Andhra Pradesh High Court - Amravati
S Zakeer Basha vs Shriram City Union Finance Company ... on 6 February, 2020
Author: C.Praveen Kumar
Bench: C.Praveen Kumar, Battu Devanand
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THE HON'BLE SRI JUSTICE C. PRAVEEN KUMAR
AND
THE HON'BLE SRI JUSTICE BATTU DEVANAND
C.M.A. No. 25 of 2020
ORDER:(Per Hon'ble Sri Justice C.Praveen Kumar)
1) Heard both sides and perused the record.
2) Challenging the Order, dated 26.09.2019, passed in A.O.P. No.124 of 2016, by the I Additional District Judge, Kurnool, wherein, the application filed under Section 34 of the Arbitration and Conciliation Act, 1996 [the 'Act'], praying the court to set-aside the Award, dated 27.02.2016, passed in Arbitration Application [A.A.] No. 122 of 2015 by the Arbitral Tribunal, Kurnool, was dismissed, the present Civil Miscellaneous Appeal came to be filed under Section 37 of the Act.
3) As seen from the proceedings, pursuant to an agreement entered into by both the parties, the sole arbitrator was appointed and a claim petition came to be filed before him on the ground that the 1st Petitioner/Appellant availed loan of Rs.4,00,000/- for development of his business on 26.04.2014 and executed an Agreement vide Ex.A4 to which the 2nd and 3rd Petitioners/Appellants stood as guarantors. The parties agreed to repay the same with interest at 20% per annum in 36 equal monthly instalments at Rs.17,778/- each, but paid only an amount of Rs.1,42,446/- thereby committed default in payment of money.
4) It is said that, in-spite of issuing legal notice, dated 09.09.2015, there was no response from the Appellants. The sole Arbitrator came to be appointed, for which no objection was raised at the initial stage, but, 2 however, the Appellants/Petitioners did not participate in the proceedings nor they appeared before the Arbitrator. Thereafter, an Award came to be passed. Challenging the same, A.O.P. No. 124 of 2016 came to be filed before the learned I Additional District Judge, Kurnool. The objection raised was that the appointment of sole arbitrator is illegal and contrary to mandatory procedure contemplated under law and that the sole arbitrator failed to follow the procedure as required under law. The counsel for the Appellants/Petitioners further pleads that, without giving notice, an ex parte award came to be passed, as such, the same is illegal, improper and incorrect.
5) A counter came to be filed by 1st Respondent denying the averments made in the application contending that there is an arbitration clause in the agreement and accordingly Sri. Y. Reddeppa Reddy, was appointed as sole Arbitrator. It is further urged in the counter that, in-spite of giving several opportunities, the Appellants/Petitioners herein did not respond, as such, they were set ex parte and the 4th Respondent herein i.e., the sole Arbitrator concluded the proceedings by following the procedure.
6) Taking into consideration the grounds raised, the learned I Additional District Judge, Kurnool, in the impugned proceedings dismissed the request of the Appellants/Petitioners herein. Challenging the same, the present Civil Miscellaneous Petition came to be filed.
7) Reiterating the grounds urged in A.O.P. No. 124 of 2016, Sri.J.U.M. V. Prasad, learned Counsel for the Petitioners would contend that the entire procedure that is followed by the sole Arbitrator is incorrect. In other words, his plea is not giving any option to the 3 Petitioners in choosing an Arbitrator in adjudicating the matter is incorrect.
8) On the other hand, Sri. Maheshwara Rao Kuncheam, learned Counsel for the Respondents would submit that, in view of the law laid down by the Hon'ble Apex Court in The Iron and Steel Company Limited v. M/s. Tiwari Road Lines1 case, the order impugned requires no interference.
9) The short point that arises for consideration is, whether the procedure that is followed in appointing arbitrator is in accordance with law?
