Delhi District Court
Rakesh Prajapati vs M/S Sbi Cards And Payment Services ... on 9 May, 2025
IN THE COURT OF SH. NARESH KUMAR MALHOTRA,
DISTRICT JUDGE, (COMM. COURT)-06, WEST
TIS HAZARI COURTS, DELHI
OMP(Comm) No. 3/2024
CRN No. DLWT 010020202024
09.05.2025
Rakesh Prajapati
B-402, Sarang Elegance
Near Madhav Bunglows, B/H Vaishnodevi Temple Khoraj,
Opp Patel Samaj Wadi,
Gandhinagar,
Gujrat-382421
Email: [email protected]
Mobile: 9825049434 ... PETITIONER
Versus
M/s Sbi Cards And Payment Services Limited
Unit No.401 and 402, 4th floor,
Aggarwal Millennium Tower,
E1,2,3 Netaji Subhash Place, Wazirpur,
New Delhi-110034
Email: [email protected] ... RESPONDENT
Date of institution: 07.03.2024
Date of argument: 08.05.2025
Date of judgment: 09.05.2025
PETITION UNDER SECTION 34 OF THE ARBITRATION
AND CONCILIATION ACT, 1996 FOR STETTING ASIDE
ARBITRAL AWARD DATED 28.09.2023
OMP(Comm) No. 3/2024 1
JUDGEMENT
1. Vide this petition u/s 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act), the petitioner has assailed the arbitral award dated 28.09.2023 passed by Sole Arbitrator Sh. Susheel Bhartiya in Arbitration Case No.EP/2023/SBIC/ARB/000944 and prayed to set aside the same being illegal.
2. The brief facts of the case are that the respondent provided the credit card facility to the petitioner vide credit card no.4335876445422661. As per arbitral award, the petitioner committed continuous default in making the payment of credit card bills and therefore, the respondent appointed the Sole Arbitrator to determine the disputes between the parties vide notice dated 20.06.2023. The sole Arbitrator passed ex-parte award dated 28.09.2023 directing the petitioner to pay the total sum of Rs.4,24,698.85/- alongwith interest @ 18% per annum from 20.06.2023.
3. The petitioner contended that he came to know about the ex-parte award passed by the Ld. Arbitrator only on 12.12.2023 when his former neighbor handed over the envelope containing the arbitral award. It is submitted by OMP(Comm) No. 3/2024 2 the Ld. Counsel for the Petitioner that the impugned award suffers from several infirmities as under:
1. The Ld. Arbitrator illegally commenced arbitration proceedings without proper and due service of notice to the petitioner. The registered email address of the petitioner has always been [email protected] however, the respondent issued invocation notice dated 20.06.2023 as well as service of arbitral proceedings was made on [email protected].
Furthermore, the postal address on which the envelop containing the arbitral award was sent, does not belong to the petitioner.
2. The respondent has unilaterally appointed the Ld. Arbitrator to obtain ex-parte award in its favour behind the back of the petitioner. Consent of the petitioner was not obtained before the appointment of the Ld. Arbitrator. Reliance is placed on Perkins Eastman Architects DPC and Ors. vs. HSCC (India) Ltd. (2020) 20 SCC 760 .
3. The Ld. Arbitrator appointed by the respondent failed to disclose his relationship with the respondent despite clear mandate in the 2015 amendments to the Act.
OMP(Comm) No. 3/2024 3
4. The arbitral proceedings were based on credit card ending with 4521 which the petitioner never possessed. The petitioner's credit card bears no. 4335 8764 4542 2661 which was not the subject matter of the arbitral proceedings.
5. The award has been passed without following the principles of natural justice. The award is also contrary to public policy and patently illegal.
4. In view of the circumstances, it is claimed that the appointment of sole arbitrator to adjudicate upon disputes between the parties was illegal and void-ab-initio.
5. The respondent has filed a reply to the present petition. It is mentioned that respondent had issued two credit cards bearing no. 0004 3358 7644 5422 661 and 0004 3358 7644 5634 521 to the petitioner. The respondent had duly issued notice of invocation dated 20.06.2023 upon the petitioner at the recorded email address i.e [email protected] of the petitioner. The respondent had appointed a sole arbitrator as per clause 10 of the Cardholder Agreement to determine the dispute between the parties. However, the petitioner failed to participate in the arbitration proceedings. The appointment of arbitrator has been fair and as per the Act.
