Delhi District Court
Sgm Packaging Industries ) vs Sgm Packaging Industries & Ors on 7 January, 2021
IN THE COURT OF SH HARGURVARINDER SINGH JAGGI,
ADDL. DISTRICT JUDGE - 02, SOUTH WEST DISTRICT,
DWARKA COURTS, DELHI
ARBTN No. 129/2020
CNR No. DLSW01-009605-2017
IN THE MATTER OF:
1. SGM Packaging Industries )
47/38 Prakash Place Rajiv Colony )
Gurgaon - 122004 )
Haryana ) ... Petitioner
v.
1. Edelweiss Retail Finance Limited )
2A & 2B Savitri Tower )
3A, Dr. Martin Luther King Sarani )
(Formerly Upper Wood Street) )
Kolkata - 700017, West Bengal ) ...Respondent No. 1
2. Mr. Anis Ahmed )
Flat No. 509, Ground Floor )
Dwarka Residential Scheme )
DDA SFS Flats Pocket 1, Sector 22 )
Dwarka, New Delhi - 110077 ) ...Respondent No.2
Mr. Dawneesh Shaktivats, Advocate for the petitioner.
Mr. S.K. Singh, Advocate for the respondent No. 1.
Date of filing of petition: 18.08.2017
Date of judgment reserved: 14.12.2020
Date of pronouncement of judgment: 07.01.2021
ARBTN No. 129/2020
Page No. 1/32
JUDGMENT
1. The petitioner, namely, SGM Packaging Industries through Rajesh Chauhan (hereinafter "petitioner" and/or "non-claimant") has challenged an ex parte arbitral award dated 29.04.2017 (hereinafter "arbitral award") in favour of Edelweiss Retail Finance Ltd. (hereinafter "respondent No.1" and/or "claimant") passed by the sole arbitrator, namely, Anis Ahmed, Advocate (hereinafter "sole arbitrator" and/or "respondent No.2") under Section 34 of the Arbitration & Conciliation Act, 1996 (hereinafter "the Act").
2. For the sake of facility and convenience, the parties are also referred as per their rank and status in the arbitration proceedings.
3. The petitioner is aggrieved by the ex parte arbitral award passed by the sole arbitrator, as per which the respondent No.1 is held entitled for a money claim against the petitioner to the tune of ₹20,96,131/- (Rupees Twenty lakhs ninety six thousand one hundred and thirty one only) along with interest at the rate of 18% per annum with effect from 17.04.2017 till the date of payment by the petitioner or realization by the respondent No.1, costs of arbitral proceedings including the arbitrator' fees quantified as ₹1,000/- (Rupees One thousand only) and ₹2,100/- (Rupees Two thousand and one hundred only) as expenses incurred in procurement of stamp duty for the award.
4. The admitted facts are that the petitioner had availed a business loan facility from the respondent No.1 and entered into a business loan agreement coupled with a deed of guarantee dated 29.01.2015 with the respondent No.1. The arbitration agreement was enshrined within the loan agreement entered between the parties.
ARBTN No. 129/2020 Page No. 2/325. On 18.10.2016, the respondent No.1 issued a demand notice to the petitioner seeking payment of dues and threatening to initiate a legal action against the petitioner if the repayment was not made within 7 days.
6. On 31.12.2016, a notice under Section 21 was received by the petitioner, wherein the respondent No.1 had put the petitioner to notice that in case the petitioner fails to clear all the outstanding amount, it shall be presumed that a dispute has arisen out of the business loan agreement and deed of guarantee and the same shall be decided by the sole arbitrator/respondent No.2.
7. The petitioner responded to the notice dated 31.12.2016 through a response letter dated 20.01.2017 citing illegality in the notice under response and also lodging objections to the appointment of respondent No.2 as a sole arbitrator being non-conforming to Sections 12, 18 and the Fifth Schedule of the Act. The respondent No.2 by letter dated 17.01.2017 made a disclosure under the Act, which did not conform with the statutory disclosure under Section 12(1) read with the Sixth Schedule of the Act. It is averred by the petitioner that the alleged disclosure made by respondent No.2 fails to meet the mandate of the Act. It is also averred by the petitioner that the response dated 17.01.2017 by the respondent No.2 was only an acceptance of appointment as an arbitrator and not a statutory disclosure under the mandate of the Act.
8. Thereafter on 27.01.2017, the respondent No.1 replied to petitioner's letter dated 20.01.2017. It is averred by the petitioner that the reply dated 27.01.2017 by the petitioner is evasive, illegal and devoid of any merit. It is urged by the petitioner that the independence ARBTN No. 129/2020 Page No. 3/32 and impartiality of the arbitrator were never addressed adequately by the sole arbitrator and the respondent No.1.
9. The petitioner once again by reply dated 30.01.2017 endeavoured to respond to the letter dated 27.01.2017 expressing his concern with regard to independence and impartiality of the sole arbitrator appointed unilaterally by the respondent No.1. It is the case of the petitioner that the respondents deliberately failed to reply to petitioner's letter dated 30.01.2017.
10. The petitioner has averred that the copy of the claim petition along with documents and the procedure of arbitral proceedings were served through a letter dated 25.01.2017, wherein the sole arbitrator admitted that he had been nominated as an arbitrator on several occasions by the respondent No.1.
11. The petitioner is aggrieved by the ex parte arbitral award and seeks the same to be set aside on the grounds that the very unilateral appointment of the sole arbitrator contravened the provisions of the Act, such as Section 12, 18, Fifth Schedule of the Act and the arbitration proceedings also violated the principles of natural justice.
