Delhi District Court
Suresh G. Thadani vs M/S. Sbi Cards & Payment Services Ltd on 9 February, 2023
IN THE COURT OF MS. NISHA SAXENA, DISTRICT
JUDGE (COMMERCIAL COURT)-04, CENTRAL, TIS
HAZARI COURTS, DELHI.
OMP(COMM) No. 05/2023
SURESH G. THADANI
231/10, SHAHANI COLONY, NAVGHAR ROAD,
OPPOSITE MULUND GYMKHANA,
MULUND EAST, MUMBAI-400081
... PETITIONER
VS.
M/S. SBI CARDS & PAYMENT SERVICES LTD.
UNIT 401 & 402, 4TH FLOOR,
AGGARWAL MILLENNIUM TOWER,
NETAJI SUBHASH PLACE,
WAZIRPUR, NEW DELHI-110034
RESPONDENT
ORDER
1. This is a petition under section 34 of the Arbitration and Conciliation Act, 1996 impugning the ex-parte award dated 07.09.2022 passed by Sh. Yash Anand, Ld. Sole Arbitrator, awarding a sum of Rs.4,49,976.87/- with interest @ 18% per annum from 22.04.2022 till the date of realization of the entire amount.
2. The brief facts are that the petitioner had availed a 1 Credit Card facility provided by the respondent under the Cardholding Agreement. The petitioner while availing the aforesaid credit card expressly agreed to be bound by the terms and conditions of the said Cardholder Agreement. Petitioner agreed to repay the outstanding amount of the said credit card amount in time and in any event of default, the petitioner was also bound to pay the overdue interest and other applicable charges.
3. The respondent company issued notice dated 17.03.2022 regarding outstanding dues i.e Rs.4,49,976.87 but the petitioner neither made the payment nor responded to the communications.
4. The respondent company claimed an outstanding amount of Rs.4,49,976.87/- against the petitioner along with interest @ 24% per annum from 17.03.2022 till the realization of the amount.
5. Vide order dated 07.09.2022, Ld Sole Arbitrator passed an the award in favour of the respondent in the following terms.
a) The respondent company was awarded a sum of Rs.4,49,976.87 as the balance outstanding amount along with interest @ 18% per annum on Rs.4,49,976.87/- from 22.04.2022 till the date of realization of the entire aforesaid amount. The respondent company was also awarded a sum of Rs.10,000/- towards cost and expenses.2
6. The petitioner has challenged the award on the grounds that the award is based on conjectures and surmises and without adhereing to the various principles of law; that the impugned award mentions that the petitioner herein had availed the credit card services of the respondent under an alleged cardholder agreement and was, thus, bound to make payment for the same. However, no demand notice to this effect was ever received by the petitioner; that no notice under section 21 of the Arbitration Act was sent by the respondent to the petitioner and even the impugned arbitral award makes no mention of the same.
7. The petitioner has further alleged that after the illegal formation of the Arbitral Tribunal and appointment of the ld. Arbitrator, no notice whatsoever was sent by the Arbitrator or by the respondent herein to the petitioner to join the arbitration proceedings. In fact, contrary to the law laid down by the Hon'ble Supreme Court, the arbitrator was appointed by the respondent unilaterally and no consent of the petitioner to appoint the abritrator was taken at any stage of time. It is further mentioned that there is no privity of contract between the parties and the award deserves to be set aside for this sole reason. It is further alleged that the Ld. Arbitrator has committed patently illegality by passing the most perverse arbitral award dated 07.09.2022 which is under challenge in the present petition. The award passed by the Ld. Sole Arbitrator is 3 arbitrary and in direct contravention with the public policy of India and, therefore, deserves to be set aside. It is further stated that the petitioner was not able to present his case before the arbitral tribunal as there was no notice sent to the petitioner.