REASONING OMP(Comm) No. 3/2024 4
6. I have considered the rival contentions by the parties and perused the record.
WHETHER NOTICE OF INVOCATION OF ARBITRATION DULY SERVED UPON THE PETITIONER?
7. To appreciate the contention of the parties challenging the appointment of the Ld. Arbitrator, I deem it imperative to reproduce section Section 21, Section 43(2) and Section 34(2)(iii) of the the Act, which reads as sunder:-
"21. Commencement of arbitral proceedings.--Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent."
"43. Limitations.--(2) For the purposes of this section and the Limitation Act, 1963 (36 of 1963), an arbitration shall be deemed to have commenced on the date referred to in section 21."
"34. Application for setting aside arbitral award.--(2) An arbitral award may be set aside by the Court only if--(a) the party making the application establishes on the basis of the record of the arbitral tribunal that--(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;"
The combined reading of Section 21 and Section 43(2) of the the Act infers that the commencement of arbitral proceedings is incumbent on "receipt of such request or OMP(Comm) No. 3/2024 5 notice". If no notice is received by the concerned respondent, there is no commencement of Arbitral Proceedings at all. Further, Section 34(2)(iii) clearly provides that an award may be set-aside, in the event, where the party appointing an Arbitrator has not given proper notice of the appointment of an Arbitrator or the Arbitral Proceedings.
8. Perusal of the arbitral proceedings filed by the Ld. Arbitrator reveals that the petitioner was proceeded ex- parte vide order dated 01.08.2023 primarily on the assurance provided by the respondent that the address of the petitioner is correct and the same has been provided to the respondent by the petitioner himself. The Ld. Arbitrator has observed in this order that "Ld. Counsel for Claimant submits that Notice for Invocation of Arbitration was duly served upon Respondent on 20.06.2023. However, no reply was submitted by the Respondent in pursuance of the same. Notice for first hearing, i.e. today, was also duly served upon the Respondent on 20.07.2023 through the email address provided by the Claimant. However, none is present today. Claimant has also filed a declaration that the address provided by the Claimant is correct and has been provided by the Respondent to the Claimant. Ld. Counsel for Claimant argued at length that OMP(Comm) No. 3/2024 6 the Respondent should be proceeded ex-parte. Keeping in view the same, the matter is proceeded ex-parte against the Respondent. Claimant is directed to file its Statement of Claim along with Evidence Affidavit on or before next date of hearing i.e. 31.08.2023 with an advance copy to the Respondent."
9. Notice of first hearing dated 20.07.2023 and Invocation of Arbitration Notice dated 20.06.2023 mentions the address of the petitioner as - A-14, SIMANDHAR RESIDENCY GULAB TOWER ROAD SG HIGHWAY, AHMEDABAD, GUJ-380059, and email address as [email protected]. Statement of Claim filed by the respondent contains an affidavit verifying the email address of the petitioner herein, whereby the authorised representative of the respondent has verified the email of the petitioner as [email protected]. Further, the respondent claims in the reply filed to petition that the correct email address of the respondent is [email protected] and not [email protected]. However, no document has been attached with the reply to show that the correct email address of the petitioner as submitted by him is [email protected].
