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Delhi District Court

Neelmani Sharma vs Comtech Espirit Pvt. Ltd. And Ors on 19 October, 2024

     IN THE COURT OF MS SAVITA RAO, DISTRICT JUDGE
             COMMERCIAL COURT-01, SOUTH,
                 SAKET COURTS, DELHI

CNR No. DLST01-007009-2018
ARBTN No. : 261/2018

In the matter of :-
Neelmani Sharma
R/o B-27, Sarvodya Enclave
New Delhi - 110017
                                      ............Petitioner

Vs.

1. Comtech Espirit Pvt. Ltd.
Regd. Off B-58, Sarvodya Enclave
New Delhi - 110017

2. Vinod Kumar Sharma
R/o N-58, Ground Floor,
Sarvodya Enclave, New Delhi - 110017

3. Meena Kaushik
R/o A-124, Ground Floor
Vikaspuri, New Delhi - 110017
                                      ..............Respondents

Date of institution of the petition        : 18.10.2018
Date of final arguments                    : 03.09.2024, 24.09.2024
                                             & 08.10.2024
Date of judgment                           : 19.10.2024

                                 ORDER

1. This is petition u/s 34 of Arbitration and Conciliation Act filed on behalf of petitioner alleging award dated 08.07.2018 as fraudulent and challenging the appointment of arbitrator as illegal and also on ground of fraud, forgery and fabrication of documents notwithstanding the arbitration clause.

2. It was stated that unilaterial power of appointment of arbitrator was fraudulently usurped and misused to the own benefit by respondent no.2 which renedered the impugned award as illegal, vitiated by fraud and liable to be set aside. It was also stated that no arbitration agreement existed between the parties, none of the mandatory requirements of the act were complied with by the respondents in as much as petitioner never received notice of invocation of arbitration clause from any of the respondents nor was the petitioner ever informed with regard to the proposed appointment of the arbitrator.

3. Facts giving rise to the present dispute are that respondent no.1 company is a family owned private limited company whereas respondents no.2 and 3 are the elder brother and sister of petitioner. Respondent company was having interest in property bearing no. B- 58, Sarvodya Enclave, New Delhi - 110017 which was purchased by father of petitioner and respondents no. 2 & 3 by way of company transfer from erstwhile owner Mr. Pawan Garg. Father of petitioner and respondent no.2 were inducted as Directors in respondent company and the erstwhile Directors Mr. Pawan Garg and others resigned from respondent no.1 company and shareholding was also changed/bought by the family. Whole family contributed in the purchase of property/company transfer. Respondent no.3 was appointed as Director of respondent company on 28.05.2012.

4. As further stated, as per the last ROC record, there were only two shareholders and only two directors in respondent company i.e. the petitioner and respondent no.2. After death of father of parties, two properties of another family company ARBTN No. : 261/2018 2/15 measuring 1000 and 2000 sq. yards were resolved to be transferred to the husband of respondent no.3 in order to protect them from getting affected on account of pending litigations pertaining to the company and on the assurance that the said properties wil be returned back to the company once the litigation concludes, however respondent no.3 subsequently alongwith her husband helped respondent no.2 in squandering those properties by getting them transferred in name of respondent no.2, which marked the commencement of various disputes between the parties. Subsequently, it was transpired to petitioner that blatant act of fraud was plyaed by respondents no. 2 to 3 in order to not only oust the petitioner from the management of respondent no.1 company but also to usurp the family property on the basis of forged and fabricated documents. Subsequent to arising of dispute between the parties, arbitration clause 90 of Memorandum and Articles of Association of company was invoked by respondent company and Arbitrator was appointed. After conclusion of arbitral proceedings, arbitral award dated 08.07.2018 was passed by Ld. Arbitrator which is under challenge before this court.

5. As noted in the arbitral award dated 08.07.2018, the claimant company/respondent had invoked the arbitration clause 90 of the Memorandum and Articles of Association of the company. Claimant Company/respondent as per the powers conferred upon it under Clause 90 of the Articles of Association through its Managing Director i.e. Mr. Vinod Kumar Sharma (respondent no.2 herein) appointed Ld. Arbitrator as the Sole Arbitrator vide its letter dated 24.07.2017. Said appointment was ARBTN No. : 261/2018 3/15 accepted by the Arbitrator and notice of arbitration was sent to the parties vide letter dated 04.08.2017, as noted in the award.

