Delhi District Court
Ravi Prakash vs M/S Kotak Mahindra Bank Ltd And Anr on 1 April, 2024
IN THE COURT OF MS. PREETI AGRAWAL GUPTA,
DISTRICT JUDGE (COMMERCIAL COURT)-01,
NORTH WEST, ROHINI, NEW DELHI
OMP (COMM) No.75/2022
Ravi Prakash
S/o. Shri Raghubeer,
Chamanpura Lakhnoti,
Saharanpur, Uttar Pradesh-247341
...Objector/Petitioner
Vs
M/s Kotak Mahindra Bank Limited
Through its Manager/Authorised Officer
Having Regional office at
Khasra No.678, First Floor,
Chandigarh-Landran Road,
Sohana, Mohali, Punjab-140308.
....Respondent
OBJECTION UNDER SECTION 34 OF THE
ARBITRATION & CONCILIATION ACT, 1996 FOR
SETTING-ASIDE AND STAY THE ARBITRAL AWARD
DATED 15.02.2022 PASSED BY THE SOLE ARBITRATOR
SH. SANCHAM RAM, ADVOCATE, IN ARBITRATION
CASE TITLED AS 'KOTAK MAHINDRA BANK LTD VS.
RAVI PRAKASH ANR'.
Date of institution of Petition : 24.05.2022
Date of Assignment to this court : 21.05.2022
Date of hearing of final argument : 28.03.2022
Date of Judgment : 01.04.2024
OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 1/23
(PREETI AGRAWAL GUPTA)
District Judge (Commercial Court)-01
North-West/Rohini/New Delhi.
01.04.2024
JUDGMENT
1. By way of this judgment, the present petition Under Section 34 of the Arbitration & Conciliation Act, 1996 (hereinafter called as A & C Act) is being taken up for adjudication, as per law.
2. This petition has been filed on behalf the petitioner, Ravi Prakash, seeking setting aside of Arbitral Award dated 15.02.2022 passed by Sh. Sachan Ram, Ld. Sole Arbitrator, in respect of claim of the respondent namely M/s Kotak Mahindra Bank Limited. By way of the impugned Award, claim of the respondent has been allowed.
3. After filing of the present petition, notice of the petition was issued to the claimant/Respondent no.1 and Ld. Arbitrator/respondent no.2. The written reply was filed on behalf of respondent no.1 to the present petition, raising objections on maintainability of the petition and alleging that the petitioner has concealed material facts, praying for dismissal of the petition for want of merits.
4. The arbitral record was requisitioned and has been received. Original arbitral award dated 15.02.2022 has been filed alongwith documents/annexures, which are running into 67 pages. Postal receipt stamps have also been annexed. Accordingly, the arbitral Award in question, which is the subject OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 2/23 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 matter of the present petition, has been placed before the Court for due perusal and consideration, on merits of the present case.
5. Petitioner by way of this petition has narrated brief facts which have led to filing the present petition, wherein it has been averred that :-
5.1 Petitioner is farmer and fully dependent on farming activities for his livelihood, who had purchased tractor under model TF-KOBOTA_MU_5501, engine No.BKL0874, Chasis No. KBTM20SFJMTF12257 and registration No.UP11BW5208, in the year December 2019 and got financed tractor/farm equipment for Rs.5,67,211 from respondent Bank vide account 8066148, which was repayable in 48 equated monthly installments (EMIs) for Rs.16,500/- (approx). 5.2 The petitioner was regularly paying installments (EMIs) to Respondent Bank every Months and no single EMIs have been dishonored, except petitioner had availed moratorium of five/six EMIs during Covid-19 situation as announced by RBI (March 2020-May 2020) vide notification No. RBI/2019-20/186 DOR No.BP.BC.47/21.04.048/2019-20 dated 27.03.2020 which was further extended from June 2020-August 2020 vide notification No. RBI/2019-20/244 DOR No.BP.BC.71/21.04.048/2019-20 dated 23.05.2020. In terms of Notification default during moratorium period, shall also not be considered as Non- Performing Assets (NPA).
