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Delhi District Court

Objector/ vs Edusmart Services Pvt Ltd on 13 September, 2019

IN THE COURT OF MS. TWINKLE WADHWA: LD. ADDITIONAL DISTRICT
      JUDGE­03:PATIALA HOUSE COURT:NEW DELHI DISTRICT

Arb No. 376/18

      Sri Surya Educational Society.
      Through The Chairman Sh. A.V.N Reddy
      Plot no­36, Karmmnaghat,
      Ranga Reddy District,
      Telangana, Pin­ 500079

                                          .....Objector/Applicant

      VERSUS


1.    Edusmart Services Pvt Ltd
      Having Its Registered office at­
      L­74, Mahipalpur Ext.,
      New Delhi­110037

2.    M/s Educomp Solutions Ltd,
      Having its office at No. 1211,
      Padma Tower­1, 5, Rajendra Place,
      New Delhi­110008.

3.    Ms. Sonia Singhani, Advocate
      Ld. Sole Arbitrator
      Chamber no­103, Block­III,
      Delhi High Court,
      New Delhi­110003
                                 .... Respondents/Claimants

Arb No.376/18                                   Page 1 of 13
 Date of Institution           :     12.03.2018
Date of Final Arguments       :     27.08.2019
Date of Decision              :     13.09.2019
Conclusion                    :     Allowed


                            JUDGMENT

The Case­

1. By this order, I shall dispose off the objection petition filed u/Sec 34 of Arbitration and Conciliation Act by the objector/school against the ex­parte Arbitral Award dated 27.08.2015 passed by Ld. Sole Arbitrator Ms. Sonia Singhani (Advocate) whereby petitioner has been directed to pay a sum of Rs. 15,96,530/­ alongwith interest @ 18% p.a from the date of accrual of interest till the date of filing of the claim petition and also cost of proceedings. 2 There are several cases against Edu Smart/Edu Comp which are pending before this Court. I have already given my opinion in the first such matter which was disposed off by this Court as 'Pragati Public School VS Edu Smart Services' dated 07.03.2019. On the similar grounds, I am passing the present judgment as well. Case of Claimant/Respondent­

3. The case of respondent as per claim petition filed before Ld. Arbitrator is that M/s Educom Solutions Ltd. is a duly incorporated Arb No.376/18 Page 2 of 13 company and M/s Edu Smart Services Pvt Ltd its a wholly owned subsidiary. They are working in education sector since 1994 and are pioneers in E­education. They create smart class rooms which are technologically and digitally enabled. They supply hardware and software on sale as well as license basis.

4. On 15.03.2010, Tripartite Agreement was entered into between the two claimant companies and petitioner/school. Under the agreement, hardwares were sold to the objector and were supposed to be installed at objector school/premises. Software and other services were also to be supplied in hard disk. Support services were also to be provided apart from other consumables like printing paper etc. The payment was to be made by objector as per agreement between the parties. Payment was to be made in installments. It is further the case of claimants that they performed their part of the contract by supplying hardware and software services. They rendered services to the satisfaction of objector. Despite this, the school/objector failed to make the payment. Consequently, a legal notice was issued for payment of the balance amount. When the dues were not cleared despite notice, the matter referred to sole arbitrator.

5. Consequently, arbitration was invoked by issuance of letter to the arbitrator seeking his consent and hence the arbitration Arb No.376/18 Page 3 of 13 proceedings commenced. Ld. Arbitrator issued notice to the objector but he did not appear and hence they were proceeded ex­ parte. Evidence was recorded which was followed by passing off the impugned award.

6. It is the case of respondent that the present Section 34 application is barred by limitation and hence liable to be dismissed. Objector's case­

7. Objector has admitted the tripartite agreement between the parties. It is argued by objector as follows­ (I) No proper notice was issued to the applicant u/Sec 21 of A&C Act. It is submitted that only one demand notice was issued but it cannot be termed as notice u/Sec 21 of A&C Act.

