Delhi District Court
M/S R. S. Trading Company vs M/S Tata Capital Financial Service Ltd on 17 September, 2024
IN THE COURT OF SH. NIKHIL CHOPRA, DISTRICT
JUDGE (COMMERCIAL COURT)-06, CENTRAL DISTRICT,
TIS HAZARI COURT, DELHI
ARB. A (COMM) No.35/2019
CNR No.- DLCT01-015597-2019
1. M/s R.S. Trading Company & Ors,
A Partnership Concern,
through its Partner Sunil Tandon,
2nd Floor, Nawab Road, Basti Harphool Singh,
Behind Sadar Thana Road,
Delhi-110006.
2. Sh. Nikhil Tandon,
3. Sh. Anil Tandon,
4. Mrs. Veena Tandon,
2nd Floor, Nawab Road, Basti Harphool Singh,
Behind Sadar Thana Road,
Delhi-110006.
......Petitioners
Versus
1. M/s Tata Capital Financial Services Ltd,
Through its Regional Manager,
Building No.11, Prem Dohil Sadan,
2nd and 3rd Floor, Rajendra Palace,
Near HDFC Bank, New Delhi-110008.
2. M/s Tata Capital Financial Services Ltd.
Through its Managing Director,
Having its office Building 'A',
2nd Floor, Lodha 1- Think Techno Campus,
Off. Pokharan Road-2,
Thane (West) 400 607.
....Respondents
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Date of Institution : 21.11.2019
Final arguments : 13.09.2024
Date of decision : 17.09.2024
ORDER
1. Order disposes off (i) petition under Section 34 of The Arbitration & Conciliation Act, 1996, challenging the ex-parte Award dated 29.07.2017 passed by the Ld. Sole Arbitrator; (ii) an application under Section 14 read with Section 5 of Limitation Act filed by the petitioners alongwith the petition under Section 34 of the Arbitration & Conciliation Act, 1996 and; (iii) an application under Order VII Rule 11 of the Code of Civil Procedure filed by the respondent.
2. Shorn of avoidable details, the case of the petitioners is that they had availed a loan of Rs.35,00,000/- from the respondent in the year 2016. However, a sum of Rs.27,84,674/- alone was disbursed. Due to difficulties in the business, the petitioners could not pay certain installments. The Respondents initiated arbitral proceedings while appointing their own Arbitrator Sh. K.R. Tiwari, Advocate, Mumbai. The petitioners and respondent in the meantime had agreed for a settlement of the entire loan at Rs.10,00,000/- and, accordingly, a sum of Rs.7,33,396/- was paid by the petitioners by way of monthly installments towards said settlement. However, the petitioners came to know about the passing of the Award dated 29.07.2017 impugned herein when the respondent filed an Execution Petition Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 2 of 30 bearing no.13/18 (262/2018) in the Court of Sh. Ankur Jain, Ld. Additional District Judge, Tis Hazari Courts, Delhi.
3. The petitioners, accordingly, filed objections in the said Execution Petition. The same were dismissed vide order dated 01.06.2019. The order dated 01.06.2019 was challenged before the Hon'ble High Court of Delhi in FAO No.396/2019. On 30.09.2019, the petitioners were allowed to withdraw the same while reserving their right to file the objections under Section 34 of the Arbitration & Conciliation Act, 1996.
4. Insofar as the Award is concerned, it has been averred that the original Award duly signed by the Ld. Arbitrator has not yet been received by the petitioners. The petition further avers that the petitioners have received a copy of the Award only alongwith the Execution Petition in July, 2018. Petitioners came to know that hearings dated 16.03.2017, 15.04.2017 and 03.07.2017 have been held by the Ld. Arbitrator without any notice to the petitioners. It is averred in the petition that no proceedings/copy of the Award had been supplied to the petitioners and as such, they were held back from filing of the petition under Section 34 of the Arbitration and Conciliation Act, 1996.
5. It is further averred that upon perusal of the Award, the petitioners had come to know that the matter was referred to the Ld. Arbitrator on the basis of clause 11.3 of the Loan Agreement and that the Ld. Sole Arbitrator had accepted the appointment on Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 3 of 30 16.03.2017. The Arbitrator did not send any notices, but proceeded as ex-parte against the petitioners on 03.07.2017. Even during this period, the respondent did not disclose about the appointment of the Arbitrator or the pendency of the Arbitration proceedings.
6. The petitioner has further stated that they could not file the objection under Section 34 of the Arbitration & Conciliation Act, 1996, as neither copy of the Award, nor the proceedings were supplied, and it was only alongwith the notice of the execution petition that they received a copy of the Award dated 29.07.2017. They filed objections in the Executing Court, which were dismissed. The challenge against the order of dismissal before the Hon'ble High Court of Delhi was allowed to be withdrawn, while the petitioners reserved their rights to file the petition under Section 34 of the Arbitration & Conciliation Act, 1996.
