Delhi District Court
Vidya Education Society (R.) vs M/S. Edu Smart Services Pvt. Ltd on 7 September, 2021
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
ARBTN No. 4481/2018
Vidya Education Society (R.)
Devaraya Pattana, New Extension,
Near Akka-Thangi Park,
Tumkur, Karnataka ...Petitioner
versus
1. M/s. Edu Smart Services Pvt. Ltd.,
Regd. Office at L-74, Mahipalpur Extension,
New Delhi-110037
2. M/s. Educomp Solutions Ltd.
Office at 1211, Padma Tower-1,5,
Rajendra Place, New Delhi-110008
3. Ms. Rekha Gupta,
Sole Arbitrator,
N-18, Second Floor, Jangpura Extension,
New Delhi-110014 ...Respondents
Date of Institution : 24/08/2018
Arguments concluded on : 13/08/2021
Decided on : 07/09/2021
Appearances : Sh. Ashwin V. Kotemath, Ld. Counsel for petitioner.
Sh. Karan Khanuja, Ld. Counsel for respondent no. 1.
Sh. Ujjawal Jain, Ld. Counsel for respondent no. 2.
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 dated 03/02/2018 passed in Arb. Case No: RG/ARB/11.05.17/14 ERP Code: EDUSMART/10045 by Ms. Rekha Gupta, Ld. Sole ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 1 of 37 Arbitrator. Ld. Sole Arbitrator awarded Rs.38,35,413.98 with interest @ 18% per annum from 04/07/2017 till payment by present petitioner or realization by claimants/respondents no 1 and 2 with cost of Rs.20,000/- including fees of Arbitrator and Rs.3837/- towards expenses incurred in stamp duty.
2. I have heard Sh. Ashwin V. Kotemath, Ld. Counsel for petitioner; Sh. Karan Khanuja, Ld. Counsel for respondent no. 1; Sh. Ujjawal Jain, Ld. Counsel for respondent no. 2 and perused the record of the case, relied upon precedents, filed brief written arguments on behalf of petitioner as well as on behalf of respondent no. 1. Despite several orders communicated to Ld. Sole Arbitrator, the original arbitral proceedings record in physical form were not deposited by Ld. Sole Arbitrator, whereas on 02/02/2021 as well as on 10/08/2021 i.e., twice by e-mails Ld. Sole Arbitrator has sent the e-copy of arbitral proceedings record to the dedicated e-mail id of the Court. I have perused the e-copy of arbitral proceedings record. I given my thoughtful consideration to the rival contentions put forth.
3. Shorn of unnecessary details, the brief facts of case of petitioner as well as arguments set up by petitioner through Ld. Counsel are as follows:-
Petitioner institution entered into Tripartite Agreement dated 08/10/2012 with respondents for services related to Smart Class Program to be provided by respondent nos. 1 and 2 to petitioner institution. Respondents were obligated to provide hardware, software and personnel for installation of the program at the school of petitioner. Petitioner made payment of Rs.1,00,000/-.ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 2 of 37
The hardware was installed during last week of December, 2012. Oral request was made by petitioner to representative of respondents that students curriculam starts from June onwards as the month of January is a year end, the smart class services may be started from June, 2013 onwards. Services were started from 1st week of January, 2013 itself without considering aforesaid request of petitioner. Petitioner issued letter/notice on 20/02/2013 to respondents objecting for providing CBSE syllabus instead of State syllabus as petitioner institution teaches State syllabus to their students. After receiving assurances from representatives of respondent company, petitioner made payment of Rs.1,92,500/- through cheque. Again on 21/09/2013 and 16/07/2014 petitioner made payments of Rs.2,44,500/- and Rs.2,68,000/- respectively. Petitioner in all made payment of Rs.8,05,000/- to respondent company for the annual year June, 2013 to March, 2014. Respondent company discontinued the services to the petitioner institution from June, 2014 onwards stating that petitioner had earlier dues and unless said payment is made, services will not be restored. On 05/08/2014 petitioner issued letter/notice clarifying that petitioner institution shall not be liable to pay for any smart class services during January, 2013 to May, 2013 as said months were year end and payment of Rs.8,05,000/- is for June, 2013 to March, 2014. As there was no due on part of petitioner institution, it was requested for restoration/restart of smart class services immediately by letter/notice dated 05/08/2014. Respondent refused to restore smart class services unless earlier dues were cleared. Petitioner made payments of Rs.60,000/- on 29/01/2015 and Rs.2,00,000/- on 01/07/2015 respectively under the belief that the services will be restored at least from June, ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 3 of 37 2015 onwards. Instead of restoring the services, respondent company adjusted aforesaid payments for 2013-14 dues. Petitioner made payment of Rs.10,73,000/- and there were no services during 2014-15. Representatives of respondent company visited the petitioner institution on 08/09/2015, 22/09/2015 and 08/10/2015 and stated that unless and until alleged balance payment is paid, services cannot be restored. Representatives of respondent company issued customer visit reports dated 22/09/2015 and 08/10/2015. Respondent company failed to provide smart class program services from June, 2014 onwards. Though, petitioner institution after assurances from respondent company made payment during July, 2015 but respondents failed to perform their part of the agreement stating that payment is adjusted to earlier alleged dues. During 3rd week of May, 2018, petitioner institution received the copy of award passed by Ld. Sole Arbitrator and then came to know that respondent had initiated arbitration, whereby no sufficient opportunity of hearing was given to petitioner institution to put forth its case. Petitioner has impugned the arbitral award mainly on the following grounds. The impugned award is patently in violation of provisions of contract, against the public policy, arbitrary and unreasonable. Respondents had misrepresented the case before Ld. Sole Arbitrator by hiding the fact that petitioner institution had made payments to the tune of Rs.10,73,000/- and still respondents failed to provide any smart class services. As per customer visit reports dated 22/09/2015 and 08/10/2015 issued by respondents company, it is stated that unless and until alleged balance payment is paid, services cannot be restored. Respondent company had no right to claim any payment from June, 2014 ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 4 of 37 onwards. Without providing the proper