Delhi District Court
Sh. Daman Malhotra vs Bombay Mercantile Co-Operative Bank ... on 10 December, 2021
DLCT010064922018
IN THE COURT OF DISTRICT JUDGE (COMMERCIAL
COURT)-01,
CENTRAL, TIS HAZARI COURTS, DELHI
PRESIDED BY: MR. BHARAT PARASHAR
IN THE MATTER OF:
OMP (COMM) NO. 48/2020
SH. DAMAN MALHOTRA
PROP. M/S DAMAN OVERSEAS
B-3/215, PASCHIM VIHAR,
NEW DELHI-110063.
...OBJECTOR/PETITIONER
VERSUS
1. BOMBAY MERCANTILE CO-OPERATIVE BANK LTD.
THROUGH ITS BRANCH MANAGER,
36, NETAJI SUBHASH MARG,
DARYA GANJ, NEW DELHI-110002.
2. KRISHAN SETHI,
SOLE ARBITRATOR,
OFFICE AT : 304, DELHI CHAMBER, 3453,
DELHI GATE, NEW DELHI-110002.
.........RESPONDENTS
Page No. 1 of 29
DATE OF INSTITUTION : 18.05.2018
DATE OF RESERVING JUDGMENT : 18.11.2021
DATE OF PRONOUNCEMENT OF : 10.12.2021
JUDGMENT
JUDGEMENT
1. Petitioner Daman Malhotra has filed the present petition u/s 34 Arbitration and Conciliation Act, 1996 against Bombay Mercantile Cooperative Bank Ltd. seeking setting aside of arbitral award dated 13.04.2018 passed by Ld. Sole arbitrator Sh. Krishna Sethi.
2. Briefly stated the necessary facts as stands emanated from the petition are as under:
Petitioner Daman Malhotra became a member of Bombay Mercantile Cooperative Bank Ltd. and in connection with his business needs obtained an overdraft facility from the bank for a sum of ₹ 1,00,000 in the year 1991. The said facility was subsequently enhanced to ₹ 4,00,000. However, as the petitioner could not adhere to the financial discipline so the said OD account was declared as NPA by respondent bank. At the time of obtaining the said O.D. facility the petitioner had hypothecated certain fixed deposits and LIC policies towards securing the overdraft amount. The respondent bank upon finding that the petitioner is not adhering to the financial discipline got encashed all the said fixed deposits and LIC policies and adjusted the amount in the account of petitioner.Page No. 2 of 29
3. It has been further stated that in July 2004 respondent bank initiated arbitration proceedings so as to recover its dues from the petitioner and the same resulted in the passing of an award for a sum of Rs. 22,52,886.06/- against the petitioner. Aggrieved with the said award the petitioner assailed the same before Hon'ble Delhi High Court by filing a petition u/s 34 Arbitration and Conciliation Act, 1996. The said petition was finally allowed by Hon'ble High Court and vide order dated 23.08.2012 the impugned arbitral award was set aside. The said order was however not challenged by respondent bank and thus, the same attained finality.
4. It has been further stated that the respondent bank subsequently again initiated arbitration proceedings in the matter and appointed one Sh. Suhaib Saifullah as a sole arbitrator but as the term of the Ld. Arbitrator expired on 23.03.2016 so the arbitration proceedings were stopped by him on 23.04.2016.
5. It has been further stated that respondent bank thereafter without sending any reference to the petitioner appointed respondent no.2 Sh. Krishna Sethi as the Sole arbitrator and subsequent thereto a reference dated 15.10.2016 for appearance before Sh. Krishna Sethi, Ld. Sole arbitrator was received by the petitioner. The petitioner thereafter joined the proceedings before the Ld. Arbitrator.
6. It has been however stated that the Ld. arbitrator Sh. Krishna Sethi continued with his proceedings for more than six Page No. 3 of 29 months even after expiry of his term and even failed to prepare record of his all proceedings and except for permitting the petitioner herein to sign three-four order sheets did not allow him to sign other order-sheets and also did not permit him to file most of the documents. The arbitration proceedings subsequently culminated in passing of award dated 13/04/2018.
7. It has been however submitted that even in the said new arbitration proceedings, the respondent bank relied upon the same set of documents as were relied in the previous arbitration proceedings except that a fresh statement of account was filed while withholding the statement of account filed in the previous arbitration proceedings. It has been also stated that in the new claim petition the bank even failed to clarify the issues/contentions as were highlighted by Hon'ble Delhi High Court in its order dated 23.08.2012 while setting aside the earlier arbitral award.