7. As far as the grounds of challenge are concerned, the Award is stated to be (i) against the facts and law; (ii) the Arbitrator has failed to send letter of acceptance; (iii) the Arbitrator was biased and had failed to made any disclosure as to his relations with the respondents or any arbitration cases being conducted by him; (iv) Arbitrator was not qualified to act as an Arbitrator; (v) Arbitrator did not make any enquiry as to the change of address and did not consider the endorsement made by the postal department; (vi) there was no proof of service upon the petitioners; (vii) the Arbitrator has simply passed the Award Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 4 of 30 believing the Statement of Claim and that the disbursement was to the tune of Rs.35,00,000/-, without any document; the respondent did not disclose the receipt of Rs.7,33,396/-; Arbitrator has proceeded to grant pre-arbitration interest on Rs.35,00,000/-. Besides, the Award is also challenged on the ground that no opportunity of hearing was ever afforded to the petitioners. It is also averred that Ms. Veena Tandon and Sh. Anil Tandon are not partners any more and could not have been proceeded against in the Arbitration proceedings . The Award is stated to be against public policy, morality, justice and patently illegal.
8. Alongwith the petition under Section 34 of the Arbitration & Conciliation Act 1996, the petitioners have also filed an application under Section 14 read with Section 5 of the Limitation Act seeking extension of time/condonation of delay for the period 07.12.2018 to 30.09.2019. The same is premised on the ground that the petitioners had been pursing their objections in the execution proceedings and it was on 30.09.2019, that the Hon'ble High Court of Delhi had permitted the petitioners as to withdraw the appeal [FAO No.396/2019], permitting the petitioners to file the objections under Section 34 of the Arbitration & Conciliation Act, 1996, before the appropriate forum.
9. An application under Order VII Rule 11 CPC has also been filed by the respondent on the ground of lack of jurisdiction and Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 5 of 30 limitation. The respondent, in the said application, has objected to the filing of the petition under Section 34 of the Arbitration & Conciliation Act, 1996, on the ground that the 'seat' of the Arbitration has been Mumbai on the basis of an exclusive jurisdictional clause in the Agreement and that since the seat of Arbitration has been agreed to be Mumbai, Courts at Mumbai alone would have jurisdiction to try the petition under Section 34 of the Arbitration & Conciliation Act, 1996. Besides, the application is premised on the ground of limitation. It is so stated in the application that the Award was passed on 29.07.2017 and even as per the very stand of the petitioners, the same was received by them in July, 2018, the petitioners, at best, could have filed the petition under Section 34 of the Arbitration & Conciliation, 1996 by November, 2018. The present petition has been actually filed on 21.11.2019 i.e. much later after the expiry of the limitation period, and is barred by limitation.
10. I have heard learned counsel for both the parties and have also gone through record as well as written submissions.
11. The main contentions of Ld. Counsel for the petitioners are:-
(i) There are gross anomalies/irregularities in the the Arbitration proceedings conducted by the Ld. Arbitrator. The notices were not served upon the petitioner as to Arbitration hearings, and that the Arbitrator had proceeded against them ex-parte, without caring for service of notice upon the petitioners.
(ii) The Arbitrator was appointed unilaterally without following the process of law, and seeking consent from the petitioners. Petitioners had never consented to appointment of Sh. K.R. Tiwari at Mumbai.
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(ii) The Arbitrator has mechanically proceeded to pass the Award without complying with the procedures laid down by the law and has mechanically passed the Award , on mere asking of the respondent.
(iii) Ld. Arbitrator was biased and partial, as right from the appointment itself, the Arbitrator has shown a great hurry in proceeding. No disclosures as to independence or relations, past or present, were made by Arbitrator, nor was ever sent to the petitioners.
(iv) The petitioners were never served upon any notices as to appointment and all the proceedings are vitiated by lack of compliance of mandatory procedure, lack of fairness; arbitrariness, as is clear from the Award. The Award, as such, is patently illegal and liable to be set aside.
(v) The petitioners were pursing the objections in the Execution Petition and thereafter, approached the Hon'ble High Court of Delhi for necessary directions. As such, there is no delay in filing the present petition, considering the adjustment of period as is provided for under Section 14 of the Limitation Act spent before Ld. Executing Court.
(vi) No signed copy of Award was served upon the petitioners ever and as such, the petitioners are well within time.
(vii) The petitioner had, after coming to know about the Award in the execution proceedings, had filed the objections before the Executing Court and the time spent in the said proceedings ought to be considered for condoning the delay in filing the petition before this Court. An application under Section 14 of the Limitation Act has been separately filed.
(viii) The Award is nullity, it being opposed to public policy besides being patently illegal. The very arbitration proceedings are vitiated on account of illegalities and irregularities, including lack of notice and the unilateral appointment.
12. Learned counsel for the petitioner has relied upon the following judgment:-
(i) Perkins Eastman Architects DPC Vs. HSCC (India) Limited [AIR 2020 SUPREME COURT 59]
(ii) Sawarmal Gadodia Vs. Tata Capital Financial Services Ltd.
[Arbitration Petition No.560/2019 dated 15.05.2019 of Hon'ble Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 7 of 30 High Court of Bombay]
(iii) The Press Trust of India Limited Vs. MS Gupta Bros [India 2023/DHC/000790]
(iv) Smaaash Leisure Ltd. Vs. Ambiance Commercial Developers Pvt.
Ltd. [2023/DHC/9087]
(v) Ministry of Health & Family Welfare & Anr. Vs. M/s HOSMAC Projects Division of HOSMAC India Pvt. Ltd. [FAO (OS) (Comm) 326/2019]
13. The main contentions of the Ld. Counsel for respondents are :-
(a) The petition deserves outright dismissal, it being miserably barred by limitation, as is clear from the fact that the Award is dated 29.07.2017 and the petition under Section 34 of the Arbitration and Conciliation Act, 1996, has only been filed in the month of November, 2019.
