Delhi District Court
Sh. Shashipal Singh vs M/S Paisalo Digital Ltd on 31 October, 2022
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
OMP (Comm.) No. 47/2021
Sh. Shashipal Singh
S/o Mr. Samay Singh Hansawat
R/o Village & Post Kalsada, Block-Bayana,
Tehsil-Bayana,
District-Bharatpur, Rajasthan
Pin-321409 ...Petitioner
versus
1. M/s Paisalo Digital Ltd
(Formerly known as M/s S.E Investments Limited)
Registered Office at
101, CSC Pocket-52
CR Park, near Police Station
New Delhi-110019
Also At:
Head Office:
Block-54, Sanjay Place
Agra (UP)-282002
2. Sh. Ravi Dagar Advocate
Sole Arbitrator, Chamber No 188/A,
Patiala House Courts, New Delhi. ...Respondents
Date of Institution : 25/03/2021
Arguments concluded on : 31/08/2022
Decided on : 31/10/2022
Appearances : Sh. Sunil Kumar Singh, Ld. Counsel for petitioner.
Ms. Swarnima Tomar, Ld. Counsel for respondent no. 1.
JUDGMENT
1. Petitioner had filed the present petition under Section 34 of The Arbitration and Conciliation Act, 1996 (herein after referred as The Act), seeking setting aside of the impugned arbitral award OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 1 of 25 dated 31/07/2020 passed by Sh. Ravi Dagar, Ld. Sole Arbitrator in arbitration matter titled M/s Paisalo Digital Limited (Formerly known as M/s S.E. Investments Limited) vs Mr. Shashipal Singh & Ors. Ld. Sole Arbitrator awarded Rs. 30,48,901/- with future interest @ 18% per annum till realization with cost of Rs. 5,000/- payable to respondent no. 1/claimant by petitioner as well as guarantors Mr. Anil Kumar and Mr. Deewan Singh.
2. I have heard Sh. Sunil Kumar Singh, Ld. Counsel for petitioner; Ms. Swarnima Tomar, Ld. Counsel for respondent no. 1 and perused the record of the case, reply of the respondent; the arbitral proceedings record, relied upon precedents, filed brief written arguments on behalf of petitioners as well as on behalf of respondent and given my thoughtful consideration to the rival contentions put forth.
3. Adumbrated in brief following are the relevant facts of the case of parties. Respondent no. 1/claimant was initially incorporated as M/s S.E. Investments Limited and its name was changed to M/s Paisalo Digital Limited with effect from 12/01/2018. Respondent no. 1/claimant is engaged in finance business. In terms of Statement of Claim of respondent no. 1/claimant, petitioner approached respondent no.1/claimant company, showing his willingness to work as middleman or broker called "Field Manager" and entered into an agreement with respondent no. 1/claimant and submitted an application on 10/06/2016 to act as Field Manager with respondent no. 1/claimant; respondent no. 1/claimant worked as middleman or broker called "Field Manager" on principal to principal basis OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 2 of 25 whereas Mr. Anil Kumar and Mr. Dewan Singh stood guarantors of petitioner Field Manager. As per case of respondent no. 1/claimant in the Statement of Claim, respondent no. 1/claimant entered into agreement on 03/07/2016 with petitioner inter alia containing averments that it were responsibilities and liabilities of petitioner for identification of eligible borrowers to whom respondent no.1/claimant company/financier may grant loans and that it shall be the duty of the Field Manager/petitioner to recover the disbursed loan together with interest thereon in monthly/ periodical installments and to deposit the same to respondent no. 1/claimant company as per terms and conditions of respondent no. 1/claimant company accepted by borrowers. In terms of above said agreement, petitioner/Field Manager also offered his guarantee and stood as guarantor to secure the loans sanctioned/disbursed by respondent no. 1/claimant company on recommendation of petitioner and petitioner Field Manager also warranted and undertook to comply with all the terms and conditions relating to sanction and disbursement of the loan provided by the respondent no. 1/claimant to the borrowers on his recommendations. Allegedly, Mr. Anil Kumar and Mr. Diwan Singh had agreed to act as guarantors