ld. Counsel would argue that the disputes were referred by the Respondent by letter dated 11.04.2018 to the Ld. Arbitrator for adjudication as per clause 10.7 (h) of the agreement. Ld. Counsel submits that though Petitioners replied the letter dated 14.05.2018; they failed to appear before Ld. Arbitrator. Ld. Counsel also denies the receipt of any Reply dated 08.05.2018 of Petitioners either by Ld. Arbitrator or Respondent. Ld. Counsel has taken me to the arbitration proceedings to submit that Petitioners themselves chose to stay away from proceedings.
8. Ld. Counsel for Respondent further contends that the objection with regard to the unilateral appointment of Arbitrator or the proceedings being hit by Section 12(5) of 'The Act' can not be raised in a Petition under Section 34 of 'The Act' in view of settled law laid down in catena of decisions.
9. I have heard Ld. Counsel for parties, perused the record including arbitral record and gone through written arguments in light of the relevant statutory provisions of 'The Act'.
OMP (Comm) 27/19 Rebecca Sumita Francis & Ors. vs. L & T Housing Finance Ltd.
Page no.5/1310. The settled position in respect of the challenge under Section 34 of the Act as it stands crystallized is that the findings of fact as well of law of the Arbitrator / Arbitral Tribunal are ordinarily not amenable to interference under Section 34 of the Act. The Court cannot reappraise the evidence nor it is open to the Court to sit in appeal over conclusion the Arbitrator. It is only where the finding is either contrary to the terms of the Contract between the parties or ex facie perverse, arbitrary, capricious or when conscience of the court is shocked that interference by Courts becomes necessary. The Arbitrator / Arbitral Tribunal is the final arbiter on facts as well as in law and even errors, factual or legal which stop short of perversity do not merit such interference under Section 34 of the Act.
Issue of assignment of Loan Agreement without consent of borrower
11. The plea taken by Petitioners is that they were unaware of any transfer between CCFIL and L&T and it is the CCFIL, from which Petitioners took loan and they are not bound by any subsequent assignment between CCFIL and Respondent. The issue is no more res-Integra in this regard. The Hon'ble High Court of Delhi following its earlier judgment of Bestech India Private Ltd. v. MGF Developments Ltd ( (2009) 161 DLT 3, (wherein it held that if the contract is assignable, the arbitration agreement enshrined in the contract will follow the assignment), in its judgment in Kotak Mahindra Bank v. S. Nagabhushan & Ors. (2018 SCC OnLine Del 6832), held that if the contract is assignable, then the arbitration agreement enshrined in the contract will follow the assignment. It was observed that post the assignment of the loan agreement, the rights OMP (Comm) 27/19 Rebecca Sumita Francis & Ors. vs. L & T Housing Finance Ltd.
Page no.6/13under the arbitration agreement being in the nature of remedy for enforcement of rights under the agreement are assignable as well.
12. Thus, in the present case, the loan agreement specifically mentions that CCFIL shall be entitled to transfer or assign any of its obligations/rights or benefits to any party without the consent of the borrower and the borrower shall fulfill and perform all his obligations to such transferee or assignee. In view of the same, the argument of Petitioners is devoid of merit.
13. Section 21 of 'The Act' provides as under :
Commencement of arbitral proceedings.-- Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the Respondent.
Section 43 (2) of 'The Act' provides as under :
"For the purposes of this section and the Limitation Act, 1963 (36 of 1963), an arbitration shall be deemed to have commenced on the date referred to in section 21".
14. On combined reading of both the provisions, the relevant date for the purpose that whether a particular claim is barred by limitation or not is the date on which the request to refer the dispute to arbitration is received by the Respondent i.e. Petitioners herein.
OMP (Comm) 27/19 Rebecca Sumita Francis & Ors. vs. L & T Housing Finance Ltd.
Page no.7/13The commencement of arbitral proceedings is incumbent on the "receipt of such request or notice". If no notice is received by the concerned Respondent, there is no commencement of Arbitral proceedings at all. Section 21 will have to be read with Section 34 of the Act. Section 34 (2) (iii) provides that an award may be set aside, in the event, where the party appointing the Arbitrator has not given proper notice of the appointment of an Arbitrator or the Arbitral proceedings.
15. Section-21 performs many functions including the main function of forging consensus ad-idem between parties on several aspects i.e. scope of dispute; identification of claims and counter claims ; disputes time barred if any, as well as more importantly on the choice of Ld. Arbitrator.
16. The letter dated 12.04.2018 has been relied by Respondent. The same sent by ld. Arbitrator to the parties clearly mentions that he was appointed as Arbitrator by Respondent pursuant to reference letter dated 11.04.2018 made by Respondent. However, the reference letter dated 11.04.2018 has not been brought on record vide which Arbitrator was approached by Respondent. Reliance may be placed upon the Judgment of Alupro Building Systems Pvt. (supra). This was relied upon in another Judgment of Hon'ble High Court of Delhi titled as ShriRam Transport Finance Co. Ltd. Vs. Shri Narendra Singh (DOD as 13.10.2022), wherein it was observed as :
OMP (Comm) 27/19 Rebecca Sumita Francis & Ors. vs. L & T Housing Finance Ltd.Page no.8/13
We are in agreement with the principles as expressed in the decision of Alupro Building case (supra), which are enuciated below :
(i) The party to the Arbitration Agreement against whom a claim is made should know what the claims are. The notice under Section 21 of the Act provides an opportunity to such party to point out if some of the claims are time barred or barred by law or untenable in fact or if there are counter-
claims.
(ii) Where the parties have agreed on a procedure for appointment, whether or not such procedure has been followed, will not be known to the other party unless such a notice is received.
