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Delhi High Court

Coronation Infrastructure Pvt Ltd & ... vs Tata Capital Financeial Services Ltd on 12 October, 2022

Author: Neena Bansal Krishna

Bench: Neena Bansal Krishna

                          *      IN THE HIGH COURT OF DELHI AT NEW DELHI
                               %                       Reserved on: 14th September, 2022
                                                           Decided on:12th October,2022

                          +                            O.M.P. (T) (COMM.) 77/2021

                          1.     CORONATION INFRASTRUCTURE PVT LTD
                                 E-0, The Mira Corporate, Suite 1 & 2, Ishwar Nagar,
                                 near Corporate Suit, Shri Niwas Puri, Delhi-110065
                                 Through
                                 Mr. Ranjit Singh Atwal (Director/Authorised Representative)
                          2.     MR. RANJIT SINGH ATWAL
                                 S/o Surinder Singh Atwal
                                 A-18, Niti Bagh, Andrews Ganj,
                                 New Delhi-110049                                       ..... Petitioners

                                                       Through:   Ms. Veera Mathai, Advocate.
                                                       versus

                                 TATA CAPITAL FINANCIAL SERVICES LTD
                                 7th Floor, Videocon Tower,
                                 Jhandewalan Extn., Delhi-110055                       ..... Respondent

Through: None.

CORAM:

HON'BLE MS. JUSTICE NEENA BANSAL KRISHNA J U D G E M E N T

1. The present petition under Section 14 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "A&C Act, 1996") has been filed on behalf of the petitioners seeking termination of the mandate of the Sole Arbitrator appointed by the respondent.

2. It is submitted in the petition that the petitioners purchased the machinery/equipment, namely, namely Tata Hitachi Excavator Zaxis 650 having serial no.ISUZU6WGI627706 from the respondent on 28th February, 2019 vide Loan-cum-Hypothecation-cum-Guarantee Agreement (hereinafter referred to as "Loan Agreement") bearing Loan No.TCFCE0310000010295890 and the same was to be paid in 46 equal monthly installments of ₹5,25,770/- commencing from April, 2019 till February, 2023. The complete installments were made by the petitioners, but only delayed charges remained pending under the Loan Agreement.

3. The disputes arose between the parties, and respondent unilaterally appointed Mr. Jaswant Singh as the Sole Arbitrator to adjudicate the disputes between the parties on 15th October, 2019 in respect of Loan Agreement. The Sole Arbitrator accepted his appointment vide Consent Letter-cum-Notice of Appearance dated 01st November, 2019. The respondent filed its Statement of Claim and interim application under Section 17 of the A&C Act, 1996. The petitioners were under the belief that the copy of the claim petition and the interim application would be provided on the first hearing and the matter, thereafter, would be fixed for reply.

However, to the utter shock of the petitioner on 02nd December, 2019, the petitioners received a copy of an ad interim ex parte Order passed by the learned Arbitrator under Section 17 of A&C Act, 1996 on 01st November, 2019, whereby the Arbitrator had appointed and authorized the representative of the respondent as a Receiver to take possession of the equipment from where it was found and whoever was in the possession of the same and kept the same under his custody and management.

4. It is claimed that Mr. Jaswant Singh, is the Sole Arbitrator in the two earlier claim petitions filed by the respondent against the petitioner for which an objection by way of Section 16 of A&C Act, 1996 had been raised by the petitioners in respect of unilateral appointment of the Arbitrator as being in contravention to Section 12(5) of A&C Act, 1996. However, the said objection to his jurisdiction was not addressed by the Sole Arbitrator and was not treated with urgency; rather the Arbitrator consented to his appointment to similar Claim petitions filed by the respondent which are in contravention of Section 12(5) read with Entry 22 of Schedule VII of A&C Act, 1996.

5. It is submitted that the respondent on the first date of hearing sought an adjournment to file the statement of claim. It was stated in the Notice dated 04th December, 2019 of the Arbitrator, the claim has already been filed, but the same was not correct. The copy of the interim application was also not provided to the petitioner. On the subsequent dates, the respondent kept seeking adjournments for filing the statement of claim. Thereafter, on account of COVID-19 Pandemic and the resultant lockdown, no further dates were notified for proceeding for Arbitration, and no further proceedings had been held.