(ii) It is submitted that as per Clause 9.1 of the Tripartite Agreement, the arbitrator had to be a mutually acceptable sole Arbitrator but no consent was obtained while appointing the present sole arbitrator by the claimant.

(iii) It is submitted that no notice was received from Ld. Arbitrator and Petitioner was proceeded ex­parte illegally.

(iv) The claimants were negligent as they did not supply the services properly.

(v) Further, it is argued that Arbitrator is not an independent arbitrator as he is appointed in several other matters as well.

8. It is the case of Objector that after entering into the agreement between the parties, respondent failed to provide the services of resource coordinator. Further codes were known only to the Resource Coordinator employed by respondent no.1. However, the Resource Coordinator were removed. Further it came to the knowledge of arbitrator through news reports that respondents had terminated its employees and was on verge of bankruptcy. Eventually the objector had to tie­up with M/s Next Education (Teach Next) to provide 'Smart Class' solution and had to incur heavy expenses for the same. Arbitrator was not aware of the arbitration proceedings. It was in the Second week of September 2017, when officials of respondents came to the objectors thereby demanding the award amount, that objector appointed a counsel and obtained certified copy which was provided by the arbitrator on 26.12.2017. Hence there is no delay in filing the present arbitration petition. Further there is nothing in the Court file to show that the arbitral award was ever served upon the petitioner. Further the notice was never received from arbitrator about the pendency of the proceedings. Further the present arbitrator is appointed in other matters also and is a stock arbitrator of respondents no. 1 and 2.

Reasons for Decision­

9. I have heard both the sides and gone through the record.

10. As far as issue of limitation is concerned, a perusal of the original arbitration record would show that, vide postal receipt dated 24.09.2016, copy of the award was sent to the present objector but the tracking report is not on record to show that it was duly served. Hence, there is nothing on record to show that the copy was received by the objector. Hence, the arguments of the objector that they came to know about the present award in the Second week of September appears probable. Further it is stated on affidavit by petitioner that they applied for certified copy on 04.10.2017 through its counsel which was furnished on 26.12.2017. Hence the argument appears genuine. Hence, there is no delay in filing the present Section 34 A&C Act petition.

11. It is the objection raised on behalf of objector that even though notice u/Sec 21 of A&C Act is mandatory, no such notice was ever issued to the objector by the claimant.

Section 21 of Arbitration & Conciliation Act is as follows­

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.

12. In the present case, there is no such notice issued to the objector. There is one notice on record which was issued by claimant to the objector's school but the same is a demand notice and not a notice u/Sec 21 of A&C Act. It only states that certain dues are to be cleared by objector's school and in case they are not cleared on time, arbitration shall be invoked.

13. Further, it was observed in: Alupro Building Systems Pvt Ltd VS Ozone Overseas Pvt Ltd, MANU/DE/0495/2017, has held that­ "28. Lastly, for the purposes of Section 11 (6) of the Act, without the notice under Section 21 of the Act, a party seeking reference of disputes to arbitration will be unable to demonstrate that there was a failure by one party to adhere to the procedure and accede to the request for the appointment of an arbitrator. The trigger for the Court's jurisdiction under Section 11 of the Act is such failure by one party to respond.

29. Of course, as noticed earlier, parties may agree to waive the requirement of such notice under Section 21. However, in the absence of such express waiver, the provision must be given full effect to. The legislature should not be presumed to have inserted a provision that serves a limited purpose of only determining, for the purposes of limitation, when arbitration proceedings commenced. For a moment, even assuming that the provision serves only that purpose viz. fixing the date of commencement of arbitration proceedings for the purpose of Section 43 (1) of the Act, how is such date of commencement to be fixed if the notice under Section 21 is not issued? The provision talks of the 'Respondent' receiving a notice containing a request for the dispute "to be referred to arbitration". Those words have been carefully chosen. They indicate an event that is yet to happen viz. the reference of the disputes to arbitration. By overlooking this important step, and straightaway filing claims before an arbitrator appointed by it, a party would be violating the requirement of Section 21, thus frustrating an important element of the parties consenting to the appointment of an arbitrator.