12. The petitioner has averred in the petition that the appointment of the sole arbitrator and the conduct of the sole arbitrator does raise a cloud on his independence, neutrality and impartiality. The petitioner has urged one of the grounds assailing the ex parte arbitral award that the arbitrator failed to deal with the objections lodged by the petitioner and proceeded in a haste to proceed the petitioner as ex parte. The petitioner has averred that such non-adjudication of the objections lodged by the petitioner, reveal that the arbitrator acted in breach of ARBTN No. 129/2020 Page No. 4/32 Section 18 of the Act and neither treated the parties equally nor gave them full opportunity to present their case.
13. The petitioner has urged that despite an objection lodged against the appointment of the arbitrator and having sought a full disclosure from the arbitrator, the arbitrator violated the mandate of the Act and passed the ex parte arbitral award against the petitioner. The petitioner has also urged that the ex parte arbitral award passed against the petitioner and in favour of the respondent by the sole arbitrator cannot stand the rigours of law, as the respondent No. 1 failed to lead and prove documentary evidence in accordance with law.
14. The petitioner by the present petition has sought an order be passed directing the respondent No. 2 to make full disclosure under Section 12, Fifth and Sixth Schedule of the Act coupled with the ex parte arbitral award dated 29.04.2017 be set aside.
15. The petition preferred by the petitioner before this court was marred by a delay and the delay stood condoned on the motion set under Section 34(3) of the Act by the petitioner being allowed vide order dated 18.09.2019.
16. The respondent No. 1 in its reply to the petition has raised the following preliminary objections:
(a) The petition preferred by the petitioner under Section 34 of the Act is time barred and not maintainable.
(b) The petitioner has made false representation and suppressed material facts.
(c) The petition fails to make out any justifiable, tenable grounds for setting aside of the arbitral award dated 29.04.2017. The objections preferred by the petitioner ARBTN No. 129/2020 Page No. 5/32 cannot be substituted for appeal, which is otherwise impermissible under the Act.
(d) The petitioner has preferred the petition with mala fide intention with a view to create hindrance in recovery of dues by the respondent No.1 from the petitioner. The objections lodged by the petitioner are an abuse of process of court as no cause or reason exists for the same.
17. The respondent No. 1 in its para-wise reply to the objections has averred that the sole arbitrator by notice dated 17.01.2017 along with the disclosure under Section 12(1)(b) and Schedule VI of the Act divulged all particulars related to past and present relationship and a copy of the same was also provided to the petitioner herein. It is also urged by the respondent No. 1 that the petition at the time of availing the loan facility from the respondent No. 1 was very well aware about the arbitration agreement and the appointment of the arbitrator, and even affixed the signatures on the loan agreement.
18. With regard to objection flagged by the petitioner for non- compliance of Schedule V of the Act, the respondent No. 1 has averred that Explanation III of the Schedule provides that for specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrator from a small, specialised pool may be the practice. It is further averred that accordingly, the arbitrator appointed by the respondent No. 1 possesses special knowledge in a particular field and in light of Explanation III, one can be appointed as an arbitrator in different number of cases. It is urged by the respondent No. 1 that the arbitration proceedings were in accordance with the provisions of the Act.
ARBTN No. 129/2020 Page No. 6/3219. The respondent No. 1 has also averred that the petitioner has failed to submit any document in support of the allegation levelled against the arbitrator, which prove that there were no illegalities in appointment of the arbitrator by the respondent No. 1.
20. The respondent No. 1 has also urged that the arbitrator passed the arbitral award after giving sufficient opportunities to the parties. It is averred by the respondent No. 1 that the same is evident from the hearing notices issued by the arbitrator to the petitioner on 25.01.2017 and 07.02.2017 and duly received by the petitioner. The respondent has further urged that the arbitrator passed the arbitral award dated 29.04.2017 only after having considered all material facts, documents on record and sufficient opportunities to the parties. The respondent No. 1 has also pleaded that the petitioner did not ask for documents from the arbitrator and thus the objections for want of documents in the present petition are liable to be dismissed.
21. The respondent No. 1 has urged that the sole arbitrator passed the award dated 29.04.2017 after having considered all facts and documents placed before him. It is also urged that the petitioner has no right to question the veracity of the documents in the present petition as it is the admitted case that petitioner availed loan facility from the respondent No. 1. The respondent No. 1 has pleaded in its response that the arbitral award passed by the sole arbitrator is well reasoned and merits no interference by this court.
22. Mr. Dawneesh Shaktivats learned counsel for the petitioner and Mr. S.K. Singh learned counsel for the respondent advanced their oral arguments for and against the petition.
ARBTN No. 129/2020 Page No. 7/3223. Mr. Dawneesh Shaktivats, learned counsel for the petitioner contended that the ex parte arbitral award passed by the sole arbitrator is liable to be set aside as the same openly contravenes the mandate and legal provisions of the Act. The learned counsel added that on receipt of the notice 31.12.2016 recalling the loan amount along with interest by the respondent No. 1 and in default of payment in terms of the said notice, invocation of the arbitration clause by appointment of respondent No. 2, the petitioner issued an adequate response dated 20.01.2017 to the respondent No. 1 and a copy marked to the respondent No. 2.
24. Mr. Shaktivats learned counsel for the petitioner submitted that thereafter the sole arbitrator issued a letter dated 25.01.2017 accepting his appointment by respondent No. 1 and gave his consent to act as a sole arbitrator. The learned counsel further submitted that the sole arbitrator's letter dated 25.01.2017 stated that the statutory disclosure in the prescribed format under the Schedule VI as per Section 12(1) of the Act has already been sent to the parties.
25. Mr. Shaktivats learned counsel for the petitioner read out the sole arbitrator's letter dated 25.01.2017 and incisively pointed out that the sole arbitrator himself submitted that at several occasions he has been appointed as the sole arbitrator and yet he stated that he shall be independent and impartial towards the parties. The learned counsel stressed that not only the reply dated 25.01.2017 by the sole arbitrator but also the entire arbitral proceedings have been farcical and an eyewash.