5.3 Respondent No.1 had issued letter dated 12.07.2021 to petitioner, which otherwise delivered to petitioner on 02.08.2021, OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 3/23 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 in the late evening under subject Invocation of Arbitration Clause....etc., whereby Respondent No.1 purportedly informed the petitioner that through the said letter/notice, Respondent No.1 had recalled the whole loan facility, extended to petitioner, by giving reference to alleged Loan Recall Notice dated 28.06.2021, which otherwise was never received by petitioner. 5.4 In the letter/legal notice dated 12.07.2021 that Respondent had calculated total outstanding amount of Rs.4,92,025.01 as on 21.06.2021 standing against the petitioner. It is further asked for the consent/dissent of petitioner, to choose the name of Ld. Arbitrator from the three names mentioned in the list. It is matter of fact that said letter dated 12.07.2021 received on 02.08.2021 i.e. much later than arbitral proceeding started and interim order passed by Respondent No.2. However alleged recall notice dated 28.06.2021 never been received by petitioner. 5.5 Respondent no. 1 sent another letter dated 22.07.2021 to Respondent No.2 with copy to petitioner, appointing thereby Mr. Sancham Ram as Sole Arbitrator to decide the dispute, which was otherwise also delivered on 05.08.2021. Petitioner got no opportunity to dissent or to file objection for appointment of Respondent No.2 nor to submit reply to claim petition. 5.6. After commencement of the Arbitration proceedings, in gross violation of the acceptable legal practice and procedure, respondent no.2, without any authority and in an unlawful manner, passed Interim Orders dated 26.07.2021 by Sole Arbitrator under Section 17 of The Arbitration and Conciliation Act 1996.OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 4/23
(PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 5.7. In pursuance of the interim orders, the vehicle which is Tractor in question, on which the livelihood of petitioner depends, was repossessed on 13.08.2021. Thereafter, the petitioner herein filed an Appeal under Section 37 of The Arbitration and Conciliation Act 1996, seeking revocation of the Interim Orders and restoration of his vehicle/Tractor in question. However, the Appeal filed U/S. 37 of The Arbitration and Conciliation Act 1996, directed against the Interim orders dated 26.07.2021, was dismissed by the concerned Court with the observation that once the Arbitration has been concluded in favour of the respondent herein, the interim order stands merged in the final Award. Hence, this petition/objections.
6. Ld. Arbitral Tribunal passed the Arbitral Award dated 15.02.2022 against the Petitioner and in favour of the Respondent/claimant for a sum of Rs.4,92,025.01/- alongwith interest @10% per annum from 21.06.2021 till realization and a sum of Rs.7,000/- towards cost of arbitration proceedings.
GROUNDS OF CHALLENGE IN THE PETITION.
7. The Grounds on which the present petition has been filed, and the impugned award dated 15.02.2022 has been challenged, are as under:-
7.1. Because the impugned award dated 15.02.2022 has been passed on the basis of misrepresentation of facts and fraud played OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 5/23 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 by Respondent No.1 as alleged Recall Notice dated 28.06.2021 was never received by the petitioner.
7.2 Respondent No.1, claimed before Respondent No.2 that they have intimated the petitioner about Invocation of Arbitration Clause vide their alleged notice dated 12.07.2021 which otherwise received by petitioner on 02.08.2021 i.e., much later than the period of filing of claim petition 21.07.2021 and not prior to that period. Thus, there was no intimation to the petitioner at the time of presenting claim petition that Respondent No.1 had invoked Arbitration Clause. Respondent No.2 had passed interim orders dated 26.07.2021 illegally and unauthorisedly and thereupon Respondent No.1 forcibly repossessed the tractor by taking assistance of local police. 7.3 The petitioner has never violated fiscal discipline in repaying equated monthly instalments (EMIs) rather only availed Moratorium in terms of RBI Notification & Guidelines (March 2020-May 2020) vide notification No. RBI/2019-20/186 DOR No.BP.BC.47/21.04.048/2019-20 dated 27.03.2020 which was further extended from June 2020-August 2020 vide notification No. RBI/2019-20/244 DOR No.BP.BC.71/21.04.048/2019-20 dated 23.05.2020). In terms of Notifications, default during moratorium period shall not be considered as NPA and further without declaring NPA of assets, Respondent No.1 can not recall entire loan form the appellant.
7.4 Impugned award dated 15.02.2021 is expressly violation of statutory provision of Arbitration & conciliation Act, 1996.
Invocation of arbitration clause and continuance of arbitration OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 6/23 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 proceeding before Respondent No.2 without intimation to appellant is abuse of process of Court.