8. The grounds on which the present arbitral award 13/04/2018 is now sought to be set aside have been mentioned in the petition as under:
(a) That there was no arbitration agreement between the parties.
(b) The arbitral award is stated to be against the principles of natural justice inasmuch as the non-
claimant (petitioner herein) was not given any opportunity to cross-examine the claimant's witness despite specific request having been made in this Page No. 4 of 29 regard by way of a written application.
(c) That the award is without jurisdiction since the term of arbitral tribunal had already expired.
(d) The composition of arbitral Tribunal and the procedure adopted during the proceedings was not in accordance with law.
(e) The award passed by the Ld. Arbitrator is cryptic and non-speaking.
(f) The award suffers from patent illegality as it states that the non-claimant has admitted the correctness of transactions till 17.09.1996, even though during the entire proceedings conducted by the Ld. Arbitrator there has been no such admission by the non-claimant.
(g) The Ld. Arbitrator did not consider the issues highlighted in the order dated 23.08.2012 passed by Hon'ble Delhi High Court while setting aside the earlier arbitral award passed between the parties.
(h) The arbitral award suffers from patent illegality as it wrongly states that the non-claimant failed to file any document against the claim or did not file any objections, evidence by way of affidavits and written arguments. All the said facts are stated to be contrary to the record of the proceedings.
(i) That the Ld. Arbitrator changed the order sheets and thus the arbitral record is not in accordance with the proceedings which actually took place.
(j) that the impugned arbitral proceedings were Page No. 5 of 29 barred by the principle of res judicata.
(k) that the claim of respondent bank was barred by limitation as the loan was governed by the provisions of Banking Regulation Act, 1949 and not by Multi-state Cooperative Societies Act, 2002.
9. Though the present petition was initially filed against four respondents, that is against Bombay Mercantile Cooperative Bank Ltd., Krishan Sethi, Yashpal Sandhu, and Umesh Dhall but as no relief against defendant no.3 Yashpal Sandhu and defendant no.4 Umesh Dhall was sought in the petition and they were merely arrayed as proforma respondents being the guarantors of the OD facility as was extended to the petitioner by the respondent no. 1 bank, so vide order dated 18.05.2018, the then Ld. Predecessor ordered deletion of the two respondents i.e. Mr. Yashpal Sandhu (respondent no. 3) and Mr. Umesh Dhall (respondent no. 4) from the array of parties. Notice of the petition was however issued to respondent no.1 bank and also to Sh. Krishan Sethi, Ld. Sole arbitrator for submitting the arbitral record.
10. The respondent bank thereafter filed its reply and in response thereto the petitioner filed a rejoinder. Subsequently, while submitting the arbitral record in the Court, a reply to the petition was also filed on behalf of Ld. Arbitrator Sh. Krishna Sethi and a rejoinder thereto was also filed by the petitioner.
11. While the various averments made in the petition Page No. 6 of 29 challenging the validity of the award or the veracity of the proceedings were vehemently denied both by respondent no.1 bank and also by Ld. Arbitrator, but the detailed submissions so made by them shall be dealt with by me during the course of my subsequent discussion in order to avoid repetition.
12. It is in the aforesaid factual background that detailed arguments have been heard on the petition. Ld. Counsel for petitioner as well as respondent no. 1 bank also filed written submissions in support of their arguments.
13. I have carefully perused the record.
(Note: For the purpose of convenience the respondent bank herein (claimant before the Ld. Arbitrator) shall be herein fter referred to as respondent and petitioner herein (respondent/non- claimant before the Ld. Arbitrator) shall be herein after referred to as petitioner)
14. Before proceeding to appreciate the submissions of both parties as regard the nature of arbitral proceedings conducted or the arbitral award passed including the reasons, if any furnished in support of conclusions so arrived at, it will be however appropriate to first deal with certain legal objections which as per Ld. Counsel for the petitioner goes to the very roots of the matter in as much as if the same are upheld then the very substratum of the arbitral award goes away.
Claim barred by Limitation
15. The foremost of the said objections is that the claim of respondent bank before the Ld. Arbitrator was barred by Page No. 7 of 29 limitation inasmuch the last payment in OD account was made in the year 2000 and the present claim was filed by the bank in the year 2014. and thus, after expiry of a period of three years from the last payment/transaction made in the OD account the claim filed before the LD. Arbitrator was clearly barred by limitation. It has been further submitted that as the respondent bank is admittedly a scheduled bank under RBI Act so the claim against the petitioner has to be governed by the Banking Regulation Act, 1949 and not by Multi-state Cooperative Societies Act, 2002(herein after referred to as MSCS Act).