30. Considering that the running theme of the Act is the consent or agreement between the parties at every stage, Section 21 performs an important function of forging such consensus on several aspects viz. the scope of the disputes, the determination of which disputes remain unresolved; of which disputes are time­ barred; of identification of the claims and counter­claims and most importantly, on the choice of arbitrator. Thus, the inescapable conclusion on a proper interpretation of Section 21 of the Act is that in the absence of an agreement to the contrary, the notice under Section 21 of the Act by the claimant invoking the arbitration clause, preceding the reference of disputes to arbitration, is mandatory. In other words, without such notice, the arbitration proceedings that are commenced would be unsustainable in law.

34. .......... In view of section 21 of the Act providing that the arbitration proceedings shall be deemed to commence on the date on which "the request for that dispute to be referred to arbitration is received by the respondent" the said confusion is cleared. Therefore the purpose of section 21 of the Act is to determine the date of commencement of the arbitration proceedings, relevant mainly for deciding whether the claims of the claimant are barred by limitation or not."

14. Further, as per clause 9.1 of the Tripartite agreement, the arbitrator has to be an acceptable arbitrator.

Clause 9.1 of Tripartite Agreement is as follows­ "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 threunder. The sole Arbitrator shall be appointed by Part A. the venue of arbitration shall be at New Delhi and the language shall be English. The Courts in New Delhi shall have jurisdiction to entertain all Arb No.376/18 Page 8 of 13 disputes between the parties."

15. Hence, it was mandatory to send notice to the objector with respect to the arbitrator to be appointed to seek his consent but no such notice was ever sent. Further there is nothing in arbitral record to show that any notice in accordance with Section 21 of A&C Act or in accordance with Clause 9.1 of Arbitrator Act was sent to the objector school by respondent. In the arbitral record, there is a letter written by respondent's counsel to the objector which is a legal notice and it does not contain any reference to the invoking of arbitration. Further there is a letter written by respondent company to the arbitrator thereby apprising him of the proposal to appoint him as arbitrator. There nothing on record to show that the copy was sent to objector. Hence, it cannot be said that the arbitrator which was appointed was the one which was acceptable to both the parties.

16. Further, it was observed in: Dharma Prathishthanam vs. M/s Madhok Construction Pvt. Ltd., SP (Civil) 7835 of 2003, decided on : 02/11/2004, wherein Hon'ble Su preme Court has held that :

"7. An arbitrator or an Arbitral Tribunal under the Scheme of the 1940 Act is not statutory. It is a forum chosen by the consent of the parties as an alternate to resolution of disputes by the ordinary forum of law Courts. The essence of arbitration without assistance or intervention of the Court is settlement of the dispute Arb No.376/18 Page 9 of 13 by A Tribunal of the own choosing of the parties. Further, this was not a case where the arbitration clause authorised one of the parties to appoint an arbitrator without the consent of the other. Two things are, therefore, of essence in cases like the present one: firstly, the choice of the Tribunal or the arbitrator; and secondly, the reference of the dispute to the arbitrator. Both should be based on consent given either at the time of choosing the Arbitrator and making reference of else at the time of entering into the contract between the parties in anticipation of an occasion for settlement of disputes arising in future.

12. On a plain reading of the several provisions referred to hereinabove, we are clearly of the opinion that the procedure followed and the methodology adopted by the respondent is wholly unknown to law and the appointment of the sole arbitrator Shri Swami Dayal, the reference of disputes to such arbitrator and the ex­parte proceedings and ward given by the arbitrator are all void ab inito and hence nullity, liable to be ignored. In case of arbitration without the intervention of the Court, the parties must rigorously stick to the agreement entered into between the two. If the arbitration clause names and arbitrator as the one already agreed upon, the appointment of an arbitrator poses no difficulty. If the arbitration clause does not name an arbitrator but provides for the manner in which the arbitrator is to be chosen and appointed, then the parties are bound to act accordingly. If the parties do not agree then arises the complication which has to be resolved by reference to the provisions of the Act. One party cannot usurp the jurisdiction of the Court and proceed to act unilaterally. A unilateral appointment and a unilateral reference, both will be illegal.

