Delhi District Court
Nasreen A Khan vs Citibank N A on 12 December, 2023
IN THE COURT OF SH. NARESH KUMAR MALHOTRA :
DISTRICT JUDGE (COMMERCIAL)-06
TIS HAZARI COURTS, WEST: DELHI
In the matter of:-
OMP (COMM) No. 46/2019
CNR No. DLWT010095342019
12.12.2023
Mrs. Nasreen A Khan,
R/o Flat No. 171, 17th Floor,
A-Wing, Winde Rmereches,
Oshiwara Police Station,
Andheri West,
Mumbai-400053, Maharashtra.
.....Petitioner.
Vs.
1. Citibank N.A.
Having its office at:
3rd Floor, 27 Central Market,
Western Avenue Road,
Punjabi Bagh, New Delhi-110026.
2. Risk Design and Advertising Ltd.
153, Room No. 4224, Naidu Colony,
Pant Nagar, Ghatkopar East,
Mumbai-400075, Maharashtra.
3. Mr. Prashant Shivram Sawant
153, Room No. 4224, Naidu Colony,
Pant Nagar, Ghatkopar East,
Mumbai-400075, Maharashtra.
....Respondents.
Date of institution : 30.11.2019
Date of arguments : 11.12.2023
Date of judgment : 12.12.2023
PETITION UNDER SECTION 34 OF THE ARBITRATION
& CONCILIATION ACT 1996 FOR SETTING ASIDE
OMP (Comm.) No. 46/2019 -1-
ARBITRAL AWARD DATED 17.07.2019 PASSED BY
ARBITRATOR.
JUDGMENT:
1. Vide this judgment, I am deciding petition under Section 34 of the Arbitration & Conciliation Act filed by the petitioner for setting aside the ex-parte award dated 17.07.2019 passed by Ld. Arbitrator as well as an application under Section 5 of the Limitation Act for condonation of delay in filing the main petition.
APPLICATION FOR CONDONATION OF DELAY
2. The petitioner has challenged the Award dated 17.07.2019 with the averments that the arbitration proceedings were proceeded in complete exclusion to the petitioner and the petitioner came to know about the Arbitration proceedings for the first time vide communication dated 17.07.2019 of the Ld. Arbitrator, served upon the petitioner on 02.08.2019 wherein only a copy of alleged Award dated 17.07.2019 was served upon the petitioner. The petitioner through her counsel had sent a communication dated 14.08.2019 to the Ld. Arbitrator, whereby the petitioner had made a request to Ld. Arbitrator to provide the entire set of papers and proceedings in respect of the Arbitration proceedings. On 25.09.2019 the Ld. Arbitrator sent partial record of the Arbitration proceedings to the petitioner. The petitioner being permanent resident of Mumbai, with great difficulty found a reliable advocate in Delhi to file an appeal under Section 34 of Arbitration & Conciliation Act. As per the petitioner, the following documents were not supplied by Ld. Arbitrator:-
OMP (Comm.) No. 46/2019 -2-(i) Copy of documents relied upon by the cliamant, particularly the copy of loan agreement.
(ii) Copy of Statement of Account maintained by the claimant.
(iii) Copy of the Arbitrator's record, evidencing the effective service for the Arbitration proceedings.
The above stated documents are very much necessary for the petitioner to challenge the Award dated 17.07.2019. The petitioner sent a communication dated 15.11.2019 to the Ld. Arbitrator, whereby request was made to the Ld. Arbitrator to prove above mentioned documents. Vide reply dated 20.11.2019, the Ld. Arbitrator sent the required documents to the counsel for the petitioner. As per the petitioner, though the copy of the award dated 17.07.2019 was received from the Ld. Arbitrator on 02.08.2019 but the petitioner was incapable to challenge the said ex-parte award since petitioner had not received the record of the Arbitration proceedings. The Ld. Arbitrator had sent the required documents to the counsel of petitioner vide reply dated 21.11.2019. It is prayed that the delay in filing the present petition be condoned.