8. On behalf of the respondent reply was filed wherein respondent has taken the stand that the petitioner has concealed the material facts from the Hon'ble court and preferred the application under section 34 of the Arbitration and Conciliation Act, 1996 only with the purpose to delay the legally recoverable dues of the respondent. It is stated that the copy of award dated 07.09.2022 was duly sent to the petitioner upon the same address which has been furnished by the petitioner in the cardholder agreement and mentioned in the notices but the petitioner deliberately evaded/ignored the notices and has filed the present petition after the expiry of period of limitation provided in sub section 3 of Section 34 of Arbitration and Conciliation Act.
9. I have heard at length Ld. Counsel Mr. Anant Gupta for the petitioner and Ld. Counsel Mr. Shambhu Kumar for the respondent and meticulously and scrupulously gone through the entire record.
410. The issues which are required to be decided.
a) Whether the petition is within limitation.
b) That no notice under section 21 was issued by the respondent.
c) That the petitioner did not receive any notice prior to receipt of the award.
d) That the unilateral appoint of Arbitrator by the respondent is invalid.
11. The respondent has alleged that the petition cannot be entertained as the same is barred by limitation. The respondent has alleged that the award dated 07.09.2022 was duly sent to the petitioner. However, the petitioner has filed the present petition after the expiry of period of limitation provided in sub section 3 of Section 34 of the Arbitration Act. However, the postal receipts on the arbitral record shows that the copy of the arbitral award dated 07.09.2022 was sent to the petitioner on 27.09.2022. The petitioner claims to have received the award on 04.10.2022 while the present case was filed on 02.01.2023 immediately after reopening the court after the vacation and therefore the award is within limitation as prescribed under section 34 of the Arbitration and Conciliation Act.
12. As regard the contention of the petitioner that no notice under section 21 of the Arbitration and Conciliation Act was served upon the petitioner, Counsel for the 5 respondent has relied upon the notice dated 17.03.2022 sent to the petitioner at the Mumbai address for invocation of Arbitration, wherein it is mentioned that, "We hereby call upon you on behalf of SBICPSL, to pay the said sum of Rs.449976.87 within 15 days from receipt of this notice, failing which SBICPL shall proceed with recovery of its dues from the Cardholder through arbitration as mentioned under clause 5. The non-
payment of the outstanding amount will be treated as a dispute and vide this notice, the arbitration clause in the Card Holder Agreement is hereby invoked and appointment of the arbitrator is thus made vide clause 5.
Please take note that the present notice is without prejudice to the rights of SBICPSL as well as SBICPSL reserves its right to make necessary amendments/clarifications at any late stage in the course of the legal proceedings if initiated by SBICPSL against the Cardholder and also claim any such other/further amounts from the Cardholder as deducted by SBICPSL".
613. It would be apposite to refer to section 21 of the Arbitration and Conciliation Act, 1996 which is as under:-
"Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent."
14. One of the leading case on the point is that of Alupro Building Systems Pvt.Ltd. Vs. Ozone Overseas Pvt.Ltd. OMP 3/2015 judgment delivered by Hon'ble Mr. Justice S.Muralidhar, Judge Delhi High Court, wherein it was observed:
"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 receives from the claimant, a request for referring the dispute to 7 arbitration. The object behind the provision is not difficult to discern.
The party to the arbitration agreement against whom a claim is made, should know what the claims are. It is possible that in response to the notice, the recipients may accept some of the claims either wholly or in part, and the disputes between the parties may thus get narrowed down. The notice provides an opportunity to the recipient to point out if some of the claims are time barred, or barred by law or untenable in fact and/or that there are counter claims and so on".
15. 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. The notice under Section 21 serves an important purpose of facilitating a consensus on the appointment of an arbitrator.
16. 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 8 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 reasons outlined above are consistent with the requirements of natural justice which, in any event, govern arbitral proceedings.
17. Of course, parties may agree to waive the requirement of such notice under Section 21. However, in the absence of such express waiver, the provision must be given full effect to. The legislature should not be presumed to have inserted a provision that serves a limited purpose of only determining, for the purposes of limitation, when arbitration proceedings commenced. For a moment, even assuming that the provision serves only that purpose viz. fixing the date of commencement of arbitration proceedings for the purpose of Section 43 (1) of the Act, how is such date of commencement to be fixed if the notice under Section 21 is not issued? The provision talks of the 'Respondent' receiving a notice containing a request for the dispute "to be referred to arbitration". Those words have been carefully chosen. They indicate an event that is 9 yet to happen viz. the reference of the disputes to arbitration. By overlooking this important step, and straightaway filing claims before an arbitrator appointed by it, a party would be violating the requirement of Section 21, thus frustrating an important element of the parties consenting to the appointment of an arbitrator.