7.5 Respondent No.2 has been appointment unilaterally by Respondent No.1, without consent of appellant and without having opportunity to dissent or to file objection. The said unilateral appointment of the sole arbitrator by respondent no.1 is illegal, non-est in the eyes of law and against Public Policy. 7.6. Petitioner never got an opportunity before Respondent no.2 to raise objection upon receipt of reference in terms of provision of Arbitration & Conciliation Act, 1996, as no intimation received by petitioner before appointment and thereafter too. Respondent no.2 in collusion with respondent No.1 passed impugned Arbitral Award dated 15.02.2022 in gross violation of provision of Arbitration & Conciliation Act, 1996. It is stated that hence, the impugned Arbitral Award is liable to be set aside. 7.7. The Arbitral Award dated 15.02.2022, against the petitioner, is contrary to the provisions of the Indian Contract Act, settled law and the Public Policy, and as such, the Award is illegal and deserves to be set aside. That the Arbitral Award dated 15.02.2022 is non-est and unsustainable in Law and is liable to be set-aside and struck down.
RESPONSE/REPLY TO THE OBJECTIONS /PETITION (ON BEHALF OF RESPONDENT)
8. It is submitted that the objection petition is not maintainable in as much as none of the grounds for setting aside the Award under Section 34 of the Act, has been satisfied by the OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 7/23 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 present objection petition. It is reiterated that the Arbitral Award dated 15.02.2022 is a well reasoned Award and is not contrary to law. Further, the Arbitral Award is neither against the public policy nor is it perverse or patently illegal. It is further submitted that it is no longer res integra that the jurisdiction under Section 34 of the Arbitration & Conciliation Act, 1996 is not an appellate jurisdiction. The objections filed and the grounds raised by the Objector are thus liable to be dismissed.
8.1 Specific Response/Reply to oppose the petition, is as under:-
(i) That the petitioner admittedly took the Tractor Loan of Rs.
5,67,211/- from the Respondent bank. However the petitioner committed defaults in making the payment of Monthly Installments; therefore vide Loan Recall Notice dated 28.06.2021 loan facility of the petitioner was recalled, whereby the petitioner was called to pay the entire foreclosure amount.
(ii) That despite receiving of the Loan Recall Notice dated 28.06.2021, neither any reply nor any payment has been made by the petitioner, therefore vide arbitration invocation letter dated 12.07.2021, Respondent bank proposed the name of the arbitrator for commencement of the arbitration proceedings, however despite receiving of the arbitration invocation letter dated 12.07.2021 no objection has been raised by the petitioner, therefore vide arbitration reference letter dated 22.07.2021 arbitration matter was referred to Sh. Sancham Ram, Advocate as an Arbitrator to adjudicate the present dispute between the Respondent and petitioner herein.
OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 8/23(PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024
(iii) That Ld. Arbitrator sent three notices dated 26.07.2021, 01.09.2021 & 25.09.2021 to petitioner to participate in the arbitration proceedings, however again despite receiving of the arbitration proceedings notices, petitioner intentionally not participated in the arbitration proceedings, therefore vide arbitration proceedings order dated 16.11.2021, petitioner was proceeded ex-parte and further arbitration award was passed on 15.02.2022.
(iv) That the present petitioner did not raise any objection regarding the initiation of the arbitration as well as appointment of Sole Arbitrator during the pendency of the arbitration proceeding. Therefore, present petitioner has no right to raise any objection regarding the appointment of the Sole Arbitrator by the respondent no.1 bank in the present petition.
(v) That it is an admitted fact that the petitioner himself committed default in making the payment of installments, therefore the present respondent has initiated the arbitration proceeding, wherein award has been passed.
(vi) That respondent no.1 bank has rightly initiated the arbitration proceeding, as per the agreed terms and conditions of the loan agreement and the Ld. Arbitrator has rightly followed the due procedure of the law,y while conducting the arbitration proceedings and further rightly passed the arbitration award dated 15.02.2022.
(vii) That petitioner had ample number of opportunities to either participate in the arbitration proceeding or raise objection, but he severely failed, for no just or lawful reasons, and thus, petitioner OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 9/23 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 waived his right to object.