smart class program as required by petitioner school and without providing any services, respondent claimed the money illegally which Ld. Sole Arbitrator failed to see and by getting ex-parte award respondents gained illegally. Letter/notices dated 20/02/2013 and 05/08/2014 issued by petitioner clearly established that there was default on the part of respondents company in providing continued smart class services. Petitioner institution is situated at Tumkur District of Karnataka State and petitioner cannot defend herein Delhi by engaging the representative. Respondents with an oblique motive preferred Delhi as jurisdiction to resolve any dispute. Claims awarded by Ld. Sole Arbitrator were beyond the pleadings and evidence on record. The entire premises of the claims were based on illusionary claims not supported by any documents or any pleadings and are contrary to the terms of agreement. Without giving fair opportunity to defend the case by petitioner, Ld. Sole Arbitrator passed ex-parte award and only on receiving through post, petitioner came to know about it. Without looking at the deficiency in the services rendered by claimants/ respondents, Ld. Sole Arbitrator even without adverting to correspondence between the parties, proceeded to pass the impugned award. Ld. Sole Arbitrator has gone on her own submissions and parameters including calculations which were beyond the pleadings nor there is any claim or oral submission even addressed by the respondents and beyond the scope of the arbitration clause/agreement. The award is patently illegal and beyond the scope of Arbitration Act/contract and public policy. It was argued that neither notice of appointment of Arbitrator nor arbitral proceedings were served upon the petitioner institution ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 5 of 37 and there is non compliance of Section 34(2)(a)(iii) of the Act. Appointment of the arbitrator was without the knowledge of petitioner. Statement of Claim was not provided to petitioner. Arbitral proceedings were vitiated by fraud as there is no mention in the award with respect to payments made by petitioner to the tune of Rs.10,73,000/-. No prior consent was taken from petitioner before referring the matter to the Arbitrator by the respondents company. Present arbitrator Ms. Rekha Gupta was a permanent arbitrator of respondents company in several matters and there is non disclosure of requisite information in terms of Section 12 of the Act. Respondent company failed to provide any smart class service from June, 2014 and question of payment of dues from June, 2014 on part of petitioner institution does not arise at all. The impugned award is a non speaking award as it does not speak about duration of smart class services alleged to have been provided by respondents company. Award also does not mention about details of how the respondents company claimed the award amount. It was prayed by petitioner through Ld. Counsel for setting aside of impugned arbitral award.
4. After service and despite opportunities respondent nos. 1 and 2 did not file any reply to the petition. However, on behalf of respondent no. 1 written arguments were filed on 29/07/2021 by Ld. Counsel. It was argued by Ld Counsel for respondent no. 1 that respondents performed their part of the contract successfully by supplying and installing the entire hardware at the petitioner school's premises, providing the repository of digital curriculum and also by providing the support services and consumables in accordance with the terms of agreement. Despite having availed ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 6 of 37 services to their complete satisfaction petitioner failed to make the outstanding payment as contemplated by the terms of agreement. Owing to the petitioner's default in honouring their obligations and release of payments, claimants/respondents issued notices to petitioner. Default on the part of petitioner had led the respondents to invoke Arbitration Clause 9.1 of agreement dated 08/10/2012 and formed basis of claim. On 26/07/2016 respondents duly issued a legal notice to petitioner, demanding the outstanding payment while they continued to enjoy the use of the facility provided by respondent, whereas petitioner failed to make the outstanding payments within the prescribed time. Petitioner was also informed that in the event the petitioner fails to make the outstanding payment then it would be presumed that a dispute had arisen between the parties and respondents will be left with no choice than to invoke Arbitration Clause 9.1 of the agreement. Neither reply was given by petitioner to the legal notice nor petitioner made any payment to respondents. As per Clause 9.1 of the agreement, Arbitrator was to be chosen by respondents and accordingly respondents appointed present Ld. Sole Arbitrator vide letter dated 23/02/2017. Arbitral award notices were duly issued on both parties on the address mentioned in the agreement by the Arbitral Tribunal regarding the commencement of arbitration proceedings. Respondents appeared through AR, submitted their Statement of Claim but despite service of notice petitioner failed to appear before Tribunal on 11/05/2017, 07/07/2017 and 25/08/2017. Not only petitioner failed to appear before Tribunal but also failed to respond to communications of respondents and of Ld. Sole Arbitrator. Arbitral Tribunal declared the petitioner ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 7 of 37 ex-parte vide order dated 22/08/2017 and passed well reasoned award after analysing the pleadings, documents produced, evidence led, allowed the claims of the claimants/respondents. It was argued that impugned award is a speaking award as it not only includes the duration of service provided by the respondents to the petitioner but also shows how the respondent company is claiming the award amount and the decision in the award is based on documents, evidence placed on record as well as pleadings and is not liable to be set aside. The scope of challenge of an award is very limited. The objections/grounds raised by the petitioner do not fall under the scope of Section 34 of the Act. It was argued that petitioner failed to disclose any valid grounds for setting aside of the arbitral award. No error of law or misconduct on the part of Ld. Sole Arbitrator is pleaded. The impugned award ought not to be set aside. The grounds raised by petitioner are baseless, wrong and not covered within the ambit of Section 34 of the Act. It was prayed that petition be dismissed.