3. It is submitted by ld. Counsel for petitioner that respondents no. 1 to 3 are ex-parte. Ld. Counsel for petitioner has placed reliance on judgment titled as "Union of India Vs. Delhi Paper Product Co. Pvt. Ltd.", OMP No. 209/2013 decided on 29 July, 2013, wherein, it is held that :-
"12. Section 34(3) of Arbitration and Conciliation Act, 1996 OMP (Comm.) No. 46/2019 -3- 12.1 The law with respect to condonation of delay in filing the petition under Section 34(3) of the Arbitration and Conciliation Act is well settled. Section 34(3) of the Arbitration and Conciliation Act provides for a period of limitation of three months to file the petition. Sub-section (3) along with the proviso of Section 34 makes it clear in absolute terms that the application for setting aside the award on the grounds mentioned in sub-section (2) of Section 34 has to be made within 3 months and the period can be further extended on sufficient cause by another period of 30 days and not thereafter. The words "but not thereafter" in the proviso to Section 34(3) makes it further clear that the delay beyond 30 days cannot be condoned by the Court. Section 34(3) reads as under:- "34. Application for setting aside arbitral award.--(1) *** (2) *** (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the Arbitral Tribunal. Provided that if the court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter. (4) ***"
13. Section 34(3) of the Arbitration & Conciliation Act being a special law, Section 5 of the Limitation Act OMP (Comm.) No. 46/2019 -4- would not have any application 13.1 Since special period of limitation has been prescribed under Section 34(3) of Arbitration and Conciliation Act for making application for any condonation of delay, period of limitation prescribed under the special law shall prevail and to that extent the applicability of Section 5 of the Limitation Act stands excluded and the application for condonation of delay up to a period of 30 days can be made by the Court and not beyond that.
In this judgment reliance was placed on judgment titled as "Union of India v. Popular Construction Co., (2001) 8 SCC 470, wherein, the Hon'ble Supreme Court has held that the Arbitration & Conciliation Act, 1996 is a special law and that Section 34 provides for a limitation period different from that under the Limitation Act. In judgment titled as "State of H.P. v. Himachal Techno Engineers, (2010) 12 SCC 210, the Hon'ble Supreme Court has held that even if sufficient cause is made out, the delay beyond 30 days cannot be condoned. The observations of Supreme Court are as under:-
"5. Having regard to the proviso to Section 34(3) of the Act, the provisions of Section 5 of the Limitation Act, 1963 will not apply in regard to petitioners under Section 34 of the Act. While Section 5 of the Limitation Act does not place any outer limit in regard to the period of delay that could be condoned, the proviso to sub-section (3) of Section 34 of the Act places a limit on the period of condonable delay by using the words "may entertain the application within a further period of thirty days, but not thereafter".
Therefore, if a petition is filed beyond the prescribed period of OMP (Comm.) No. 46/2019 -5- three months, the court has the discretion to condone the delay only to an extent of thirty days, provided sufficient cause is shown.
Where a petition is filed beyond three months plus thirty days, even if sufficient cause is made out, the delay cannot be condoned".
The judgment titled as "Union of India v. Popular Construction (supra) was re-affirmed by the Hon'ble Supreme Court of India in Consolidated Engg. Enterprises v. Irrigation Deptt., (2008) 7 SCC 169, Chhattisgarh State Electricity Board v. Central Electricity Regulatory Commission, (2010) 5 SCC 23 and Assam Urban Water Supply & Sewerage Board v. Subash Projects & Mktg. Ltd., (2012) 2 SCC 624 In judgment titled as "State of Goa v. Western Builders, (2006) 6 SCC 239, the Hon'ble Supreme Court held that the applicability of Section 5 of the Limitation Act stands excluded and the Court can condone the delay up to a period of 30 days but not beyond that.
4. From the aforesaid judgments, it is evident that Court can condone the delay if petition under Section 34 of the Act has been filed after 90 days but with in extended period of 30 days if sufficient cause has been shown.