and unconditionally guaranteed to make good the losses, if any faced by respondent no. 1/claimant on account of default of petitioner/Field Manager. Beside that it shall be the right of respondent no. 1/claimant to recover the amounts from movable and immovable properties of said guarantors. It is also the case of respondent no. 1/claimant that in consideration of carrying the said assignment by the petitioner/Field Manager pursuant to said agreement dated 03/07/2016, petitioner was entitled to commission etc. as OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 3 of 25 mutually agreed between respondent no. 1/claimant and petitioner whereas respondent no. 1/claimant paid the entire commission to petitioner for services rendered by petitioner and there was no dispute between respondent no. 1/claimant and petitioner with regard to commission paid and payable. It is also the case of respondent no. 1/claimant that petitioner had also signed a KYC confirmation in each scheme i.e., IGL and DIGITAL and had clearly undertaken that petitioner shall be liable for criminal breach of trust in case he fails to honor his liabilities as guarantor to the loans sanctioned on his recommendation. It is also the case of respondent no.1/claimant that during the tenure of engagement rendered by petitioner, on recommendation of petitioner, loans were disbursed under various schemes formulated by respondent no. 1/claimant and worked for by the petitioner. In the scheme named IGL and DIGITAL, respondent no. 1/claimant had disbursed personal loans/loans amounting to Rs. 23,54,600/- and Rs. 7,70,000/- respectively. It is also the case of respondent no. 1/claimant that as per Clause 3 of said agreement, petitioner had agreed to indemnify the respondent no. 1/claimant company/financier against all losses/damages, claims and to pay and satisfy the respondent no. 1/claimant company/financier on demand the installment(s) due from one or more of the borrowers together with other sums due and payable by borrowers pursuant to loan documents executed by borrowers. It is also the case of respondent no. 1/claimant that each of the borrowers had also agreed to the terms of the late fee at the rate of 3% per month compounding monthly on the defaulted/delayed outstanding which the petitioner is guarantor and hence he is liable to pay OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 4 of 25 to respondent no. 1/claimant as guaranteed by petitioner. It is also the case of respondent no. 1/claimant that vide demand notice dated 29/12/2017 respondent no. 1/claimant requested petitioner to make payment of its outstanding dues but petitioner failed to discharge his contractual obligation. It is also the case of respondent no. 1/claimant that when petitioner failed to liquidate his liability under the agreement dated 03/07/2016, respondent no. 1/claimant invoked the guarantee furnished by guarantors Mr. Anil Kumar and Mr. Deewan Singh by sending that notices dated 10/03/2018 since petitioner defaulted in the repayment of loan of respondent no. 1/claimant. Respondent no. 1/claimant laid claim of Rs. 22,60,777/- in Statement of Claim before Ld. Sole Arbitrator and following are its details:-
Particulars IGL DIGITAL Total
Overdue 8,49,127 5,07,369 13,56,496
Late Fees 6,97,931 2,06,350 9,04,281
Total 15,47,058 7,13,719 22,60,777
Respondent no. 1/claimant sent notice, invoking arbitration, dated 14/01/2019. Respondent no. 1/claimant also initiated arbitration proceedings before Mr. Ravi Raj (Ex Arbitrator) and had issued letter of appointment dated 16/01/2019 who directed parties to appear before him on 09/03/2019 in Lawyers Chamber at Patiala House Court. On 22/02/2019 Mr. Ravi Raj withdrew from post by Sole Arbitrator due to some unavoidable circumstances. Again respondent no. 1/claimant substituted Sh. Ravi Dagar as Ld. Sole Arbitrator vide appointment letter dated 07/03/2019 to which Ld. Sole Arbitrator gave consent letter dated 25/03/2019 asking Ex-Arbitrator to provide necessary records. Arbitral proceedings culminated into impugned arbitral award.
OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 5 of 254. Petitioner has impugned the arbitral award mainly on the following grounds. Petitioner was trapped by respondent no. 1/claimant company in the garb of appointment as Field Manager. Respondent no. 1/claimant company misused its power and position and induced the petitioner to sign on the blank papers/unfilled documents, which were subsequently converted into alleged agreements containing arbitration clause and on the basis of the same they unilaterally appointed Ld. Sole Arbitrator. Alleged agreement dated 03/07/2016 is bad in the eyes of law as it was not executed by petitioner. Respondent no. 1/claimant got the signature of petitioner on some blank documents by taking the advantage of its position and power; so said agreement is void and not enforceable under law. Even if it is assumed for the sake of arguments that petitioner had signed the alleged agreement dated 03/07/2016, then also the consent of the petitioner was not free and same was got signed in blank under undue influence by respondent no. 1/claimant company. Respondent no. 1/claimant company got original property papers of petitioner of agricultural land with respect to property New Khata No. 276, Old Khata No. 252 and also got the blank cheques bearing nos. 000011, 000012, 000013 and 000014 deposited by petitioner in the year 2016. Respondent no. 1/claimant told that property papers and cheques of petitioner would be returned by respondent no. 1/claimant within 6 months after seeing the conduct of petitioner but never gave any heed to the same. Respondent no. 1/claimant company did not make borrowers as party in the claim petition before Ld. Sole Arbitrator; who were necessary party; as such the claim filed by respondent no. 1/claimant before Ld. Sole Arbitrator is bad in OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 6 of 25 law for want of necessary party and liable to be dismissed out rightly. Agreement dated 03/07/2016 is also hit by the Section 24 of The Contract Act, 1872 as object of the said agreement is unlawful because it is fraudulent, opposite to public policy and against the provisions of law. So such agreement dated 03/07/2016 is void and not enforceable in law. Respondent no. 1/claimant did not take any steps for recovery of alleged amount from the principal borrowers whom they deliberately had not made party in claim petition before Ld. Sole Arbitrator and no action was taken against said borrowers for recovery of alleged amount. The alleged liability of the borrowers was not proved by respondent no. 1/claimant as neither said borrowers were made party in arbitration nor respondent no. 1/claimant filed account statements/loan documents in respect of the alleged loans; hence, the liability of the petitioner as alleged guarantor would never arise for want of proof of disbursement and terms of loan. The account statements of alleged individual borrowers were not filed as such by respondent no. 1/claimant company before Ld. Sole Arbitrator; so respondent no. 1/claimant had miserably failed to prove the alleged liability of the alleged principal borrowers and liability of petitioner. Respondent no. 1/claimant is involved in illegal acts of cheating and forgery, therefore, an FIR No. 484 dated 07/06/2019 under Sections 420,467,468,471 read with Section 120B of IPC was registered against the officials of respondent no. 1/claimant company, which depicts the clear cut case of forgery and cheating. Petitioner as Field Manager provided customers to the respondent no. 1/claimant company and those customers had taken loan from respondent no. 1/claimant company. The role of petitioner was only to search OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 7 of 25 customers for respondent no. 1/claimant company who were in the need of money and get them in the office of respondent no. 1/claimant. Thereafter, the role of the other staff of respondent no. 1/claimant started, who used to complete the documentation and thereafter the loan was disbursed in the account of customers. The petitioner was basically the agent of the respondent no. 1/claimant company and his work was to identify the customer for providing loan by respondent no. 1/claimant and in lieu thereof respondent no. 1/claimant was supposed to provide commission on case to case basis. Respondent no. 1/claimant was not fully disbursing the loan into the account of customers and got the signatures of the customers for the full amount on the loan documents and this fact was told by the customers when petitioner contacted them for recovery. Petitioner had done his job responsibly, efficiently and honestly and provided various customers to respondent no. 1/claimant company who had taken loan from respondent no. 1/claimant company but respondent no. 1/claimant cheated the customers as after repayment of disbursed loan, respondent no. 1/claimant had shown outstanding dues against them as told by various customers. Therefore, respondent no. 1/claimant was duty bound to put entire record of loan before this court. Agreement dated 03/07/2016 was not executed by petitioner and is bad in the eyes of law. Respondent no. 1/claimant got the signatures of the petitioner on some blank documents by taking the advantage of its position and power; so said agreement is void and not enforceable in the eyes of law. Ld. Sole Arbitrator did not give his consent as well as disclosure as per Sixth Schedule of the Act to petitioner and there are various circumstances which gives rise OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 8 of 25 to justifiable doubts as to independence and impartiality of Ld. Sole Arbitrator. Ld. Arbitrator had made and published the award without considering the material on record and it is bad in law and cannot be acted upon. The late fee at the rate of 3% compounded monthly comes about to more than 50% which respondent no. 1/claimant company had charged on the alleged claim, which is totally illegal and against norms of the Reserve Bank of India and as such against the public policy. Ld. Sole Arbitrator failed to provide any basis for holding the claim of respondent no. 1/claimant company. Respondent no. 1/claimant failed to prove the liability of petitioner for want of any substance. Arbitral Tribunal had proceeded to make the award dehors the provisions of the Act. Findings of Ld. Sole Arbitrator are perverse as they do not stand the test of a prudent man. The subject matter of the dispute is not capable of settlement under the Act as alleged agreement dated 03/07/2016 was executed by playing fraud and undue influence for which FIR was registered by petitioner against officials of respondent no. 1/claimant. Agreement dated 03/07/2016 and arbitral award are in conflict with public policy of India. Petitioner through Ld. Counsel averred and argued for setting aside of impugned arbitral award on above premise and grounds.