5. Ld. Counsel for respondent no. 2 addressed oral arguments. It was argued that grounds taken by petitioner were frivolous, baseless and without any proof. It was argued that vague averments against the award were made by petitioner on baseless grounds which do not fall within the scope of Section 34(2)(a) of the Act, Section 34 (2)(b) of the Act and/or Section 34 (2A) of the Act. It was argued that decision of Ld. Arbitrator is generally considered binding between the parties and therefore, the power of the Court to set aside the award would be exercised only in the cases where Court finds that the arbitral award is on the face of it erroneous or patently illegal or in contravention of the provisions ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 8 of 37 of the Act, as was held by Supreme Court in the case of Swan Gold Mining Ltd. vs Hindustan Copper Ltd., (2015) 5 SCC 739. It was argued that it is well settled proposition that the Court shall not ordinarily substitute its interpretation for that of the Arbitrator. It was argued that general principles as to arbitration proceedings are that the Arbitrator is a Judge of the choice of the parties and his/her decision, unless there is an error apparent on the face of the award cannot be interfered. The Court while deciding the objection petition under Section 34 of the Act is not sitting in appeal over the conclusion of the Arbitrator. The Court cannot reappraise the evidence and it is not open to the Court to set aside the finding of the fact arrived at by the arbitrator. Where the arbitrator assigns cogent grounds and sufficient reasons and no error of law or misconduct is cited, the award will not call for interference by the Court in exercise of the power vested in it. It was argued that bare perusal of the arbitral award shows that notices were indeed sent to the petitioner by Ld. Sole Arbitrator for its appearance before Arbitral Tribunal, however, despite receipt of the notices, petitioner failed to appear before Arbitral Tribunal; so the petitioner was proceeded ex-parte, whereas the impugned arbitral award was pronounced and signed copy of the same was sent to petitioner via speed post. Ld. Counsel for respondents relied upon the decision of Madras High Court in the case Maruthi Apartments Owners/Residents Welfare Association vs K.V. Narsimhan in O.P Diary No. 116747 of 2018 submitting that the present petition is barred by limitation. Ld. Counsel for respondents also relied upon the decision of Supreme Court in Simplex Infrastructure Ltd. vs Union of India, (2019) 2 SCC 455, stating that petition under Section 34 ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 9 of 37 of The Act is only maintainable if it is filed within three months of receipt of copy of the impugned award and such limitation period can only be extended for further period of 30 days but not thereafter. Ld. Counsel for respondents also relied upon the decision of Supreme Court in Gujarat Electricity Board and Anr. v. Atmaram Sungomal Poshani, (1989) 2 SCC 602 stating that though rebuttable, but presumption of service of registered letter upon petitioner is to be raised on its return with postal endorsement of refusal by addressee to accept the same. Ld. Counsel for respondents also relied upon the decision of Supreme Court dated 04/03/2021 in NTPC Ltd. vs M/s Deconar Services Pvt. Ltd., Civil Appeal No. 6483 of 2014, stating that the objector/petitioner in order to succeed in their challenge against an arbitral award, must show that the award of the arbitrator suffered from perversity or an error of law or that the arbitrator has otherwise misconducted himself. Merely showing that there is another reasonable interpretation or possible view on the basis of the material on the record is insufficient to allow for the interference by the Court. It was argued that attitude of petitioner amounts to ignorance of law, whereas it is settled law by Supreme Court that ignorance of fact may be excused, but ignorance of law cannot be excused; so petition is liable to be dismissed. Ld. Counsel for respondents relied upon the decision of Supreme Court in the case of Union of India & Ors vs Major General Madan Lal Yadav (Retd.), (1996) 4 SCC 127, wherein maxim of law "no man shall take advantage of his own wrong"
was reiterated. It was argued that it is settled principle of law that a man cannot be permitted to take undue and unfair advantage of his own wrong to gain favourable interpretation of law and it is ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 10 of 37 sound principle that he who prevents a thing from being done shall not avail himself benefit of the non performance he has occasioned. A wrong doer ought not to be permitted to make a profit out of his own wrong. It was argued that award reflected that petitioner was given multiple opportunities to appear before Arbitral Tribunal; yet petitioner failed to appear before Arbitral Tribunal and by order dated 22/08/2017 petitioner was proceeded ex-parte. It was argued that award was detailed, well reasoned and there is no question of partiality or injustice in passing the award. It was argued that signed copy of the award was in fact sent to petitioner and was duly received by the petitioner. It was also argued that Division Bench of Delhi High Court in case of Mahanagar Telephone Nigam Limited vs Fujitshu India Private Limited, MANU/DE/0459/2015 held that an appeal under Section 37 is like a second appeal, the first appeal being to the Court by way of objections under Section 34 of the Act. It was also argued by Ld. Counsel for respondent no. 2 that Calcutta High Court in case of Jagdish Kishinchand Valecha vs SREI Equipment Finance Limited And Anr., AP/103/2021 decided on 12th April, 2021 & 13th April, 2021 was pleased to appoint a different and independent arbitrator, while setting-aside the award under section 34 of the Act on grounds of 'bias' or 'conflict of interest' on the part of original arbitrator. It was prayed that petition be dismissed as grounds raised by petitioner are baseless, wrong and not covered within the ambit of Section 34 of the Act. It was also argued that in the alternative either matter be remanded back or some different arbitrator be appointed for adjudicating the dispute between the parties in fresh arbitration.ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 11 of 37
6. 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. 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-
(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 ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 12 of 37 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 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 ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 13 of 37 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."