26. The learned counsel submitted that the petitioner from the very beginning was dealt a rough hand and it was but obvious that despite ARBTN No. 129/2020 Page No. 8/32 the assurances of being impartiality an arbitral award against the petitioner was inevitable. The learned counsel for the petitioner stressed that under no manner, the reply dated 25.01.2017 be considered as a statutory disclosure of Schedule V, VI and compliance of Section 12 and 18 of the Act.
27. To buttress his arguments, the learned counsel for the petitioner placed reliance upon the judicial pronouncements of Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. 1 and Goel Construction Co. Pvt. Ltd. v. The Institute of Chartered Accountants of India.2
28. Mr. Shaktivats learned counsel for the petitioner submitted that the Apex Court in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd.3 held that the appointment of a sole arbitrator must not be unilateral regardless of there being an exclusive arbitral clause in the agreement. The learned counsel further added that the Apex Court has unequivocally held that an interested party in the outcome of the dispute cannot appoint an arbitrator, even if so it is agreed between the parties.
29. The learned counsel for the petitioner submitted that impartiality and neutrality are the hallmark qualities of an arbitrator, which cannot be abandoned at any cost. The learned counsel for the petitioner submitted that in the case at hand not only the arbitrator unilaterally appointed by the respondent No. 1 failed to make a disclosure as per the mandate of the Act, but also decide the objections filed by the petitioner to his appointment in accordance with law. The learned counsel added that the arbitrator appointed by the petitioner 1 (2019) SCC Online SC 1517 2 OMP (T) (COMM.) No. 120/2018 date of order 13.11.2018 3 (2019) SCC Online SC 1517 ARBTN No. 129/2020 Page No. 9/32 was ineligible as the same is apparent from the letter dated 25.01.2017, who himself stated that he has been appointed as an arbitrator by the respondent No. 1 on prior occasions.
30. The learned counsel for the petitioner submitted that the entire arbitral proceedings were conducted in direct breach and contravention of Section 18 of the Act. The learned counsel further submitted that the impugned arbitral award is contrary to the principles of natural justice, fair play and equity. The learned counsel for the petitioner scathingly submitted that the treatment meted out to the petitioner by the sole arbitrator (respondent No. 2 herein) was unfair, untenable and the ex parte arbitral award deserves to be set aside.
31. Mr. S.K. Singh learned counsel for the respondent No. 1 valiantly contended the arguments advanced by the learned counsel for the petitioner. The learned counsel for the respondent No. 1 submitted that no case for interference and setting aside of the arbitral award is made out in favour of the petitioner. The learned counsel further submitted that the petition at hand is an utter abuse of process of law by the petitioner, who at one hand availed the loan facility from the respondent No. 1 and defaulted in repayment of loan instalments and on the other hand intentionally stayed away from the arbitral proceedings and once arbitral award has been passed against the petitioner for default in appearance has stymied the whole legal process.
32. The learned counsel for the respondent No. 1 submitted that the petitioner has no right to champion the cause of equity as on one hand the petitioner after having availed the loan facility from the respondent ARBTN No. 129/2020 Page No. 10/32 No. 1 intentionally defaulted to repay the loan as per the agreement between the parties, and on other hand, the petitioner stayed away from joining the arbitration proceedings despite having been served with notice of appointment of the arbitrator by the respondent No. 1 and also the notice of acceptance of appointment by the arbitrator. The learned counsel for the respondent No. 1 submitted that the contentions advanced by the learned counsel for the petitioner that the sole arbitrator violated the principles of natural justice is an afterthought and the present challenge is nothing but a devious plan to frustrate the rightful claim of the respondent No. 1 against the petitioner.
33. The learned counsel for the respondent No. 1 placed reliance upon the judicial pronouncement of Antrix Corpn. Ltd. v. Devas Multimedia P. Ltd.4 in support of his proposition that once an arbitration agreement has been invoked and an arbitrator has been appointed, the arbitration agreement could not have been invoked for a second time by the petitioner herein, as the petitioner was fully aware about the appointment of the arbitrator (respondent No. 2 herein) by the respondent No. 1.
34. The learned counsel for the respondent No. 1 also placed reliance upon Central Organisation for Railway Electrification v. M/ s ECI-SPIC-SMO-MCML (JV) A Joint Venture Company 5 to support his arguments that the Apex Court has upheld the right of one party to appoint the arbitrator.
35. Mr. S.K. Singh learned counsel for the respondent No. 1 submitted that the scope of Section 34 of the Act for setting aside an 4 Arbitration Petition No. 20 of 2011 date of decision 10.05.2013 5 Civil Appeal Nos. 9486-87 of 2019 date of decision 17.12.2019 ARBTN No. 129/2020 Page No. 11/32 arbitral award is narrow and under no manner a court is required to sit in appeal, re-examine and re-appreciate the evidence. The learned counsel further added that the present petition is an abuse of process of law, which needs to be dissuaded by this court by dismissing the same with heavy costs.
36. The learned counsel for the respondent No. 1 concluded his arguments on the note that the arbitral award neither suffers from any legal infirmity nor merits any interference under Section 34 of the Act and the same be upheld by this court and the present petition under consideration be dismissed with costs and the costs be awarded to the respondent No.1.
37. On careful perusal of the petition preferred by the petitioner, response on behalf of the respondent No. 1, supporting documents and examination of the arbitral record requisitioned by the court, this court finds that the petitioner has assailed the ex parte arbitral award on the bedrock that the appointment is not only unilateral but contrary to Section 12 of the Act and thus the arbitral award passed be set aside under Section 34 of the Act.