10. On the other hand the petitioner has argued that his correct email address is [email protected] and not OMP(Comm) No. 3/2024 7 [email protected]. The petitioner has duly attached Transaction Dispute Form dated 05.04.2019 as Annexure- P4. Perusal of this document reveals that the respondent bank has provided a specific column which states " Email ID (This is important to allow us to get in touch with you for further clarification)", wherein the petitioner has clearly mentioned his email address as [email protected]. The petitioner has also filed a consumer complaint bearing no. 4102/2020 on 04/02/2020 before the consumer protection forum of Ahmedabad City, Ahmedabad. The respondent is duly contesting the consumer complaint case. Perusal of the complaint shows that petitioner has clearly mentioned in the said complaint that his email address is [email protected] despite the same respondent sent Invocation of Arbitration Notice on [email protected] on 20.06.2023 which is much later to the filing of the consumer complaint by the petitioner. The petitioner has also placed on record an email dated 04.04.2019 sent from email address [email protected] to the respondent at [email protected] wherein the Petitioner has mentioned "Respected sir, my card no. is 4335876445422661. When this card was issued, no big transactions were done on this card. From last three OMP(Comm) No. 3/2024 8 months, we hadn't bought any jewellery and any other shopping from this registered card. I request to SBI that to permanently block this card no. 4335876445422661. And if any other card is registered on the name of Rakesh Prajapati and on this address, then it should be blocked on this card my registered mobile number is 9825049434. My registered email is [email protected]. I have not changed my mobile number and email ID for any card update." Bare perusal of this email clearly shows that petitioner had duly informed the respondent of his correct email address and phone number and even requested to block any card that was registered in his name or address.
11. It is clear that the petitioner has undertaken sufficient measures to inform the respondent of his correct email address, phone number and residential address. However, the respondent deliberately sent Notice of Invocation of Arbitration on the wrong email address that is [email protected]. It is pertinent to note that even during arbitral proceedings the Ld. Arbitrator considered the email address of the petitioner to be [email protected] on sole assurance provided by the authorised representative of the respondent. The respondent had not attached any substantial proof in the arbitral proceedings to show that the petitioner had OMP(Comm) No. 3/2024 9 submitted [email protected] as his email address in the original documents submitted by him at the time of availing credit card facility. It is pertinent to note that the postal delivery of the arbitral award was also improper as it was delivered to the neighbour of the petitioner i.e. Ms. Nalima at A-11 Simandhar residency instead of petitioner's address i.e; at A-14 Simandhar residency. Thus, it is clear that the respondent has deliberately sent Notice of Invocation of Arbitration on the wrong email address, overlooking all the efforts made by the petitioner to inform the respondent of his correct email address.
12. The Hon'ble High Court of Delhi in MONIKA OLI vs. M/S CL EDUCATE LTD [2023/DHC/000371] has held that "However, in the present case, the Respondent has failed to bring anything on record to substantiate that the delivery of the award was made to the Petitioner, apart from the delivery to Mr. Shrey Baxi. In the opinion of this Court, this cannot constitute as an effective delivery to the Petitioner more so, when in the arbitral dispute, the Petitioner was individually concerned and that the dispute did not pertain to her position at Knowledge Planet LLC.................................................................. ....................................................................... .....This court is conscious of its duty to ensure compliance OMP(Comm) No. 3/2024 10 with the principles of natural justice and when an award has been passed without complying with the mandatory principles of natural justice, this Court being the custodian of rights and liberties of parties has to take its guard to correct the infirmities which have already been carried out. Nothing has been brought on record to portray that Mr. Baxi had accepted the arbitral award on behalf of the Petitioner. Therefore, delivery to the employee of an entity in which the Petitioner is a shareholder but the arbitration dispute did not pertain to that entity, would not constitute as a proper delivery in terms of the Arbitration Act."
13. The question as to whether compliance with Section 21 is mandatory or directory is no longer res integra. A Division Bench of Hon'ble High Court of Delhi in Shriram Transport Finance Co. Ltd. vs. Shri Narendra Singh, (2022) SCC OnLine Del 3412 has held as under :-
8.5 A week later, a letter dated 27.09.2018, was sent by the Appellant Company to the Arbitrator appointing him as the ―Sole Arbitrator to adjudicate the disputes and differences between Shriram Transport Finance Co. Ltd. and Mr Narender Singh (Hirer) and pass the award. This letter was neither marked to the Respondent nor is there any averment by the Appellant Company that the letter dated 27.09.2018 was in fact sent to the Respondent.OMP(Comm) No. 3/2024 11
8.6 From a perusal of the Arbitral Award, it is also apparent that the letter dated 27.09.2018 was sent by the Appellant Company to the Arbitrator, by hand, through one Mr Tekchand Sharma, Attorney for the Appellant Company.