8. At the foot of the last page of impugned award, copy at page Q of e-copy of arbitral proceedings record, is a stamp impression of speed post receipt dated 17/04/2018 for speed post consignment sent by Ld. Sole Arbitrator to "VIDYA EDUC, TUMKUR. PIN:152107". In e-copy of arbitral proceedings record there is no tracking report of aforesaid speed post consignment sent to petitioner for serving the signed copy of impugned arbitral award. As per Tripartite Agreement dated 08/10/2012 the address of petitioner is "Vidya primary and High School, Devaraya pattana, Tumkur(D), Karnataka-
572104" and it bears stamp impression "VIDYA PRIMARY SCHOOL Devarayapatna New Extension TUMKUR-572103"
with signatures. Even the speed post consignment whose stamp impression is aforesaid, dated 17/04/2018 was not purportedly dispatched to correct PIN CODE address of petitioner, whereas even the complete name and address of the petitioner are not there. There is no material in the e-copy of arbitral proceedings record of service of impugned arbitral award upon the petitioner. Accordingly, this Court cannot presume delivery of signed copy of impugned arbitral award upon the petitioner vide aforesaid speed post consignment. The impugned arbitral award is of date 03/02/2018. It is the own averment of petitioner in the petition ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 14 of 37 that petitioner received the copy of impugned award in third week of May, 2018. Petition was filed on 24/08/2018. Ld. Counsel for petitioner argued that vide order dated 06/07/2019 of Ld. Additional District Judge-04, Patiala House Court, New Delhi the application for condonation of delay in filing petition has been allowed in terms thereof. Vide detailed order dated 06/07/2019 of the transferor Court of Ld. Additional District Judge-04, Patiala House Court, New Delhi, from where this case was received on transfer in February, 2020, the application seeking condonation of delay in filing the present petition was allowed subject to terms laid therein after observing that copy of impugned award was received by petitioner in third week of May, 2018. It was also argued by Ld. Counsel for petitioner that none of the respondents have impugned the order dated 06/07/2019, aforesaid, before any superior Court, so it has become final and binding.
9. Normally, the general principles are that Arbitrator is a Judge of the choice of the parties and his decision, unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even by the Court as a Court of law could come to a different conclusion on the same facts. The Court cannot reappraise the evidence and it is not open to the Court to sit in appeal over the conclusion of the Arbitrator. It is not open to the Court to set aside a finding of fact arrived at by the Arbitrator and only grounds on which the award can be set aside are those mentioned in the Arbitration Act. Where the Arbitrator assigns cogent grounds and sufficient reasons and no error of law or misconduct is cited, the award will not call for ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 15 of 37 interference by the Court in exercise of the power vested in it. Where the Arbitrator is a qualified technical person and expert, who is competent to make assessment by taking into consideration the technical aspects of the matter, the Court would generally not interfere with the award passed by the Arbitrator.
10. 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.
11. 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 ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 16 of 37 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.
12. Section 11 of The Act is with respect to the appointment of the arbitrators by the Supreme Court or as the case may be, by the High Court only.
13. Under Section 12 of The Act, when a person is approached in connection with his possible appointment as an arbitrator, he is bound to disclose in writing any circumstances, such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months. Various grounds are set out in the Fifth Schedule as a guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. The disclosure shall be made by such person in the form specified in the Sixth Schedule. An arbitrator may be challenged by the parties only if any circumstances referred to in Section 12 (3) of The Act subject to Section 13 (4) of The Act exist which provide for an agreement between the parties for such procedure for challenge.
If such challenge is unsuccessful, the party may make an application for setting aside an arbitral award in accordance with ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 17 of 37 Section 34 of The Act.
14. Section 14 of The Act provides that the mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator if he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay and he withdraws from his office or the parties agree to the termination of his mandate.
15. Section 15 of The Act provides that the mandate of arbitrator is also terminated if he withdraws from office for any reason or by or pursuant to agreement of the parties. In such an event, the substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. If such an arbitrator is replaced, any hearing previously held may be repeated at the discretion of the arbitral tribunal unless otherwise agreed by the parties. The earlier order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator shall not be invalid unless otherwise agreed by the parties.
16. Under Section 16 of The Act, the arbitral tribunal is empowered to rule on its own jurisdiction including ruling on any objection with respect to the existence or validity of arbitration agreement. Such plea shall be raised not later than the submission of the statement of defence. If such plea is rejected by the arbitral tribunal, it has to proceed with the arbitral proceedings and declare an award. If plea of jurisdiction is accepted by the arbitral tribunal, the respondent may file an ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 18 of 37 appeal under section 37 of The Act. If plea of jurisdiction is not accepted, the respondent may challenge such ruling along with award under section 34 of The Act.
17. Sub-section (1) of Section 29A of The Act provides that the award shall be made within a period of twelve months from the date the arbitral tribunal enters upon the reference. The explanation to the said provision provides that an arbitral tribunal shall be deemed to have entered upon the reference on the date on which the arbitrator or all the arbitrators, as the case may be, have received notice, in writing, of their appointment. Sub- section (2) of Section 29A of The Act provides that if the award is made within a period of six months from the date the arbitral tribunal enters upon the reference, the arbitral tribunal shall be entitled to receive such amount of additional fees as the parties may agree. Sub-section (3) of Section 29A of The Act provides that the parties may, by consent, extend the period specified in subsection (1) for making award for a further period not exceeding six months. Subsection (4) of Section 29A of The Act provides that if the award is not made within the period specified in sub-section (1) or the extended period specified under sub- section (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period. If the Court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, the Court may pass an order for reduction of fees of arbitrator(s) by not exceeding five per cent for each month of such delay. Sub-section (5) of Section 29A of The Act provides that the extension may be granted only for sufficient ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 19 of 37 cause and on such terms and conditions as may be imposed by the Court.