38. The arbitration agreement is enshrined in Clause 8.13 of the business loan agreement dated 29.06.2015 and the same reads as under:
"8.13 Settlement of Disputes: Any differences or disputes arising out of or touching the terms and conditions of the Business Loan Agreement shall be settled amicably in the first instance. Unresolved disputes or differences shall be referred to a sole Arbitrator, who shall be appointed by ERFL only and the Borrower shall have no objection to the same. The Arbitration shall be governed by the Arbitration and ARBTN No. 129/2020 Page No. 12/32 Conciliation Act, 1996 or any statutory modification or re-enactment thereof and the Rules made thereunder and for the time being in force. The award of the Arbitrator shall be final, conclusive, and binding on the parties. The venue of such arbitrator proceedings shall be where the branch is situated and shall be conducted in the English language only."
39. Before marching ahead, it is imperative to discuss the relevant legal provisions and the legal principles culled out by them. Section 12 of the Act provides for the grounds for challenge to the appointment of an arbitrator, whereas Section 13 of the Act provides the challenge procedure. Sections 12 and 13 of the Act reads as under:
"12. Grounds for challenge.--6[(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances,--
(a) 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
(b) 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.
Explanation 1.--The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator.
6Subs. by Act 3 of 2016, s. 8, for sub-section (1) (w.e.f. 23-10-2015).
ARBTN No. 129/2020 Page No. 13/32Explanation 2.--The disclosure shall be made by such person in the form specified in the Sixth Schedule.] (3) An arbitrator may be challenged only if--
(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or
(b) he does not possess the qualifications agreed to by the parties.
(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.
7[(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or 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:
Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.]
13. Challenge procedure.--(1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator.
(2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.
7Ins. by s. 8, ibid. (w.e.f. 23-10-2015).
ARBTN No. 129/2020 Page No. 14/32(3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.
(4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.
(5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34.
(6) Where an arbitral award is set aside on an application made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees."
40. For the purpose of deciding the petition under consideration, this court finds that the Fifth Schedule of the Act is relevant - See Section 12(1)(b) of the Act. The Fifth Schedule of the Act provide grounds which arise justifiable doubts to the independence or impartiality of arbitrator. The Fifth Schedule provides detailed grounds under the broad headings as under:
(a) Arbitrator's relationship with the parties or counsel.
(b) Relationship of the arbitrator to the dispute.
(c) Arbitrator's direct or indirect interest in the dispute.
(d) Previous services for one of the parties or other involvement in the case.
(e) Relationship between an arbitrator and another arbitrator or counsel.
ARBTN No. 129/2020 Page No. 15/32 (f) Relationship between arbitrator and party and others involved in the arbitration, and (g) Other circumstances.
41. For the case at hand, this court deems appropriate to reproduce the grounds provided under the heading "THE FIFTH SCHEDULE (See Section 12(1)(b)) The following grounds give rise to justifiable doubts as to the independence or impartiality of arbitrators:
Arbitrator's relationship with the parties or counsel
1. ... ...
Relationship of the arbitrator to the dispute
15. ... ...
Arbitrator's direct or indirect interest in the dispute
17. ... ...
Previous services for one of the parties or other involvement in the case
20. The arbitrator has within the past three years served as counsel for one of the parties or an affiliate of one of the parties or has previously advised or been consulted by the party or an affiliate of the party making the appointment in an unrelated matter, but the arbitrator and the party or the affiliate of the party have no ongoing relationship.
21. The arbitrator has within the past three years served as counsel against one of the parties or an affiliate of one of the parties in an unrelated matter.
22. The arbitrator has within the past three years been appointed as arbitrator on two or more ARBTN No. 129/2020 Page No. 16/32 occasions by one of the parties or an affiliate of one of the parties.
23. The arbitrator's law firm has within the past three years acted for one of the parties or an affiliate of one of the parties in an unrelated matter without the involvement of the arbitrator.
24. The arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration on a related issue involving one of the parties or an affiliate of one of the parties."
42. The disclosure, which an arbitrator is ought to make as per Section 12(1)(b) has been provided under the Sixth Schedule of the Act, which is also reproduced in verbatim for ready reference and the same reads as under:
"THE SIXTH SCHEDULE (See Section 12(1)(b))
1. Name:
2. Contact details:
3. Prior experience (including experience with arbitrations):
4. Number of ongoing arbitrations:
5. Circumstances disclosing 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 your independence or impartiality (list out):
6. Circumstances which are likely to affect your ability to devote sufficient time to the arbitration and in particular your ability to finish the entire arbitration within twelve months (list out):"ARBTN No. 129/2020 Page No. 17/32
43. Now coming to the case at hand, from perusal of the arbitral record it is observed that the respondent No. 1 issued a notice dated 31.12.2016 to the petitioner herein and also to Rajesh Chauhan calling upon them to pay the due amount along with interest at the rate of 24%p.a. from 28.12.2016 till the actual realization with immediate effect. The said notice clearly states that in the event of failure to make payment, it shall be presumed that a dispute has arisen and the same shall be referred to the arbitration as per the agreement. The notice dated 31.12.2016 unequivocally informed the petitioner that in case of dispute, the respondent No. 1 intends to appoint Mr. Anis Ahmed, Advocate as the arbitrator to decide the dispute.