16. On the other hand, Ld. counsel for the respondent bank has vehemently disputed the said claim stating that though respondent bank is a scheduled bank as per RBI Act but its activities continue to be governed by MSCS Act, 2002 inasmuch as the respondent is registered as a Cooperative Society under Maharashtra State Societies Registration Act. It has been further submitted that since petitioner is still a member of respondent bank so the claim in view of section 85 of MSCS Act is well within limitation.
17. In order to appreciate the aforesaid issue, it will be pertinent to first have a brief glance over Section 85 of the MSCS Act, 2002, since it pertains to the issue of limitation.
85. Limitation. -- (1) Notwithstanding anything contained in the Limitation Act, 1963 (36 of 1963), but subject to the specific provisions made in this Act, the period of limitation in the case of a dispute referred to arbitration shall, --
(a) when the dispute relates to the recovery of any sum Page No. 8 of 29 including interest thereon due to a multi-State co-operative society by a member thereof, be computed from the date on which such member dies or ceases to be a member of the society;
(b) save as otherwise provided in clause (c), when the dispute relates to any act or omission on the part of any of the parties referred to in clause (b) or clause (c) or clause (d) of subsection (1) of section 84, be six years from the date on which the act or omission, with reference to which the dispute arose, took place;
(c) when the dispute is in respect of an election of an officer of a multi-State co-operative society, be one month from the date of the declaration of the result of the election. (2) The period of limitation in the case of any dispute, except those mentioned in sub-section (1), which are required to be referred to arbitration shall be regulated by the provisions of the Limitation Act,1963 (36 of 1963), as if the dispute were a suit and the arbitrator a civil court.
(3) Notwithstanding anything contained in sub-sections (1) and (2), the arbitrator may admit a dispute after the expiry of the period of limitation, if the applicant satisfies the arbitrator that he had sufficient cause for not referring the dispute within such period.
18. Thus, from a bare perusal of Section 85 of MSCS Act, it is clear that when the dispute relates to any sum including interest thereon due to a multi-state cooperative society by a member thereof, the period of limitation shall be computed from the date on which such member dies or ceases to be a member of the society. In these circumstances, it becomes important to understand as to when the membership of any member of Page No. 9 of 29 respondent bank can be stated to have ceased.
19. Section 10 (1) of the MSCS Act however provides that every multi-state cooperative society may make it bye-laws consistent with the provisions of this Act and the rules made thereunder. Clause 2 further provides that the bye-laws may provide for all or any of the matters mentioned therein and at sub-clause (f) of section 10(2) it is provided that the bye-laws may provide for the conditions for continuing as member.
20. In these circumstances, it will be worthwhile to refer to Section 11A of the bye-laws of respondent bank i.e. Bombay Mercantile Co-Operative Bank Ltd. as the same provides for the conditions when a person shall cease to be a member of the bank. The same read as under: -
11A. A person shall cease to be a member of the Bank.
(1) (a) If the member is an individual, on his death.
(b) If the member is a firm on its dissolution.
(c) If the member is a Company or any other body corporate constituted under the Companies Act on its being ordered to be wound up or on its passing a resolution for its voluntary winding up.
(d) if it is a Society registered under the Societies Registration Act, on its being dissolved. (2) On his tendering his resignation and it being accepted as stated in Bye-law 12.
(3) On his transferring all the shares of the Bank held by him singly or on his ceasing to have any interest in all the shares of the Bank held by him jointly with any other person or persons.
(4) On his becoming or on its being found that he or it at the time of his becoming a member of the Bank, he already was a shareholder and /or a member of any other Co-operative Bank.Page No. 10 of 29
(5) On his being adjudicated an insolvent. (6) On his being convicted of a criminal offense involving moral turpitude.
(7) On the Board of Directors passing a resolution that he be expelled from the Bank on the ground in its opinion.
(a) he has willfully deceived the Bank, and / or
(b) he has willfully done an act which is likely to injure the credit or interest of the Bank, and /or
(c) he is persistent defaulter.
(8) If recovery of loans has been effected from him by coercive process by obtaining an award against him and having the award actually executed against him and/or his property provided however that if he still remains liable to the Bank as surety for loans advanced by the Bank to others the Board of Directors may continue him to be a member on his agreeing that he shall not thereafter be entitled to borrow any fresh loan from the Bank.
21. Thus, it is clear that as per Section 11A (7) of the bye-laws of respondent bank, a member who has willfully deceived the bank and/or has done some act which is likely to injure the credit or interest of the bank and/or is a persistent defaulter shall cease to be a member only if the Board of Directors passes a Resolution that he be expelled from the bank. In fact, under none of the other conditions mentioned in section 11(7) the present case falls and in fact it is not even the case of petitioner.