(b) The petitioners have wrongfully claimed applicability of Section 14 of the Limitation Act in the present case inasmuch as, the filing of the objections in the Executing Court cannot be equated with the remedy under Section 34 of the Arbitration and Conciliation Act, 1996. The petitioners ought to have filed the petition under Section 34 of the Arbitration and Conciliation Act, 1996. within the time prescribed i.e. from the date of becoming aware as to the Award, even if it is assumed for the sake of arguments that they were not served with notice of the Arbitration proceedings or the Award.
(c) As is clear from the record of the Ld. Arbitrator, the petitioners were served, as notices were sent at the last known addresses provided by the petitioner themselves, and they cannot be heard to say that they were not served with the notices.
(d) The jurisdiction of the Court under Section 34 of the Arbitration and Conciliation Act, 1996 is limited and the Court cannot examine the reasonableness of the reasons or re-appreciate the evidence. Even otherwise, there is nothing in the Award which can be claimed to be patent illegality , or rendering the Award as against the public policy.
(e) Since they omitted to file any petition under Section 34 of the Arbitration & Conciliation Act, 1996, within 90 or 120 days from Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 8 of 30 the date of their knowledge, as per their own case i.e. from July, 2018, the petition is miserably barred by limitation and liable to be dismissed on this count alone.
(f) Section 14 of the Limitation Act cannot be resorted to by the petitioners as the petition under Section 34 could have been filed then and there. Mere filing of the objections before the Ld. Executing Court, cannot be considered for the purposes of Section 14 of the Limitation Act.
14. Learned counsel for the respondents has relied upon the following judgment:-
(i) Simplex Infrastructure Vs. Union of India [(2019) 2 SCC 455]
(ii) Union of India Vs. Popular Construction [(2001 8 SCC 470]
15. Time now to deal with the contentions. The applications under Section 14 read with Section 5 of the Limitation Act as well as the application under Order VII Rule 11 CPC are taken up first. The question of limitation is the common denominator in the said applications.
16. The petitioners seek condonation of delay/extension of time on the ground that they had been pursuing the objections before the executing Court. Insofar as the delay is concerned, the petitioners seek validation of the belated filing and legitimacy from the order passed in FAO No.396/2019. Another contention of the petitioners is that they have not been supplied with the signed copy of the Award and as such, they were held back from filing the petition under Section 34 of the Arbitration & Conciliation Act, 1996. Petitioners have pressed reliance on Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 9 of 30 Avdesh Mittal Vs. Deepak Vig [2024:DHC:1966] and Ministry of Health & Family Welfare & Anr. Vs. M/s HOSMAC Projects Division of HOSMAC India Pvt. Ltd. [FAO (OS) (Comm) 326/2019] in support of these contentions.
17. The respondent side on the other hand has vehemently contended that as per the petitioners' own version, they had come to know about the Award in July, 2018 and that the petitioners could have, accordingly, challenged the Award within three months therefrom or within the extended limitation i.e. till November 2018. It is the respondent's contention that the petition under Section 34 has been actually filed in November, 2019, which is much beyond the limitation. It is respondent's another contention that Section 14 cannot be resorted to as neither Section 5 nor Section 14 of the Limitation Act would be applicable to the Arbitration proceedings. In this respect, the respondent has relied upon Simplex Infrastructure Vs. Union of India [(2019) 2 SCC 455] and Union of India Vs. Popular Construction [(2001 8 SCC 470].
18. The questions that arise in the natural order of reasoning are that- (i) whether the petitioners' pursuing the objection before the Executing Court could be said to be a bonafide pursuit in a Court within jurisdiction so as to bring the petition within the fold of Section 14 of the Limitation Act and (ii) whether Section 14 would apply to the proceedings under Section 34 of the Arbitration & Conciliation Act, 1996.
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19. Insofar as the above question as to applicability of Section 14 of Limitation Act is concerned, one may beneficially resort to the observations made by the Hon'ble High Court of Delhi in National Seeds Corporation Ltd. & Anr. Vs. Ramavtar Gupta [OMP (Comm.) 79/2022 decided on 25.08.2023], State of Goa Vs. M/s Western Builders [AIR 2006 Supreme Court 2525 dated 05.07.2006], and Ms. Consolidated Engineering Vs. Principal Secretary, Irrigation Department [(2008) 7 SCC 169] inasmuch as, the superior Courts have held that Section 14 is applicable to the Arbitration & Conciliation Act, 1996.
20. However, what is more riveting is the question whether filing the objections and challenging the order of dismissal of the objection can be stated to be bonafide pursuit of remedy for the purposes of Section 14 of Limitation Act.
21. The petitioners heavily rely upon the order dated 30.09.2019 of the Hon'ble High Court of Delhi in this respect contending that they have been permitted to file the proceedings under Section 34 of the Arbitration & Conciliation Act, 1996. The order passed by the Hon'ble High Court of Delhi in FAO No.396/2019 is reproduced as under:-
"The counsel for the appellant submits he may be permitted to withdraw the present appeal against order dated 01.06.2019 passed in execution case no.13/18 (262/18), the appellant being the judgment debtor under the award of the sole arbitrator reserving the right to move the appropriate forum by objections under Section 34 of Arbitration and Conciliation Act, 1996.