18. Considering that the running theme of the Act is the consent or agreement between the parties at every stage, Section 21 performs an important function of forging such consensus on several aspects viz. the scope of the disputes, the determination of which disputes remain unresolved; of which disputes are time-barred; of identification of the claims and counter-claims and most importantly, on the choice of arbitrator. Thus, the inescapable conclusion on a proper interpretation of Section 21 of the Act is that in the absence of an agreement to the contrary, the notice under Section 21 of the Act by the claimant invoking the arbitration clause, preceding the reference of disputes to arbitration, is mandatory. In other words, without such notice, the arbitration proceedings that are commenced would be unsustainable in law.
19. In view of the above discussion, unless a proper notice is given by a party to the other side for referring the dispute to arbitration, arbitral proceedings cannot be said to have commenced within the meaning of Section 21 of 10 the Act. In the instant case the mandatory statutory condition precedent to the commencement of the arbitration proceedings in terms of section 21 of the act was not fulfilled. Section 21 of the Act is mandatory for without notice of invocation being received by the petitioner, no arbitral proceedings could have been commenced.
20. A perusal of section 21 of the Act clearly shows that the proceedings would commence on the date on which a request for a dispute to be referred to arbitration is received by the opposite party. In the case in hand the notice dated 17.03.2022 did not tender any such request, rather it threatened the party that on their failure to pay, the company shall refer the dispute to arbitration. The commencement of arbitral proceedings is incumbent on the receipt of the notice to be sent in accordance with section 21 of the Act which means that if no notice is received by the opposite party, then there is no commencement of arbitral proceedings at all. The provision is very clear to the effect as it does not say that the notice should be served but specifically says that such notice will have to be received. Section 21 has to be read with section 34 of the Act. Section 34 (2) (iii) provides for a ground for setting aside an award, in a case where the petitioner was not given proper notice of the appointment of an arbitrator or the arbitral proceedings. In the case in hand, the factual position is that the respondent did not give proper notice of 11 appointment of an arbitrator. Proper notice was to be served and received by the petitioner and therefore, the award is liable to be set aside due to failure to issue notice u/s 21 of the Arbitration and Conciliation Act.
21. With regard to the objection of the petitioner that the petitioner did not receive any notice prior to receipt of the award, it is argued by counsel for the respondent that the petitioner was duly informed about the appointment of the arbitrator vide notices dated 05.04.2022 and 25.04.2022 at the same address where the petitioner received the award. But the petitioner ignored all the notices and did not appear before the Ld. Arbitrator for the reasons best known to him.
22. The record reveals that the notices for appearance dated 05.04.2022 and 25.04.2022 were issued by the Ld. Arbitrator Sh. Yash Anand through courier and registered post at Mumbai address. The copy of the award was also sent by the Ld. Arbitrator to the petitioner at his Mumbai address as contained in the impugned award itself. The petitioner claims to have received the award on 04.10.2022. The present petition is also filed by the petitioner from Mumbai address. There is presumption of service under Section 114(f) of the Evidence Act read with section 27 of General Clauses Act that any correspondence sent through registered post at the right address is deemed to have been served upon the addressee.
1223. The legal proposition in context of presumption of service by registered post is found under section 114 of the Indian Evidence Act. The provision envisaged the law regarding the presumption of certain facts. It states that the court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct and public and private business, in their relation to the facts of the particular case.
24. One of the earliest cases which recognized the concept of presumption of service by registered post under section 114 of the Indian Evidence Act is the case of Harihar Banerjee Vs. Ramshashi Roy AIR 1918 PC
102. In this case, the court held that there can be a presumption of receipt of a letter sent under the postal certificate, in view of the provisions of section 114 (f) of the Indian Evidence Act. Sub Clause (f) of the Section 114 states that the court may presume "that the common course of business had been followed in particular cases".