6. In the instant proceedings, reply to objection petition u/s 34 had not been filed despite repeated opportunities permitted, therefore, the right of respondent to file reply was closed vide order dated 25.09.2019. The application moved on behalf of respondent seeking recall of the said order was also dismissed vide order dated 16.07.2022. Matter was listed for arguments on petition u/s 34 of Arbitration and Conciliation Act. Vide order dated 17.12.2022, Ld. Predecessor of this court noted that from perusal of arbitration award, it appeared that the seat of arbitration was in Gurgaon. Counsel for petitioner was directed to address arguments on the said aspect. Subsequently, parties also stated about pendency of mediation proceedings, however, the matter could not be settled between the parties , hence matter was fixed up for arguments on point of territorial jurisdiction as well as for arguments on petition u/s 34 of Arbitration and Conciliation Act. Thereafter during the course of arguments, there also seemed objection pertaining to unilateral appointment of arbitrator, therefore, parties were directed to address arguments and also to file written submission. Arguments were addressed by Ld. counsel for both the parties as well as written submissions filed on record.

7. Pertaining to aspect of appointment of Ld. Arbitrator, Ld. counsel for respondent submitted that this ground was never taken by the petitioner in petition u/s 34 Arbitration and Conciliation Act. Following was submitted :

" The jurisdiction or the remit of section 34 is confined to the grounds permissible under said provision. What was not articulated by the petitioner may not form of subject matter of adjudication. More so, the said aspect would be relevant only when this ocurt has territorial jurisdiction to entertain the lis. Reference in this connection may be had to judgment rendered by the Division bench of Hon'ble High Court in Arjun Mall Retail Holdings Pvt. Ltd. & Ors. Vs. Gunocen Inc. FAO (Comm) 31/2021 ; 2024:DHC:495-DB " ****33. We find that under section 34 of the Act, 1996 scope of interference by the court is limited to the extent that the Arbitral Award is not vitiated on basis of pleadings raised by the parties. The Learner District Judge has rightly observed that if a party fails to raise a plea in arbitral proceedings, it cannot take a fresh ground to seek relief before the Appellate Authority and any such plea, deserves to be rejected.*****"

B. Added to this, is the fact the locus classical observation of Hon'ble Supreme Court in State of Punjab Vs. Gurdev Singh (1991) 4 SCC 1: 1991 SCC (L&S) 1082: (1991) 17 ATC 287 at page 6 to the effect that relief by way of judicial redressal can be availed only when 'right remedy is sought by the right person in the right proceedings and circumstances", the Court's observation thus reads:

"***** 9. Apropos to this principel, Prof. Wade states (see Wade Administrative Law, 6th edn. P.352) : " the principle must be equally true even where the 'brand' of invalidity" is plainly visible; for there also the order can effectively be resisted in law only by obtaining the decision of the court. Prof. Wade sums up these principles : (Ibid).

" The truth of the matter is that the court will invalidate an order only if the right remedy is sought by the right person in the right proceedings and circumstances. The order may be hypothetically a nullity, but the court may refuse to quash it because of the plaintiff's lack of standing, because he does not deserve a discretionary remedy, because he has waived his rights, or for some other legal reason. In such case the ' void' order remains effective and is, in reality, valid. In any such case the ' void' order remains effective and is, in reality, valid. It follows that an order may be void for one purpose and valid for another; and that it may be void against one person but valid against another ."

8. Opening paragraphs of the petition u/s 34 of Arbitration and Conciliation Act refer to the challenge to the appointment of Arbitrator with specific submission that the unilateral power of appointment was fraudulently usurped and misused to own benefit by respondent no.2. Therefore, it is not the case that the objection pertaining to invalidity of the arbitration agreement and further with regard to appointment of arbitrator had not been ARBTN No. : 261/2018 5/15 taken by the petitioner. Petitioner has specifically challenged with regard to the alleged invalid, illegal and unilateral appointment of Arbitrator.