6. It is submitted that the petitioners by way of e-mail sought confirmation from the Sole Arbitration about any further arbitral proceedings having been taken place and also furnished the contact details. The petitioners also informed the Sole Arbitrator about the moratorium granted to the petitioners for all claims and the status regarding the payment of the same. However, no response or any communication has been received Signature Not Verified O.M.P. (T) (COMM.) 77/2021 Page 3 of 11 Digitally Signed By:SAHIL SHARMA Signing Date:12.10.2022 17:01:15 and it was assumed that no intervening orders had been made by the Sole Arbitrator.

7. Thereafter, a notice was received by the petitioners from the Arbitral Tribunal stating that the next date of hearing was on 29th January, 2021, but the Corporate Office of the petitioners was following work-from-home policy, and the petitioners were unaware of the proceedings and could not mark appearance.

8. It is further submitted that the respondent failed to take any steps to comply with the ex parte ad interim Order dated 12th December, 2019 or effectuate the same for the reasons best known to the respondent. Strangely, the respondent vide E-mail dated 22nd January, 2021 demanded the petitioners to surrender the requisite asset/equipment under the Loan Agreement to the Receiver appointed by the Sole Arbitrator.

9. The petitioners have asserted that despite ongoing COVID-19 Pandemic, the petitioners had been making routine payments as per the terms of repayments agreed between the parties, thus the sudden demand for surrender of the assets when the petitioners were duly complying with the terms, was contrary to the consensus reached between the parties.

10. It is further asserted that the petitioner No. 1 has since the lapse of the payment of moratorium period provided under the relevant RBI Circulars by the respondent, it has continued to make payments against all four loan accounts and successfully repaid the entire loan account in respect of which one of the claims is before the Sole Arbitrator for adjudication.

11. It is submitted that as on date of filing, the petitioner No. 1 had paid a sum of ₹1,13,02,670/- since the onset of the COVID-19 Pandemic lockdown despite the complete closure of mining business on account of the Signature Not Verified O.M.P. (T) (COMM.) 77/2021 Page 4 of 11 Digitally Signed By:SAHIL SHARMA Signing Date:12.10.2022 17:01:15 intermittent lockdowns, exodus of migrant labourers to their villages, break in necessary supply of raw materials and multitude of other reasons. However, the respondent has failed to withdraw its claims filed before the Sole Arbitrator.

12. The petitioners have taken strong objection to the unilateral appointment of the Sole Arbitrator as being violation of Section 12(5) of A&C Act, 1996. Further, the conduct of the Arbitrator has given justifiable doubts about his independence and impartiality and his conduct in making interim orders reeks of malafides and casts serious aspersions regarding his independence.

13. Reliance has been placed by the petitioners on the decision in Perkins Eastman Architects DPC & Ors. v. HSCC (India) Ltd. AIR 2020 SC 59, wherein the Hon'ble Supreme Court upheld the disqualification and disentitlement of the persons from being Arbitrator under Section 11 read with Schedules V and VII of A&C Act, 1996. It has been observed that the Managing Director becomes ineligible by operation of law as an Arbitrator, and once his identity is lost, its power to nominate someone else as an Arbitrator is also obliterated.

14. Reliance has also been placed by the petitioners on the decision in Bharat Broadband Network Limited v. United Telecoms Limited AIR 2019 SC 2434, wherein the Hon'ble Supreme Court held that where the appointment of Arbitrator is contrary to Section 12(5) of A&C Act, 1996, the challenge to the mandate must be placed before the Court.

15. It is, therefore, submitted that the mandate of the Sole Arbitrator may be terminated and all the proceedings and orders passed by the Sole Signature Not Verified O.M.P. (T) (COMM.) 77/2021 Page 5 of 11 Digitally Signed By:SAHIL SHARMA Signing Date:12.10.2022 17:01:15 Arbitrator may be declared to be without jurisdiction. Further, the respondent be directed to pay the cost of the proceedings.

16. The present petition has been contested by the respondent which in its Reply has stated that the Sole Arbitrator has already recused himself from the arbitral proceedings on 22nd February, 2021 and the present petition has become infructuous.

