Delhi District Court
Crescent Matriculation School vs M/S Edu Smart Services Pvt Ltd on 5 May, 2021
In the Court of Shri Sanjiv Jain,
District Judge (Commercial Court)-03, Patiala House Courts
New Delhi
OMP (Comm) No.75/19
Crescent Matriculation School
NH-7, Bypass Road, Collectorate,
PO Dindigul, Tamil Nadu-624004
...Petitioner/objector
versus
1. M/s Edu Smart Services Pvt Ltd.
L-74, Mahipalpur Extension, New Delhi-37
2. M/s Educomp Solutions Ltd,
1211, Padma Tower-I,
5, Rajendra Place, New Delhi-08
... Respondents/claimants
Date of institution : 20.04.2019 Date of reserving judgment : 20.03.2021 Date of decision : 05.05.2021 JUDGME NT
1. This petition under Section 34 of the Arbitration and Conciliation Act, 1996 (as amended upto date) hereinafter called the 'Act' challenges the award dated 10.03.2017 passed by the Arbitrator Sh. Arun Batta for a sum of Rs. 10,88,698.63 with future interest @ 18% per annum from the date of filing of claim till its realization, cost of the arbitral proceeding for a sum of Rs. 25,000/- and expenses OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.1 of 26 for a sum of Rs. 1089/-.
Brief facts:
2. Briefly the facts as stated in the petition are that the petitioner was imparting education to the wards of rural & remote village of Dindigul located in the backward District of Tamil Nadu, at an affordable, competitive and reasonable cost on no loss & no profit policy without compromising the quality and standard of education. It was a English medium school having a strength of less than 100 students. It decided to start smart class program in its school. It entered into a tripartite agreement dated 30.09.2010 for implementing the smart class program with the respondents. It believed that the respondents would provide good service to the school as per the agreement and the reputation of the school would be enhanced.
3. As per the agreement, respondents were obligated to supply interactive module hardware, install a software, arrange a coordinator and impart coaching to the teachers of the school. To accommodate the digital facility in the school, the petitioner made several alterations at its cost and made the classrooms viable for setting up the digital curriculum. It after initiating the program paid Rs. 12,000/-
to the respondent no. 1 on 06.10.2010 and issued cheques one after the others as per details in Para 8 of the petition.
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4. It is alleged that the respondents did not provide the proper service and the petitioner on 12.10.2011 sent a letter to the respondent no. 1 alleging that there is no service from them, the school has been running into losses and instead for left over balance of Rs. 2,00,000/-, respondent no. 1 may remove the instruments, which were installed by them. It is stated that as per clause 6.3 of the agreement, in case of non payment of fee by the petitioner for a period exceeding two months to the respondent no. 2, petitioner had option to terminate the agreement by giving 30 days prior notice in writing. As per clause 6.4, if in case of continuance of default for more than two months after the notice period, respondent no. 2 had right to remove the hardware. It is alleged that the petitioner did not receive any notice from the respondent regarding non payment of fee from November 2011 for a period exceeding two months till date and the respondents concealing the letter dated 12.10.2011, after four years filed the arbitration case and violated the terms of the agreement. It is alleged that the respondents though had supplied the hardwares and installed few software but did not depute any trainer to give proper training to the teachers and all the materials remained idle. The petitioner and its teachers repeatedly requested the respondents but no response came from the Regional Office of the respondents, as a result, the system became defunct. It is stated that as per clause 3.1, if any complaint or defect is notified by the school, the same OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.3 of 26 shall be resolved within 48 hours and replacement within 7 days but nothing was done by the respondents. It is stated that since the contents and hardware remained nonfunctional, it caused negative impression on the parents of the students studying in the school. It made several attempts to resolve the issues but the respondents, instead, sent legal notice claiming the payment, which notice was not received by the petitioner. It is alleged that the respondents filed the false claims before the Arbitrator for a sum of Rs. 10,88,698.63 claiming an interest @ 18% per annum from 05.02.2014, which claims were allowed by the Arbitrator proceeding ex parte against the petitioner without giving opportunity to the petitioner of being heard. It is stated that the petitioner has not even received the copy of the award from the Arbitrator.