5. It was averred in filed reply by respondent no. 1 and was so argued by Ld. Counsel for respondent no. 1 that petitioner entered into agreement 03/07/2016 with respondent no. 1 after he had shown his willingness to work as a middleman or broker called 'Field Manager' and had submitted an application to act as such on principal to principal basis with respondent no.
OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 9 of 251/claimant on 10/06/2016. The primary duty/liabilities of the petitioner included identification of eligible borrowers to whom respondent no.1/claimant company may grant loans and to recover the installments of disbursed loans together with late fees payable thereon monthly/periodically installments and deposit the same to respondent no. 1/claimant in terms of Clause 5 of aforesaid agreement. To secure the disbursed loans and due re- payment, the petitioner stood as a guarantor to each borrower. Petitioner expressly warranted and undertook to comply with all the terms and conditions relating to disbursement of loan provided by respondent no. 1/claimant company. The aforesaid undertaking had the effect of making the guarantee absolute and unconditional, in terms of Clause 2 of the agreement above said. During the tenure of petitioner with respondent no. 1/claimant, loans were disbursed to the borrowers on his recommendation under various schemes. In the schemes named IGL and DIGITAL, from the month of January and September, 2017 respectively, petitioner deliberately defaulted in repayment of the installments collected by him or dues of the principal debtors to respondent no. 1/claimant and the persistent demand made by respondent no. 1/claimant went in vain. After discussing full facts and evidences adduced in arbitral proceedings, Ld. Sole Arbitrator had passed the reasoned award, which is unchallengeable under the grounds of under Section 34 of the Act. There are no permissible ground to challenge it. Petition is devoid of merits, is wholly misconceived and is in gross abuse of the process of law. Ld. Counsel for respondent no. 1/claimant relied upon the cases (i) Punjab & Sindh Bank vs C.S. Company & Ors, MANU/SC/0025/2012 and (ii) Sh. Ajay OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 10 of 25 Kumar Grover vs Bank of Baroda & Ors., RFA No. 139/2005 decided on 27/07/2006 by Delhi High Court and argued that the defence of signing blank documents put forth by petitioner is not substantiated by any evidence; so it was rightly rejected by Ld. Sole Arbitrator and there was nothing on record that respondent no. 1/claimant had been party to such a fraud of creating fabricated documents after obtaining blank signed papers from petitioner. Respondent no. 1/claimant had also produced all original documents for inspection before Ld. Sole Arbitrator which show that petitioner had done cross signatures on all the typed documents. Petitioner failed to point out any error on the face of award. Making of award was not induced by fraud or corruption and there was no misconduct on the part of Ld. Sole Arbitrator. Ld. Counsel for respondent no. 1/claimant relied upon the case of Swan Gold Mining Ltd. vs Hindustan Copper Ltd., MANU/SC/0849/2014 and argued that in terms thereof petitioner has failed to raise any tenable ground which warrants interference of this Court under Section 34 of the Act. Ld. Counsel for respondent no. 1/claimant also relied upon the case of The Project Director, National Highways No. 45 E AND 220 National Highways Authority of India vs. M. Hakeem & Anr., Civil Appeal No. of 2021 [Arising out of SLP (Civil) No.13020 of 2020] decided on 20/07/2021 and argued that Court is not empowered to modify an award under Section 34 of the Act. Ld. Counsel for respondent no. 1/claimant argued that Section 34 of the Act is not to be construed as an appellate provision and there are only limited grounds in Section 34 of the Act to set aside the award. Ld. Counsel for respondent no. 1/claimant prayed for dismissal of the present petition.
OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 11 of 256. An arbitral award can be set aside on the grounds set out in Section 34 (2) (a), Section 34 (2) (b) and Section 34 (2A) of the Act in view of Section 5 of the Act and if an application for setting aside such award is made by party not later than 3 months from the date from which the party making such application had received the signed copy of the arbitral award or if a request had been made under Section 33 of the Act, from the date on which that request had been disposed of by the Arbitral Tribunal. If the Court is satisfied that the applicant was prevented by sufficient cause from the making the application within the said period of three months it may entertain the application within further period of 30 days, but not thereafter.