(viii) That Ld. Arbitrator rightly passed the award, thereby holding that the respondent bank is well entitled to take the possession of the financed vehicle and sell the same for recovery of the awarded amount. It is relevant to mention here that the financed vehicle was repossessed in pursuance to the interim orders dated 26.07.2021, passed by the Ld. Arbitrator and the said vehicle was further sold on 30.03.2022 i.e. after passing of the Award.
(ix) It is denied that the Arbitral Award is unsustainable in law. It is also denied that Arbitral Award is liable to be set aside and reversed as alleged or at all. In response, the respondent states that the Arbitral Award is valid and requires no interference. The respondent reiterates that not even a single ground as been cited by the petitioner which attracts Section 34 of the Arbitration and Conciliation Act, 1996 (as amended).
It has been prayed that the petition be dismissed with exemplary costs.
RELEVANT STATUTORY PROVISIONS AND JUDICIAL PRONOUNCEMENTS CONSIDERED
9. The Court has appreciated vehement arguments on behalf of respective Counsels and has perused and briefly reproduced herein-above the averments and pleadings before the Court. The Statutory provisions have also been considered. During course of arguments, numerous authorities have been relied upon by Ld. Counsels, which have also been appreciated as per the facts and circumstances of this case.
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01.04.2024
10. It shall be relevant to first examine the well settled legal position, in regard to the scope of interference by the Court as per Section 34 of the Arbitration and Conciliation Act. The relevant statutory provisions which empowers the petitioner to take recourse to a Court against the Arbitral Award, has been provided under Sub-sections (1) and (2) of Section 34, as amended by the Arbitration and Conciliation (Amendment) Act, 2019. Same are being reproduced herein for perusal : -
"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 a Court only if - (a) the party making the application establishes on the basis of the record of arbitral tribunal 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 the dispute not contemplated by or not falling within the terms of the 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 OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 11/23 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 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 what 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 re-appreciation of evidence."
11. This Court has to exercise its judicial discretion in the backdrop of the Statutory Law provided under Section 34 of the Act by way of well settled judicial pronouncements and landmark judgements of Hon'ble Supreme Court of India and Hon'ble High Court of Delhi. Law applicable for consideration before the Court for exercise of its judicial discretion, as per law, has been by way of development of law through landmark judgments of Hon'ble Supreme Court of India and Hon'ble High Court of Delhi.
11.1 The first and foremost notable matter for consideration before Hon'ble Court is "HRD Corporation Vs. GAIL" reported in (2018) 12 SCC 471, wherein Hon'ble Apex Court ruled that when a person directly falls under Schedule VII, ineligibility goes OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 12/23 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 to the root of the appointment as per prohibition under Section 12(5) read with Schedule VII. Such person lacks inherent jurisdiction.
11.2 This approach was expanded in "TRF Limited -vs-
Energo Engineering Projects Limited" reported in [2017] 7 S.C.R. 409, wherein Hon'ble Supreme Court of India held that an individual who himself is ineligible under the provisions of the Act to be appointed as an arbitrator, cannot nominate a sole arbitrator. The ineligibility goes to the root of the matter and arises out of lack of inherent jurisdiction.
11.3 Subsequently, in "Perkins Eastman Architects DPC & Anr. -vs- HSCC (India) Ltd." reported in [2019] 17 S.C.R. 275, Hon'ble Supreme Court of India extended the approach taken in TRF Limited (supra) and held that a party who has an interest in the outcome of a dispute also cannot nominate a sole arbitrator and held as under:
16. But, in our view that has to be the logical deduction from TRF Limited. Paragraph 50 of the decision shows that this 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 as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an 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 charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show 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 OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 13/23 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 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 in by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) and recognised by the decision of this Court in TRF Limited."
Therefore, the preposition under Section 12(5) read with Schedule VII of the Act was extended to persons unilaterally appointed to act as an arbitrator. Such persons who are unilaterally appointed lack inherent jurisdiction, unless an express written approval is given by the parties, subsequent to disputes having arisen.