Now coming back to the present case, in the present case admittedly the award was received on 02.08.2019 and thereafter, the petitioner filed the application for providing documents to the petitioner. On 25.09.2019 the Ld. Arbitrator sent partial record of the Arbitration proceedings and Ld. Arbitrator again sent communication dated 15.11.2019 and it was received by the OMP (Comm.) No. 46/2019 -6- petitioner on 20.11.2019. The present petition was filed on 30.11.2019. I am of the view that the present petition was required to be filed on 02.11.2019. As the petitioner has sent communication to the Ld. Arbitrator for sending complete record and there is delay of 28 days in filing the present petition. Moreover, the Hon'ble Supreme Court of India in UOI vs. Tecco Trichy Engineers and Contractors MANU/SC/0214/2005 has condoned the delay in filing of the objection under Section 34 of the Act. Considering all the facts and circumstances, I am of the view that it would be in the interest of justice to condone delay. Accordingly, the application for condonation of delay filed by the petitioner is allowed and delay of 28 days in filing the present petition is condoned. With this application stands disposed of.
OBJECTIONS UNDER SECTION 34 OF THE ARBITRATION AND CONCILIATION ACT.
5. The brief facts which are necessary of disposal of the present petition are as that the petitioner is a housewife and residing in Mumbai. The claimant has alleged in its statement of claim that the petitioner is the borrower and respondents no. 2 & 3 are the co-borrowers. It is mentioned that in the month of January, 2007 the petitioner as well as respondents no. 2 & 3 approached the claimant for the purpose of housing loan under the Mortgage Loan Scheme. In the said scheme, the petitioner as well as respondent no. 2 and 3 requested the claimant to finance Housing loan for an amount of Rs. 54,00,000/-. It is further alleged in para no. 6 of the Statement of claim that the claimant agreed to give the housing loan and as such, the petitioner as well OMP (Comm.) No. 46/2019 -7- as respondents no. 2 & 3 executed Mortgage Loan Agreement, Demand Promissory Note and several other documents in favour of the claimant. It is further alleged that in para no. 7 of the Statement of claim the agreement was executed between the petitioner as well as respondents no. 2 & 3 and CitiFinancial Consumer Finance India Ltd. (CCFIL), which is now known as Citicorp Finance India Limited (CFIL), but later on Home Equity Loan Agreement was transferred to Citibank N.A. on 29.11.2008 through loan assignment letter. As per the claimant the mortgage loan was transferred and the loan agreement number also got changed from 10700100 to 237023. The claimant has further alleged in para no. 8 of the Statement of claim that the claimant bank duly paid the amount to the respective dealer for the delivery of the mortgaged property to the respondent. As per the claimant on 31.01.2007, the respondents executed an agreement of mortgage loan, which was subsequently transferred to the claimant and the intimation of the said transfer was given to the respondents vide letter dated 09.11.2015. The claimant has also mentioned that petitioner and respondents no. 2 & 3 failed to adhere to the financial discipline of the repayment of loan and several cheques issued by the respondents for the re-payment were dishonoured. The claimant made persistent requests to the petitioner as well as respondents no. 2 & 3 but they did not honour their commitments. It is further mentioned that vide loan recall notice dated 13.03.2018 (dispatched on 04.12.2018), the claimant bank withdrew the facility provided to the petitioner as well as respondents no. 2 & 3. It is further mentioned in the statement of claim that as per accounts maintained by the claimant bank a sum of Rs. 58,94,347/- is due as on 03.12.2018 OMP (Comm.) No. 46/2019 -8- towards principal, interest, penal interest and other dues. As per the claimant upon the default, the claimant invoked the arbitration clause being clause no. 10.7(H) contained in the loan agreement and appointed Sh. Dilip Pandita, Advocate as the Sole Arbitrator vide appointment letter dated 17.05.2018.
6. The impugned award was challenged by the petitioner mainly on the following grounds:-
(a) The award suffers from errors apparent on its face and therefore, contrary to public policy.
(b)The award passed by the Ld. Arbitrator is bad in law and contrary to principle of natural justice.
(c) The arbitration proceedings were started on 30.06.2018 before the Ld. Arbitrator and the impugned award was passed by the Ld. Arbitrator on 17.07.2019 i.e. after one year. No extension of time was ever sought by the Ld. Arbitrator from the parties as required under Section 29A of the Arbitration & Conciliation Act, 1996. Thus, the impugned order deserves to be quashed and set aside.