10) Clause 17 of the Loan Agreement [Ex.A4] states that 'all the disputes, differences or claims arising out of the said agreement shall be settled by an Arbitrator, duly appointed by the 1st Respondent Company'. Therefore, the argument that there is no arbitration clause in the agreement entered into by both the parties cannot be accepted. Further, a reading of the above "clause" clearly indicates that, all the differences or disputes arising between the parties shall be settled by an Arbitrator duly appointed by the 1st Respondent Company. It nowhere indicates any choice being given to the loanees or the Appellants herein in selecting an Arbitrator. Existence of this clause in the agreement was never objected to by the Appellant herein at any point of time.
11) Sub-section 2 of Section 11 of the Act postulates that subject to sub-section 6, the parties are free to agree on the procedure relating to appoint of an Arbitrator or Arbitrators.
1 AIR 2007 SC 2064 4
12) Referring to Section 11 of the Act, more particularly, sub-section 2 of Section 11, the Hon'ble Apex Court in The Iron and Steel Company Limited v. M/s. Tiwari Road Lines [supra] held as under:-
"7. In the present case the agreement executed between the parties contains an arbitration clause and clause 13.1 clearly provides that all disputes and differences whatsoever arising between the parties out of or relating to the construction, meaning and operation or effect of the contract or the breach thereof shall be settled by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration and the award made in pursuance thereof shall be binding on the parties. This clause is in accordance with sub-section (2) of Section 11 of the Act. There being an agreed procedure for resolution of disputes by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration sub-sections (3), (4) and (5) of Section 11 can have no application. The stage for invoking sub-
section (6) of Section 11 had also not arrived. In these circumstances, the application moved by the respondent before the City Civil Court, Hyderabad, which was a designated authority in accordance with the scheme framed by the Chief Justice of the Andhra Pradesh High Court, was not maintainable at all and the City Civil Court had no jurisdiction or authority to appoint an arbitrator. Thus the order dated 31.03.2004 passed by the Chief Judge, City Civil Courts, Hyderabad, appointing a retired juridical officer as arbitrator is clearly without jurisdiction and has to be set aside.
8. The legislative scheme of Section 11 is very clear. If the parties have agreed on a procedure for appointing the arbitrator or arbitrators as contemplated by sub-section (2) thereof, then the dispute between the parties has to be decided in accordance with the said procedure and recourse to the Chief Justice or his designate cannot be taken straightaway. A party can approach the Chief Justice or his designate only if the parties have not agreed on a procedure for appointing the arbitrator as contemplated by sub-section (2) of Section 11 of the Act or the various 5 contingencies provided for in sub-section (6) have arisen. Since the parties here had agreed on a procedure for appointing an arbitrator for settling the dispute by arbitration as contemplated by sub-section (2) and there is no allegation that anyone of the contingencies enumerated in clauses (a) or (b) or (c) of sub- section (6) had arisen, the application moved by the respondent herein to the City Civil Court, Hyderabad, was clearly not maintainable and the said court had no jurisdiction to entertain such an application and pass any order. The order dated 27.12.2004, therefore, is not sustainable".
13) From a reading of the judgment referred to above, it is very clear that, if the parties agreed upon a particular procedure for appointment of an Arbitrator as contemplated under Clause 17 of the Loan Agreement, the disputes between the parties, more particularly with regard to appointment of arbitrator, have to be in accordance with the said procedure. Therefore, the argument of the learned Counsel for the Appellants that, no opportunity was given to the Appellants in proposing the name of an arbitrator, has no merit.
14) Ergo, we see no merits in the Appeal and the same is accordingly dismissed. No order as to costs.
15) Consequently, miscellaneous petitions pending, if any, shall stand closed.
________________________________ JUSTICE C. PRAVEEN KUMAR _______________________ JUSTICE BATTU DEVANAND Date: 06.02.2020 SM.
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THE HON'BLE SRI JUSTICE C. PRAVEEN KUMAR AND THE HON'BLE SRI JUSTICE BATTU DEVANAND C.M.A. No. 25 of 2020 (Per Hon'ble Sri Justice C.Praveen Kumar) Date: 06.02.2020 SM.