9. Ld. counsel for petitioner submitted that case of the petitioner was that there were only two Directors, Shareholders and to usurp the family company and property, respondend forged and fabricated documents and there was no arbitration agreement between the parties. Further the alleged arbitration clause Article 90 was per se illegal, inapplicable and invalid. Following submissions were made:

" (a) That, notice of invocation under section 21 of the Arbitration and Conciliation Act had not been issued, rendering the instant arbitral proceedings invalid/wholly illegal.

(b) That, in as much as the arbitrability/section 12 of the ACA is concerned, appointment being unilateral at the behest of respondent no.2, the arbitral award fails to meet the norms enunciated under the Arbitration and Conciliation Act.

(c) That, as per the settled law, the arbitrator is to be appointed with consent of both the parties, either by themselves or failing which, by applying to the concerned High Court. The unilateral appointment by any of the parties is illegal and untenable in law. Petitioner had questioned the arbitrability at the first available opportunity as is evidenced vide his letter dated 15.10.2017".

10. Article 90, as quoted by parties and also by Ld. Arbitrator in the award, refers to the alleged arbitration agreement in terms of which, in case of any dispute between the Directors/Managing Director and former Directors/shareholders, between company and its auditors, its employees, its creditors, debtors etc. etc., same shall be resolved through the arbitration of a Sole Arbitrator only to be appointed by Managing Director of the Company only, as per the Arbitration and Conciliation Act 1996 (amended 2015) ARBTN No. : 261/2018 6/15 and amendments thereafter. It was also mentioned that in case, Managing Director was not available due to any reason whatsoever, in that case sole arbitrator shall be appointed by the company through one of its Directors duly authorized in writing by the Board of Directors, as per the Arbitration and Conciliation Act 1996 and amendments thereof.

11. It was also brought on record that vide letter dated 15.10.2017 petitioner without prejudice and without recognizing and admitting the authority of the Ld. Arbitrator conveyed that it had not received any dispute notice, invocation notice etc. while also challenging the existence of Arbitration clause and binding nature of the same upon the parties to the dispute. It was specifically mentioned in the above communication that suo motto and unilateral appointment of sole Arbitrator was never consented to, by the petitioner under any circumstances, besides the other objections taken in the above noted letter. Ld. counsel for petitioner contended that without prejudice to the other objections, unilateral appointment of Arbitrator tribunal itself is not sustainable in view of the settled proposition of law.

12. Ld. counsel for plaintiff placed reliance upon following :

(a) Dharma Pratishthanam Vs. Madkhok Construction (P) Ltd. (2005) 9 SCC 686,

(b) TRF Limited Vs. Energo Engineering Projects Limited (2017) 8 SCC 377,

(c) Perkins Eastman Architects DPC and Ors. Vs. HSCC (India) Ltd. (2020) 20 SCC 760,

(d) M/s S.K. Builders Vs. CLS Construction Pvt. Ltd.

OMP (COMM) 297/2023, ARBTN No. : 261/2018 7/15

(e) Simmi Sethi Vs. Hero Fincorp Ltd. OMP (COMM) No. 400/2022

(f) Vineet Dujodwala & Ors. Vs. Phoneix Arc Pvt. Ltd. & Anr. OMP (Comm) 24/2016,

(g) M/s Ambience Developers and Infrastructure Pvt. Ltd. Vs. M/s Smaash Leisure Ltd. OMP (ENF.) 134/2022,

(h) M/s Upper India Trading Co. Pvt. Ltd. Vs. M/s Hero Fincorp Ltd. OMP (COMM) No. 399/2022

(i) Kotak Mahindra Bank Ltd. Vs. Narendra Kumar Prajapat EFA (COMM) No. 03/2023, Interalia it was observed in authorities in judgments (supra) that :

"One party cannot usurp the jurisdiction of the court and proceed to act unilaterally. A unilateral appointment and an unilateral reference- both will be illegal.