9. ......
9.1 A plain reading of this Section shows that Arbitral proceedings commence on the date on which the request for the dispute to be referred to Arbitration is received by the concerned Respondent. Therefore, the commencement of Arbitral proceedings is incumbent on the receipt of such request or notice. If no notice is received by the concerned Respondent, there is no commencement of Arbitral proceedings at all. Emphasis here is also made to the fact that the notice should not only be sent but also that the notice should be received for such request for commencement.
10. The Appellant Company has relied on the letters dated 20.09.2018 and 27.09.2018 to show compliance with Section 21 of the Act. This reliance by the Appellant Company is completely misconceived. The letter of 20.09.2018 was a unilateral communication sent by the Appellant Company to the Respondent. As discussed above, the letter did not set-
forth any details about who was being appointed as an Arbitrator or the procedure being followed. The Appellant Company merely stated that they have a right to initiate Arbitral proceedings and so they will initiate Arbitral proceedings. There was no person named as an Arbitrator therein nor was any consensus sought in such appointment. OMP(Comm) No. 3/2024 12 There is no evidence of this letter ever being received by the Respondent on record either. As such, the letter dated 20.09.2018 would not qualify as notice under Section 21 of the Act.
10.1 The letter dated 27.09.2018, was never sent to the Respondent so there was no question of this letter being received by the Respondent. It was only sent to the Arbitrator. This letter could not qualify to be the notice of commencement of proceedings either.
14. Thus, considering the facts in hand it is clear that respondent has miserably failed to comply with the mandatory provision of Section 21 of the the Act. The Notice of Invocation of Arbitration dated 20.06.2023 sent by the respondent to the petitioner on email address [email protected] is invalid and cannot qualify to be the notice of commencement of arbitral proceedings. WHETHER THE LD. SOLE ARBITRATOR DULY APPOINTED?
15. The Ld. Arbitrator was appointed as per clause 10 of the Cardholder Agreement which is reiterated as below:-
The Cardholder Agreement shall be governed by the laws of India and the courts of Delhi.OMP(Comm) No. 3/2024 13
Any dispute, difference and / or claims arising out of in connection with or in relation to this Agreement, shall be settled by arbitration in accordance with the the Act, 1996 and any subsequent statutory amendment, if any, to the Act, by a sole arbitrator, whose appointment shall be made at the instance and discretion of the SBICPSL. The arbitrator appointed shall be competent to decide whether any matter or dispute or difference referred to the arbitrator falls within the purview of arbitration as provided for in the clause and/or should be decided under the the Act, 1996.
Any arbitration award granted shall be final and binding on the Parties. The venue and seat of the Arbitral Tribunal shall be at New Delhi.
This clause 10 shall survive termination of the Cardholder Agreement.
It is clear from the perusal of clause 10 of the Cardholder Agreement that the appointment of sole arbitrator could only be made at the instance and discretion of the respondent. It is also pertinent to note that the petitioner had zero power to negotiate the terms of the Cardholder Agreement entered between the parties.
16. Further, the Notice of Invocation of Arbitration dated 20.06.2023 states that "5. By virtue of Clause 10 of Cardholder Agreement executed between the cardholder OMP(Comm) No. 3/2024 14 and SBICPSL, all disputes arising between the parties, shall be resolved by arbitration with exclusive discretion of SBICPSL to appoint the Sole Arbitrator; hence, we on behalf of SBICPSL have referred the dispute to Sh. Susheel Bhartiya Advocate having his office at 235, Ground Floor, DDA Flats, Jai Dev Park, East Punjabi Bagh, Delhi - 110026 to act as Sole Arbitrator to resolve the disputes between SBICPSL and Cardholder." It is clear from paragraph no. 5 of this notice that the right to appoint sole arbitrator was exclusively confined in the hands of the respondent.