5. It is stated that the petitioner was not at all aware of the arbitral proceedings and the ex parte final award and it came to know of the award after getting the notice from the Executing Court of the Principal District Judge, Dindigul in EP No. 78/2017. It then obtained the copy from the Executing Court. It is stated that the petitioner has not yet received the copy of the ex parte award from the Arbitrator. It contested the execution petition and filed a detailed counter dated 05.04.2018, which is pending consideration.
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6. The petitioner challenged the award on the following grounds:-
A) That the impugned award is illegal, perverse and against law, which has been passed by the Arbitrator ex parte without examining the tripartite agreement and reciprocal liabilities of the parties. He failed to take note that neither the notice of arbitration nor the copy of the claim petition was served on the petitioner during the pendency of the proceedings nor it received the copy of the ex parte award till date allegedly sent by the Arbitrator. It obtained the copy from the Executing Court only.
B) That the Arbitrator failed to take note of the fact that the respondents did not provide the software repository digital curriculum support services and necessary consumables as per the agreement and he has wrongly observed in the award that the respondents are entitled to recover the amounts. It is alleged that the respondents never rendered services to the satisfaction of the petitioner at any time as per clause 3.1 of the agreement and the entire materials remained unused from the date of installation and therefore, the respondents are not entitled to any payment.
C) That in the legal notice sent by the respondents, less amount was claimed, whereas, the claim petition filed by the respondents was for higher amount. The Arbitrator did not consider these facts and passed the award without applying his mind.
7. Along with the petition, an application is moved under Section 34(3) of the Act r/w Section 5 of the Limitation Act. It is stated that the petitioner was unaware of the arbitral proceedings and the award as it was never intimated of the same. It came to know of the impugned award after getting the notice from the Executing Court in EP No. 78/17 filed by the respondents and thereafter, it obtained its copy from the Executing Court, which it had applied on 26.02.2019 and obtained on 11.03.2019. It OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.5 of 26 thereafter, filed the petition / objections under Section 34 of the Act on 20.04.2019 i.e. within 90 days. It is stated that the petitioner has not yet received the copy of the ex parte award from the Arbitrator.
8. Notice of the petition was given to the respondents but they did not prefer to file any reply. The Arbitral record was summoned.
9. It is pertinent to mention that both the respondents were declared insolvent and the NCLT appointed the IRP to represent the respondents.
10. I have heard the arguments advanced by Sh. M. A. Chinnaswami, Ld. Counsel for the petitioner and Sh. Gautam Gupta, Uzair Ilahi & Sh. Dhruv Verma, Ld. Counsels for the respondents. Parties also filed their written synopsis.
11. Ld. Counsel for the petitioner reiterated what has been stated in the petition and stated that the signed copy of ex parte was not delivered to the petitioner, in terms of Section 31 (5) of the Act. Ld. Counsel stated that the petitioner was not aware of the arbitral proceedings and the award and it came to know of the award from the Executing Court only, from where, it obtained its copy. Ld. Counsel referred the case of Union of India Vs. Tecco OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.6 of 26 Trichy Engineers (2005) 4 SCC 239, where it was held that conjoint reading of Section 31 (5) of the Act, Section 3 & Section 34 (3) of the Act would show that the period of limitation would commence only after a valid delivery of an arbitral award takes place under Section 31 (5) of the Act. It is not a matter of mere formality but a matter of substance. Delivery of award to the party, to be effective, has to be received by the party and this delivery sets in motion the period of limitation. Ld. Counsel also referred the case of State of Maharastra Vs. ARK Builders Pvt Ltd, 2011 (4) SCC 616, where it was held that the expression "party making the application has received the arbitral award" cannot be read in isolation and it must be understood that Section 31 (5) of the Act requires a signed copy of the award to be delivered to each party. Ld. Counsel also referred the case of State of Himanchal Vs. Himanchal Techno Engineers, 2010 (12) SCC 2010, where it was held that the delivery has to be effective, so as to be called as receipt by the parties.