The appeal and the applications filed therewith are dismissed as withdrawn."
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22. The Court cannot subscribe to the contentions of the petitioners that the said objections and subsequent filing of FAO before the Hon'ble High Court of Delhi is a bonafide pursuit inasmuch as, the petitioners could have made a clear distinction between the objections in the Execution and the objections challenging the Award. The petitioners cannot be heard to say that they had mistakenly filed the objections in the Executing Court although the same were meant to be a challenge to the Award. Order dated 30.09.2019 of the Hon'ble High Court of Delhi as well cannot be constructed to mean that the Court had condoned the delay. The petitioners' "reserving the right" cannot be treated either as a fresh lease life to the limitation, nor can the order possibly be interpreted to mean that the Court has condoned the delay.
23. Coming to the next contention of the learned counsel for the petitioner that in the absence of supply of non-signed copy of the Award, the petitioners cannot be treated as served with the copy of the Award and as such, the petition cannot be claimed as barred by limitation. The said contention of the petitioners is not acceptable. The petitioners, as has been stated in para no.5 of the petition, were served with the copy of the Award in July, 2018. The relevant portion is reproduced as under:-
"5. That in the month of July, 2018, the petitioners received a copy of the Execution Petition with other documents i.e. Copy of Power of Attorney and ex- parte award dated 29.07.2017 passed by the learned Arbitrator."
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24. It is from this supply that the petitioners have proceeded to file objections and subsequently, the present petition as well. The petitioners have not been able to demonstrate as to how the non supply of signed copy of the Award alongwith the notice of the Execution Petition have taken away their right to challenge or impeded their remedy their under Section 34 of the Arbitration and Conciliation Act, 1996.
25. In Union of India Vs. Popular Construction [2001 Supp (3) SCR 619], the Hon'ble Supreme Court has observed that Section 5 of the Limitation Act does not apply to the Arbitration proceedings. Any delay in filing of the petition under Section 34 of the Arbitration and Conciliation Act, 1996, beyond 120 days, cannot be condoned. Even if petitioner's pursuing of objections is treated as a good ground for invocation of Section 14 of the Limitation Act, the delay prior to filing the objections and subsequent delay in approaching this Court, fatally impacts the filing of the petition. The dismissal of objections cannot grant a fresh lease of life to limitation.
26. The Court cannot accept the contention of the learned counsel for the petitioners that if the benefit of Section 14 of the Limitation Act is given, the petition would be within limitation. No such reckoning of limitation period would be permissible under law. As such, the petition is held to be barred by limitation.
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27. Coming now to the question of lack of jurisdiction as has been foregrounded in the application under Order VII Rule 11 CPC. The respondent has challenged the petition on the ground that Mumbai is the seat of the Arbitration, and considering that the Arbitral proceedings had been conducted at Mumbai, and the Award as well has been passed in Mumbai, this Court would not have territorial jurisdiction.
28. The petitioners, on the other hand, have contended that the original agreement is neither found to be available in the record of the Arbitrator, nor is filed before this Court, and since the cause of action has substantially accrued in Delhi, this Court alone has jurisdiction to entertain the present suit.
29. A perusal of the Arbitral Record shows that the original agreement is not filed. An incomplete copy of the Agreement has is found to be existing on the Arbitral record. The Court finds that page no. "1 of 6" and page no. "6 of 6" only, of the agreement have been placed on record and the pages in between are missing. It is also impressed upon by the petitioners side that there had been considerable reluctance and delay in filing the Arbitral record.
30. Although the Arbitral Award bears a noting made by the Ld. Arbitrator to the effect of re-production of the Arbitral clause, the Court finds it unacceptable inasmuch as since the record does Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 14 of 30 not contain the Arbitral Agreeement itself or any copy thereof, it is not clear wherefrom the Ld. Arbitrator has noted the same from. There can be two probabilities- (i) the Agreement was incompletely filed before the Arbitrator as is now available on record, and (ii) certain pages of the agreement have been subsequently removed from the Arbitral record before filing it in the Court. Both the situations lead to an inference adverse to the respondent. In the first eventuality, it would imply that the Arbitrator himself was unaware as to the Arbitral clause and thus, could not have derived any jurisdiction. Eventuality no.2 is even more intense, as the same would imply a clear fraud upon the Court. Despite the fact that on at least two occasions during arguments, the respondent side was asked about the said status of the Arbitral record, there was no satisfactory response, nor any endeavors have been made to file a complete copy.
31. Turing back to the contention as to lack of jurisdiction, in the absence of the agreement or an attested copy thereof, the respondent cannot be heard to say that the "Mumbai" was agreed to be the seat of the Arbitration in the absence of basic document. Although the Arbitral clause is purportedly reproduced in the Award, the same does not inspire confidence as the most vital document is found to be missing from the Arbitral record. Thus, it cannot be said with certainty that "Mumbai" was agreed to be the seat or that this Court would not have jurisdiction to try and entertain the present proceedings. Being mindful of the fact that Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 15 of 30 since the objections as to lack of jurisdiction has been made by the respondent, the Court is of a clear view that it was for the respondent to ensure that vital documents in this respect should have been filed on record.