11.4 Furthermore, in "Bharat Broadband Network Limited-vs- United Telecoms Limited" reported in [2019] 6 S.C.R. 97, Hon'ble Supreme Court of India held that a unilaterally appointed arbitrator is de jure ineligible to perform his functions and that his mandate is automatically terminated under Section 14(1)(a) of the Act. Further, any prior agreement to do away with this ineligibility would be wiped out by the non-obstante clause contained in Section 12(5), and the same can be cured only through an express waiver. Hon'ble Supreme Court of India held that : -
"15. Section 12(5), on the other hand, is a new provision which relates to the de jure inability of an arbitrator to act as such. Under this provision, any prior agreement to the contrary is wiped out by the nonobstante clause in Section 12(5) 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 OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 14/23 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 arbitrator. The only way in this ineligibility can be removed is by the proviso, which again is a special provision which states that parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing. What is clear, therefore, is that where, under any agreement between the parties, a person falls within any of the categories set out in the Seventh Schedule, he is, as a matter of law, ineligible to be appointed as an arbitrator. The only way in which this ineligibility can be removed, again, in law, is that parties may after disputes have arisen between them, waive the applicability of this sub- section by an "express agreement in writing". Obviously, the "express agreement in writing" has reference to a person who is interdicted by the Seventh Schedule, but who is stated by parties (after the disputes have arisen between them) to be a person in whom they have faith notwithstanding the fact that such person is interdicted by the Seventh Schedule."
"......20.This then brings us to the applicability of the proviso to Section 12(5) on the facts of this case. Unlike Section 4 of the Act which deals with deemed waiver of the right to object by conduct, the proviso to Section 12(5) will only apply if subsequent to disputes having arisen between the parties, the parties waive the applicability of sub-section 22 (5) of Section
12 by an express agreement in writing. For this reason, the argument based on the analogy of Section 7 of the Act must also be rejected. Section 7 deals with arbitration agreements that must be in writing, and then explains that such agreements may be contained in documents which provide a record of such agreements. On the other hand, Section 12(5) refers to an "express agreement in writing". The expression "express agreement in writing" refers to an agreement made in words as opposed to an agreement which is to be inferred by conduct. Here, Section 9 of the Indian Contract Act, 1872 becomes important. It states:
"9. Promises, express and implied.--In so far as a proposal or acceptance of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied."It is thus necessary that there be an "express"
agreement in writing. This agreement must be an agreement by which both parties, with full knowledge of the fact that Shri Khan is ineligible to be appointed as an arbitrator, still go ahead and say that they have full faith and confidence in him to continue as such......."
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01.04.2024 FINDINGS OF THE COURT
12. At length arguments addressed by respective Counsels have been considered in the backdrop of afore-discussed well settled legal posisiton. Judicial record has been perused. The Arbitral Award dated 15.02.2022 in question, passed by the Ld. Sole Arbitrator Sh. Sancham Ram, Advocate, has been appreciated. Court has also considered the material, annexures filed on record and in particular, the orders dated 15.03.2022, passed on an Appeal under Order 37 of The Arbitration and Conciliation Act, 1996 by the then Ld. District Judge (Commercial Court) North-West District, Rohini Courts, Delhi.
13. In the peculiar facts of the present case, the subject matter of dispute between the parties is an auto loan which has been granted by Respondent no.1 in favour of the petitioner, in respect of a Tractor, which was being used for agricultural purposes, by the petitioner. Admittedly, there was some default in payment of the monthly Installments and the petitioner failed to adhere to the financial discipline. A Loan Recall Notice dated 28.06.2021 was issued by respondent no.1 and petitioner was called to pay the entire foreclosure amount. Whereas, the petitioner has claimed a right to avail Moratorium as per RBI Guidelines, in view of the Covid-19 Pandemic Situation at the relevant time, same has been denied by respondent no.1 Bank as not applicable to the case of the petitioner. Be that as it may, the present dispute pertains to OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 16/23 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 the reference of the money dispute to the unilaterally appointed Sole Arbitrator in respect of amount claimed by respondent no.1 herein from petitioner/objector.