7. Supreme Court in Suo Moto Writ Petition (Civil) no. 3 of 2020, In Re: Cognizance For Extension Of Limitation vide order dated 10/01/2022 has excluded the period from 15/03/2020 till 28/02/2022 for computing the period of limitation for any suit, appeal, application or proceedings and the petition under Section 34 of The Act is also eligible for the same. Accordingly, present petition filed on 25/03/2021 is within the period of limitation.
8. Section 34 (1) (2), (2A) and (3) of The Arbitration and Conciliation Act, 1996 read as under:-
"34. Application for setting aside arbitral award- (1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub- section (3).
(2) An arbitral award may be set aside by the court only if-
(a) the party making the application furnishes proof that-OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 12 of 25
(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 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.
Explanation 1 - For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-- (i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.-- For the avoidance of doubt, the test as to whether there is a OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 13 of 25 contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
(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."
9. Supreme Court in case of Associate Builders vs. Delhi Development Authority, (2015) 3 SCC 49 has held that the interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when conscience of the Court is shocked or when illegality is not trivial but goes to the root of the matter. It is held that once it is found that the arbitrator's approach is neither arbitrary nor capricious, no interference is called for on facts. The arbitrator is ultimately a master of the quantity and quality of evidence while drawing the arbitral award. Patent illegality must go to the root of the matter and cannot be of trivial nature.
Also was held therein that:
"33. "...when a court is applying the 'public policy' test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award....OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 14 of 25
Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts.."
10. Supreme Court in case of Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India, 2019 SCC OnLine SC 677 has held that under Section 34 (2A) of the Act, a decision which is perverse 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. A finding based on the 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. It is held that 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.
11. Perusal of arbitral proceedings record reveals that with the Statement of Claim of respondent no. 1/claimant before Ld. Sole Arbitrator at pages 22 to 25 of said Statement of Claim, which are at pages 152 to 155 of arbitral proceedings record, is Annexure C-6 (Colly) specified as "The Copies of KYC confirmation" in the Index and it pertains to (i) application for loan dated 20/08/2016 of applicant Attar Singh with guarantor Ramrati and (ii) application no. 60 of Sh. Ram Kumar Jatav with guarantor Sh. Raj Mohan Jain; which are the only copies of KYC information for applicants for availing loan from respondent no. 1/claimant. At pages 156 to 158 of arbitral proceedings record, which is Annexure C-7 (Colly) of Statement of Claim mentioned OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 15 of 25 to be at pages 26 to 28 in the Index of Statement of Claim of respondent no. 1/claimant before Ld. Sole Arbitrator; is the Statement of Account of petitioner in the books of respondent no. 1/claimant. Bare perusal of said Statement of Account Ex C-7 (Colly) reveals about no mention therein of any name of any specific borrower but in general it is mentioned borrowers only for the respective entries therein and said Statement of Account in three pages bears no signatures nor any certification in any form of any AR of respondent no. 1/claimant nor in any manner incorporates any name or any other particular of any of the borrowers of loan from respondent no. 1/claimant through petitioner as a Field Manager. Para 7 of impugned arbitral award finds mention of Ex CW1/1 to Ex CW1/10 to be the documents exhibited whereas before Ld. Sole Arbitrator neither any affidavit of respondent no. 1/claimant witness was tendered in evidence nor any of these Ex CW1/1 to Ex CW1/10 were so exhibited and those particular documents detailed in para 7 of impugned arbitral award are as follows:-
S.No. Exhibit No. Particulars
1 Exh CW-1/1 Copy of Board resolution
(colly) dated 26.11.2018 and copy
of certificate of
incorporation.
2 Exh CW-1/A Certified copy of Board
resolution dated 30.07.2019
3 Exh CW-1/2 Copy of Application form
submitted by the Respondent
No. 1
4 Exh CW-1/3 Copy of Agreement dated
03.07.2016 between
Claimant and Respondent
No. 1.
5 Exh CW-1/4 Copies of Guarantee Letters
(Colly) dated 10.06.2016 signed by
Guarantors.
OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 16 of 25
6 Exh CW-1/5 Copy of month wise details
of commission paid to the
Respondent No. 1.
7 Exh CW-1/6 Copies of KYC confirmation
(Colly) under loan schemes.