32. Turning now to the challenge to the Award. The grounds of challenge to the Award can be broadly categorized into three categories: (i) relating to appointment of the Arbitrator; (iii) relating to lack of notice of proceedings conducted by the Arbitrator; and (iii) and the patent illegality relating to merits of Award.
33. As regards the appointment of the Arbitrator, the petitioners have contended that the respondent not only proceeded to appoint the Arbitrator unilaterally but also the Arbitrator had not declared his independence and impartiality as required by law, vitiating the very appointment. It is not in dispute that the notice as to appointment of the sole Arbitrator was not served and the reference was unilaterally made by the respondents. The relevant portion of the Award itself conforms to the above, which is reproduced as under:-
"1. I K.R. Tiwari, Advocte, was appointed as a Sole Arbitrator by the Claimant, vide its Reference letter in pursnace of the arbitration clause contained in written agreement dated 5958004 baring Agreement/Account No.22.04.2016 executed between the Claimant and the Respondent/s."
34. It is yet another contention that the Ld. Arbitrator did not make a truthful declaration nor did he serve the copy thereof Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 16 of 30 upon the petitioners. As a matter of fact, the Arbitrator, vide its letter dated 15.03.2017 submitted the Declaration under Sixth Schedule of the Arbitration & Conciliation Act, 1996, only to the respondent. The said letter is reproduced as under:-
"......
Date: 15.03.2017 To, TATA CAPITAL FINANCIAL SERVICES LTD, Building 'A', 2" Floor, Lodha I-Think Techno Campus Off. Pokharan Road 2, Thane (West), 400607. Sir, Sub: Your letter dated 14.03.017 regarding request to act as Sole Arbitrator in respect of dispute/differences/claim under the TATA Capital Financial Services Ltd. bearing No.5958004 obtained by Mr/Ms. R S TRADING COMPANY With reference to your above letter, appointing me as the Sole Arbitrator, to adjudicate the dispute/differences/claim, referred therein, I hereby accord my consent to act as Sole Arbitrator and further confirm that my appointment is well within the terms of above referred Agreement and under the provisions of Arbitration and Conciliation Act, 1996. A copy of the said Loan Agreement containing the Arbitration Clause has been forwarded to me along with the Reference Letter. In this regard the statutory Disclosure in the prescribed format, under Sixth Schedule as per Section 12(1) of Arbitration and Conciliation Act, 1996 is annexed herewith, in connection with my possible appointment of Sole Arbitrator.
An amount of Rs.5000/- will be charged towards the arbitration fees and expenses.
The Arbitration Proceeding will be held at, M/s K. R. Tiwari & Co, 64, Parekh Mansion, 2" Floor, Janmabhoori Marg, Fort, Mumbai - 400001.
35. It is the contention of the learned counsel for the petitioners that the unilateral appointment itself vitiates the arbitration proceedings and it is clearly noticiable from the record Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 17 of 30 that the Arbitrator was biased and impartial as against the petitioners as he has not sent the disclosure to the petitioners.
36. It appears that in terms of communication dated 07.02.2017, the respondent had proposed the appointment of Sh. K.R. Tiwari, Advocate, while referring to Section 21 of the Arbitration & Conciliation Act, 1996. It is the submission of the learned counsel for the respondent that the said notice is a sufficient compliance of Section 21 of the Arbitration & Conciliation Act, 1996. However, the said contention would not entirely justify the appointment of Sh. K.R. Tiwari as the Arbitator.
37. The law mandates that the notice has to be in line with requirements of Section 21 of the Arbitration and Conciliation Act, 1996. Section 21 precepts the pre-requisites for invocation of Arbitration. These pre-requisites finds a clear articulation in Alurpo Building System Vs. Ozone Overseas Private ltd of Hon'ble High Court of Delhi [AIR Online 2017 Delhi 8]. The Hon'ble High Court of Delhi has examined the requirements of Section 21 vis. a vis its relations with appointment of the Arbitrator, and observed as under:-
25. A plain reading of the above provision indicates that except where the parties have agreed to the contrary, the date of commencement of arbitration proceedings would be the date on which the recipient of the notice (the Petitioner herein) receives from the claimant a request for referring the dispute to arbitration. The object behind the provision is not difficult to discern. The party to the arbitration agreement Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 18 of 30 against whom a claim is made, should know what the claims are. It is possible that in response to the notice, the recipient of the notice may accept some of the claims either wholly or in part, and the disputes between the parties may thus get narrowed down. That is one aspect of the matter. The other is that such a notice provides an opportunity to the recipient of the notice to point out if some of the claims are time barred, or barred by any law or untenable in fact and/or that there are counter-claims and so on.
26. Thirdly, and importantly, where the parties have agreed on a procedure for the appointment of an arbitrator, unless there is such a notice invoking the arbitration clause, it will not be possible to know whether the procedure as envisaged in the arbitration clause has been followed. Invariably, arbitration clauses do not contemplate the unilateral appointment of an arbitrator by one of the parties. There has to be a consensus. The notice under Section 21 serves an important purpose of facilitating a consensus on the appointment of an arbitrator.
27. Fourthly, even assuming that the clause permits one of the parties to choose the arbitrator, even then it is necessary for the party making such appointment to let the other party know in advance the name of the person it proposes to appoint. It is quite possible that such person may be 'disqualified' to act an arbitrator for various reasons. On receiving such notice, the recipient of the notice may be able to point out this defect and the claimant may be persuaded to appoint a qualified person. This will avoid needless wastage of time in arbitration proceedings being conducted by a person not qualified to do so. The second, third and fourth reasons outlined above are consistent with the requirements of natural justice which, in any event, govern arbitral proceedings.