44. From the arbitral record, a letter dated 25.01.2017 issued by Mr. Anis Ahmed, sole arbitrator (respondent No. 2 herein) to the respondent No. 1 is also found on record, wherein Mr. Anis Ahmed has accorded his consent to act as a sole arbitrator and also confirmed that his appointment is within the terms of the referred agreement and under the provisions of the Act. The contents of the said letter further state that Mr. Anis Ahmed is in receipt of the loan agreement forwarded to him along with the appointment letter. The said letter also states that the statutory disclosure in the prescribed format, under the Sixth Schedule as per Section 12(1) of the Act in connection with the possible appointment as sole arbitrator has been sent to the concerned parties i.e., petitioner and respondent No. 1 herein. The letter dated 25.01.2017 further stated an amount of ₹1,000/- will be charged towards the arbitration fees and expenses. The letter dated 25.01.2017 also provides that the arbitration proceeding will be held at ARBTN No. 129/2020 Page No. 18/32 Flat No. 509, ground floor, Dwarka Residential Scheme, DDA SFS Flats, Pocket - 1, Sector 22, Dwarka, New Delhi - 110077.
45. Another letter dated 25.01.2017 issued by the sole arbitrator to the respondent No. 1 and the petitioner along with postal receipts is traced from the arbitral record, wherein the sole arbitrator has agreed to be sole arbitrator in the dispute arisen between the respondent No. 1 and the petitioner in relation to a loan agreement dated 29.06.2015. The sole arbitrator in the said letter disclosed that he has knowledge of general terms of loan transactions and have at several occasions appointed as the sole arbitrator by the claimant (respondent No. 1 herein). The sole arbitrator in the said letter further declared that while conducting the arbitration proceeding, he shall be independent and impartial towards the parties concerned and will conclude the arbitral proceedings within a period of 12 (twelve) months from the date of referral.
46. The sole arbitrator by the said letter also intimated the parties to appear before him at his office on 07.02.2017 at 3:00P.M. or through duly authorised representatives or counsel, who can act on their behalf and submit the statement of claim with certified true copies or original of all relevant documents. The notice also stated that in case the parties or their authorised representatives failed to appear on 07.02.2017 at the fixed time and place, the sole arbitrator shall continue the proceeding ex parte and no further communication shall be given to the parties.
47. Towards the concluding paragraph of the letter dated 25.01.2017, the sole arbitrator informs the parties that there are no circumstances exist (sic) that give rise to justifiable doubts as to his ARBTN No. 129/2020 Page No. 19/32 independence or impartiality in resolving the dispute referred to him. The sole arbitrator has also stated that disclosure in the prescribed format, under the Sixth Schedule as per Section 12(1) of the Arbitration and Conciliation Act, 1996 in connection with his possible appointment of sole arbitrator has already been issued to the parties concerned. The said letter had claim petition along with documents and the procedure for arbitration proceedings annexed with it as enclosures.
48. From the order sheets of the arbitral proceedings, it is observed 07.02.2017 was the first date of hearing, when only the counsel for the claimant appeared and there was no appearance on behalf of the respondents. With the dispatched acknowledgement due cards of registered post received back unserved with remark 'left', the sole arbitrator issued notice to the respondent No. 1 for 06.03.2017.
49. The order sheet dated 06.03.2017 of the arbitral proceedings reveal that though the notice dispatched to the respondent No. 1 through registered post AD stood served, however, none appeared on behalf of the respondents. The order sheet also records that are reply notice dated 20.01.2017 and an objection application without date is received, which is sent by the counsel for the respondents. A copy of the same was forwarded to the claimant/respondent No. 1. The arbitration proceedings stood adjourned for 17.03.2017 for reply to the non-claimant/petitioner's objection application.
50. The order sheet dated 17.03.2017 further reveals that though none appeared on behalf of the non-claimant/petitioner No. 1, the claimant/respondent No. 1 filed reply to the non-claimant/petitioner's objection application. The arbitration proceedings stood adjourned for ARBTN No. 129/2020 Page No. 20/32 disposal of objection application moved by the non-claimant/petitioner on 08.04.2017.
51. Now coming the objection application moved by the non- claimant/petitioner, it is observed that the petitioner herein had averred that by letter dated 20.01.2017, it was intimated that the arbitration proceedings suffered from following lacunae:
(a) Firstly, the arbitration clause in the agreement dated 26.06.2015 provides for amicable resolution of dispute between the parties, however the claimant/respondent No. 1 did not make any attempt to amicably settle the dispute.
(b) Secondly, the arbitral proceedings are invalid as the sole arbitrator failed to make any statutory disclosure as per the Act. It can be believed that the sole arbitrator had previous financial relationship with the claimant/respondent No. 1 and the arbitration proceedings being ultra vires.
(c) Thirdly, the arbitration proceedings contravene Section 21 of the Act, as no notice for invocation of the arbitration was sent to the non- claimant/petitioner.
(d) Lastly, the appointment of Mr. Anis Ahmed, sole arbitrator is bad in law and further the sole arbitrator failed to provide a disclosure as per Section 12 and the Sixth Schedule of the Act.
52. Now heading back to the order sheet dated 08.04.2017 of the sole arbitrator, it is observed that none appeared on behalf of the non- claimants/petitioner, but an advance copy of reply on behalf of claimant/respondent No. 1 to the objection application and interlocutory application was sent to Mr. Hiten Dhirajlal Mehta through registered post AD and the same was duly served. It is also ARBTN No. 129/2020 Page No. 21/32 observed from the order sheet that an affidavit-cum-rejoinder dated 05.04.2017 to the claimant/respondent No.1's reply by the non- claimant/petitioner was received through speed post. The sole arbitrator has observed in the order sheet that the non-claimant/petitioner has incorporated the same facts of his previous application in the affidavit-cum-rejoinder dated 05.04.2017.
53. The order sheet dated 08.04.2017 further observed that by 3:30 PM on account of default in appearance on behalf of the non- claimants/petitioner, they were proceeded ex parte. Further, the objection application and interlocutory application moved by the non- claimants/petitioner were also dismissed by order dated 08.04.2017.
54. At this stage, I deem appropriate to reproduce in verbatim the order-sheets dated 08.04.2017 and 18.04.2017 of the arbitral proceedings from the arbitral record, which reads as under:
"Edelweiss Retail Finance Limited versus SGM Packaging Industries & Ors.