12. Ld. Counsel contended that the Arbitrator allowed the claims without taking note of the non performance of the contractual obligations by the respondents. The respondents never provided any service after the agreement. Till date, the petitioner has paid Rs. 1,32,000/- plus Rs. 12,000/- to the respondents on various dates and had also sent a letter dated 12.10.2011 intimating that there OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.7 of 26 is no service from the respondents, the school has been running into losses and asked the respondents to remove the instruments but the respondents in violation of clause 6.3 & 6.4 of the agreement did not provide any service. Ld. Counsel stated that the petitioner never received any notice from the respondents regarding non payment from November 2011 for a period exceeding two months till date in terms of the above clauses and the respondents concealing the letter dated 12.10.2011 filed the arbitration after four years. They never deputed any trainer in terms of the agreement to train the teachers and their softwares & hardwares remained idle despite repeated requests and reminders and violated the clause 3.3.1 of the agreement. Ld. Counsel stated that since the software & hardware remained non functional, it caused negative impression on the parents of the students studying in the school. It did not even receive any notice from the respondents before the arbitration was invoked.
13. Ld. Counsel for the respondents per contra argued that this petition is barred by limitation as prescribed under Section 34 (3) of the Act. There is a delay of about two years in filing the petition, which cannot be condoned as per the provisions of the Act. Section 34 (3) being a special provision, the general principles for condonation of delay under Section 5 of the Limitation Act would not apply on the petition under Section 34 of the Act. The award was OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.8 of 26 passed on 10.03.2017, however, the present petition has been filed on 16.04.2019. The petitioner was very well aware about the award as the counsel for the petitioner had appeared and filed the counter to the execution petition on 21.12.2017 before the Executing Court. It had received the notice of the execution in November / December 2017. In the application for condonation of delay, it had stated that it had applied for the certified copy of the award in the Executing Court on 26.02.2019, which was delivered on 11.03.2019. Considering the strict timelines provided under Section 34 (3) of the Act, the petitioner should have acted immediately on receipt of the notice from the Executing Court but it despite having knowledge of the award since November / December 2017 applied for its certified copy on 26.02.2019 in order to get benefit of limitation under Section 34 of the Act. It failed to explain why it did not apply for the certified copy during the period from December 2017 to February 2019. Therefore, it cannot claim benefit of limitation on the basis of receipt of certified copy and nor can be allowed to say that this should be the reckoning date for computing the limitation period for the petition. In support of his contentions, Ld. Counsel placed reliance on the case Maruthi Apartments Vs. K. V. Narasimhan, O.P. Diary No. 116747/2018, decided on 21.03.2019.
14. On merits, Ld. Counsel contended that the Arbitrator OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.9 of 26 has passed a well & reasoned award. It was the petitioner, who failed to comply with the terms of the agreement and make payments as per the agreed terms despite availing the services rendered by the respondents. The respondents had issued the legal notice to the petitioner calling upon the petitioner to make the outstanding payments but it failed to make the payments within the prescribed time. The petitioner was also informed that if it would not make the payments, it would be presumed that a dispute has arisen and the respondents shall invoke the arbitration clause of the agreement. Ld. Counsel stated that despite this, petitioner did not make the payments nor replied to the legal notice. The respondents accordingly invoked the arbitration clause and the Arbitrator entered into the reference and sent notices to the petitioner but the petitioner did not bother to reply and ignored the arbitral proceedings. Ld. Counsel stated that the petitioner was aware of the commencement of the arbitral proceedings but it has stated the untrue facts. Ld. Counsel stated that the letter of appointment was sent to the petitioner on 19.09.2015 and delivered on 28.09.2015 as evident from the tracking report. The notice dated 01.07.2016 for appearance was served upon the petitioner through registered post, which was delivered on 18.07.2016. The notice from the earlier Arbitrator dated 26.10.2015 for appearance on 16.11.2015 was duly served on the petitioner as evident from its acknowledgment. Thereafter, OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.10 of 26 a notice to proceed ex parte dated 16.12.2015 was sent through the registered post on dated 12.01.2016, which was received / acknowledged vide dated 19.01.2016 as evident from the arbitral record. Ld. Counsel stated that the petitioner did not pay any heed to the notices nor bother to appear before the Arbitrator and as a consequence, it was proceeded against ex parte in accordance with law. Ld. Counsel contended that the petitioner illegally withheld the consideration amount of the services and hardware supplied by the respondents and it has filed this petition to harass the respondents.