28. Lastly, for the purposes of Section 11 (6) of the Act, without the notice under Section 21 of the Act, a party seeking reference of disputes to arbitration will be unable to demonstrate that there was a failure by one party to adhere to the procedure and accede to the request for the appointment of an arbitrator. The trigger for the Court's jurisdiction under Section 11 of the Act is such failure by one party to respond."
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37. In Bharat Chugh Vs. MC Aggarwal HUF (OMP (I) 2/2021 decided on 03.12.2021, the Hon'ble High Court of Delhi considered requirements of Section 21 while dealing with a challenge to appointment under Sections 14 and 15 of the Arbitration & Conciliation Act, 1996. Petitioner challenged the notice from Arbitrator on the ground that no notice under Section 21 of the Act was served. The Court observed that Arbitral proceedings must be preceded by a reference of the dispute to Arbitrator and that disputes can be referred to Arbitrator only in a manner known to law. The Court upheld the contention of the petitioner that in the absence of any notice under Section 21, the learned Arbitrator did not have before him any dispute which had been validly referred to Arbitration. The Arbitral Tribunal, thus, was held coram non judice being in contravention of provisions of Act.
The Court also observed:-
"42. Section 14(1)(a) of the 1996 Act clearly envisages termination of the mandate of an Arbitrator where he becomes de jure incapable of performing his functions. Where the appointment of the Arbitrator was without the mandatory Section 21 notice, the Arbitrator was ab initio, de jure incapable of continuing to function as an Arbitrator."
38. Even if it be assumed for a moment that the notice dated 07.02.2017 was a notice under Section 21 of the Act, the respondent could not have proceeded to appoint the Arbitrator unilaterally, on the assumption of any deemed consent on the part Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 20 of 30 of the petitioner. In Alupro's case referred hereinabove, the Hon'ble High Court of Delhi has dealt with the said aspect in great detail and neither the communication dated 07.02.2017 can be considered as a sufficient compliance under Section 21 of the Act, nor the lack of any response on the part of the petitioners can be taken as a legitimate ground for unilateral appointment. By all means, in the absence of any response to the communication dated 07.02.2017, the respondent could have resorted to the appointment procedure mentioned under Section 11 of the Arbitration & Conciliation Act.
39. The Court finds that the notice has not been sent in accordance with Section 21 of the Arbitration and Conciliation Act and the appointment of the Arbitrator is not in line with Section 11 of the Arbitration and Conciliation Act, being unilaterally done.
40. The superior Courts have been repeatedly emphasizing as to the requirement of fairness in the appointment mechanism. The provisions of the Act precepts greater accountability in this respect. The principles of fair play are pivotal and sacrosanct to the appointment as well as to the proceedings in Arbitration, and any omission thereof would result in striking at the very jurisdiction of the Arbitrator rendering the entire proceedings and the Award, as unacceptable. The unilateral appointment of an Arbitrator or the unilateral reference to the Arbitral Tribunal without the consent of the other party in conflict has been a Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 21 of 30 subject of examination by the superior Courts since a considerably long time and the Court have been deprecating such practices.
41. In Seth Thawardas Pherumal Vs. The Union of India [AIR 1955 Supreme Court 468 dated 24.03.1955], Hon'ble Supreme Court of India held as under:-
"A reference requires the assent of both sides. If one side is not prepared to submit a given matter to arbitration when there is an agreement between them that it should be referred, then recourse must be had to the Court under section 20 of the Act and the recalcitrant party can then be compelled to submit the matter under sub-section (4). In the absence of either, agreement by both sides about the terms of reference, or an order of the Court under section 20(4) compelling a reference, the arbitrator is not vested with the necessary exclusive jurisdiction."
42. In Dharma Prathishthanam vs M/S. Madhok Construction Pvt. Ltd., [2005 (9) SCC 686)], the Hon'ble Supreme Court of India observed as under:-
"The Constitution Bench in Khardah Company Ltd. Vs. Raymond & Co. (India) Private Ltd. AIR 1962 SC 1810 decided the issue from the view point of jurisdictional competence and held that what confers jurisdiction on the arbitrators to hear and decide a dispute is an arbitration agreement and where there is no such agreement there is an initial want of jurisdiction which cannot be cured even by acquiescence. It is clearly spelled out from the law laid down by the Constitution Bench that the arbitrators shall derive their jurisdiction from the agreement and consent. Thus, there is ample judicial opinion available for the proposition that the reference to a sole arbitrator as contemplated by para 1 of the First Schedule has to be a consensual reference and not an unilateral reference by one party alone to which the other party does not consent."
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43. Considering now the effect of non compliance. Unilateral appointment and reference in terms of the communications dated 07.02.2017 are not only in violation of Section 11, but also runs contrary to the principles of impartiality and fairness have been emphasized upon by the Hon'ble Apex Court in Perkins Eastman's case.
In Perkins' Case, the Hon'ble Supreme Court has examined the aspect of independence and impartiality in the matters of appointment of the Arbitrator. The Court had relied upon its earlier judgment Voestapline Schienen Gmbh v. Delhi Metro Rail Corporation Ltd. (2017) 4 SCC 665 and also referred to Bharat Broadband Network Limited v. United Telecoms Limited (2019) 5 SCC 755. The Court emphasized on the fact that the independence and impartiality of the Arbitrator are the hallmarks of any arbitration proceedings.