17. In Union of India Vs. Prafulla Kumar Sanyal (1979) 3 SCC 631, this Court observed that an order of reference can be either to an arbitrator appointed by the parties whether in the agreement or otherwise or where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court. If no such arbitrator had been appointed and where the parties cannot agree upon an arbitrator, the Court may proceed to appoint an arbitrator itself. Clearly one party cannot force his choice of arbitrator upon the other party to which the latter does not consent. The only solution in such a case is to seek an appointment from the Court.

35. Thirdly, if the petitioner is not named and the authority who would appoint the arbitrator is also not specified, the appointment Arb No.376/18 Page 10 of 13 and reference shall be to a sole arbitrator unless a different intention is expressly spelt out. The appointment and reference­ both shall be by the consent of the parties. Where the parties do not agree, the Court steps in an assumes jurisdiction to make an appointment also to made a reference, subject to the jurisdiction of the Court being invoked in that regard. We hasten to add that mere inaction by a party called upon by the other one to act does not lead to an inference as to implied consent or acquiescence being drawn. The appellant not responding to respondent's proposal for joining in the appointment of a sole arbitrator named by him could not be construed as consent and the only option open to the respondent was to have invoked the jurisdiction of Court for appointment of an arbitrator and an order of reference of disputes to him. It is the Court which only could have compelled the appellant to joint in the proceedings."

Further, Section 34(2) (a) (iii) of Arbitration & Conciliation Act is as follows­ "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 furnishes proof 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;"

17. Hence, the decision of respondent to unilaterally appoint Ms. Sonia Singhani (Advocate) as a Sole Arbitrator without notifying the objector and also the decision to invoke the arbitration clause without notifying the objector has rendered the entire arbitral proceeding vitiated. It is in contravention with the provision of Arb No.376/18 Page 11 of 13 Arbitration Act, provisions of the Tripartite Agreement and against basic notions of justice. As the very foundation of the arbitral proceedings is found to be untenable in law, the proceedings in the award deserves to be set aside. Hence, no useful parties would be served by dealing with award on merits when the entire foundation on which the arbitration proceedings commenced has been shattered.

18. Further as per Section 12 of A&C Act arbitrator is required to disclose in writing, any circumstances likely to raise justifiable doubts as to his independents or impartiality. However, there is nothing on record to show that arbitrator disclosed to the opposite party that he/she has been appointed in other matters and in how many matters. Needless to say, the present arbitrator is appointed in several other matters as well by the respondents, some of which are pending before this Court also as is pointed out by Ld counsel for objector. This itself is also a ground which gives rise to justifiable doubts as to independence and impartiality of the arbitrator appointed in this case.

19. The present award has failed to comply with the above discussed provisions of Arbitration and Conciliation Act as well as terms and conditions of the agreement between the parties. Hence, it is against fundamental policy of Indian Law.

20. The Objection Petition is accordingly allowed. The proceedings initiated by Ld. Arbitrator and the impugned award dated 27.08.2015 passed by Ld. Sole Arbitrator is hereby set aside. Parties are left to bear their own cost. Parties are at liberty to initiate Arbitration Proceedings again as per law.

      File be consigned to record room.                         by TWINKLE
                                                                WADHWA
                                                 TWINKLE        Date:
Announced in an open Court                       WADHWA         2019.09.13
                                                                16:51:33
On 13th day of September 2019.                                  +0530

                                              (Twinkle Wadhwa)
                                            ADJ­03/PHC/NEW DELHI
                                                13.09.2019.




Arb No.376/18                                             Page 13 of 13