(d) As per the disclosure provided by the Ld. Arbitrator, the Ld. Arbitrator has admitted that he is on the panel of Bank, as such, the impugned award passed by the Ld. Arbitrator is in conflict with the basic notions of morality and award is liable to be set aside.
(e) As per the claimant the loan recall notice dated 13.03.2018 was dispatched on 04.12.2018 to the petitioner as well as respondents no. 2 & 3, whereas on 17.05.2018 the claimant made a request to the Ld. Arbitrator to act as an arbitrator and the arbitration proceedings were initiated by the OMP (Comm.) No. 46/2019 -9- Ld. Arbitrator on 30.06.2018. The Ld. Arbitrator has awarded interest @ 16% per annum with effect from 12.03.2018 i.e. before the loan recall notice was even dispatched to the respondents.
(f) No effective service for the statement of claim and/ or date of Arbitration proceedings was ever done to the petitioner either by the ld. Arbitrator or by the Claimant. No other letter, order and/ or statement of claim was ever sent to the petitioner either by the Ld. Arbitrator or by the Claimant and as such the impugned award is liable to be set aside.
(g) Ld. Arbitrator is not competent to pass award withouit having evidence on record with regard to the service of statement of claim and date of Arbitration proceedings to the petitioner.
(h) Ld. Arbitrator failed to appreciate that the claimant in para no. 6 of the Statement of claim has falsely stated that the claimant bank agreed to give the Housing Loan under the Mortgage Loan Scheme and the respondents executed mortgage loan agreement, demand promissory note and several other documents in favour of the claimant bank. However, in para no. 7 of the Statement of claim, the claimant has stated that the agreement was executed between the respondents and Citifinancial Consumer Finance India Limited (CCFIL) which is now known as Citicorp Finance India Limited (DFIL) but later on Home Equity Loan agreement was transferred to Citibank N.A on 29.11.2008 through loan assignment letter.
(i) Ld. Arbitrator has failed to appreciate that the claimant has also stated in para 7 of the statement of claim that the Home Equity Loan Agreement executed between the claimant and petitioner as well as respondents no. 2 & 3 is numbered and OMP (Comm.) No. 46/2019 -10- maintained by the bank vide agreement no. 237023 but no such agreement was produced or exhibited by the claimant before the Ld. Arbitrator.
(j) The Ld. Arbitrator failed to appreciate that the loan assignment letter dated 29.11.2008 vide which the loan agreement was transferred does not exist, as no such assignment letter has been filed or produced by the claimant.
(k) Ld. Arbitrator is not competent to pass the award as letter of transfer of the Mortgage Loan dated 09.11.2015 is only an intimation letter issued by the claimant and same was not acknowledged by petitioner as well as respondents no. 2 & 3 nor it bears the signatures of petitioner as well as respondents no. 2 &
3.
(l) Ld. Arbitrator is not competent to pass the award against the respondents as letter of transfer of the mortgage loan dated 09.11.2015 was issued after more than 7 years of the alleged transfer of said mortgage loan, when the said alleged transfer letter does not have any Arbitration clause between the parties.
(m) Ld. Arbitrator has failed to appreciate that the claimant bank never paid any amount to the petitioner or any dealer as claimed by the claimant bank in paragraph 8 of the statement of claim.
(n) Ld. Arbitrator is not competent to pass the award as no agreement was signed between the claimant and respondents and reliance of the claimant upon the agreement signed by the respondents with Citicorp Finance India Limited is misplaced. The letter dated 09.11.2015 upon which the claimant is relying, neither bears any arbitration clause nor the said letter anywhere OMP (Comm.) No. 46/2019 -11- mentioned that the terms and conditions of mortgage agreement, signed by the respondents with Citicorp Finance India Limited will remain unchanged. Even as per the case of the claimant, letter dated 09.11.2015 bears new terms and conditions with regard to remaining outstanding, tenure applicable interest rate etc.
(o) Ld. Arbitrator has failed to appreciate that there is no arbitration clause or agreement between the claimant and the respondents and Ld. Arbitrator is not competent to continue with the arbitration proceedings.