44. Recently in Geeta Poddar Vs. Satya Developers Pvt. Ltd [ARB P.133/2019 dated 31.08.2022], the Hon'ble High Court of Delhi has also held that the Award delivered by the unilaterally appointed Arbitrator is void ab initio. The Court has made clear observations in this respect:-
"13. As discussed above, the second unilateral appointment of Respondent was also ex- facie contrary to law and thus, non-est. Ineligibility could have been waived off only by an express Agreement in writing entered into by the parties, after the disputes had arisen. No such averment has been made or document shown to the court. Petitioner's participation in the first arbitral proceedings was also under protest, and she did not participate in the second proceedings ab initio. Thus, in absence of any Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 23 of 30 express agreement to the contrary, in the opinion of the Court, Petitioner cannot be deprived of her right to seek appointment of an independent and impartial arbitrator under Section 11 (6) of the Act, notwithstanding the progression of the non-est arbitral proceedings towards the eventual culmination into a final award.
"14. A crucial facet that requires considera- tion is the passing of an award during the pendency of this petition. In the opinion of the Court, the above-stated contentions of the Respondent do not render the present petition unsustainable. It has time and again been held by the Supreme Court that unless the appointment of the arbitrator is ex-facie valid, and to the satisfaction of the Court exercising juris- diction under Section 11 (6) of the Act - acceptance of such appointment is fait-accompli to bar the juris- diction under Section 11(6) of the Act. Even in the facts of Perkins Eastman (supra), although the Tri- bunal stood appointed, yet a petition under Section 11(6) of the Act was entertained. In the present case, at first instance, the Court, rejected the petition, per- haps in light of view taken by this Court in Bhayana Builders Pvt. Ltd. v. Oriental Structural Engineering Pvt. Ltd. and Ors., wherein party autonomy and right of unilateral appointment, was acknowledged, not- withstanding the judgment rendered by the Supreme Court in TRF Limited (supra). The Court did not deem it necessary to interfere and instead gave liberty to Petitioner to challenge the appointment of arbitra- tor by taking recourse under appropriate provisions of the Act. The Petitioner instead assailed the decision of this Court before the Supreme Court and then filed a review petition. In the meantime, the law stood well established qua unilateral appointments of arbitrators. Accordingly, the said review was allowed vide order dated 24th January, 2020 and consequently, the earlier order of dismissal, was recalled. As of today, no re- liance can be placed thereon to make a case in favour of the Respondents. As the mater stands, arbitrator's appointment is non-est, and by necessary corollary, the proceedings conducted and award so rendered by him, would have no legal effect and are also non-est.
17. Lastly, it must also be noted that an award delivered by a unilaterally appointed arbitrator Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 24 of 30 has been set aside under Section 34 of the Act by this Court, and has been held to be void ab initio. Thus, the argument of final award granting sanctity to the non-est proceedings, too, does not convince the court. The matter in which the Respondent has proceeded in the appointment of the Arbitrator is inexcusable and cannot be countenanced."
45. The Hon'ble Supreme Court of India in Kotak Mahindra Bank Limited Vs. Narendra Kumar Prajapat- [SLP (Civil) Diary No(s) 47322/2023 decided on 12.12.2023] upheld the observations made by the Hon'ble High Court of Delhi in Kotak Mahindra Bank Limited Vs. Narendra Kumar Prajapat- [EFA(Comm) 3/2023, CM APPLs. 25636/2023, .25637/2023, 25639 and 25635/2023 decided on 17.05.2023]. The Hon'ble High Court of Delhi in Kotak Mahindra Bank Limited Vs. Narendra Kumar Prajapat observed as under:-
"6.The learned counsel appearing for the appellant does not seriously dispute that the arbitrator unilaterally appointed by the claimant was ineligible to be appointed as an arbitrator by virtue of Section 12(5) of the Act."
The Court further observed as under:-
"The award rendered by an arbitrator who is ineligible to be appointed as such cannot be enforced."
46. Since unilateral appointment of the Arbitrator itself suffers from a fatal disqualification, and further considering the seminality of the said disqualification, the appointment as well as of the arbitration proceedings would be vitiated. Having regard to the fact that the appointment of Arbitrator is a jurisdictional Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 25 of 30 aspect, that continues to afflict all through the axis, the Court cannot help but hold that not only the appointment, but also the proceedings and the award are vitiated on this count.
47. As regards the contention of the learned counsel for the petitioner that no notice of the proceedings were sent by the learned Arbitrator, the Court finds that the same is bereft of any truth inasmuch as, the learned Arbitrator had issued the notice through speed post, at both the addresses of the petitioners. On this count, the petitioners cannot be heard to say that there is a lack of procedural fairness of violation of principle of natural justice.
48. Coming now to the next contention of the learned counsel for the petitioners that the Award suffers from patent illegalities, and is against justice and morality as well as an outcome of a biased and partiality.
49. It has been a categorical assertion of the petitioners that the Arbitrator had simply certified the claim without adjudicating thereon. In this respect, it has been impressed upon the Court that as against the sum of Rs.35,00,000/- only a sum of Rs.27,84,674/- was disbursed. It is another contention of the petitioners that the Arbitrator did not take into consideration the payments made by the petitioners and has simply passed the Award on the basis of the amount reflected in the foreclosure.