25. Section 27 of the General Clauses Act, 1897 provides meaning of service by post. It postulates that where any Act authorizes any document to be served by post, where the expression 'serve' or either of the expression 'give' or 'send' or any other expression is used, that unless a different intention appears, the service shall 13 be deemed to be effected by properly addressing pre- paying and posting by registered post. Hence, service by post implies service by registered post.
26. This aforesaid has been re affirmed by the Hon'ble Supreme Court in the case of C.C. Alavi Haji Vs. Palapetty Muhammed & Anr. (2007) 6 SCC 555 Wherein the court opined that Section 27 of the General Clauses Act, 1897 give rise to presumption that service of notice has been effected when it is sent to the correct address by registered post..... Unless and until, the contrary is proved by the addressee, service of notice is deemed to have been effected at the time at which the letter would have been delivered in the ordinary course of business.
27. In view of the fact that notices were issued through registered post at the correct address. The petitioner cannot be believed that the petitioner was not served with any notice prior to arbitration.
28. The last leg of the objection to the impugned award is that the unilateral appointment of Arbitrator by the respondent is invalid; that the arbitration agreement lays down the procedure which goes against the substantive law of the land. It is argued that the arbitration agreement between the parties was faulty.
29. Counsel for the respondent has contended that the 14 arbitration is a creature of an agreement. The petitioner by executing the arbitration agreement has agreed to act and adhere to the terms of the agreement and settle the dispute through sole arbitrator appointed by the respondent. The composition or appointment of the arbitrator is in accordance with the arbitration agreement. The petitioner deliberately did not participate in the arbitration proceedings despite service of notices and chose not to raise any objection on the issue of appointment and competence of the arbitrator, the petitioner must be taken to have waived any such objection and is precluded from making such submissions in view of section 4 of the Arbitration and Conciliation Act.
30. Ld. Counsel for the respondent has relied upon Quippo Construction Equipment Ltd. Vs. Janardan Nirman Pvt.Ltd. Civil Appeal No.2378 of 2020 arising out of SLP (C ) No.11011 of 2019 in which the Hon'ble Supreme Court has held that since the respondent has failed to participate in the proceedings before the arbitrator and did not raise any submission that the arbitrator did not have jurisdiction or that he was exceeding the scope of his authority, the respondent must be deemed to have waived all such objections and in such circumstances respondent is precluded from raising any submission or objection thereafter.
31. Ld. Counsel for the respondent has also relied upon 15 Central Organization for Railway Electrification Vs. M/s. EVI-SPIC-SMO-MCML, 2019 SC 1635 in which the Hon'ble Supreme Court upheld the arbitration clause allowing one party to nominate Arbitrator and has held that being the condition in the agreement between the parties and general conditions of the contract, High Court was not justified in appointing an independent sole arbitrator ignoring clauses of general condition and hence the impugned order passed by the High Court cannot be sustained.
32. It has also been argued that in the light of the conflicting decision passed in Central Organization, 'Perkins Eastman' and 'Bharat Broadband case' the apex court has referred the issue of unilateral appointment to a larger bench and same is pending adjudication.
33. It is also argued that the award has been passed after affording sufficient opportunity to the petitioner, who deliberately failed to participate in arbitration proceedings and waived his right to challenge the appointment and jurisdiction of the Arbitrator.
34. It would be necessary to refer to the arbitration clause in the cardholding agreement between the parties:
Arbitration 10.2 Any dispute, difference and/or claims 16 arising out of in connection with or in relation to this agreement, shall be settled by arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 and any subsequent statutory amendment. If any, to the Act, by a sole arbitrator, whose appointment shall be made at the instance and discretion of the SBICPSL. The arbitrator appointed shall be competent to decide whether any matter or dispute or difference referred to the arbitrator falls within the purview of arbitration as provided for in this clause and/or should be decided under the Arbitration and Conciliation Act, 1996.