18. Supreme Court in case of TRF Ltd. vs Energo Engg. Projects Ltd., (2017) 8 SCC 377 has held that by virtue of section 12(5) of The Act, if any person, who falls under any of the category specified in the Seventh Schedule shall be ineligible to be appointed as an Arbitrator. It is held that the amended law under Section 11(6-A) of The Act requires the Court to confine examination of the existence of an arbitration agreement notwithstanding the judgment of the Supreme Court or the High Court while considering an application under section 11(6) of The Act. The designated arbitrator whose ineligibility to act as an arbitrator by virtue of amendment to Section 12 of The Act by the Arbitration and Conciliation (Amendment) Act, 2015, does not have power even to nominate any other person as arbitrator. The Supreme Court and High Court in certain circumstances have exercised jurisdiction to nullify the appointments made by the authority in such situation.
19. Supreme Court in case of Bharat Broadband Network Ltd vs United Telecoms Ltd, (2019) 5 SCC 755 after construing Section 12(5) of The Act read with Fifth, Sixth and Seventh Schedule held that the Managing Director of the party, who was a named arbitrator, could not act as arbitrator nor could be allowed to appoint another arbitrator. The disclosure of a prospective arbitrator has to be made in the form specified in the Sixth Schedule and the ground stated in the Fifth Schedule are to serve as a guide in determining whether circumstances exist which give ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 20 of 37 rise to justifiable doubts as to the independence or impartiality of an arbitrator. Any prior agreement to the contrary is wiped out by the non-obstante clause in Section 12(5) of The Act the moment any person whose relationship with the parties or the counsel or the subject matter of the dispute falls under the Seventh Schedule. The sub-section then declares that such person shall be ineligible to be appointed as arbitrator. Such ineligibility can be removed by an express agreement in writing. It was held that learned arbitrator had become de jure ineligible to perform his function as an arbitrator.
20. Supreme Court in the case of Perkins Eastman Architects DPC vs HSCC (India) Ltd., 2019 SCC Online SC 1517 has held that in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. The person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015. Supreme Court has set aside the appointment of an arbitrator appointed by one of the parties having exclusive right to appoint and appointed an independent arbitrator in the application filed under Section 11(6) of The Act.
21. In the case of Proddatur Cable TV Digi Services vs. Siti Cable Network Ltd., 2020 SCC Online Del 350, it was inter alia held by Delhi High Court that following ratio of the judgment in the case of Perkins (supra), it is clear that a unilateral ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 21 of 37 appointment by an authority which is interested in the outcome or decision of the dispute is impermissible in law. When the Arbitration Clause empowers the Company to appoint Sole Arbitrator, it can hardly be disputed that the Company acting through its Board of Directors will have an interest in the outcome of the dispute. The appellant had filed the petition under Section 14 and 15 of The Act seeking declaration that the mandate of the arbitrator appointed by the respondent be terminated and an arbitrator be appointed by High Court in the provisions of The Act. Following ratio of the judgments in Perkins (supra) and Bharat Broadband Network Limited (supra), the mandate of the Arbitrator was found terminated de jure and since the present arbitrator had become unable to perform his functions as an arbitrator, his mandate was terminated and another independent Sole Arbitrator was appointed to substitute the previous arbitrator.
22. In the case of M/s Omcon Infrastructure Pvt. Ltd. Vs India Bulls Investment Advisors Ltd, OMP (T) (Comm.) 35/2020 and IA 6153/2020 decided on 01/09/2020 by Hon'ble Ms. Justice Rekha Palli of Delhi High Court, wherein petition was filed under Section 14 and 15 of The Act, seeking termination of the mandate of Ld. Arbitrator unilaterally appointed by the respondent and also quashing of order passed by Ld. Arbitrator, deciding the application of petitioner under Section 12 of The Act, the ratio of the decision in case of Perkins (supra) was applied and held that once the Managing Director of the respondent Company was ineligible to appoint the arbitrator, the same would also bar the Company itself from unilaterally ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 22 of 37 appointing the sole arbitrator and reference was also made to the decision of Proddatur Cable TV Digi Services (supra). Therein also the mandate of the Ld. Arbitrator was terminated and new independent Sole Arbitrator was appointed.
23. Following is the Clause 9.1 of the Agreement in question between the parties:-
"9.1 ARBITRATION If any dispute or difference of any kind whatsoever arise between the parties in connection with or arising out of this Agreement or any part thereof, such dispute or difference shall be referred to an acceptable sole Arbitrator under the provisions of the Indian Arbitration and Conciliation Act, 1996, or any enactment or modification there under. The sole Arbitrator shall be appointed by Party A. The venue for arbitration shall be at New Delhi and the language shall be English. The courts in New Delhi shall have jurisdiction to entertain all disputes between the parties."
24. Section 21 of The Act provides that unless and otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which the request for that dispute to be referred to the arbitration is received by the respondent. Limitation in respect of which a request is made by one party to other party to refer such dispute to the arbitration stops when such notice is received by other party.
25. Delhi High Court in the case of Alupro Building Systems Pvt Ltd vs Ozone Overseas Pvt Ltd, O.M.P 3/2015 decided on 28/02/2017 inter alia held that where a notice under Section 21 of the Act invoking arbitration clause is not served upon the other party by the party invoking the said clause and the arbitration proceedings are held then in absence of any agreement by the ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 23 of 37 petitioner for waiving of requirement of notice under Section 21 of the Act, the impugned arbitral award would be opposed to the fundamental policy of Indian law since the mandatory requirement of the Act stands not complied and ground under Section 34 (2)(b) (ii) of the Act is attracted and such impugned award could be set aside on this ground.
26. Bombay High Court in the case of Bhanumati J. Bhuta vs Ivory Properties & Hotels Pvt. Ltd., 2020 SCC Online Bombay 157 has held that the arbitral proceedings commence in respect of dispute when notice invoking of arbitration agreement is received by other side and not when such notice is only served upon the Arbitral Tribunal. The onus is on the applicant who had issued such notice to prove the delivery of such notice upon the other side.