(p) Ld. Arbitrator has failed to appreciate that the petitioner is permanent resident of Mumbai and the loan agreement between the petitioner and Citicorp Finance India Limited was executed in Mumbai. The entire transaction had taken place in Mumbai and no cause of action ever accrue in the territorial jurisdiction of Delhi. The Award passed by Ld. Arbitrator is contrary. It is prayed that award dated 17.07.2019 be set aside.
7. I have heard Ld. Counsel for petitioner at length and perused the record carefully.
8. Perusal of file reveals that the respondents no. 2 & 3 were proceeded ex-parte on 20.08.2022. In the order dated 26.08.2023, it was observed by my Ld. Predecessor that respondent no. 1 is duly served and respondent no. 1 was also proceeded ex-parte on 26.08.2023.
9. Section 34 (2) of the act provides as under:
OMP (Comm.) No. 46/2019 -12-2) An arbitral award may be set aside by the Court only if
--
(a) the party making the application furnishes proof that--
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the OMP (Comm.) No. 46/2019 -13- parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that--
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
10. The Scope of Section 34 (2) of the Act have been explained in a chain of judgments of Superior courts.
11. In the recent case titled "Delhi Airport Metro Express Pvt Ltd Vs. Delhi Metro Rail Corporation Limited" arising out of Civil Appeal number 5628 of 221, arising out of SLP (c) No. 4115/2019 and Civil Appeal Number 5628 of 2021 arising out of SLP (c) No. 8311/2019, vide its judgment dated 09.09.2021, Hon'ble Supreme Court while dealing with the question of scope under section 34 of Arbitration and Conciliation Act held that:
"every error of law committed by the Arbitral Tribunal would not fall within the expression 'patent illegality', the contravention of law not linked to public policy or public interest is beyond the scope of the expression "patent illegality".
What is prohibited is for courts to re-appreciate evidence to conclude that the award suffers from OMP (Comm.) No. 46/2019 -14- patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award."
It was also held that:
"the permissible grounds for interference with a domestic award under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them."
The Hon'ble Supreme Court observed that:
"an arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality."
12. In the very recent judgment, the Hon'ble Supreme Court has once again reiterated the law related to the examination by a Court of an Award under Section 34 of the Act. In Ssangyong Engineering & Construction Co. Ltd. vs. National Highways OMP (Comm.) No. 46/2019 -15- Authority of India Ltd. 2019 SCC OnLine SC 677, the Supreme Court has held as under:-
"35. What is clear, therefore, is that the expression public policy of India, whether contained in Section 34 or in Section 48, would now mean the fundamental policy of Indian law as explained in paragraphs 18 and 27 of Associate Builders (supra), i.e., the fundamental policy of Indian law would be relegated to the Renusagar understanding of this expression. This would necessarily mean that the Western Geco (supra) expansion has been done away with. In short, Western Geco (supra), as explained in paragraphs 28 and 29 of Associate Builders (supra), would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment.
However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in paragraph 30 of Associate Builders (supra).
36. It is important to notice that the ground for interference insofar as it concerns interest of India has since been deleted, and therefore, no longer OMP (Comm.) No. 46/2019 -16- obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the most basic notions of morality or justice. This again would be in line with O.M.P. (COMM) 413/2019 Page 34 of 37 paragraphs 36 to 39 of Associate Builders (supra), as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.
37. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paragraphs 18 and 27 of Associate Builders (supra), or secondly, that such award is against basic notions of justice or morality as understood in paragraphs 36 to 39 of Associate Builders (supra). Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco (supra), as understood in Associate Builders (supra), and paragraphs 28 and 29 in particular, is now done away with.
38. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the OMP (Comm.) No. 46/2019 -17- award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within the fundamental policy of Indian law, namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.
39. Secondly, it is also made clear that re-
appreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.
40. To elucidate, paragraph 42.1 of Associate Builders (supra), namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Paragraph 42.2 of Associate Builders (supra), however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would O.M.P. (COMM) 413/2019 Page 35 of 37 certainly amount to a patent illegality on the face of the award.