22. Since, the status of petitioner Daman Malhotra can at the most fall in the category of willful defaulter so it is clear that his membership could have come to an end only if a resolution expelling him from the membership of the bank was passed by the Board of Directors of Respondent no. 1 Bank. It is however not the case of petitioner herein that any such resolution was ever Page No. 11 of 29 passed and in fact his petition does not refer to the bye laws of the bank at all. No efforts were even made by the petitioner at any stage to make any enquiry from the bank in this regard. The respondent no. 1 bank has also not placed on record any such resolution having been passed by its Board of Directors and this Court has thus no reason to draw any presumption about passing of any such resolution by the Board of Directors especially when nothing is available on record in that regard.
23. The petitioner has also claimed that the respondent bank is in fact governed by the RBI Act 1934, since its name is mentioned in Schedule 2 of the Act and thus all its activities stand governed by The Banking Regulation Act, 1949. It has been thus any claim for recovery filed by respondent bank would have been governed by the provisions of Limitation Act.
24. In this regard, I may however simply state that the said contention of Ld. Counsel for petitioner is completely devoid of any merits. The objective of The Banking Regulation Act, 1949 is in fact to provide comprehensive provisions in relation to the banking business in India, so as to prevent banking failure etc. Its ancillary object was to generate and sustain confidence of depositors in the banking system in the country. The Act brought in certain minimum capital requirements for the bank providing regulations whereby to ensure a regulated banking business and environment in the Country.
25. Similarly, the aim and object of RBI Act is to regulate and Page No. 12 of 29 keep a watch on the monetary policy of the country. Its primary target is to control and regulate various financial policies and to help in the development of banking facilities throughout India. The names of various banks including cooperative banks have been mentioned in Schedule 2 of the Act only to clarify that all such banks stand governed by the relevant applicable provisions of the Act or any directions as and when issued by Reserve Bank of India. However, neither the Banking Regulation Act nor the RBI Act in any manner takes away the basic structure or character of various banking institutions including the multi-state cooperative societies undertaking banking business.
26. None of the two Acts seeks to do away or over write the bye-laws of any such banking institutions much less that of multi-state cooperative societies engaged in banking business. The constitution of respondent no. 1 bank and consequently the membership thereof or the rights and liabilities of its members thus continues to be governed by its own bye laws which in turn as per section 10 MSCS Act, 2002 have to be in conformity with the provisions of Multi-state Cooperative Societies Act, 2002.
27. It is thus clear that as per the bye-laws of respondent no. 1 bank the membership of the petitioner could have come to an end only if a resolution expelling him from the membership of the bank is passed by the Board of Directors of respondent bank. Since nothing has come on record which could show that any such resolution has been passed by respondent no. 1 bank so the only conclusion which flows from the aver all circumstances is Page No. 13 of 29 that the membership of petitioner Daman Malhotra in respondent no. 1 bank has not yet come to an end.
28. Thus, as per Section 85 (1) MSCS Act,2002 the provisions of Limitation Act, 1963 shall not apply in the present case and it has thus to be held that the act of respondent bank in referring the impugned dispute to arbitration i.e. with relation to recovery of its dues from its member Daman Malhotra was well within limitation.
Existence of Arbitration Agreement
29. The second issue raised by Ld. Counsel for petitioner is that there exists no agreement between the parties vide which the dispute between them could have been referred to arbitration.
30. I may however state that in view of the conclusion above that the relationship between petitioner and respondent no. 1 bank stands governed by the bye laws of respondent bank and which in turn have to be in conformity with the provisions of MSCS Act,2002 so it would be worthwhile to have a glance over Section 84 of MSCS Act. The same read as under:
84. Reference of disputes. -- (1) Notwithstanding anything contained in any other law for the time being in force, if any dispute [other than a dispute regarding disciplinary action taken by a multi-State co-operative society against its paid employee or an industrial dispute as defined in clause (k) of section 2 of the Industrial Disputes Act, 1947 (14 of 1947)] touching the constitution, management or business of a multi-State co-operative society arises--Page No. 14 of 29
(a) among members, past members and persons claiming through members, past members and deceased members, or
(b) between a member, past members and persons claiming through a member, past member or deceased member and the multi-State co-operative society, its board or any officer, agent or employee of the multi-State co-operative society or liquidator, past or present, or
(c) between the multi-State co-operative society or its board and any past board, any officer, agent or employee, or any past officer, past agent or past employee, heirs or legal representatives of any deceased officer, deceased agent or deceased employee of the multi-State co-operative society, or
(d) between the multi-State co-operative society and any other multi-State co-operative society, between a multi-State co-operative society and liquidator of another multi-State co-
operative society or between the liquidator of one multi-State co-operative society and the liquidator of another multi-State co-operative society, such dispute shall be referred to arbitration.