The person who has 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 amendements brought in by the Arbitration and Conciliation (Amendment) Act, 2015. The ineligibility of the Arbitrator goes to the root of the jurisdiction and vitiates the award. An award rendered by a person who is ineligible to act as an Arbitrator by virtue of section 12 (5) is a nullity and cannot be enforced".

13. In the present matter, petitioner though has disputed the existence of arbitration agreement. However, claimant appointed the arbitrator relying upon Clause 90 of Articles of Association. Apparently, the power to appoint the arbitrator was retained by the respondents. No arbitrator was named in Article 90 and as per the provisions of the act, where no Arbitrator is named upon, to which parties have already consented, arbitrator is to be appointed with consent of both the parties, either by themselves or failing which, by applying to the concerned High Court. The ARBTN No. : 261/2018 8/15 unilateral appointment by any of the parties is illegal and untenable in law.

14. As was observed by Hon'ble High Court in Abraham Memorial Education Trust Vs. Prodigy Development Institution OMP (Comm) no. 391/2020 dated 23.03.2021:

" the arbitrator can be appointed only with the concurrence and consent of both the parties under section 11 (5) of the Act, failing which, the appointment could only be made by the Chief Justice or his designate in terms of section 11 of the Act. Under no circumstances, could the respondent have unilaterally appointed the Arbitrator".

15. In Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Ltd. 2019 SCC Online SC 1517, it was observed by Hon;ble Apex Court that :

" 20. We thus have two categories of cases. The first, similar to the one dealt with in TRF Limited where the Managing Director himself is named as an arbitrator with an additional ower to appoint any other person as an arbitrator . In the second category, the Managing Director is not to act as an arbitrator himself but is empowerd or authorized to appoit any other person of his choice or discretion as an arbitrator. If, in the first category of cases, the Managing Director was found incompetent, it was because of the interest that he would be said to be having in the outcome or result of the dispute. The element of invalidity would thus be directly relatable to and arise from the interest that he would be having in such outcome or decision. If that be the test, similar invalidity would always arise and spring even in the second category of cases. If the interest that he has in the outcome of the dispute is taken to be the basis for the possibility of bias, it will always be present irrespective of whether the matter stands under the first or second category of cases. We are conscious that if such deduction is drawn from the decision of this court in TRF Limited, all cases having clauses similar to that with which we are presently concerned, a party to the agreement would be disentitled to make any appointment of an Arbitrator on its own and it would always be available to argue that a party or an official or an authority having interest in the dispute would be disentitled to make appointment of an Arbitrator" .

As was further observed, 21. But, in out view that has to be the logical deduction from TRF Limited. Paragraph 50 of the deceision shows that the court was concerned with the issue " whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an Arbitrator ". The ineligibility referred to therein, was a result of operation of law, in that a person having an interest in the dispute or in the outcome of decision thereof, must not only be ineligible to act as an ARBTN No. : 261/2018 9/15 arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in chartingout any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraphs, further shows that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter balanced by equal power with the other party. But, 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. Naturally, 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 by Arbitration and Conciliation (Amendment) Act 2015 and recognized by decision of the court in TRF Limited" .

16. In the present matter, as already noted above, the arbitration clause (though disputed) authorized claimant/respondent to appoint the sole arbitrator . This is the case where only one party had right to appoint the sole arbitrator, therefore, as noted above, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. The person who has interest in the outcome or decision of the dispute must not have the power to appoint the sole arbitrator, which is the case here squarely covered by the observations in authorities (supra). The interest that the respondent had in the outcome of the dispute, is taken as basis for possibility of bias. Besides that, no consent was ever asked from the petitioner for the appointment of the sole arbitrator nominated by the respondent.

17. In Envirad Projects Pvt. Ltd. Vs. NTPC Ltd. decided on 18.01.2022, while referring to Judgment of Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Ltd. 2019 SCC Online SC 1517, it was observed by Hon'ble High Court of Delhi that " no single party can be permitted to unilaterally appoint the ARBTN No. : 261/2018 10/15 Arbitrator, as it would defeat the purpose of unbiased adjudiction of dispute between the parties. While further placing reliance upon Proddatur Cable TV Digi Services Vs. Citi Cable Network Limited (2020) 267 DLT 51, it was further observed by Hon'ble High Court that " the Arbitrator either has to be appointed with the consensus of the parties or by the court".