15. Ld. Counsel stated that the scope of challenge of an award under Section 34 of the Act is very limited. The objections / grounds raised by the petitioner do not fall under the scope of Section 34 of the Act. In support of his contentions, Ld. Counsel placed reliance on the case Swan Gold Mining Limited Vs. Hindustan Coper Limited, CA No. 9048/2014, decided on 22.09.2014, Government of NCT of Delhi Vs. Khem Chand, AIR 2003 Del 314 and Indian Tourism Development Corporation Vs. T.P. Sharma, 2002 SCC OnLine 634 and stated that the findings of the Arbitrator on factual matrix need not be interfered with as the Court does not sit in appeal and the Courts are also refrained from reapproaching or reevaluating the evidence or the material before the Arbitrator unless perversity is writ large on the face of the award or the OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.11 of 26 award suffers from the voice of jurisdictional error. Sanctity of award should always be maintained. Ld. Counsel stated that the Arbitrator has given a well reasoned award and there is no question of impartiality or injustice. The Arbitrator in Para 63 of the award has categorically stated that a signed copy of the award may be sent to the parties to the agreement in terms of Section 31 (5) of the Act and the award would show that not only the notices to initiate arbitral proceedings and the subsequent notices thereto were sent but a signed copy of the award was also sent to the petitioner and was duly received by the petitioner.
16. I have given my thoughtful consideration to the above contentions and perused the proceedings and the award.
17. The statutory period for filing an application / petition for setting-aside the award is provided in sub Section (3) of Section 34 of the Act, which reads as under:
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter."
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18. Reading of Section 34 (3) of the Act, leaves no manner of doubt that the period of limitation is three months. If the objections are filed beyond three months, then the delay in filing can be condoned upto a maximum period of 30 days and not more. Condonation of delay in the extended period of 30 days, is at the discretion of the court, provided the party satisfies the court that there was 'sufficient cause' for the delay. Delay in initial filing, beyond 30 days cannot be condoned, even for one day.
19. In the instant case, impugned award was passed on 10.03.2017. The petition under Section 34 of the Act has been filed on 20.04.2019. The petitioner has alleged that the signed copy of the arbitral award as contemplated under Section 31 (5) of the Act was not delivered to it. Till date, it has not received the copy of the ex parte award from the Arbitrator. It came to know of the ex parte award when it received a notice from the Court of Principal District Judge, Dindigul in the execution petition no. 78/17 filed by the respondents. It applied for the certified copy on 26.02.2019, which it obtained on 11.03.2019. It had also filed objections before the Executing Court by filing the counter statement.