(2) For the purposes of sub-section (1), the following shall be deemed to be disputes touching the constitution, management or business of a multi-State co-operative society, namely: --
(a) a claim by the multi-State co-operative society for any debt or demand due to it from a member or the nominee, heirs or legal representatives of a deceased member, whether such debt or demand be admitted or not;
(b) a claim by a surety against the principal debtor where the multi-State co-operative society has recovered from the surety any amount in respect of any debt or demand due to it from the principal debtor as a result of the default of the principal debtor, whether such debt or demand is admitted or not;
Page No. 15 of 2932(c) any dispute arising in connection with the election of any officer of a multi-State co-operative society. (3) If any question arises whether a dispute referred to arbitration under this section is or is not a dispute touching the constitution, management or business of a multi-State co- operative society, the decision thereon of the arbitrator shall be final and shall not be called in question in any court.
(4) Where a dispute has been referred to arbitration under sub-section (1), the same shall be settled or decided by the arbitrator to be appointed by the Central Registrar. (5) Save as otherwise provided under this Act, the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to all arbitration under this Act as if the proceedings for arbitration were referred for settlement or decision under the provisions of the Arbitration and Conciliation Act, 1996.
31. Thus from a bare perusal of Section 84 MSCS Act it is clear that a dispute touching the constitution, management or business of a multi-State co-operative society shall be referred to arbitration. Sub Section (2) further provides that a claim by the multi-State co-operative society for any debt or demand due to it from a member, whether such debt or demand is admitted or not shall be deemed to be a dispute touching the constitution, management or business of multi-State co-operative society. Thus, it is clear that the respondent bank was well within its right to refer the present dispute relating to recovery of its dues from petitioner Daman Malhotra to arbitration. The section also starts with a non obstante clause stating that the provisions thereof Page No. 16 of 29 shall hold ground notwithstanding anything contained in any other law for the time being in force.
32. Further Section 84 (4) MSCS Act provides that where a dispute has been referred to arbitration under Sub Section (1), the same shall be settled or decided by the arbitrator to be appointed by the Central Registrar.
33. Section 3 (d) MSCS Act defines Central Registrar as Central Registrars of cooperative societies appointed under Section 4(1). Thus, as the Ld. Sole Arbitrator in the present matter was appointed by the Central Registrar so no fault can be found in the said process adopted while referring the claim of respondent bank to arbitration.
Claim barred by Res Judicata
34. It has also been submitted by Ld. Counsel for petitioner that the reference of dispute again to arbitration after the initial arbitral award was set aside by Hon'ble High Court is clearly barred by the principle of res judicata.
In this regard, it would be suffice to state that setting aside of an arbitral award in a petition under section 34 Arbitration and Conciliation Act, 1996 has the effect of annulment of previous proceedings and thereby relegating the parties to their original litigating positions.
35. It has been well settled in a catena of decisions, that a petition under Section 34 Arbitration and Conciliation Act, 1996 Page No. 17 of 29 is not akin to an appeal. While in an appeal a decision under review may be confirmed or may be modified or may be set aside but in a petition under Section 34 of Arbitration and Conciliation Act the decision under review i.e. the arbitral award, in case the petition succeeds results in annulment. In this regard, it would be worthwhile to quote para 7 of the judgment passed by Hon,ble Delhi High Court in the case State Trading Corporation of India Ltd. Vs. Toepfer International Asia PTE Ltd. 2014 SSC Online Del 3426.
"7. Arbitration is intended to be a faster and less expensive alternative to the courts. If this is one‟s motivation and expectation, then the finality of the arbitral award is very important. The remedy provided in Section 34 against an arbitral award is in no sense an appeal. The legislative intent in Section 34 was to make the result of the annulment procedure prescribed therein potentially different from that in an appeal. In appeal, the decision under review not only may be confirmed, but may also be modified. In annulment, on the other hand, the decision under review may either be invalidated in whole or in part or be left to stand if the plea for annulment is rejected. Annulment operates to negate a decision, in whole or in part, thereby depriving the portion negated of legal force and returning the parties, as to that portion, to their original litigating positions. Annulment can void, while appeal can modify. Section 34 is found to provide for annulment only on the grounds affecting legitimacy of the process of decision as distinct from substantive correctness of the contents of the decision. A remedy of appeal focuses upon both legitimacy of the process of decision and the substantive correctness of the decision. Annulment, in the case of arbitration focuses not on the correctness of decision but rather more narrowly considers whether, regardless of errors in application of law or determination of facts, the decision resulted from a legitimate process.