Arb. Case No.: ECLFL/27/2017 08.04.2017 Counsel for the Claimant Mr. S.K. Singh, Advocate is present.
None appears on behalf of the Respondents.
Copy of reply to objection application and interlocutory application of the Respondents, as submitted by the Claimant, alongwith intimation for appearance was sent to the Respondent No.2 Shri Hiten Dhiraj Lal Mehta through registered post A.D. was duly served on them.
However, as a result of good and proper service of intimation, affidavit cum rejoinder on the reply of application dated 05.04.2017 is again ARBTN No. 129/2020 Page No. 22/32 received from the Respondents, sent by speed post, tagged with file. Same facts, which were already mentioned by the respondents in their previous applications, are incorporated in the affidavit cum rejoinder dated 05.04.2017.
It's now 3.30PM, neither the Respondents nor their representative/counsel appeared before this tribunal despite proper service of notice and sufficient opportunities to the Respondents for their appearance. It is was clearly mentioned in the notice sent to the Respondents, that in case of their non-appearance before the tribunal on date and time fixed, they will be treated as ex parte and such as ex parte order is passed against the Respondents.
Counsel for the Claimant heard on the objection application and interlocutory application of the Respondents.
Observed the record.
Looking to the facts, objection application and interlocutory application of the Respondents is dismissed.
Put up the file for Claimant's evidence on 18.04.2017 at 2.00PM.
Sd/-
Anis Ahmed Sole Arbitrator"
"18.04.2017 Counsel for the Claimant present.
None appears on behalf of the
Respondents.
The Claimant closed their evidence by
submitting evidence in form of Affidavit of witness C.W.-1 Shri Praful Paliwal alongwith documents. Same is taken on record as evidence Exhibits marked on the documents. The Claimant deposited arbitration costs & fees with the tribunal, as ordered on ARBTN No. 129/2020 Page No. 23/32 25.01.2017. Ex parte order has already been passed against the Respondents.
Heard on final argument on request of the counsel for the Claimant.
Put up the file for order on 29.04.2017 at 2.00PM.
Sd/-
Anis Ahmed Sole Arbitrator"
55. This court also deems appropriate to reproduce the relevant part of the arbitral award to ascertain whether the sole arbitrator dealt, analysed and gave any findings in reference to the objections filed by the non-claimant/petitioner on his appointment as a sole arbitrator. On careful skimming through the arbitral award dated 29.04.2017, the relevant extract from page Nos. 2 to 58 is reproduced in verbatim as under:
"... ....
Since dispute arose under the agreement between the parties. There is an arbitration clause in the Loan Agreement between the parties for the purpose of settlement of any dis- putes or differences that may arise between them.
This arbitration agreement bears the signatures of the parties to the arbitration. By virtue of the powers con - tained in this agreement, the Claimant appointed the under- signed to adjudicate these disputes vide letter dated 25.01.2017 and submitted statement of claim alongwith docu- ments. Consent has already been given. Accordingly, no- tices of hearing were issued to the parties by this arbitral tribunal.
The Claimant appeared before us through its counsel and submitted the above claim. As regards Respondents, no- tices dated 25.01.2017 were sent to the Respondents through registered A.D. post. The notice sent to the Respondent No.1 8 Running page Nos. 92 to 93 of the arbitral record.ARBTN No. 129/2020 Page No. 24/32
was however neither the AD card nor the registered envelope returned and the notice sent to the Respondent No.2 was however returned with the remarks of "Left". As such, file was posted for proper order on the Respondent No.2 and ser- vice on the Respondent No.1 to 06.03.2017 at 2.00PM. Then after notices dated 07.02.2017 were again sent to the Re- spondent No.1 through registered AD post. The notice sent to the Respondent No.1 was duly served on him and as such the service of notice on the Respondents was good and proper.
As a result of good and proper service of notice on the Respondents, Reply notice dated 20.01.2017 and an objec- tion application without date was received in the Tribunal sent by the counsel for the Respondents. File and copy for- warded to the Claimant requested to grant time to file reply to the objection application. Put up the file for reply to the objection application of the Respondents to 17.03.2017 at 2.00P.M. On 17.03.2017, claimant submitted reply to the ob- jection applications of the Respondents with copy. Filed (sic) and file was posted for appearance of the Respondents and disposal of their application to 08.04.2017 at 2.00P.M. Reply to the application of the Respondents and intimation for next date of hearing and time was sent to the Respondent No.2 through registered post A.D. dated 17.03.2017. On the subsequent date of hearing on 08.04.2017, none was ap- peared on behalf of the Respondents.
The Respondents failed to appear before this arbitral tribunal inspite of proper service on them and sufficient op- portunities. The Respondents were informed that in case they fail to appear at the hearing before this tribunal without any sufficient cause, the tribunal might continue the proceedings ex parte. As the Respondents failed to appear before this tribunal and did not show any cause for their non-appear - ance, the arbitral proceedings were continued in their ab - sence ex parte. Therefore, there was no alternative before this tribunal but to proceed ex parte against the Respondents and a such an ex parte order was passed against the Re- spondents vide order dated 08.04.2017. Counsel for the Claimant heard on the objection application and inter- locutory application of the Respondents. Observed the re- cord. Looking to the facts, objection application of the Re- spondents was dismissed vide order dated 08.04.2017 and ARBTN No. 129/2020 Page No. 25/32 file was posted for claimant's evidence.