17. The petitioners in their Rejoinder have submitted that the alleged order of recusal has not been served upon them, nor any intimation to this effect has been given rather Notice of Appearance dated 11 th January, 2021 has been received, asking the petitioners to appear on 29 th January, 2021 before the Arbitral Tribunal for re-commencement of the proceedings after the COVID-19 Pandemic lockdown. It is asserted that there is reasonable apprehension that the recusal order has been pleaded only after filing of the present petition, the advance copy of which was already served upon the respondent. Further, the ex parte Order dated 10th August, 2021 passed by this Court against the respondent was also served upon the Sole Arbitrator and at no point of time, were the petitioners notified about this recusal of the Sole Arbitrator. It is further asserted that subsequently the respondent has filed the petition under Section 9 of A&C Act, 1996 seeking similar relief as has already been granted by the Sole Arbitrator under Section 17 of A&C Act, 1996. This Court in its ex parte Order dated 10th August, 2021 has stayed all the orders passed by the Sole Arbitrator and thus, the act of the respondent in filing three petitions under Section 9 of A&C Act, 1996 before the District Courts, Saket, even though, the present petition is pending in this Court, is in contravention of Section 42 of A&C Act, 1996. The jurisdiction of the District Court to entertain the petition has been challenged by the Signature Not Verified O.M.P. (T) (COMM.) 77/2021 Page 6 of 11 Digitally Signed By:SAHIL SHARMA Signing Date:12.10.2022 17:01:15 petitioners before the said Court, and the matter has been adjourned. It is further submitted that even if it is accepted that the Sole Arbitrator has recused himself, such recusal would not make the present petition infructuous. Under Section 14(3) of A&C Act, 1996, it is still to be determined that the mandate of the Sole Arbitrator unilaterally appointed by the respondent was de jure unlawful and in contravention of Section 12(5) read with Schedule VII of A&C Act, 1996. Furthermore, mandate under Section 12(5) that if the mandate is found to be de jure, it is incumbent on this Court to declare all the proceedings held before the Sole Arbitrator are without jurisdiction and void. The Arbitration Clause under the Loan Agreement is contrary to the provisions of A&C Act, 1996 and, therefore, a substitute Arbitrator cannot be appointed. Section 15(4) of A&C Act, 1996 stipulates that unless agreed by the parties any order or ruling made prior to replacement of the Arbitrator shall not be invalid solely because there is a change in the composition of the Arbitral Tribunal. It is stated that it is not a case of mere change in the composition, rather it is de jure incapacity of the Arbitrator, which is pleaded, and thus, the entire proceedings conducted before the Sole Arbitrator are non-est Section 15(3) cannot be read to give discretion to a substituted Arbitrator to commence the proceedings after they have been terminated. It is asserted that merely on recusal of the Sole Arbitrator, the proceedings have not become infructuous.

18. Submissions heard.

19. The basis of argument raised in the present case is that since the appointment of the Arbitrator was de jure illegal, the entire proceedings conducted before him are non-est and the proceedings have to be so held to Signature Not Verified O.M.P. (T) (COMM.) 77/2021 Page 7 of 11 Digitally Signed By:SAHIL SHARMA Signing Date:12.10.2022 17:01:15 be illegal and the mandate of the Tribunal has to be held to be non-est and illegal.

20. The entire controversy rests on Section 14 of A&C Act, 1996 which reads as under:

"14. Failure or impossibility to act.--

(1) [The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if]--

(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and

(b) he withdraws from his office or the parties agree to the termination of his mandate.

(2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate.

(3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section(3) of section 12."

21. Section 14(1) states that the mandate of the Arbitrator shall terminate and he shall be substituted by another Arbitrator if he becomes de jure or de facto unable to perform his functions. Clause 1 of Section 14 of A&C Act, 1996 itself visualizes and contemplates the situation where an Arbitrator may be de jure disqualified from being appointed as an Arbitrator.

22. It is not in dispute that the Sole Arbitrator was the retired Judge, District Courts, Delhi.

23. Section 12 of A&C Act, 1996 provides for the grounds of challenge. It states that when a person is approached in connection with his possible Signature Not Verified O.M.P. (T) (COMM.) 77/2021 Page 8 of 11 Digitally Signed By:SAHIL SHARMA Signing Date:12.10.2022 17:01:15 appointment as an Arbitrator, he shall disclose in writing any circumstances such as existence of any direct or indirect, past or present relationship with or interest in any of the parties and such circumstances which are likely to affect his ability to devote sufficient time to arbitration.