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50. A perusal of the Arbitral record, in fact, shows that the respondent has not placed the very Statement of Account before the Ld. Arbitrator. The Foreclosure Statement, that has been placed by the respondents, is not only unsigned but also undated and records a sum of Rs.42,37,927.81/- to be due, as booked on 22.04.2016.
51. The Arbitrator seems to have treated the said amount as due while passing the said Award, granting further interest @ 2.5% per month. The contention of the petitioners that the Arbitrator has simply proceeded to grant whatever has been asked for by the respondents, carries considerable weight. The Award is found to be silent as to how the figure has been arrived at by the respondents and how did the Arbitrator "adjudicate" it to be due in the absence of very Statement of Account. There seems to be a patent illegality in this respect as the Award is not based on the actual, let alone the best evidence of liability. The Award is not liable to be interefered with on this count.
52. Although it has been contended by learned counsel for the petitioners that Ms. Veena Tandon and Sh. Anil Tandon are not partners anymore and could not have been proceeded against in the Arbitration proceedings, however, no document in support thereof has been filed by the petitioners either before the Arbitral Tribunal or even before this Court.
53. Confronted now with the question as to whether the Court Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 27 of 30 can hold the award as vitiated with the challenge under Section 34 being itself barred by the limitation. Undoubtedly, the petition has to fail on account of it being barred by limitation, having being presented beyond the permissible limits of 120 days. However, at the same time, it cannot be ignored that an award by unilaterally appointed Arbitrator is a nullity, as has been also observed by the Hon'ble High Court of Delhi in 'Kotak Mahindra Bank Ltd. vs. Narendra Kumar Prajapat' in EFA (COMM) 3/2023 decided on 17.05.2023; 'Babu Lal & Another vs. Cholamandalam Investment and Finance Company Ltd. & Another' in FAO (COMM) 135/2023 decided on 08.11.2023.
54. An award passed by a unilaterally appointed Arbitrator has also been held to be even susceptible to challenges in enforcement proceedings, as has also been observed by the Hon'ble High Court of Kolkata in 'M/s. Cholamandalam Investment and Finance Company Limited vs. Amrapali Enterprises & Anr.' in EC 123 of 2022 decided on 20.03.2023 the Court observed :
"2. The impugned award is a result of a Loan cum Hypothecation Agreement dated February, 2020 entered between the parties wherein the award debtors sought financial assistance in order to purchase a vehicle on finance. It is the submission of the award holder that the vehicle was taken possession of by the award holder and the same has been subsequently sold.
3. From a glance at the arbitral award, it is crystal clear that the sole arbitrator Mr. Soma Kar Ghosh, was appointed by the award holder unilaterally by their letter dated June 25, 2021. Furthermore, it is also apparent that at no point during the arbitral Arbn. A (Comm) 35/2019 M/s R.S. Trading Company Vs. M/s Tata Capital Financial Page no. 28 of 30 proceedings, award holders participated in the same, and that the arbitrator proceeded and made an award ex-parte.
4. Recently in Cholamandalam Investment and Finance Company Ltd. -v- Amprapali Enterprise and Another in EC 122 of 2022, I had outlined the deplorable practice on part of financial and banking companies to unilaterally appoint an arbitrator despite the system being outlawed by the Supreme Court in Perkins Eastman -v- HSCC India Limited and TRF Limited -v- Energoo Engineering Projects Limited. It is undeniable that independence and impartiality of arbitrators is the Lakshman Rekha of arbitration proceedings which the parties cannot transgress in any manner and at any cost whatsoever.
The arbitral proceedings conducted by unilaterally appointed arbitrators carry a permanent mark of bias & ineligibility and the same cannot be washed away at any juncture including execution. Such arbitral proceedings cannot be validated at any stage, and thus, the arbitral award so passed does not carry the fortune of legitimate existence. Inf act, arbitral awards passed by unilaterally appointed arbitrators are passed with inherent lack of jurisdiction and therefore, are non-est in the eyes of law. In these peculiar circumstances, whenever the Court is seized of such execution applications, it is duty bound to exercise judicial discretion and restrain itself from executing them, as has been elaborated in detail in the aforesaid decision"
55. Piecing the above imperatives together, it is found that the Award suffers from a patent illegality and is also vitiated by unilateral appointment of the Ld. Arbitrator, however, the petition is miserably barred by limitation. Having regard to the above, the Court cannot help but hold that although the Award is nullity and is unenforceable, in the ultimate analysis, the petition has to fail on account of bar of limitation.
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56. Resultantly, the application under Order VII Rule 11 CPC filed by the respondents is allowed on the grounds of limitation and the application under Section 14 of the Limitation Act read with Section 5 of the Limitation Act is dismissed. The petition, accordingly, is dismissed.
57. Parties are made to bear their own costs.
58. File be consigned to record room after due compliance.
Dictated and Announced today Digitally signed
by NIKHIL
NIKHIL CHOPRA
i.e. on 17.09.2024 CHOPRA Date:
2024.09.17
in the open Court 16:24:13 +0530
(NIKHIL CHOPRA)
District Judge (Commercial Court 06)
Central District, Tis Hazari Courts
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