10.3 Any arbitration award granted shall be final and binding on the parties. The venue and seat of the Arbitral Tribunal shall be at New Delhi.
35. Clause 10.2 and 10.3 of the loan cum hypothecation agreement is contrary to public policy 'Nemo debet esse judex in propria causa'- no one can be judge in his own case. The respondent cannot be allowed to override considerations of fairness impartiality, neutrality and unbiasedness. I place reliance upon Perkins Eastman Architects Vs. HSCC (India) 2019 (9) SCC Online SC 17 1517, wherein it was held 'a person having an interest in the dispute or in the outcome or decision thereof must not only be ineligible to act as an arbitrator but must also not be eligible to appoint any one else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint a sole arbitrator'.
Reliance is also placed upon TRF Ltd. Vs. Energo Engineering Projects Ltd (2017) 8 SCC 377.
36. Ld. Counsel for the respondent has contended that the autonomy of the parties to choose the procedure is the foundation pillar of arbitration. Parties are at liberty to choose the procedure for appointment of arbitrator. The petitioner by agreeing to the terms of loan cum hypothecation agreement had of his own sweet will and without coercion agreed for appointment of the arbitrator. The respondent in appointing the arbitrator has acted in terms of the agreement between the parties.
37. The counsel for the respondent has rightly contended that the autonomy of the parties to the choice of procedure is the foundational pillar of the arbitration and the petitioner had entered into the agreement out of its free will.
1838. I place reliance upon Proddatur Cable TV Digi Services Vs. Siti Cable Network Ltd. O.M.P (T) (COMM.) 109/2019 and I.A. 17896/2019 delivered on 20.01.2020 wherein Hon'ble Delhi High Court has held that,
24. ........The underlying principle in arbitration no doubt is party autonomy but at the same time fairness, transparency and impartiality are virtues which are equally important. If the Authority appointing an Arbitrator is the Head or an employee of a party to the agreement then its interest in its outcome is only natural. It goes without saying that once such an Authority or a person appoints an Arbitrator, the same ineligibility would translate to the Arbitrator so appointed. The procedure laid down in the Arbitration Clause cannot be permitted to override considerations of impartiality and fairness in arbitration proceedings.
25. Insofar as the reliance by the respondent on the judgments permitting unilateral appointment by the Authority designate of one party to the agreement is concerned, in my view, the same will have no relevance in view of the judgment of the 19 Supreme Court in the case of Perkins (supra). The argument of the respondent that in the Arbitration Clause before the Supreme Court in the case of Perkins was with regard to the power of a Managing Director to appoint an Arbitrator whereas in the present case it is the Company only merits rejection. First and foremost, one has to see the rationale and the reasoning behind the judgment in the case of Perkins (supra). The Supreme Court held that the Managing Director was ineligible from appointing an Arbitrator on the simple logic that a Managing Director of a Company would always have an interest in the outcome of the arbitration proceedings. The interest in this context takes the shape of bias and partiality. As a natural corollary, if the Managing Director suffers this disability, even if he was to appoint another person as an Arbitrator, the thread of biasness, partiality and interest in the outcome of the dispute would continue to run. Seen in this light, it can hardly be argued that the judgment in Perkins (supra) will not apply only because the designated Authority empowered to appoint an 20 Arbitrator is other than a Managing Director.
29. Lastly, the reliance of the respondent on the judgment of the Supreme Court in the case of Central Organisation (supra) is also of no avail to the respondent. In the said case, the Supreme Court was dealing with an arbitration clause which required a panel of Arbitrators to be provided by the Railways to the other party to the contract, in terms of clause 64.3(a)(ii) of the GCC. The Court held that since one party was to provide a panel and the other party had the choice to short list the Arbitrator of its choice from the panel and only from the shortlisted names, Railways was bound to appoint at least one Arbitrator to constitute the Arbitral Tribunal, the parties had a level playing field. The Arbitrator appointed by the Railways of its choice was balanced by the second Arbitrator being of the choice of the other party. Thus, the elements of fairness, transparency and impartiality were taken care of.