36. Thus, it is clear that the setting aside of the earlier arbitral award in a petition under Section 34 of Arbitration and Conciliation Act,1996 resulted in annulment of the said earlier Page No. 18 of 29 proceedings and the parties stood relegated to their original litigating positions. Thus, the arbitral proceedings subsequently initiated by respondent bank herein does not stand hit by the principle of res judicata.
Applicability of Section 29A Arbitration Act to the Arbitration Proceedings
37. Yet, another contention raised by Ld. Counsel for petitioner is that since the Ld. Arbitrator Sh. Krishna Sethi, continued with his proceedings even though a period of more than one year had elapsed since the time he entered the reference and neither the parties consented to extend the period nor any extension of time was sought from the Court so the proceedings conducted by Ld. Arbitrator after expiry of one year were clearly bad in law being hit by Section 29A of the Arbitration and Conciliation Act, 1996. It has been submitted that despite a specific application having been moved in this regard by the petitioner (non-claimant) before the Ld. Arbitrator, that as per Arbitration and Conciliation Act, (Amendment) Act 2015 (3 of 2016) the proceedings continued even after expiry of a period of one year from the date of entering the reference by him. It has been stated that the Ld. Arbitrator illegally brushed aside the said objection by stating that the proceedings before him does not stand governed by the Amendment Act.
38. At the outset, I may however state that this contention of Ld. Counsel for petitioner is also devoid of any merits.
Page No. 19 of 2939. At the outset I may state that this contention of Ld. Counsel for petitioner is also without any merits and Ld. Arbitrator rightly held that the provisions of Arbitration and Conciliation (Amendment) Act, 2015 does not apply to the proceedings pending before him since they have commenced prior to coming into force of the Amendment Act.
A bare perusal of Section 1(2) of The Arbitration and Conciliation (Amendment) Act,2015 clearly shows that the said Amendment Act was deemed to have come into force on 23.10.2015. Further as per Section 26 of the Amendment Act, 2015 it is clear that the Amendment Act shall not apply to the arbitral proceedings commenced before the commencement of the Amendment Act, unless the parties otherwise agree.
40. In these circumstances, when the arbitration proceedings in the present matter were admittedly commenced in the year 2014 and there was no agreement by the parties that the Amendment Act, 2015 shall apply so the proceedings could not have been governed by Section 29A of the Arbitration Act. The Ld. Arbitrator thus rightly continued with the proceedings even after expiry of one year from the date of entering the reference.
Accordingly, this objection raised by Ld. Counsel for respondent is also devoid of any merits.
41. Having dealt with the legal objections, I now proceed to deal with the objections raised under section 34 Arbitration and Conciliation Act, 1996.
Page No. 20 of 29Patent Illegality in the Arbitral Award and also in the Arbitration Proceedings.
42. It has been submitted by Ld. Counsel for petitioner that not only the arbitral award on the face of it is non speaking and without reasons and is vitiated with patent illegality but even the arbitral proceedings which finally culminated in the passing of the award are in conflict with the basic notions of justice and also suffers from patent illegality.
43. On the other hand, Ld. Counsel for respondent bank vehemently disputed the said claim stating that the arbitral award is well reasoned and the proceedings have been conducted by the Ld. Arbitrator after following the requisite procedure and also the principles of natural justice. In fact in the reply filed by Ld. Arbitrator himself also it has been stated that during the course of proceedings a number of adjournments were sought on telephone by the parties and thus for the said dates no proceedings were conducted / held and thus they do not appear in the proceedings as well as in the award. He also submitted that before passing the award he considered the arguments as well as the loan documents and the affidavits filed by the parties.
44. In order to appreciate the present issue, it would be appropriate to first refer to the proceedings conducted and recorded by the Ld. Arbitrator in some details. In the subsequent discussion, I shall be thus referring to facts recorded both in the arbitral award as also in the order sheets recorded during the arbitration proceedings (herein after referred to as arbitral Page No. 21 of 29 record).
45. In the arbitral award at page 10 it has been stated by Ld. Arbitrator that respondent no. 1 i.e. petitioner herein had admitted the correctness of transactions till 17.09.2016 but strangely enough not only the various order sheets recorded during the course of arbitration proceedings are silent about any such admissions having been made by the non-claimant (petitioner) but the facts recorded in the said observations are even contrary to the said conclusion recorded in the award by the Ld. Arbitrator.