Though, the respondents have claimed that the signed copy of the award was duly sent by the Arbitrator immediately after passing the award but there is neither the postal receipt of sending the signed copy of the award nor OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.13 of 26 the acknowledgement of the same. The petitioner has categorically denied having received the signed copy of the award from the Arbitrator. Though, it has been claimed that it came to know of the impugned award in November / December 2017 and appeared before the Executing Court on 21.12.2017 and filed the counter statement but it has also been claimed that it had not received the signed copy of the award and filed the counter on the basis of the copy of the execution, which it received from the Executing Court. It is also true that it had applied for the certified copy of the award in the Executing Court on 26.02.2019 and received on 11.03.2019 but it is well settled law as provided under Section 31 (5) of the Act that period of limitation would commence only after a valid delivery of an arbitral award and delivery becomes effective when the party has received the signed copy of award. In the case of Union of India Vs. Tecco Trichy Engineers, 2005 (4) SCC 239, it was held that delivery of an arbitral award under Section 31 (5) of the Act is not a matter of mere formality. It is a matter of substance. The delivery of arbitral award to the party to be effective has to be "received" by the party. Under Section 34 (3) of the Act, the limitation of three months commences from the date on which the parties making that application has received the arbitral award. In the case of Benarsi Krishna Committee Vs. Karmyogi Shelters Pvt Ltd, (2012) 9 SCC 496, it was held that limitation of three months under Section 34 (3) is to be OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.14 of 26 reckoned from the date on which the party itself received the award and not its advocates or agent. If the copy of the signed award is not delivered to the party itself, it would not amount to compliance with provision of Section 31 (5) of the Act. In the case of Dakshin Haryana Bijli Vitran Nigam Ltd Vs. Navigant Technologies Pvt Ltd, 2021 SCC Online SC 157, it was held that the period of limitation for filing of objection would have to be reckoned on which the signed copy of award was made available to the parties. In the case of State of Maharastra Vs. ARK Builders Pvt Ltd, 2011 (4) SCC 616, it was held that the expression "party making the application has received the arbitral award"
cannot be read in isolation and it must be understood that Section 31 (5) of the Act requires a signed copy of the award to be delivered to each party. In the case of State of Himanchal Vs. Himanchal Techno Engineers, 2010 (12) SCC 2010, it was held that the delivery has to be effective, so as to be called as receipt by the parties.
20. In the instant case, there is no proof as to the delivery of the signed copy of the award on the petitioner. The case of Maruthi Apartments Vs. K. V. Narasimhan, O.P. Diary No. 116747/2018, decided on 21.03.2019, referred by the respondents is distinguishable on facts. In that case, the entire arbitral records pertaining to the award were made available to the Court. The Court after perusing the record found that the impugned award were sent to the OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.15 of 26 petitioner by speed post with acknowledgment due vide postal receipts bearing reference and the same was returned with the Postal Department 'refused'. Even, the notices of the proceedings also returned with the postal endorsement 'refused'. In the instant case, there is no proof of service and acknowledgment.
21. On a consideration of facts in entirety and the case laws supra, I am of the view that the limitation as provided under Section 34 (3) of the Act would start from the date, when the petitioner received the certified copy of the award i.e. on 11.03.2019. The instant petition under Section 34 of the Act has been filed by the petitioner on 20.04.2019 i.e. within three months from the date the petitioner received the certified copy of the award. The petition is therefore within limitation.
22. Now coming to the objections, Section 34 the Arbitration and Conciliation Act provides the grounds for setting aside the arbitral award. It reads 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- sec- tion (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 in-
OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.16 of 26 dication 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 contem- plated by or not falling within the terms of the submis- sion 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 submit- ted, 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 accor- dance with this Part; or
(b) the court finds that-
(i) the subject-matter of the dispute is not capable of set- tlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public pol- icy of India.
Explanation- I For the avoidance of any doubt, it is clar- ified that an award is in conflict with the public policy of India only if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81."
ii) It is in contravention with the fundamental policy of Indian law;
iii) It is in conflict with the most basic notions of moral- ity or justice.
Explanation-II- 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.
[2 (A) 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 OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.17 of 26 merely on the ground of an erroneous application of the law or by reappreciation of evidence.
23. Normally, the general principles are that the decision of the Arbitrator unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even if the court as a court of law would 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 cancelled 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.