39. Accordingly in view of the aforesaid judgment the contentions raised by the respondent cannot be sustained. The arbitration clause empowering the respondent 21 company unilaterally to appoint the sole arbitrator would be vitiated in the light of the pronouncement by the Supreme Court in Perkins case and by the Hon'ble High Court in Proddatur case. Consequently, the ineligibility of the respondent company would percolate to the arbitrator appointed by the respondent and therefore, the Ld. Sole Arbitrator was ineligible to arbitrate in the matter.
40. The case of Central Organization for Railway Electrification Vs. ECI is also not applicable to the present facts and circumstances. I would like to refer to a very recent judgment of Hon'ble Delhi High Court City Life Line Travels Pvt.Ltd. Vs. Delhi Jal Board Arb. P. 1/2021 and I.A. 31/2021 decided on 27.01.2021 .
21. The reliance placed by Mr. Singh on the decision in the case of Central Organization for Railway Electrification v. ECI(supra) is misplaced. In that case, the Arbitration Clause provided for the Arbitral Tribunal to be constituted by Gazetted Railway Officers or three retired Railway Officers above a certain rank. The petitioner (Railways) was required to send names of four empanelled retired Railway Officers and the contractor 22 was required to suggest two names out of the said panel for appointment as its nominee. The General Manager was required to appoint one of the names out of the two names as suggested by the contractor as the contractor's nominee and the remaining Arbitrator from the panel or outside the panel. The Supreme Court noted that the procedure adopted also took into account the option of the contractor. The Court was of the view that since the agreement provided for the appointment of an Arbitral Tribunal out of the panel of serving/retired officers, the procedure as agreed by the parties ought to have been followed. In the present case, the Clause does not entail any such procedure for suggesting any names out of the panel of Arbitrators maintained by the DJB. Therefore, the contention that the decision of the DJB to nominate an Arbitrator must be sustained since the Arbitrator appointed was one from the panel maintained internally, is 23 unpersuasive. The question whether the DJB maintains a panel of Arbitrators is its internal matter. The Arbitration Clause does not contemplate the appointment of any Arbitrator from the panel of Arbitrators maintained by the DJB and therefore, the decision in the case of Central Organization for Railway Electrification v.
ECI (supra) is, wholly inapplicable in the facts of the present case.
22. It is also relevant to mention that in Union of India v. M/s Tantia Constructions Limited: SLP (C) 12670/2020 decided on 11.01.2021, a three judge bench of the Supreme Court upheld the decision of the High Court to appoint an independent Arbitrator and had dismissed the Special Leave Petition. However, since reliance had been placed by the petitioner on the decision in Central Organization for Railway Electrification v. ECI (supra), the Supreme Court had requested the Chief Justice of India to constitute a 24 larger Bench to look into the correctness of the said decision. The said order is reproduced below:-
"Having heard Mr. K.M. Nataraj, learned ASG for sometime, it is clear that on the facts of this case, the judgment of the High Court cannot be faulted with. Accordingly, the Special Leave Petition is dismissed. However, reliance has been placed upon a recent three- Judge Bench decision of this Court delivered on 17.12.2019 in Central Organisation for Railway Electrification vs.M/s ECI-SPIC-SMO- MCML (JV) A Joint Venture Company, 2019 SCC OnLine 1635. We have perused the aforesaid judgment and prima facie disagree with it for the basic reason that once the appointing authority itself is incapacitated from referring the matter to arbitration, it does not then follow that notwithstanding this yet appointments may be valid depending on the facts of the case. We therefore request the Hon'ble Chief Justice to constitute a 25 larger Bench to look into the correctness of this judgment. Pending application stands disposed of."
41. In view of the above pronouncement by Hon'ble Apex Court and Hon'ble Delhi High Court, I am of the view that unilateral appointment of Ld. Sole Arbitrator by the respondent is invalid.
42. In view of the foregoing discussions, the impugned award is set aside. The petition u/s 34 of the Arbitration and Conciliation Act stands allowed. File be consigned to Record Room.
(NISHA SAXENA) District Judge (Commercial Courts)-04, Central, Tis Hazari Court, Delhi Announced in open court on 09.02.2022.
rt 26