18. In Mahalakshmi Infraprojects Private Ltd. Vs. NTPC Ltd. (ARB. P. 230/2020) passed on 05.01.2022, it was observed that :

" arbitration clause in a contract between the parties is sacrosanct and it cannot be departed from. Subject to law laid down by the Supreme Court in various authorities including, for instance, Perkins Eastment Architects DPC, the protocol for appointment of the arbitrator has to abide the contract between the parties".

19. In the abovesaid judgment Envirad Projects Pvt. Ltd. Vs. NTPC Ltd. (supra), wherein the clause of contract between the parties gave right of appointment of Arbitrator to one party only, it was observed by Hon'ble High Court while referring to Perkins Eastman Architects DPC, Bharat Broadband Network Ltd. Vs. United Telecoms Ltd and Haryana Space Application Centre Vs. Pan India Consultants Pvt. Ltd, that:

" the said clause clothes one of the parties to the contract with the exclusive right to appoint the arbitrator. Such a clause is not enforceable in law and is also violative of section 12 (5) of the 1996 Act".

20. Similar view was taken by Hob'ble High Court of Delhi in Kotak Mahindra Bank Ltd. Vs. Narendra Kumar Prajapat, EFA (COMM) No. 3/2023, decided on 17.05.2023 and in 293 (2022) Delhi Law Times 408 titled as Geeta Poddar Vs. Satya Developers Private Limited, decided on 31.08.2022.

21. With regard to territorial jurisdiction, Ld. counsel for respondent submitted that the whole arbitral proceedings were conducted beyond the territorial remit of this court as the arbitral sittings had taken place at Dwarka and therefore, only the court having curial and supervisory jurisdiction over arbitral proceedings can be the court processing jurisdiction to entertain the proceedings u/s 34 of the Arbitration and Conciliation Act. Ld. counsel for respondent placed reliance upon BGS SGS Soma JV Vs. NHPC Ltd. (2020) 4 SCC (234) :

MANU/SC/1715/2019, BBT (India) Privae Limited Vs. S.P. Singla Constructions Private Limited (2023) 1 SCC (693), BCC Developers and Promoters Pvt. Ltd. Vs. Union of India (2024) SCC Online Delhi 6181. It was observed that :

97.........The arbitration clause in the present case states that "

Arbitration proceedings shall be held at New Delhi/Faridabad, India.....", thereby signifying that all the hearings, including the making of the award, are to take place at one of the stated places. Negatively speaking, the clause does not stated that the venue is so that some, or all, of the hearings take place at the venue; neither does it use language such as ' the Tribunal may meet', or ' may hear witnesses, experts or parties'. The expression ' shall be held' also indicates that the so-called ' venue' is really the ' seat' of the arbitral proceedings. The dispute is to be settled in accordance with the Arbitration Act, 1996 which, therefore, applies a national body of rules to the arbitration that is to be held either at New Delhi or Faridabad, given the fact that the present arbitration would be Indian and not international. It is clear, therefore, that even in such scenario, New Delhi/Faridbabad, India has been designated as the ' seat' of the arbitration proceedings.

98. However, the fact that in all the three appeals before us, the proceedings were finally held at New Delhi, and the awards were signed in New Delhi, and not at Faridabad, would lead to the conclusion that both parties have chosen New Delhi ' as the seat' of arbitration under section 20 (1) of the Arbitration Act, 1996. This being the case, both parties have, therefore, chosen that the courts at New Delhi alone would have exclusive jurisdiction over the arbitral proceedings. Therefore, the fact that part of the cause of action may have arisen at Faridabad would not be relevant once the ' seat' has been chosen, which would then amount to an exclusive jurisdiction clause so far as courts of the ' seat' are concerned" .