46. A bare perusal of various order sheets recorded by Ld. Arbitrator shows that he repeatedly asked the non-claimant (petitioner herein) to file his objections to various entries made in the statement of account placed on record by the claimant bank but the non-claimant failed to file any such objections.
47. The order-sheet dated 04.03.2017 (available at page 6) of the arbitral record inter-alia mentions that the respondents were again directed to file written arguments on next date pointing out deficiencies / mistakes in the bank statements or any wrong withdrawal or debit in the bank statements with affidavit. The matter was though adjourned to 01.04.2017 but no order- sheet dated 01.04.2017 is available in the arbitral record. However, as is mentioned at page 8 of the arbitral award, the matter on 01/04/2017 was adjourned to 13.05.2017. Again on 13.05.2017 the matter got adjourned to 16.08.2017 as none Page No. 22 of 29 appeared on behalf of respondents. Thereafter on 16.08.2017 as per order-sheet (available at page 5 of arbitral record) the respondents were again specifically directed to file objections with respect to the bank statements provided to them which formed the basis of claim against the respondents. The matter was adjourned to 16.09.2017 for final arguments. Once again, no order sheet for the date 16.09.2017 is available in the arbitral record but, as per page 8 of arbitral award the matter on 16.09.2017 was adjourned to 18.11.2017. Again, in the order- sheet dated 18.11.2017 (available at page 4 of arbitral record) it is recorded that respondent who was directed to file written arguments failed to file any written arguments on the bank transactions. It is further mentioned that the claimant bank filed evidence by way of affidavit and the bank was further directed to produce original ledger. The objection of respondent that the bank transactions filed were without instructions or authorization since the date of account becoming NPA is not mentioned also stands recorded. The matter was thereafter adjourned to 16.12.2017.
48. Subsequently on 16.12.2017 (available at page 3 of the arbitral record) the claimant bank produced original ledger and on the request of respondent matter was adjourned to 06.01.2018 with direction to file written submissions. Subsequently on 06.01.2018 Ld. Counsel for respondent filed an application under Section 29A of Arbitration and Conciliation Act, 1996 stating that the mandated period of one year has expired since the filing of claim by the claimant bank. The matter was adjourned to Page No. 23 of 29 20.01.2018 and on which date reply to the application was filed by the claimant bank and further arguments were partly heard and matter was adjourned to 16.02.2018 for final arguments and disposal of the application.
49. Though no order sheet dated 16.02.2018 is available in the arbitral record but a perusal of arbitral award at page no. 9 mentions about the following proceedings carried out on 16.02.2018 :
"On 16th February, 2018, Mr. Daman Malhotra R-1 appeared and stated that the will appear for all the respondents as he is well aware of the case and all proceedings and Mr. Anzar Hussain appeared for the bank and requested that sufficient opportunities has already been given to the respondents, but respondents failed to file specific reply and objection on the transaction stated in the bank statement provided to the respondents. The claimant bank produced original ledgers showing the transactions of the respondents with the bank. Final opportunities given and both parties were directed to file written objection and case adjourned to 6th January, 2018 respondents failed to file any objection to the transaction shown by the bank statement."
Finally, the arbitral record shows that on 13.04.2018 the award in question was pronounced by the Ld. Arbitrator.
50. The sole purpose of referring to the proceedings so Page No. 24 of 29 conducted by Ld. Arbitrator in detail is that from the order sheets recorded by the Ld. Arbitrator himself, it is clear that neither the respondent at any point of time admitted any part of the bank statement to be correct nor in any application moved by him he made any admission qua any of the transactions reflected in the bank statement filed by claimant bank to be correct much less till 17.09.1996. In fact, till the last hearing stated to have been conducted on 16.02.2018 as has been recorded by Ld. Arbitrator in the award before he proceeded to pronounce the award, it is clear that respondent had not filed any reply or objection to the transactions as were reflected in the bank statement placed on record by the claimant bank. Thus, the very basis of the award whereby Ld. Arbitrator sought to dispose of the arbitration proceedings by awarding a part of the claim in favour of claimant bank primarily on the basis of an admission about the correctness of the transactions allegedly made by respondent is found to be contrary to the record. It is accordingly clear that not only the very basis of the award is per se contrary to the record of proceedings but in fact it wrongly records an admission on the part of respondent which was actually never made.
51. The aforesaid facts thus show that the arbitral award in question suffers from a patent illegality appearing on the face of record itself.