41. The change made in Section 28(3) by the Amendment Act really follows what is stated in paragraphs 42.3 to 45 in Associate Builders (supra), namely, that the construction of the terms OMP (Comm.) No. 46/2019 -18- of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2A).
42. What is important to note is that a decision which is perverse, as understood in paragraphs 31 and 32 of Associate Builders (supra), while no longer being a ground for challenge under public policy of India, would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.
Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterized as perverse."
......
OMP (Comm.) No. 46/2019 -19-45. Recently, in Hindustan Construction Company Limited & Anr. Vs. Union of India & Ors., 2019 SCC OnLine SC 1520, the Hon'ble Apex Court has held as under:-
"55. Further, this Court has repeatedly held that an application under Section 34 of the Arbitration Act, 1996 is a summary proceeding not in the nature of a regular suit - see Canara Nidhi Ltd. v. M. Shashikala 2019 SCC O.M.P. (COMM) 413/2019 Page 36 of 37 OnLine SC 1244 at paragraph 20. As a result, a court reviewing an arbitral award under Section 34 does not sit in appeal over the award, and if the view taken by the arbitrator is possible, no interference is called for - see Associated Construction v. Pawanhans Helicopters Limited. (2008) 16 SCC 128 at paragraph 17 "
13. It is clear that the scope of the interference by the court under section 34(2) Arbitration Act has been further restricted in the above judgments of the Hon'ble Superior Courts and the re- appreciation of the facts, evidence or interpretation of the terms of contract in not permissible. What is permissible is, if there is a patent illegality, apparent error on the face of the record, perversity in the award or misconduct by the learned arbitrator.
14. Now, I am dealing with the contentions raised by Ld. Counsel for petitioner one by one.
OMP (Comm.) No. 46/2019 -20-15. It is contended by Ld. Counsel for petitioner that the arbitration proceedings started on 30.06.2018 before the Ld. Arbitrator and impugned award was passed by Ld. Arbitrator on 17.07.2019 i.e. after a gap of one year. It is also contended by Ld. Counsel for petitioner that as per Section 29A of the Arbitration and Conciliation Act, the award is to be concluded within 12 months. No extension of time was sought by the Ld. Arbitrator from the parties as required under Section 29A of the Arbitration and Conciliation Act and as such the impugned award is liable to be set aside.
Admittedly, vide letter dated 17.05.2018 the respondent no. 1 had requested the ld. Arbitrator to act as an Arbitrator and award as passed on 17.07.2019. As per Section 29A of the Arbitration and Conciliation Act if the award is not made within the period specified in sub-section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period.
Ld. Arbitrator has not sought any permission or sent notice to either of the parties prior to expiry of period of one year. I am of the view that there is strength in the arguments of Ld. Counsel for petitioner.
16. The next contention raised by Ld. Counsel for the petitioner is that as per the disclosure provided by the Ld. Arbitrator and as per Schedule 6 the Ld. Arbitrator has admitted that he is on penal of bank and as such the impugned award OMP (Comm.) No. 46/2019 -21- passed by Ld. Arbitrator is in conflict with the basic notions of morality.
I have perused the disclosure made by Ld. Arbitrator as per Schedule 6 of Arbitration & Conciliation Act. In this disclosure the Ld. Arbitrator has mentioned that he started practicing in December, 1992 and since then he is handling the cases of Civil and Criminal nature including conducting Arbitration proceedings for Financial Institutions and he is also on the panel of Bank. The Ld. Arbitrator has not made it clear whether he is panel of the respondent no. 1 bank or not.
UNILATERAL APPOINTMENT OF SALE ARBITRATOR
17. Hon'ble Supreme Court of India, in the judgment titled as Perkins Eastman Architects DPC & Anr. V. HSCC 2019 SCC OnLine SC 1517, has categorically held that a person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator and thus, unilateral appointment of sole arbitrator has been held as illegal.