22. Follwing the above noted, where a particular place is fixed as the place of arbitration, it becomes arbitral seat, as the reference to the place of arbitration is to be found only in sub sections (1) & (2) of section 20 and not in sub section 3. Hence, even if any place is fixed as venue of arbitration, that would be relatable to section 20 (3) and would not determine the arbitral seat. It is only when no seat is fixed, then the venue of arbitration can be treated as seat of arbitration.

23. Ld. counsel for petitioner submitted that though the alleged arbitration clausei.e. Article 90 was per se illegal, inapplicable and invalid, nevertheless even the said clause neither mentioned 'seat' nor did it mention 'venue' of Arbitration for the purpose of territorial jurisdiction. Hence in this scenario, the principle of Code of Civil Procedure with regard to territorial jurisdiction shall apply. It was further submitted that assuming without conceding the arbitrability, the dispute pertains to Comtech Espirit Private Limited i.e. the registered office of which is situated at New Delhi, Sarvodya Enclave which falls within the territorial jurisdiction of this court. Further, Ld. Arbitrator had mentioned the address of Sushant Lok, Gurgaon only for the purpose of correspondence, whereas she continued to hold hearings at Venue at Dwarka with mention that the jurisdiction of the award shall be the courts at New Delhi, whereby the Arbitrator while passing the award herself fixed the seat of Arbitration as New Delhi as can be seen from the award, therefore, the judgments cited by respondent are not only favouring the petitioner but are rather against them and that is ARBTN No. : 261/2018 13/15 why this issue pertaining to territorial jurisdicrtion was never raised by petitioner during the pendency of the proceedings

24. Ld. counsel for petitioner also placed reliance upon Chacha Nehru Bal Chikitsalay, Delhi Vs. Induction Corporate Pvt. Ltd. wherein with reference to landmark judgment of BGS SGS Soma JV Vs. NHPC Ltd. (2020) 4 SCC 234 and M/s Kingls Chariot Vs. Mr. Tarun Wadhwa Arb. P. 421/2024, wherein interalia it was noted that there is no confusion and law is explicit that for the purpose of arbitration, even if no part of cause of action has arisen in a place, then too, the parties can agree on a seat of jurisdiction, which would then become the place for all litigation under the Arbitration Act. However, if the parties do not specify any seat/place of arbitration, then the jurisdiction of the court shall be determined in accordance with section 16 to section 20 of CPC.

25. In the instant matter, though the petitioner has disputed the existence of Arbitration Agreement itself as well as the invalidity and illegality of the appointment of Arbitrator and the proceedings thereon. Nevertheless, the contention of Ld. counsel for petitioner is found to be corrrect that even in the said clause of Article 90, there was no mention with regard to the seat of arbitration. Venue of Arbitration was initilly at Gurgaon and thereafter at Dwarka, whereas Ld. Arbitrator herself noted with regard to jurisdiction for the purpose of award at New Dellhi. As contended by Ld. counsel for petitioner, in these circumstances, when the seat of arbitration was not fixed, the jurisdiction of the court is to be determined in accordance to section 16-20 of CPC, which makes the instant proceedings falling within the territorial ARBTN No. : 261/2018 14/15 jurisdiction of this court considering the address of registered office of respondent as falling within the territorial jurisdiction of this court.

26. In the instant matter, appointment of Ld. Arbitrator itself was unilateral which was non est in law, the whole arbitration proceedings subsequent thereto were also non est in law. Appointment of Ld. Arbitrator itself being unilateral, therefore invalid, illegal and non est in law, question for consideration of the territorial jurisdiction pertaining to the seat of arbitrator becomes inconsequential, when the impugned award as well as the appointment of arbitrator itself is invalid.

27. In view of the discussion made herein above, unilateral appointment of sole arbitrator by the respondent being non-est in law and in conflict with provisions of Arbitration and Conciliation Act, therefore, impugned award accordingly cannot be sustained, hence is set aside. Present petition, accordingly, stands allowed.

28. File be consigned to record room after completion of formalities.

Announced in the open             (SAVITA RAO)
court on this 19th day         DISTRICT JUDGE
of October 2024              (COMMERCIAL COURT)-01
                            (SOUTH)/SAKET COURTS, DELHI




ARBTN No. : 261/2018                                        15/15