52. At this stage it will be pertinent to mention that in the reply filed to the petition by Ld. Arbitrator it is mentioned that since some adjournments were sought by the parties on telephone Page No. 25 of 29 so no formal order sheets were recorded. In this regard it would be suffice to state that even in those circumstance it was the duty of Ld. Arbitrator to record these facts in his proceedings for otherwise in any proceedings if subsequently filed before Court of law, as the present one is, the arbitral record will be found completely silent as regard those date of hearing fixed in the matter. Ordinarily no reply is expected from the Ld. Arbitrator to a petition filed under Section 34 Arbitration and Conciliation Act but since in the present matter a reply has been filed by the Ld. Arbitrator so the aforesaid explanation could be considered by the Court. However, the explanation per se is vague and does not inspire by confidence as regard the nature of proceedings carried out by the Ld. Arbitrator.
53. Apart from the aforesaid patent illegality, I may also mention that though the arbitral record submitted to the court by Ld. Arbitrator does not contain any of the applications moved on behalf of respondent (petitioner herein) during the arbitration proceedings but copies of various such applications have been placed on record by the petitioner along with the present petition. The factum of said applications having been moved by petitioner during the arbitration proceedings or for that matter averments made in the said applications have not been disputed on behalf of respondent bank. One such application moved on behalf of non- claimant before Ld. Arbitrator was dated 02.01.2017 seeking permission to cross examine the claimant's witness.
54. In fact, the order-sheet dated 07.01.2017 (available at Page No. 26 of 29 page 10 of the arbitral record) does mention about one such application having been moved by non-claimant. However, the subsequent proceedings do not show that the said application was dealt with by the Ld. Arbitrator much less disposing off the said application by any reasoned or speaking order. It is thus clear that despite specific request having been made by respondent to permit him to cross-examine the claimant's witness, no opportunity was given to him. Similarly, petitioner has also placed on record copy of his affidavit of evidence dated 01.03.2018 which was filed by him before the Ld. Arbitrator, but again the proceedings conducted by the Ld. Arbitrator as well as the final award are completely silent in this regard.
55. At this stage, it would be also pertinent to mention that the earlier award passed between the parties was set aside by Hon'ble High Court by specifically observing that the Ld. Arbitrator committed a patent illegality in declining the permission to petitioner to cross-examine the bank's witness. Once again, a similar material procedural illegality striking at the very root of the arbitration proceedings has been committed by the Ld. Arbitrator. Thus, the procedure adopted by the Ld. Arbitrator is clearly in conflict with the basic notions of justice. The Ld. Arbitrator failed to follow the basic principles of natural justice.
56. Moreover, since the Ld. Arbitrator was cognizant of the earlier order passed by Hon'ble High Court as is mentioned in the award itself, so there ought to have been some explanation Page No. 27 of 29 recorded in the proceedings regarding the various entries mentioned in the bank statement, especially when the Hon'ble High Court specifically mentioned in its order that some interpolation seems to have been made in the said statement by pencil.
A brief explanation in this regard by the bank thus became mandatory and would have served the cause of petitioner bank well.
57. I may also state that though the award in question is running into ten pages but a perusal of the same clearly shows that except for mentioning the details of the proceedings so carried out during the course of arbitration and details of the claim filed by the bank no reasons worth the name have been given for either rejecting a part of the claim amount or allowing some part thereof. When the Ld. Arbitrator allowed a part of the claim amount then he ought to have also mentioned some reasons as to why the remaining claim is not being awarded. As already discussed in detail even the reasons for allowing a part of the claim amount is also extraneous to the arbitral record. Thus, the award on the face of it is devoid of any reasons much less based on any plausible reasons.
CONCLUSION
58. From the aforesaid discussion, it is thus clear beyond any doubts that the Ld. Arbitrator was acting in a mechanical manner Page No. 28 of 29 without any application of mind and that too simply with a view to put a seal of approval on the claim of claimant bank.
59. The award thus not only suffers from patent illegality but is also in conflict with the most basic notions of justice. In these circumstances, I am of the considered opinion that there exists sufficient grounds warranting judicial interference leading to setting aside of the impugned award.
60. Accordingly, the impugned Award dated 13/04/2018 is hereby set aside. The present petition accordingly stands allowed. In the facts and circumstances of the case, the parties are however left to bear their own costs.
61. In compliance of the provisions of Order XX Rule 1 of the Code of Civil Procedure (as amended up-to-date by the Commer- cial Courts Act, 2015), a copy of this judgment be issued to all the parties to the dispute through electronic mail, if the particu- lars of the same have been furnished, or otherwise.
62. File be consigned to Record Room.
Pronounced in open Court on 10.12.2021 (Bharat Parashar) District Judge (Commercial Court)-01, Central, Tis Hazari Courts, Delhi.
Page No. 29 of 29