17. The law concerning the appointment of the arbitrator is no les-integra. It is evident that the Ld. Arbitrator has been appointed unilaterally without obtaining the consent of the petitioner. It has been held by the Hon'ble Supreme Court in TRF Ltd. Vs. Energo Engineering Projects Ltd. (2017) 8 SCC 377 that when the Managing Director of a Company has been specifically made ineligible to act as an Arbitrator in a dispute involving the Company by virtue of Section 12 (5) of the the Act, 1996 r/w 7th Schedule, he cannot nominate any other person also as an Arbitrator. It would be apposite to reproduce the following paragraph of the said Judgment:- OMP(Comm) No. 3/2024 15
"54. In such a context, the fulcrum of the controversy would be, can an ineligible arbitrator, like the Managing Director, nominate an arbitrator, who may be otherwise eligible and a respectable person. As stated earlier, we are neither concerned with the objectivity nor the individual respectability. We are only concerned with the authority or the power of the Managing Director. By our analysis, we are obligated to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated. Therefore, the view expressed by the High Court is not sustainable and we say so".
18. The Hon'ble Supreme Court affirmed the judgment passed by the Hon'ble High Court of Delhi in case titled Kotak Mahindra Bank Ltd Vs Narender Kumar Prajapati Special Leave Petition (Civil) Diary No (s) 47322/2023 vide order dated 12.12.2023, observing that " From paragraph 6 of the impugned order, it appears to be an OMP(Comm) No. 3/2024 16 admitted position that the Arbitrator unilaterally appointed by the petitioner was ineligible to be appointed as an arbitrator by virtue of Section 12(5) of the Arbitration and Conciliation Act, 1996. Hence, in view of this peculiar factual position, no case for interference is made out in exercise of our jurisdiction under Article 136 of the Constitution of India. The Special Leave Petition is accordingly dismissed."
19. In the present case, the respondent appointed the Arbitrator without the petitioner's consent, violating the fundamental principles of natural justice and neutrality as enshrined in the Act, 1996. The Hon'ble Supreme Court in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. (2019) 17 S.C.R. 275 categorically held that a person who has an interest in the outcome or decision of the dispute must not have the power to appoint a Sole Arbitrator. This principle was further reinforced in Bharat Broadband Network Ltd. v. United Telecoms Ltd. (2019) 6 S.C.R. 97, where it was ruled that a unilaterally appointed Arbitrator is de jure ineligible to perform his functions, and his mandate is automatically terminated under Section 14(1)(a) of the Act.
20. The unilateral appointment by the respondent falls foul of Section 12(5) of the Act, which declares such OMP(Comm) No. 3/2024 17 appointments impermissible unless expressly waived in writing by the other party. As observed by the Hon'ble Delhi High Court in Ram Kumar & Ors. v. Shriman Transport Finance Co. Ltd (MANU/DE/4941/2022), an award rendered by a person who is ineligible to act as an arbitrator would be of little value, it cannot be considered as an arbitral award under the the Act. Since no such waiver was obtained from the petitioner, the appointment is patently illegal
21. In light of the above, the arbitral proceedings itself is tainted being severely illegal, rendering the entire proceedings void ab initio. The Hon'ble Supreme Court in TRF Ltd. v. Energo Engineering Projects Ltd. (2017) 7 S.C.R. 409 had already struck down such appointments, emphasizing that the ineligibility of arbitrator goes to the root of jurisdiction. Consequently, the impugned award, being a product of proceedings conducted by an ineligible Arbitrator, is non-est in law and cannot survive judicial scrutiny under Section 34 of the Act.
22. In this case, the respondent not only disregarded the Digitally signed by petitioner's attempts to provide the correct email address NARESH KUMAR NARESH KUMAR MALHOTRA but also continued to send the arbitration notice to the MALHOTRA Date:
2025.05.09 16:47:34 +0530 wrong email. Additionally, the petitioner unilaterally OMP(Comm) No. 3/2024 18 appointed the arbitrator, which makes the final award non-
est in law.
23. Hence, the petition is allowed and the impugned arbitral award dated 28.09.2023 passed by Sole Arbitrator Sh. Susheel Bhartiya in Arbitration Case No.EP/2023/SBIC/ARB/000944 is hereby set-aside.
(NARESH KUMAR MALHOTRA) District Judge (Comm. Court)-06 West, Tis Hazari Courts, Delhi. 09.05.2025 OMP(Comm) No. 3/2024 19