24. Sub-Section 5 of Section 12 of A&C Act, 1996 further provides that notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel of the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an Arbitrator. A proviso thereto, however, states that the applicability of this specification may be served by an express agreement in writing.

25. In Bharat Broadband Network Limited v. United Telecoms Limited (supra), the Hon'ble Supreme Court had observed that this Scheme of Sections 12, 13 and 14 is that where an Arbitrator makes disclosure which is likely to give justifiable doubt as to his independence or impartiality, the appointment of such Arbitrator may be challenged under Section 12(1) read with Section 13 and if such person becomes ineligible to be appointed as an Arbitrator, in such a case which falls under Section 12(5), Section 14(1) gets attracted in which the Arbitrator becomes as the matter of law i.e., de jure unable to perform his functions under Section 12(5) being ineligible to be appointed as an Arbitrator. This being so, his mandate automatically terminates and he shall then be substituted by another Arbitrator under Section 14(1) of A&C Act, 1996 itself. It is only if the controversy occurs concerning whether he has become de jure unable to perform his functions as such that the party has to apply to the Court to decide on the termination of the mandate unless otherwise agreed by the parties.

26. In the case of Perkins Eastman Architects DPC &Ors. v. HSCC (India) Ltd. (supra), it has been categorically observed that appointment of a Managing Director or any nominee by the Managing Director is per se in contravention of Section 12(5) and the Arbitrator was appointed is de jure ineligible to be an Arbitrator.

27. In the present case, undeniably, the Sole Arbitrator was nominated unilaterally by the respondent without there being any consent of the petitioner.

28. Learned counsel on behalf of the respondent has submitted that it is a case where the arbitration proceedings should be terminated and it is not a case of appointment of substitute Arbitrator. This argument of the respondent is absolutely unsustainable because Section 14(1) of A&C Act, 1996 itself provides that if the Arbitration is found to be de jure ineligible, another Arbitrator has to be substituted.

29. Furthermore, the averments have been made by the petitioners that the sole arbitrator has been acting for and on behalf of the respondent as an Arbitrator in the present petition making him de jure ineligible to continue as an Arbitrator. The unilateral appointment of the Sole Arbitrator by the respondent is, therefore, covered by Section 12(5) A&C Act, 1996 and is held to be de jure disqualified. Also, the Sole Arbitrator so appointed has resigned on 22nd February, 2021 i.e., during the pendency of the present proceedings, and in terms of Section 14 of A&C Act, 1996, it has, therefore, become imperative to appoint a substitute Sole Arbitrator.

30. In view of aforesaid discussion and also considering that the Sole Arbitrator has himself resigned, Mr. Davinder Singh, Senior Advocate, Chamber No. 176, Block II, Delhi High Court, Mobile No. 9810039326, is Signature Not Verified O.M.P. (T) (COMM.) 77/2021 Page 10 of 11 Digitally Signed By:SAHIL SHARMA Signing Date:12.10.2022 17:01:15 hereby appointed as the Sole Arbitrator to adjudicate the disputes between the parties and shall continue the arbitration proceedings.

31. The parties are at liberty to raise their respective objections before the Ld. Arbitrator.

32. This is subject to the Arbitrator making necessary disclosure as under

Section 12(1) of A&C Act, 1996 and not being ineligible under Section 12(5) of the A&C Act, 1996.

33. The fees of the learned Arbitrator would be fixed in accordance with the Fourth Schedule to A&C Act, 1996 or as may be otherwise agreed between the Arbitrator and the parties.

34. Learned counsels for the parties are directed to contact the learned Arbitrator within one week of being communicated a copy of this Order to them by the Registry.

35. The petition is accordingly allowed in the above terms.

36. The next date of hearing, if any, also stands cancelled. I.A. 9920/2021 (Stay) In view of the judgement passed in O.M.P. (T) (COMM.) 77/2021, the present application is disposed of as infructuous.

(NEENA BANSAL KRISHNA) JUDGE OCTOBER 12, 2022 S.Sharma Signature Not Verified O.M.P. (T) (COMM.) 77/2021 Page 11 of 11 Digitally Signed By:SAHIL SHARMA Signing Date:12.10.2022 17:01:15