The Claimant was asked to submit evidence in the form of affidavit to prove their version. The Claimant submit- ted the affidavit of Shri Praful Paliwal, CW-1, who is Au- thorized Signatory of the Claimant and he exhibited docu- ments starting from Exhibit 1 is a copy of Board Resolution issued by the Claimant, wherein Shri Prful Paliwal, has been empowered to represent in these proceedings, Exhibit 2 is copy of Loan Application Form, Exhibit 3 is copy of Offer Letter dated 27.062015, Exhibit 4 is copy of Agreement dated 29.06.2015 and Exhibit 5 is copy of Deed of Guarantee dated 29.06.2015, executed between the Claimant and the Respond- ents, which bears signatures of Respondents and signature of authorized signatory of Claimant, Exhibit 6 is Statement of Account dated 28.12.2016, Exhibit 7 is repayment schedule, Exhibit 8 is Foreclosure Statement dated 28.12.2016, Exhibit 9 is Legal Notice dated 31.12.2016 and Exhibit 10 & 11 is postal receipt. The witness Shri Praful Paliwal, CW-1 further submitted statement of account and statement of foreclosure dated 17.04.2017. Exhibit 12 is Statement of Account dated 17.04.2017 and Exhibit 13 is Foreclosure dated 17.04.2017.
The Respondents have, as stated above, remained ex parte."
[Emphasis added by underlining and highlighting of text]
56. The sole arbitrator on 29.07.2017 passed a final order and a separate ex parte arbitral award both dated 29.07.2017 in favour of the claimant/respondent No. 1 and against the non-claimant/petitioner.
57. The Hon'ble Supreme Court in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd.9 dealt with an arbitration agreement, wherein the chairman and managing director (CMD) of respondent was designated to appoint a sole arbitrator. The Apex Court after examining the said clause held that there could be two categories of cases, one where the managing director himself is the 9 (2019) SCC Online SC 1517 ARBTN No. 129/2020 Page No. 26/32 arbitrator with an additional power to appoint any other person as an arbitrator and the second where the managing director is not to act as an arbitrator himself but is empowered to appoint any other person of his choice or discretion as an arbitrator.
58. The Apex Court relied upon TRF Ltd. v. Energo Projects Ltd.10 wherein the arbitration clause fell in the first category. In TRF Ltd. v. Energo Projects Ltd.,11 the Apex Court had held that the managing director was incompetent because of the interest that he would have in the outcome of the dispute. The element of ineligibility was relatable to the interest that he had in the decision. The Apex Court observed that if the test is the interest of the appointing authority in the outcome of the dispute then similar ineligibility would always arise even in the second category of cases. It was observed that if the interest that the authority has in the outcome of the dispute is taken to be the basis for possibility of bias, it will always be present irrespective of whether the matter stands under the first or the second category of cases. The Hon'ble Supreme Court also significantly noted that they were conscious that if such a deduction was drawn from the decision in TRF Ltd. v. Energo Projects Ltd.,12 in all cases with similar clauses, a party to the agreement would be disentitled to make a unilateral appointment.
59. This Court finds and rules that the unilateral appointment of the arbitrator by the claimant/respondent No.1, who is interested in the outcome or decision of the dispute is impermissible in law and fruitful reliance is placed upon the latest pronouncement of the Hon'ble High 10 (2017) 8 SCC 377 11 ibid.
12ibid.
ARBTN No. 129/2020 Page No. 27/32Court of Delhi in Proddatur Cable TV Digi Services v. SITI Cable Network Ltd.13 wherein Her Ladyship, Jyoti Singh, J. dealt with an issue of unilateral appointment of sole arbitrator and having applied the Perkins test invalidated the unilateral appointment of sole arbitrator. The case at hand is no different case of unilateral appointment as that from the case of Proddatur Cable TV Digi Services v. SITI Cable Network Ltd.14
60. With all deference and humility at my command, it is observed that the reliance placed by the learned counsel for the respondent No. 1 on the judgements of the Apex Court in Antrix Corpn. Ltd. v. Devas Multimedia P. Ltd.15and Central Organisation for Railway Electrification v. M/s ECI-SPIC-SMO-MCML (JV) A Joint Venture Company16 are misplaced. The case at hand is not the case of second invocation of the arbitration agreement. The judgment of Antrix Corpn. Ltd. v. Devas Multimedia P. Ltd.17 is not applicable to the case at hand, as the same pertains to an appointment of an arbitrator prior to the 2015 Amendments of the Act and the present case is squarely covered under Section 12, which stood amended with retrospective effect from 23.10.2015 and further as per Section 21 of the Act, the arbitration in the present commenced with issuance of notice dated 17.01.2017 read with notice dated 31.12.2016.
61. The judgment of the Apex Court in the case of Central Organisation for Railway Electrification v. M/s ECI-SPIC-SMO- MCML (JV) A Joint Venture Company18 is clearly distinguishable on 13 OMP (T) (COMM) No. 109/2019 date of judgment 20.01.2020 14 ibid.
15Arbitration Petition No. 20 of 2011 date of decision 10.05.2013 16 Civil Appeal Nos. 9486-87 of 2019 date of decision 17.12.2019 17 Arbitration Petition No. 20 of 2011 date of decision 10.05.2013 18 Civil Appeal Nos. 9486-87 of 2019 date of decision 17.12.2019 ARBTN No. 129/2020 Page No. 28/32 facts and does not come to the aid of the respondent No. 1. In Central Organisation for Railway Electrification v. M/s ECI-SPIC-SMO- MCML (JV) A Joint Venture Company19 the Apex Court dealt with the case of an arbitral tribunal and not with the case of an appointment of sole arbitrator. The Apex Court dealt with an arbitration agreement which empowered the Central Organisation for Railway Electrification to forward a panel of arbitrators to be provided to the opposite party as per the Clause 64.3(a)(ii) of the General Conditions of Contract, who had a choice to shortlist the arbitrator of its choice from the panel and only from the shortlisted names, thereafter the Central Organisation for Railway Electrification was bound to appoint at least one arbitrator to constitute the arbitral tribunal. The Apex Court held that such mechanism of appointment provided level playing field to the parties as the arbitrator appointed by the Central Organisation for Railway Electrification of its choice was balanced by the second arbitrator appointed by the opposite party. In short, the Apex Court held that the elements of fairness, transparency and impartiality were adequately taken care of.