27. In the case of International Nut Alliance LLC vs Beena Cashew Company, 2014 SCC Online Mad 425, it was inter alia held that before composition of arbitrators, a notice to the other party is very much essential.
28. At page no. 37 of e-copy of the arbitral proceedings record is a copy of legal notice dated 26/07/2016 addressed by Ms. Jyotsna Sharma, Advocate on behalf of respondents to petitioner school demanding payment of entire due and payable sum of Rs.38,35,413.98 as on 26/07/2016 with future interest @ 18% per annum within 15 days from the date of receipt of said notice, failing which respondents would presume that a dispute has arisen and respondents shall invoke the arbitration clause under ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 24 of 37 the Tripartite Agreement. Accordingly, aforesaid legal notice dated 26/07/2016 was legal demand notice allegedly sent by the respondents through Counsel to petitioner school demanding notice amount with interest towards services and infrastructure availed by petitioner school under the subject agreement. Said legal notice dated 26/07/2016 cannot be said by any figment of imagination to be a notice under Section 21 of the Act mandatorily requiring request for that dispute to be referred to the arbitration as it contained the notice period of 15 days for the petitioner school to make the payment from the date of receipt of said notice. Even on the first page of said notice is a stamp impression of speed post dated 02/08/2016 of speed post article purportedly dispatched by Ms. Jyotsna Sharma, Advocate to "VIDYA EDUCATIONAL. SCHOOL TUMKUR, PIN:572101". Even per se copy of said notice was not dispatched to correct PIN CODE address of petitioner. Any article sent to wrong pin code address cannot be presumed to be delivered/served upon the addressee; more so when such receipt of speed post does not find mention the complete and correct address of the addressee.
29. At page no. 39 of e-copy of arbitral proceedings record there is copy of letter dated 23/02/2017 addressed by Sh. Kshitij Aggarwal, Assistant Manager-Legal of respondent no. 2 to Ld. Sole Arbitrator namely Ms. Rekha Gupta (Advocate) requesting her to accord her consent for her appointment as Sole Arbitrator for adjudication of the disputes between the parties of Tripartite Agreement in question after invoking the arbitration clause of said agreement. In the middle portion of said letter dated ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 25 of 37 23/02/2017 there is a printed sentence "With reference to the above proposal letter for appointment as the "Sole Arbitrator", now as token of having accepted the above, return the duly signed copy of this letter", below which are the signatures of Ld. Sole Arbitrator. True that at the bottom left portion is the printed text of sending of copy to the petitioner institution and there is an impression of speed post receipt which bears date 25/02/2017 depicting purported sending of speed post article on 25/02/2017 by respondent no. 2 to VIDYA EDU SOCITY NR AKKA, TUMKUR, PIN:572101. Neither speed post receipt finds mention of the complete address of petitioner institution as is mentioned in the foot of letter dated 23/02/2017 nor along with said receipt any copy of tracking report of said dispatched speed post article is placed on record of arbitral proceedings depicting delivery of said speed post article upon petitioner. Be that as it may, fact also remains that in terms of afore said Clause 9.1 of the Agreement in question between the parties, in case of arising of dispute(s), it was/were to be referred to an acceptable Sole Arbitrator. The respondents have not filed before Ld. Sole Arbitrator or before this Court any document/material depicting of having sending of any request/letter to petitioner seeking acceptance of petitioner of any Sole Arbitrator from any panel of Ld. Sole Arbitrators to be appointed for adjudicating the dispute between the parties in accordance with the afore said Clause 9.1 of the Agreement in question. Having not requested/obtained acceptance of petitioner institution before appointment of present Ld. Sole Arbitrator, it cannot be said by any figment of imagination that the present Sole Arbitrator was an acceptable Arbitrator to petitioner institution in terms of Clause 9.1 of the ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 26 of 37 Agreement in question between the parties, elicited herein above. Accordingly, composition of Arbitral Tribunal was not in accordance with the agreement of the parties. Per contra, it was a unilateral appointment of Ld. Sole Arbitrator by respondent no. 2 vide letter, aforesaid, dated 23/02/2017 without any acceptability of petitioner institution of appointment of Ld. Sole Arbitrator for adjudicating of the dispute between the parties to the lis.
30. With respect to notice dated 11/05/2017 of arbitration proceedings, copy at page 40 of e-copy of arbitral proceedings record purportedly sent by Ld. Sole Arbitrator to petitioner vide speed post, copy of tracking report is at page 41 of e-copy of arbitral proceedings record which does not mention of said article having been delivered to addressee but mentions to track more, whereas stamp impression of speed post receipt at the foot of page 40 of e-copy of arbitral proceedings record find mentions of dispatch to "VIDYA EDU SOCIETY TUMKUR" without any complete address of petitioner school. In the entire arbitral proceedings record there is no document reflecting proof of service of petitioner school of any disclosure sent by Ld. Sole Arbitrator in terms of Section 12 of the Act in the prescribed form. Ld. Sole Arbitrator did not serve any disclosure to the petitioner school under Section 12 of the Act in writing any circumstances, such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to her independence or impartiality; and which are likely to affect her ability to devote ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 27 of 37 sufficient time to the arbitration and in particular her ability to complete the entire arbitration within a period of twelve months; in accordance with Fifth and Sixth Schedule of the Act. No proper and sufficient notice was given to petitioner by Ld. Sole Arbitrator for conducting of arbitral proceedings before her. As aforesaid requisite disclosure in prescribed form under Section 12 of the Act was not given by Ld. Sole Arbitrator to petitioner.