8 Exh CW-1/7 Copies of statements
(Colly) showing loan disbursed to
the borrowers and the
outstanding dues of the
Claimant Company.
9 Exh CW-1/8 Copy of justification of late
fee charge.
10 Exh CW-1/9 Copy of Demand Notice
dated 29.12.2017.
11 Exh CW-1/10 Copies of the Notice
(Colly) Invoking Guarantee dated
10.03.2018.
12. Arbitral proceedings record and impugned arbitral award is silent of grant of any opportunity to petitioner as respondent before Ld. Sole Arbitrator for cross examination of witness of claimant/respondent no. 1 in arbitral proceedings. Per contra to Section 18 of the Act, petitioner was not treated with equality as was not given full opportunity for cross examination of witness of respondent no. 1/claimant in evidence before Ld. Sole Arbitrator inter alia to prove his defence. Arbitral proceedings record is bereft of any decision of Arbitral Tribunal to adjudicate mainly on the basis of documents and other material and is also shorn of any agreement inter se parties to arbitration that adjudication of Arbitral Tribunal was to be only on the basis of the documents and material of the parties without affording any opportunity of cross examination of witness of parties to other party.
13. Section 24 (1) of the Act reads as under:-
OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 17 of 25"24. Hearings and written proceedings.-- (1) Unless otherwise agreed by the parties, the arbitral tribunal shall decide whether to hold oral hearings for the presentation of evidence or for oral argument, or whether the proceedings shall be conducted on the basis of documents and other materials:
Provided that the arbitral tribunal shall hold oral hearings, at an appropriate stage of the proceedings, on a request by a party, unless the parties have agreed that no oral hearing shall be held.
Provided further that the arbitral tribunal shall, as far as possible, hold oral hearings for the presentation of evidence or for oral argument on day-to-day basis, and not grant any adjournments unless sufficient cause is made out, and may impose costs including exemplary costs on the party seeking adjournment without any sufficient cause."
Accordingly, by not providing the opportunity to petitioner for cross examination of witness of respondent no. 1/claimant, the arbitral proceedings are per contra to Sections 18 and 24 of the Act; so impugned arbitral award is liable to be set aside under Section 34(2)(a)(iii) of the Act.
14. Edifice raised by respondent no. 1/claimant in laid claim in Statement of Claim before Ld. Sole Arbitrator was with respect to loan sanctioned/disbursed by respondent no. 1/claimant on making of specific written request of petitioner/Field Manager to financier/respondent no. 1/claimant for sanction/disbursement of loan to the customers who approached petitioner to arrange finance assistance by way of loan. In terms of Clause 2 of the alleged agreement dated 03/07/2016 inter se respondent no. 1/claimant and petitioner/Field Manager, even if petitioner/Field Manager finds that a customer fulfills the notified eligibility criteria and forwarded the loan application form to financier/respondent no. 1/claimant; even then financier/ respondent no. 1/claimant was not obliged to accept any loan application received from petitioner and financier/respondent no.
OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 18 of 251/claimant in its sole and absolute discretion and notwithstanding that the customer fulfills its eligibility, was entitled to reject any loan application whereas petitioner/Field Manager was not entitled to either directly or indirectly make or give any commitment on behalf of financier/respondent no. 1/claimant regarding acceptance of loan application of customer. In this fact of the matter along with the Statement of Claim; respondent no. 1/claimant had not placed on record all loan applications forms forwarded by petitioner/Field Manager and applied by loan applicants with their documents for availing loan as well as any documents with respect to sanction by financier/respondent no. 1/claimant on such loan applications of customers as well as any documents depicting disbursement of such loan to such customers forwarded through petitioner/Field Manager. Even filed Statement of Claim before Ld. Sole Arbitrator is bereft of all necessary particulars with respect to names, particulars, documents of each of such borrowers or documents of sanction/disbursement of loan to such customers regarding which the claim was laid by financier/respondent no. 1/claimant before Ld. Sole Arbitrator in the Statement of Claim. As above elicited in para no.11 of this judgment, Annexure C-6 (Colly) of Statement of Claim of financier/respondent no. 1/claimant before Ld. Sole Arbitrator is with respect to loan applications (i) dated 20/08/2016 of applicant Attar Singh with guarantor Ramrati and (ii) number 60 of Sh. Ram Kumar Jatav with guarantor Sh. Raj Mohan Jain; without any subsequent documents of respondent no. 1/claimant of sanction or disbursement of loan to its applicants. Even excepting above said, no other documents for loan applications of borrowers;
OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 19 of 25sanction or disbursement documents of respondent no. 1/claimant to these applicants for loan have been filed along with the Statement of Claim laid before Ld. Sole Arbitrator nor even in the said unsigned Statement of Account of petitioner in books of respondent no. 1/claimant company is there even any whisper of any name of any of such borrowers/applicants for loan.