24. In the case of Associate Builders Vs. DDA, (2015) 3 SCC 49, it was held that the interference with an arbitral award is permissible only when the findings of the Arbitrator are arbitrary, capricious or perverse or when the conscience of the Court is shocked or when patent illegality is not trivial but goes to the root of the matter. In the case of Ssangyong Engineering & Construction Co. Ltd Vs. NHAI, 2019 SCC Online SC 677, it was held that under Section 34 (2A) of the Act, a decision, which is perverse while no longer being a ground for challenge OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.18 of 26 under "public policy of India" would certainly amount to a patent illegality appearing on the face of the award.
25. Now adverting to facts, it is not in dispute that the petitioner had entered into a tripartite agreement with the respondents on 30.09.2010. The agreement contained an arbitration clause i.e. clause 9.1, which interalia provided that if any dispute or difference of any kind whatsoever arise between the parties in connection with or arising out of this agreement or any part thereof, such dispute or difference shall be referred to an acceptable Sole Arbitrator under the provisions of Indian Arbitration & Conciliation Act, 1996....... The clause clearly provides that the Arbitrator so appointed must be acceptable to the parties to the agreement. In the instant case, as evident from the record, the respondents vide letter dated 15.06.2015 unilaterally appointed Sh. S. K. Bhardwaj as the Sole Arbitrator. When Sh. S. K. Bhardwaj resigned owing to personal reasons on 22.04.2016, the respondents vide letter dated 02.06.2016 unilaterally appointed Sh. Arun Batta as the Sole Arbitrator. They never took the consent of the petitioner before appointing the Arbitrator nor sent the letters dated 15.06.2015 and 02.06.2016 to the petitioner appointing the Arbitrator.
26. In the case of Bhanumati J. Bhuta Vs. Ivory Properties & Hotels Pvt Ltd, 2020 SCC Online Bombay 157, it was held that the arbitral proceedings commence in OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.19 of 26 respect of dispute when notice invoking of arbitration agreement is received by other side and not when such notice is only served upon the Arbitral Tribunal. The onus is on the applicant who had issued such notice to prove the delivery of such notice upon the other side.
27. Section 12 of the Act provides that 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. Appointment of an arbitrator may be challenged by the parties only if any circumstances 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 OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.20 of 26 challenge.
28. The Supreme Court in the case of TRF Ltd. vs Energo Engg. Projects Ltd., (2017) 8 SCC 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. The designated arbitrator who is ineligible 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.
29. The Supreme Court in the 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 grounds 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 OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.21 of 26 counsel or the subject matter of the dispute falls under the Seventh Schedule. The sub-section declares that such person shall be ineligible to be appointed as arbitrator. Such ineligibility can be removed by an express agreement in writing.
30. The Supreme Court in the case of Perkins Eastman Architects DPC & Anr Vs. HSCC Ind Ltd, 2019 SCC OnLine SC 1517 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 (effective from 23.10.2015). The Supreme Court 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.
31. In the case of Proddatur Cable TV Digi Services vs. Siti Cable Network Ltd., 2020 SCC Online Del 350, following the ratio of the judgment in the case of Perkins (supra), it was held that 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.
OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.22 of 26 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. Following the ratio of the judgments in Bharat Broadband Network Limited Vs. United Telecoms Limited, CA No. 3973 of 2019 decided on 16.04.2019, the mandate of the Arbitrator was terminated de jure.
32. In the case of M/s Omcon Infrastructure Pvt. Ltd. Vs India Bulls Investment Advisors Ltd, OMP (T) (Comm) No. 35/2020 decided on 01/09/2020, petition was filed under Section 14 and 15 of the Act seeking termination of the mandate of the Arbitrator unilaterally appointed by the respondent and also for 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 it was held that once the Managing Director of the respondent Company was ineligible to appoint the arbitrator, the same would also bar the Company from unilaterally appointing the sole arbitrator. Reference was also made to the decision of Proddatur Cable TV Digi Services (supra).