31. At page no. 42 of e-copy of arbitral proceedings record is notice dated 07/07/2017 of intention of Ld. Sole Arbitrator to proceed petitioner ex-parte and at the foot of it is an impression of speed post receipt dated 20/07/2017 of dispatch of the article to petitioner at PIN CODE; 572113 address, whereas it is not supported by any tracking report of delivery of said speed post article upon the petitioner. Here also the speed post article was dispatched to wrong pin code address and the speed post receipt impression does not even reflect complete address of petitioner. Aforesaid notice dated 07/07/2017 of Ld. Sole Arbitrator cannot be presumed to be delivered to petitioner for the reasons (i) incomplete address and (ii) dispatched to wrong pin code address.
32. At page 43 of e-copy of arbitral proceedings record is notice dated 25/08/2017 of Ld. Sole Arbitrator of ex-parte proceedings which as per stamp impression of speed post receipt at foot of it was dispatched to wrong PIN CODE 572101 address and the address of petitioner also is incomplete in the receipt of speed post whereas the tracking report of said article sent by speed post on 31/08/2017 at page 44 of e-copy of arbitral proceedings ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 28 of 37 record reflects its delivery on 18/09/2017 at "KYATHASANDRA". The location of delivery i.e., KYATHASANDRA at destination PIN CODE:572101 cannot be presumed to be delivered at the place of petitioner as petitioner in its address has no description of KYATHASANDRA nor the PIN CODE of petitioner is 572101. Accordingly, it is apparent that notice dated 25/08/2017 of Ld. Sole Arbitrator was not served upon the petitioner.
33. In the case of Impex Corporation & Others vs Elenjikal Aquamarine Exports, 2007 SCC Online Ker 125, it was inter alia held that where no proper and sufficient notice is given to a party by the arbitrator, there is violation of principle of natural justice and these are also violation of Section 18 and 25 of The Act.
34. Supreme Court in the case of M/s Voestalpine Schienen GMBH Vs. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665 has construed Section 12(5) of The Act (as amended) and also the Seventh Schedule to The Act and has held that under Section 12(5) of The Act, notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. It is held that in such an eventuality, when the arbitration clause finds foul with the amended provisions i.e. Section 12(5) of The Act, the appointment of an arbitrator would be beyond pale of arbitration agreement, empowering the Court to appoint such arbitrator(s), as may be ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 29 of 37 permissible. Other party cannot insist for appointment of an arbitrator in terms of the arbitration agreement. In such situation, that would be the effect of non-obstante clause contained in Section 12(5) of The Act.
35. Supreme Court in case of HRD Corporation (Marcus Oil and Chemical Division) vs. Gail (India) Limited (Formerly Gas Authority of India Ltd.), 2017 SCC OnLine SC 1024 has held that if the learned arbitrator fails to file disclosure in terms of section 12(1) of The Act read with Fifth Schedule of The Act, the remedy of the party aggrieved in that event would also be to apply under section 14(2) of The Act to the court to decide about the termination of the mandate of the arbitral tribunal on that ground.
36. As aforesaid, there is non compliance of the elicited mandate of Section 12 of The Act by Ld. Sole Arbitrator as she did not send the disclosure in prescribed form specified in the Sixth Schedule of The Act to the present petitioner embodying existence or otherwise of the grounds giving rise to justifiable doubts as to her independence or impartiality of arbitrator including arbitrator's relationship with the claimants/ Counsel for claimants.
37. In the case of DDA vs M/s Tara Chand Sumit Construction Company, OMP (Misc.) (Comm.) 236/2019, decided on 12/05/2020, Delhi High Court interpreted sub Section (1) of Section 2 of the Act with respect to defining of Court and observed that sub Section (1) of Section 2 begins with the ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 30 of 37 expression "in this part, unless the context otherwise requires". Therein it was interpreted that a Court which has the power to appoint an Arbitrator under Section 11 of the Act can only extend the mandate of the arbitrator under Section 29A of the Act as in the process of extending the mandate of the arbitrator under Section 29A of the Act, need may also arise for substitution of the arbitrator and there may be situation where conflict would arise between the powers of superior Courts to appoint Arbitrators under Section 11 of the Act and those of the Civil Court to substitute those Arbitrators under Section 29A of the Act. It was held therein inter alia that there was no merit in the contention of the Ld. Counsel for respondent that High Court had no pecuniary jurisdiction to entertain the petition for extension of mandate of arbitrator, value of claims being below Rs 2 crores. True that the interpretation of the term "Court" therein was in the context of Section 29A of the Act for extension of the mandate of the Arbitrator but fact remains that while extending the mandate of Arbitrator, there may be need to substitute an Arbitrator. It was also held therein that there was need to avoid conflict that would arise between the power of superior Courts to appoint Arbitrators under Section 11 of the Act and those of the Civil Court to substitute those Arbitrators under Section 29A of the Act as Section 11 of the Act confers power of appointment of Arbitrator only on the High Court or the Supreme Court, as the case may be.
38. By Section 9 of The Arbitration and Conciliation (Amendment) Act 2015 {in short Act 3 of 2016} Section 14 of the Principal Act has been amended. Prior to said amendment, ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 31 of 37 the mandate of legislature with respect to the said provision was only for termination of mandate of an Arbitrator. After said amendment, the mandate of legislature is not only for making provision for termination of the mandate of an Arbitrator but also that he will be substituted by another Arbitrator, on existence of certain pre-conditions, as detailed therein and as elicited herein before which would be implicit clear by the following reproduction of Section 14 before amendment by Act 3 of 2016 and after amendment by Act 3 of 2016.