15. Ld. Counsel for respondent no. 1 relied upon the case of Industrial Investment Bank of India Ltd. Vs Biswanath Jhunjhunwala, Civil Appeal No. 4613 of 2000 decided on 18/08/2009 by the Supreme Court. It was inter alia held therein that the legal position as crystallized by a series of cases of Supreme Court was clear that the liability of the guarantor and principle debtors are co-extensive and not in alternative. In terms thereof it was incumbent upon the financier/respondent no. 1/claimant to arraign as respondents, the borrowers, to whom the loan was sanctioned and disbursed by respondent no. 1/claimant after forwarding of their loan applications by the petitioner/Field Manager and in terms of the alleged agreement dated 03/07/2016 inter se petitioner and respondent no. 1/claimant, as Field Manager the petitioner had allegedly stood guarantor. Present case is the case where there was no evidence laid before Ld. Sole Arbitrator of any names, particulars of borrowers or loan applications forwarded by petitioner/Field Manager to respondent no. 1 for grant of loans as financier nor in continuation thereof there was any document laid before Ld. Sole Arbitrator for sanction or disbursement of loan to such applicants/borrowers.
16. Ld. Counsel for respondent no. 1 had also placed reliance OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 20 of 25 upon the case of Bank of Bihar Ltd. vs Damodar Prasad & Anr., 1969 SCR (1) 620. In said case trial Court decreed the suit against principal borrower as well as the guarantor i.e., both the defendants. While passing the decree, the trial Court had directed that plaintiff/decree holder bank shall be at liberty to enforce its dues in question against defendant no. 2 guarantor only after having exhausted its remedies against principle borrower. Against such direction of the trial Court plaintiff therein had filed appeal challenging the legality and propriety of said direction but High Court dismissed the appeal and plaintiff filed aforesaid appeal before Supreme Court after obtaining a certificate. Supreme Court allowed the appeal and set aside the above said direction of the trial Court. In the absence of some special equity, the surety/ guarantor has no right to restrain execution against him until the creditor has exhausted his remedies against the principal debtor/borrower and when a decree is obtained against the surety/ guarantor, it may be enforced in the same manner as a decree for any other debt. The precedent in the case of Bank of Bihar Ltd. vs Damodar Prasad & Anr. (supra) is accordingly of no help to respondent no. 1/claimant to shirk from its bounden duty for joining principal borrowers as necessary parties in arbitral proceedings before Arbitral Tribunal; also in the back drop of law laid in the case of Industrial Investment Bank of India Ltd. Vs Biswanath Jhunjhunwala (supra).
17. In fact this is a case of actually no evidence before Ld. Sole Arbitrator with respect to either sanction of any loan to any borrower(s) and/or disbursement of any loan to any borrower(s) by respondent no. 1/claimant in absence of any OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 21 of 25 documents/material placed before Arbitral Tribunal in this regard. Accordingly, in view of law laid by Supreme Court in the cases of (i) Associate Builders vs. Delhi Development Authority (supra) and (ii) Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India (supra); the decision of Ld. Sole Arbitrator is perverse and certainly amounts to patent illegality appearing on the face of award based on no evidence with respect to either sanction of loan or disbursement of loan to any principal borrower(s) for the claimed amount in question from the petitioner. Hence, the impugned award is liable to be set aside also under Section 34(2A) of the Act.
18. With the Statement of Claim laid by respondent no. 1/claimant before Ld. Sole Arbitrator in Arbitral Tribunal no copy of any money lending license issued by Reserve Bank of India was enclosed or filed by respondent. Section 3 of Punjab Registration of Money Lender's Act, 1938 inter alia embodies of dismissal of any suit/application/proceedings of money lender if said money lender is not registered or licensed money lender. Absence of money lending license from Reserve Bank of India in Statement of Claim and documents laid by respondent no. 1/claimant before Ld. Sole Arbitrator in Arbitral Tribunal was a premise for invocation of Section 3 of Punjab Registration of Money Lender's Act, 1938 but this facet was not considered. So impugned award is in contravention with the fundamental policy of India and so is in conflict with the public policy of India, so liable to be set aside.