18. In the case of Proddatur Cable TV Digi Services vs Siti Cable Network Limited 2020 SCC, it was inter alia held that following ratio of the judgment in the case of Perkins (supra), a unilateral appointment by an authority which is interested in the outcome or decision of the dispute is impermissible in law. When the Arbitration Clause empowers the Company to appoint Sole Arbitrator, it can hardly be disputed that the Company acting through its Board of Directors will have an interest in the outcome of the dispute. The appellant had filed the petition under OMP (Comm.) No. 46/2019 -22- Section 14 and 15 of the Act seeking declaration that the mandate of the arbitrator appointed by the Respondent be terminated and an arbitrator be appointed by High Court under the provisions of the Act. Following ratio of the judgments in Perkins (supra) and Bharat Broadband Network Limited, the mandate of the Arbitrator was found terminated de jure and since the present arbitrator had become unable to perform his functions as an arbitrator, his mandate was terminated and another independent Sole Arbitrator was appointed to substitute the previous arbitrator.
19. Hon'ble Bombay High Court also in the matter of Lite Bite Foods Pvt. Ltd. v. Airports Authority of India 2019 SCC OnLine Bom 5163, clarified the ratio laid down by the Hon'ble Apex Court in the matter of Perkins (Supra) and held that appointment of an arbitral tribunal can either be with consent of parties or by an order of the court, there can be no third way.
Hon'ble Supreme Court in the case of TRF Limited v. Energo Engineering Projects Ltd.,2017 (8) SCC 377 and Perkins Eastman Architects DPC & Anr v. HSCC (India) Ltd. 2020 (20) SCC 760, ruled against such unilateral appointment of Arbitrator and held that such an appointment if made, will be non-est in the eyes of law and is impermissible.
20. In Kotak Mahinder Bank Ltd, the ground of challenge was non-raising of objections in respect of unilateral appointment of Arbitrator at the appropriate time. Hon'ble Delhi High Court relying upon Bharat Broad Band Network Ltd Vs OMP (Comm.) No. 46/2019 -23- United Telecoms Ltd 2019 (5) SCC 755 (rendered by Hon'ble Apex Court) held that the failure, if any on part of Respondent to object to the unilateral appointment of Sole Arbitrator can not be construed as waiver of his right under Section 12(5) of "The Act 1996".
21. Hence, I observe that unilateral appointment of the Sole Arbitrator by Respondent is not in accordance with the provisions of Section 12 read with Schedule 6 and 7 of 'the Act'. In light of the ratio of the judgments discussed above, in the present case admittedly, the sole arbitrator has been appointed by the Respondent unilaterally without the consent of the petitioner and thus, the entire arbitration proceedings stand vitiated.
22. It is contended by Ld. Counsel for petitioner that loan recall notice dated 13.03.2018 was dispatched on 04.12.2018, whereas on 17.05.2018 respondent no. 1 made request to the Ld. Arbitrator to act as an Arbitrator and the proceeding was initiated by the ld. Arbitrator on 30.06.2018.
I have perused the statement of claim. In para no. 15 of Statement of claim, it is mentioned that loan recall notice dated 13.03.2018 was dispatched on 04.12.2018 whereas Arbitration Proceedings shows that notice dated 14.11.2018 sent to the respondent no. 1 has been served on him on 19.12.2019 and notice sent to respondents no. 2 & 3 have been received back with the postal report "LEFT". Thus, before sending of recall notice, the Ld. Arbitrator has initiated the proceedings on 30.06.2018. I am of the view that loan recall notice was sent to OMP (Comm.) No. 46/2019 -24- the petitioner by the respondent no. 1 after initiating of Arbitral proceedings.
23. I have perused para no. 7 of statement of claim. As per this statement of claim the agreement was executed between the respondent and Citifinancial Consumer Finance India Limited (CCFIL), which is now known as Citicorp Finance India Limited (CFIL). But later on Home Equity Loan agreement was transferred to Citibank N.A on 29.11.2018 through loan assignment letter. The Mortgage loan was transferred and the Loan agreement number also got changed from 10700100 to 237023. This transfer was brought to the knowledge of the respondents by a letter dated 09.11.2015. Thus, even as per the averments of respondent no. 1 this transfer of loan was communicated to the petitioner after a gap of 7 years. No reason has been given by the respondent no. 1 in this regard.