39. Section 14 (1) of the Act before amendment by Act 3 of 2016 reads as under:
"14. Failure or impossibility to act.- (1) The mandate of an arbitrator shall terminate if--
(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and
(b) he withdraws from his office or the parties agree to the termination of his mandate"
40. Section 14 (1) of the Act after amendment by Act 3 of 2016 reads as under:
"14. Failure or impossibility to act.- (1) The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if--
(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and
(b) he withdraws from his office or the parties agree to the termination of his mandate"
41. On the analogy of interpretation of Section 2(1)(e) of the Act for interpreting the term "Court" adopted by Delhi High Court in the case of DDA vs M/s Tara Chand Sumit Construction Company (supra), when the elicited mandate of legislature amended by Act 3 of 2016 is to be seen, then it makes ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 32 of 37 clear that not only adjudicating authority has to adjudicate whether the mandate of an Arbitrator shall terminate as per Section 14 (1)and (2) of the Act but in case of such termination then there has to be a substitution by another Arbitrator. In terms of law laid by Delhi High Court in the case of DDA vs M/s Tara Chand Sumit Construction Company (supra), such substitution of an Arbitrator is to be so done by the Court which has the power to appoint an Arbitrator under Section 11 of the Act and not the Civil Courts. The mandate of legislature, as elicited and discussed above, in terms of the amended Section 14 of the Act by Act 3 of 2016 also makes it vivid and clear that when the mandate of an Arbitrator shall terminate, he shall be substituted by another Arbitrator if he becomes de-jure or de-facto unable to perform his functions. Petitions under Section 11 of the Act are filed in Delhi High Court irrespective of the pecuniary jurisdiction of the Court and applying the same analogy in the petition under Section 29A of the Act, in the case of DDA vs M/s Tara Chand Sumit Construction Company (supra), Delhi High Court inter alia held that there was no merit in the contention of Ld. Counsel for the respondent therein that High Court had no pecuniary jurisdiction to entertain the petition, value of the claims being below Rs 2 crores.
42. True that unilateral appointment by an authority which is interested in the outcome or decision of the dispute is impermissible in law, as per law laid in the cases of Perkins (supra), Bharat Broadband Network Limited (supra) and Proddatur Cable TV Digi Services (supra), but fact also remains that in an event when the Arbitrator becomes unable to perform ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 33 of 37 his/her functions as an Arbitrator, on finding the mandate of such Arbitrator terminated de jure, then while terminating the mandate of such Arbitrator; in the same exercise another independent Sole Arbitrator needs to be appointed to substitute the previous Arbitraror, as per the amended Section 14 of the Act subsequent to the amendment by Act 3 of 2016. This Court has no power under Section 11 of the Act to appoint the Arbitrator; under Section 29A of the Act to extend the period for making an award, also to substitute an Arbitrator, in terms of law laid in the case of DDA vs M/s Tara Chand Sumit Construction Company (supra).
43. Delhi High Court in Nussli Switzerland Ltd. v. Organizing Committee Commonwealth Games, 2014 SCC OnLine Del 4834 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."ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 34 of 37
44. 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 (Civil) No.13020 of 2020] decided on 20/07/2021.
45. In view of fore going discussions, applying the analogy adopted in the case of DDA vs M/s Tara Chand Sumit Construction Company (supra) by Delhi High Court and placing implict reliance upon law laid in cases of (i) 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; (ii) Nussli Switzerland Ltd. v. Organizing Committee Commonwealth Games (supra); I am of the considered opinion that the mandate of legislature is that neither this District Court has any power to substitute the present Arbitrator by another Arbitrator or to appoint a new Arbitrator.
46. Division Bench of Delhi High Court in the case of Mahanagar Telephone Nigam Limited vs Fujitshu India Private Limited (supra) 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 ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 35 of 37 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."
47. The facts and circumstances of the precedents relied upon by Ld. Counsel for respondent no 2 are entirely different and distinguishable to the facts and circumstances of the case in hand and accordingly they are of no help to the respondents in the fact of the matter for dismissal of present petition.
48. In view of law laid down in the cases of (i) TRF Ltd. (supra); (ii) Bharat Broadband Network Limited (supra); (iii) Perkins Eastman Architects DPC (supra); (iv) HRD Corporation (supra); (v) Proddatur Cable TV Digi Services (supra) and (vi) M/s Omcon Infrastructure Pvt. Ltd. (supra), no arbitrator can be unilaterally appointed by the respondents/ claimants and in this case at the outset vide letter dated 23/02/2017, Sh. Kshitij Aggarwal, Assistant Manager-Legal of respondent no. 2 had unilaterally appointed Ld. Sole Arbitrator without any acceptability of petitioner school of such appointment for adjudicating the dispute between the parties to the lis, which was per contra to Clause 9.1 of the Agreement in question between the parties, elicited herein above. Petitioner was not given proper notice for appointment of Ld. Sole Arbitrator. Even the mandatory disclosure in terms of Fifth and Seventh Schedule of The Act in the format of Sixth Schedule of The Act was not conveyed by Ld. Sole Arbitrator to the petitioner. The impugned award is accordingly liable to be set ARBTN No. 4481/2018 Vidya Education Society (R.) vs. M/s Edu Smart Services Pvt. Ltd. & Others Page 36 of 37 aside, under Section 34(2)(a)(iii), Section 34(2)(a)(v) of The Act, Section 34 (2)(b) (ii) of the Act and also under Section 34 (2A) of The Act, as the impugned award is vitiated by patent illegality appearing on the face of the award, as elicited in detail herein above. Reliance placed upon the cases of Associate Builders (supra), Ssangyong Engineering & Construction Co. Ltd. (supra), Alupro Building Systems Pvt Ltd vs Ozone Overseas Pvt Ltd (supra), International Nut Alliance LLC (supra) and Impex Corporation & Others (supra).
49. For the foregoing reasons, the petition is allowed and the impugned award is set aside.
50. The parties are left to bear their own costs.
51. File be consigned to record room.
Digitally signed by GURVINDER PAL GURVINDER SINGH
PAL SINGH Date: 2021.09.07
11:37:48 +0530
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
th
On 07 September, 2021. Patiala House Court, New Delhi.
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