62. Lastly, the judicial pronouncement in the case Central Organisation for Railway Electrification v. M/s ECI-SPIC-SMO- MCML (JV) A Joint Venture Company20 was in relation to Section 12(5) and the Seventh Schedule of the Act and whereas the case at hand is squarely covered under Section 12(1) and the Fifth Schedule of the Act.
63. That said, in addition to the unilateral appointment of the sole arbitrator being bad, I would also like to add another reason that why 19 ibid.
20ibid.
ARBTN No. 129/2020 Page No. 29/32the present petition deserves to be allowed and the ex parte arbitral award be set aside. The said finding is arrived on the basis that justifiable doubts on the independence and impartiality arise as per the sole arbitrator's own disclosure that he had served within the past three years as an arbitrator on two or more occasions by the claimant/respondent No. 1 - See Explanation 1 to Section 12(1) of the Act and the Fifth Schedule of the Act.
64. Further, on the basis of the objection application filed by the non-claimant/petitioner, the order dated 08.04.2017 and the ex parte arbitral award dated 29.04.2017 passed by the sole arbitrator, this court also arrives at a finding that the sole arbitrator dismissed the objections filed by the petitioner herein by a non-speaking order. The dismissal of objections by the sole arbitrator by a non-speaking order dated 08.04.2017 does shake the conscience of this court. It is also observed that the sole arbitrator did not state any reason for dismissing the objections lodged by the non-claimant/petitioner against his appointment. It is not out of place to observe herein that the non- applicant/petitioner from the word 'go' lodged his protest against the appointment of sole arbitrator, who himself had stated that he has acted on prior occasions as arbitrator for the respondent No. 1 herein and his neutrality and impartiality were questionable.
65. However, it is further observed from the arbitral record that a disclosure under the Act along with the cover letter dated 17.01.2017 and postal receipts are found at page Nos. 11 and 12. On perusal of the disclosure on record, it is apparent that once the sole arbitrator himself revealed that he has acted as an arbitrator for the claimant/respondent No. 2 in more than three arbitration proceedings, the sole arbitrator, ARBTN No. 129/2020 Page No. 30/32 who is an Advocate by profession was duty bound and incumbent not to accept his appointment as an arbitrator, as the same runs contrary to the mandate of Section 12 of the Act as justifiable doubts to his independence and impartiality as an arbitrator arose.
66. This court also observes from the arbitral record that an authorisation letter dated 08.02.2016 addressed to Mr. Jitendra Gupta, Advocate is found at running page No. 8 of the arbitral record, which states that Edelweiss ECL Finance Ltd. has decided to initiate arbitration as per clause of the loan agreement and Mr. Anis Ahmed is appointed as the arbitrator. The letter dated 08.02.2016 also states that Mr. Jitendra Gupta is appointed as lawful attorney to represent Edelweiss ECL Finance Ltd. in the arbitration proceedings. Further from the record it is observed that a letter dated 17.01.2017 issued by Mr. Jitendra Gupta, Advocate to Mr. Anis Ahmed intimates him about the intention of Edelweiss Retail Finance Ltd. to appoint him as a sole arbitrator.
67. In the case at hand, the arbitral record reveals that when the loan recall notice/notice under Section 21 of the Act was sent to the petitioner herein by the respondent No. 1 on 31.12.2016 and 17.01.2017 itself, how could the appointment of Mr. Anis Ahmed as a sole arbitrator take place 10 months in advance vide letter dated 08.02.2016?21 Indeed, something is rotten in the state of Denmark.
68. In view of the above the observations and findings in the preceding paragraphs, this court concludes that it is apparent that the independence and impartiality of the arbitrator not only was questionable but also the passing of a non-speaking order dismissing 21 See page No. 8 of the arbitral record.
ARBTN No. 129/2020 Page No. 31/32the objections filed by the non-claimant/petitioner by order dated 08.04.2017 miserably fails to withstand the inbuilt test and mechanism provided by the mandate of the Act under Section 12, 13, 14 and 18 of the Act.
69. Accordingly, this court orders in exercise of the power conferred upon it under Section 34 and 13(5) of the Act, to set aside the ex parte arbitral award dated 29.04.2017 for the foregoing reasons and findings. The parties are at liberty to invoke the arbitration clause for fresh adjudication of their dispute in accordance with law. The petition stands allowed in above terms. Consequentially, all pending interim application(s) stand dismissed as infructuous.
70. On parting note, as the challenge procedure on behalf of the non-claimant/petitioner was waylaid by the sole arbitrator as held by this court via a non-speaking order dated 08.04.2017 and the sole arbitrator continued the arbitral proceedings and passed an ex parte arbitral award dated 29.04.2017. With the present petition preferred by the petitioner under Section 34 of the Act being allowed in above terms, this court holds and rules that the arbitrator is not entitled to any of his fees i.e. ₹1,000/- (Rupees One thousand only) - See Section 13(6) of the Act.
71. The arbitral record be returned only after due compliance and as per Rules. File be consigned to record room only after due compliance and necessary action, as per Rules. Digitally signed by HARGURVARINDER HARGURVARINDER SINGH JAGGI SINGH JAGGI Date: 2021.01.07 16:43:52 +0530 Pronounced in the open Court (Hargurvarinder Singh Jaggi) on January 07, 2021 Addl. District Judge-02 South West District Dwarka Courts Complex, Delhi ARBTN No. 129/2020 Page No. 32/32