24. It is contended by Ld. Counsel for petitioner that the Ld. Arbitrator failed to appreciate that the loan assignment letter dated 09.11.2015, whereby Home Equity Loan Agreement was transferred to Citibank N.A on 29.11.2008 has never been served upon the petitioner, as such no reliance can be placed on the said letter. It is also contended by Ld. Counsel for petitioner that loan assignment letter dated 09.11.2015 does not contain any arbitration clause. It is argued that there is neither any privy of contract nor any arbitration agreement/ clause between the parties, therefore, no arbitration proceedings between the parties can be conducted.
OMP (Comm.) No. 46/2019 -25-I have perused the record. Perusal of file reveals that there is assignment clause 10.2(b) in the agreement, wherein, it is mentioned that "The Lender shall have the right to create charge over the property in favour of any bank, institution or body by way of security for any refinance facility or any loan availed of by Lender from such bank, institution or body. Lender shall also have the right to transfer or assign the mortgage over the property in favour of any bank, institution or body in connection with any sale or transfer of the Laon by Lender to them". Reliance can be placed on judgment titled as "Bestech India Private Ltd. v. MGF Developments Ltd." (2009) 161 DLT 3, (wherein it held that if the contract is assignable, the arbitration agreement enshrined in the contract will follow the assignment), in its judgment in Kotak Mahindra Bank v. S. Nagabhushan & Ors. (2018 SCC OnLine Del 6832), held that if the contract is assignable, then the arbitration agreement enshrined in the contract will follow the assignment. It was observed that post the assignment of the loan agreement, the rights under the arbitration agreement being in the nature of remedy for enforcement of rights under the agreement are assignable as well.
Thus, in the present case, the loan agreement specifically mentions that CCFIL shall be entitled to transfer or assign any of its obligations/ rights or benefits to any party without the consent of the borrower and the borrower shall fulfill and perform all his obligations to such transferee or assignee. In view of the same, the arguments of petitioner is devoid of merit.
OMP (Comm.) No. 46/2019 -26-25. It is contended by Ld. Counsel for petitioner that claimant has not placed on record any agreement no. 237023.
I find strength in the arguments of Ld. Counsel for petitioner that claimant bank was required to place on record agreement no. 237023 before Ld. Arbitrator when the claimant has mentioned in para no. 7 of the statement of claim that agreement no. 237023 was executed between the parties.
26. I have perused the record of Ld. Arbitrator. The record of Ld. Arbitrator reveals that notice sent to the respondents no. 2 & 3 received back with the report unserved. The Ld. Arbitrator has mentioned in the order that notice sent to respondents no. 2 & 3 have been received back with the postal receipt "LEFT" and the respondents no. 2 & 3 were deemed to be served. The Ld. Arbitrator was required to send fresh notice to the respondents no. 2 & 3 when there was report of LEFT on the speed post covers sent to the respondents no. 2 & 3. There is no document on record to show that notice sent by the Ld. Arbitrator was ever served upon the respondents no. 2 & 3. Ld. Arbitrator has placed reliance on judgment titled as "M/s. Madan and Co. Vs. Wazir jaivir Chand" AIR 1989 SC 630. I am of the view that respondents no. 2 & 3 were required to be served. Ld. Arbitrator has also placed reliance on judgment titled as "State of M.p. Vs. Hiralal & Ors." (1996) 7 SCC 523 but this judgment is also not applicable when there is report on LEFT on speed post covers.
26. In view of the above discussions, I am of the view that the appointment of Sole Arbitrator being under the teeth of Section 7 of "The Act 1996", the impugned Award passed by Ld. Arbitrator OMP (Comm.) No. 46/2019 -27- can not be countenanced under law. As a consequence, the Award dated 17.07.2019 passed by Sole Arbitrator stands set aside.
The petition stands allowed. The impugned award dated 17.07.2019 stands set aside and file be consigned to Record Room.
Copy of this Order be sent to the Sole Arbitrator alongwith Arbitral Records.
Announced in the open Court on 12.12.2023.
(NARESH KUMAR MALHOTRA) District Judge, Comm. Court-06 West, Tis Hazari Courts Extension Block, Delhi/12.12.2023 OMP (Comm.) No. 46/2019 -28-