19. For the foregoing reasons, the impugned arbitral award is liable to be set aside under Section 34(2)(a)(iii) of the Act;
OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 22 of 25Section 34(2)(b)(ii) of the Act and Section 34(2A) of the Act; as the impugned award is also vitiated by patent illegality appearing on the face of award; as elicited herein before. The petition is allowed and the impugned award is set aside.
20. Delhi High Court in case of Nussli Switzerland Ltd. v. Organizing Committee Commonwealth Games, 2014 SCC OnLine Del 4834 had inter alia held:-
34. A party like the Organizing Committee which has its claims rejected, except a part, but which subsumes into the larger amount awarded in favour of the opposite party, even if succeeds in the objections to the award would at best have the award set aside for the reason the Arbitration and Conciliation Act, 1996 as distinct from the power of the Court under the Arbitration Act, 1940, does not empower the Court to modify an award. If a claim which has been rejected by an Arbitral Tribunal is found to be faulty, the Court seized of the objections under Section 34 of the Arbitration and Conciliation Act, 1996 has to set aside the award and leave the matter at that. It would be open to the party concerned to commence fresh proceedings (including arbitration) and for this view one may for purposes of convenience refer to sub-Section (4) of Section 43 of the Arbitration and Conciliation Act, 1996. It reads: -
"43. Limitations-
(1) xxxxx (2) xxxxx (3) xxxxx (4) Where the Court orders that an arbitral award be set aside, the period between the commencement of the arbitration and the date of the order of the Court shall be excluded in computing the time prescribed by the Limitation Act, 1963, for the commencement of the proceedings (including arbitration) with respect to the dispute so submitted."
21. Aforesaid pronouncements of Delhi High Court in the case of Nussli Switzerland Ltd. v. Organizing Committee Commonwealth Games (supra) found approval of Supreme Court in case of The Project Director, National Highways No. 45 E AND 220 National Highways Authority of India vs. M. Hakeem & Anr., Civil Appeal No. of 2021 [Arising out of SLP OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 23 of 25 (Civil) No.13020 of 2020] decided on 20/07/2021.
22. Division Bench of Delhi High Court in the case of Mahanagar Telephone Nigam Limited vs Fujitshu India Private Limited, MANU/DE/0459/2015 inter alia appreciated the following law laid by Supreme Court in the case of McDermott International Inc. v. Burn Standard Co. Ltd. and Ors., MANU/ SC/8177/2006:(2006) 11 SCC 181 :-
"The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it."
23. Supreme Court in the case of Kinnari Mullick & Anr. vs Ghanshyam Das Damani, Civil Appeal No. 5172 of 2017 [Arising out of SLP (Civil) No. 2370 of 2015 decided on 20/04/2017 appreciated the legal position expounded in the case of McDermott International Inc. vs Burn Standard Ltd., (supra) wherein it was observed that parliament had not conferred any power of remand to the Court to remit the matter to the arbitral tribunal except to adjourn the proceedings as provided under sub-section (4) of Section 34 of the Act. It was also held therein that the limited discretion available to the Court under Section 34(4) of the Act can be exercised only upon a written application made in that behalf by a party to the arbitration proceedings. It is crystal clear that the Court cannot exercise this limited power of deferring the proceedings before it OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 24 of 25 suo moto.
24. Delhi High Court in the case of Steel Authority of India Limited vs Indian Council of Arbitration & Anr., LPA 103/2016 decided on 28/03/2016 placed reliance upon the decision of Supreme Court in the case of McDermott International Inc. vs Burn Standard Ltd. (supra), wherein it was held that once an award has been set aside, the parties would be free to begin the arbitration once again.
25. Accordingly, consequent to setting aside of the impugned Arbitral Award; parties to this lis have all their rights and remedies as available in law including under The Act including under Section 43 of The Act and may take recourse to appropriate remedies permissible in law.
26. The parties are left to bear their own costs.
27. File be consigned to record room.
Digitally signed by GURVINDER PAL GURVINDER SINGH
PAL SINGH Date: 2022.10.31
11:42:06 +0530
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
On 31st October, 2022. Patiala House Court, New Delhi.
(DK) OMP (Comm) No 47/2021 Sh. Shashipal Singh vs M/s Paisalo Digital Ltd.& Anr Page 25 of 25