(iii) It is necessary for the party making an appointment to let the other party know in advance the name of the person who it proposes to appoint as an Arbitrator. This will ensure that the suitability of the person is known to the opposite party including whether or not the person is qualified or disqualified to act as an 'Arbitrator' for the various reasons set forth in the Act. Thus, the notice facilitates the parties in arriving at a consensus for appointing an Arbitrator.
(iv) Unless such notice of commencement of Arbitral proceedings is issued, a party seeking reference of disputes to OMP (Comm) 27/19 Rebecca Sumita Francis & Ors. vs. L & T Housing Finance Ltd.
Page no.9/13Arbitration upon failure of the other party to adhere to such request will be unable to proceed under Section 11(6) of the Act. Further, the party sending the notice of commencement may be able to proceed under the provisions of Sub-section 5 of Section 11 of 'The Act' for the appointment of an Arbitrator if such notice does not evoke any response.
17. Admittedly there is no agreement for waiver of requisite notice under Section 21 of the Act. The letter dated 11.04.2018 was never sent to the Petitioners and there was no question of the same having received by them. It was only sent to the Arbitrator and it cannot qualify to be the notice of commencement of proceedings in any manner. Thus, I hold that the appointment made by the Respondent was not as per Section 21 of the Act.
18. Secondly, in arbitral proceedings, it is amply clear that the arbitrator has not made disclosure as required under Section 12 (1) ( a) and 12 (2) and clauses of 5th Schedule of the Act regarding his relation with Respondent at the time of entering into reference in terms of the Act. The Law in this regard is well settled as also discussed in Bharat Broadband Network Ltd. Vs. United Telecom wherein Hon'ble Apex Court discussed the changes made by the 2016 amendment to the Act and explained principles of challenge under 5th and 7th Schedule of the Act. In view of the ratio of settled law, the arbitral proceedings conducted by the Arbitrator are bad for non-compliance of Section 12 of the Act.
OMP (Comm) 27/19 Rebecca Sumita Francis & Ors. vs. L & T Housing Finance Ltd.
Page no.10/13Unilateral appointment of Sole Arbitrator.
19. Hon'ble Supreme Court of India, in the judgment titled as Perkins Eastman Architects DPC & Anr. V. HSCC 2019 SCC OnLine SC 1517, has categorically held that a person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator and thus, unilateral appointment of sole arbitrator has been held as illegal.
20. In the case of Proddatur Cable TV Digi Services vs Siti Cable Network Limited 2020 SCC, it was inter alia held that following ratio of the judgment in the case of Perkins (supra), 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, the mandate of the Arbitrator was found terminated de jure and since the present arbitrator had become unable to perform his functions as an arbitrator, his mandate was terminated and another independent Sole Arbitrator was appointed to substitute the previous arbitrator.
OMP (Comm) 27/19 Rebecca Sumita Francis & Ors. vs. L & T Housing Finance Ltd.
Page no.11/1321. Hon'ble Bombay High Court also in the matter of Lite Bite Foods Pvt. Ltd. v. Airports Authority of India 2019 SCC OnLine Bom 5163, clarified the ratio laid down by the Hon'ble Apex Court in the matter of Perkins (Supra) and held that appointment of an arbitral tribunal can either be with consent of parties or by an order of the court, there can be no third way.
Hon'ble Supreme Court in the case of TRF Limited v. Energo Engineering Projects Ltd.,2017 (8) SCC 377 and Perkins Eastman Architects DPC & Anr v. HSCC (India) Ltd. 2020 (20) SCC 760 , ruled against such unilateral appointment of Arbitrator and held that such an appointment if made, will be non-est in the eyes of law and is impermissible.
22. In Kotak Mahinder Bank Ltd (Supra) , the ground of challenge was non-raising of objections in respect of unilateral appointment of Arbitrator at the appropriate time. Hon'ble Delhi High Court relying upon Bharat Broad Band Network Ltd Vs United Telecoms Ltd 2019 (5) SCC 755 (rendered by Hon'ble Apex Court) held that the failure, if any on part of Respondent to object to the unilateral appointment of Sole Arbitrator can not be construed as waiver of his right under Section 12(5) of "The Act 1996".
23. Hence, I observe that unilateral appointment of the Sole Arbitrator by Respondent is not in accordance with the provisions of Section 12 read with Schedule 6 and 7 of 'the Act'. In light of the ratio of the judgments discussed above, in the present case admittedly, the sole OMP (Comm) 27/19 Rebecca Sumita Francis & Ors. vs. L & T Housing Finance Ltd.
Page no.12/13arbitrator has been appointed by the Respondent unilaterally without the consent of the petitioner and thus, the entire arbitration proceedings stand vitiated.
24. In view of the legal position explained as above, in my opinion, the appointment of Sole Arbitrator being under the teeth of Section 7 of "The Act 1996", the impugned Award passed by Ld. Arbitrator can not be countenanced under law. As a consequence, the Award dated 17.09.2018 passed by Sole Arbitrator stands set aside.
The petition stands allowed. The impugned award dated 17.09.2018 stands set aside and be consigned to Record Room.
Copy of this Order be sent to the Sole Arbitrator alongwith Arbitral Records.
Digitally signed by RAVINDER BEDI RAVINDER Date: BEDI Announced in open 2023.12.01 16:51:19 court on 01.12.2023. +0530 (Ravinder Bedi) District Judge (Commercial Court)-12 Central District, Tis Hazari Courts /Delhi OMP (Comm) 27/19 Rebecca Sumita Francis & Ors. vs. L & T Housing Finance Ltd. Page no.13/13