33. In the instant case, there is no proof of service of letters dated 15.06.2015 & 02.06.2016 on the petitioner, whereby, the respondents appointed Sh. S. K. Bharwaj and Sh. Arun Batta as the Sole Arbitrators to adjudicate the OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.23 of 26 dispute. Clause 9.1 of the agreement clearly provides that the dispute / difference shall be referred to an acceptable Sole Arbitrator under the provisions of the Act meaning thereby that the respondents before appointing the Sole Arbitrator was required to obtain the consent of the petitioner, which they failed to obtain and they unilaterally appointed the Arbitrator. Even the Arbitrator did not issue any notice under Section 12 of the Act nor made any disclosure of impartiality or independence as provided in Fifth Schedule & Seventh Schedule annexed with the Act, though, mandatory. No plausible explanation came from the respondents why there was unilateral appointment of the Arbitrator contrary to clause 9.1 of the agreement and why the consent of the petitioner was not taken. The law laid down in the Perkins Eastman Architects supra clearly provides that unilateral appointment of the Sole Arbitrator will always have an element of exclusivity in determining or charting the Courts 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. In the instant case, the respondents had interest in the outcome of the decision of the dispute, so by virtue of amendments brought in by the Arbitration & Conciliation (Amendment) Act, 2015 and the case of Perkins Eastman Architects DPC supra, the appointment of the Sole Arbitrator was in violation of the Act and the clause 9.1 of the agreement.
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34. Case of TRF Ltd (supra, Bharat Broadband Network (spura), Perkins Eastman (supra), Proddatur Cable TV Digi Services (supra) and Omcon Infrastructure Pvt Ltd (supra) clearly lay down that no Arbitrator can be unilaterally appointed by the respondents but in this case, vide letter dated 02.06.2016, Sh. Arun Batta was unilaterally appointed as the Arbitrator. Even the mandatory disclosure in terms of Fifth & Seventh Schedule of the Act in the format of Sixth Schedule of the Act was not conveyed by the Arbitrator to the petitioner.
35. As to the notices, although, the petitioner has denied having received the notices issued by the Arbitrators dated 27.08.2015 & 01.07.2016 informing the parties about their appointment and asking them to appear but the postal receipts dated 19.09.2015 & 08.07.2016 would show that the notices were duly served on the petitioner on 28.09.2015 and 15.07.2016. Before the Arbitrator proceeded ex parte against the petitioner, they had sent notices to the petitioner but despite service, the petitioner did not appear and it was proceeded against ex parte vide orders dated 16.12.2015 & 06.10.2016. It cannot be said that the petitioner was not given notice of the arbitral proceedings or the opportunity to present its case. Further the amount claimed in the legal notice dated 05.02.2014 Ex. CW1/4 is the same as that claimed in the claim petition vide dated 28.09.2015 and the petitioner has OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.25 of 26 wrongly alleged that the petition has been filed after four years of the legal notice.
36. May be, the petitioner had received the notices of the arbitral proceedings and despite that it did not participate in the arbitral proceedings but in view of the reasons stated in the aforesaid para 24 to 33, the award is patently illegal and in contravention of principles of natural justice and is contrary to the settled principles of law as provided under Section 34 of the Act.
37. The impugned award dated 10.03.2017 is set aside under Section 34 (2) (a) (iii) and Section 34 (2A) of the Act being vitiated by patent illegality appearing on the face of the award, as elicited in details herein above. The petition is accordingly allowed.
38. The parties are left to bear their own costs.
39. File be consigned to Record Room.
Announced in open court today i.e. 05th May, 2021 (Sanjiv Jain) District Judge (Commercial) - 03 Patiala House Courts, New Delhi OMP No. 75/19 Crescent Matriculation Vs. Edu Smart Pvt Ltd & Ors Page No.26 of 26