14. The present petition has been filed by the petitioner on the ground that he did not receive any legal notice dated 28.06.2021 and has also denied any intimation by way of Invocation of Arbitration clause vide alleged notice/letter dated 12.07.2021, prior to filing of the Claim petition by respondent no.1 on 21.07.2021. It is the case submitted and assailed on behalf of petitioner that he was deliberately given a notice of Arbitration, fraudulently and manipulatively, after filing of the Claim Petition. It is further case contended vehemently that the appointment of respondent no.2 as sole Arbitrator, unilaterally and without consent of the petitioner, is bad in the eyes of law and violative of principles of natural justice and therefore, any Award or Order passed by the Sole Arbitrator, in disregard of law, is bad in the eyes of law and liable to be set-aside. It has been further contended that the vehicle in question, which is a Tractor, was illegally repossessed during the pendency of the Arbitration proceedings by the Sole Arbitrator, by way of ex- parte interim Award dated 26.07.2021, which was challenged by the petitioner by way of an Appeal under Section 37 of The Arbitration and Conciliation Act 1996. However, since the arbitration proceedings had been concluded during the pendency of the Appeal, owing to which vide order dated 15.03.2022, the then Ld. District Judge (Commercial Court) North-West District, OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 17/23 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 Rohini Courts, Delhi observed that once the Arbitration has been concluded in favour of the respondent herein, the interim order stands merged in the final Award. It was due to these circumstances, the present petition has been filed to challenge the said Award and pray for setting-aside of impugned Award.
15. The contentions of the petitioner have been opposed on behalf of Ld. Counsel for respondent no.1 on the ground that a well reasoned and enforceable Award has been passed by Ld. Sole Arbitrator Sh. Sancham Ram. It has been contended that the petitioner fails to raise any objection during arbitration proceedings and has thus, waived his right to challenge the appointment of the Sole Arbitrator. It is further contended that petitioner failed to repay the auto loan and therefore, as per the binding Arbitration Agreement between the parties, the claim/dispute had to be referred for Arbitration. It is stated that a valid and enforceable order dated 15.02.2022 was passed by Ld. Arbitrator and that the petition be dismissed.
16. Arbitral proceedings have been perused to show that Claimant (Respondent no. 1) sent letter dated 22.07.2021 to Mr. Sancham Ram (Respondent No.2) with copy allegedly despatched to respondent (petitioner herein), appointing thereby Mr. Sancham Ram as Sole Arbitrator to decide the dispute. As per the case of the petitioner, the said notice was delivered to him on 05.08.2021, after the claim petition was already entertained by the Sole Arbitrator. Perusal of arbitral OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 18/23 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 proceedings further show that notices were ordered to be issued by the Ld. Arbitrator to the respondent (petitioner herein) firstly on 26.07.2021, when the Statement of Claim alongwith document were filed by the claimant before the Arbitrator, for appearance on 20.08.2021. Order dated 20.08.2021 notes that none had appeared on behalf of the respondent(s) despite service of notice. Further notice was issued dated 01.09.2021 for appearance on 25.09.2021. Order dated 25.09.2021 shows that in the interest of justice, notice (dated 25.09.2021) was again issued to respondent to appear on 16.11.2021. Order dated 16.11.2021 reveals that the notices dated 26-Jul-21, 01-Sep-21 and 25-09-21 were sent to the respondent/s at the last known place of his business/habitual resident by speed post and observed that '...finding the conduct of the respondent/s of deliberately and intentionally avoiding the present proceedings the respondent/s are proceeded Ex-parte vide order dated 16-Nov-21 and the mater was fixed for the Ex-parte evidence of the Claimant Bank for 23-Nov-21'. Ld. Sole Arbitrator observed that the respondents were liable to be deemed served as notices had been delivered at their last known address and deemed to have knowledge of arbitral proceedings before him. Ld. Arbitrator thereafter, proceeded with determination of the claim of the claimant(respondent no.1) on the aspect of the principal recovery amount, pendentelite and future interest, costs and sale of repossessed vehicle and delivered the impugned Award dated 15.02.2022. It is worth mentioning that during the arbitral proceedings, on the initial date of hearing on 26.07.2021 itself, OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 19/23 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 vide ex-parte Interim Orders passed by Sole Arbitrator under Section 17 of The Arbitration and Conciliation Act 1996, the vehicle in question/Tractor was repossessed and vide the impugned Award, same was directed to be sold. It is a matter of record by way of reply filed on behalf of respondent no.1(claimant) that the repossessed Tractor has been subsequently sold.
17. In sync and in furtherance of the authorities of the Hon'ble Supreme Court of India as afore-discussed, our own Hon'ble High Court of Delhi, has been pleased to deliver a judgement in "Ram Kumar and Ors. -vs- Shriram Transport Finance Co. Limited" reported in MANU/DE/4941/2022, wherein while adjudicating a Section 34 challenge to an arbitral award passed by a unilaterally appointed arbitrator, held that an arbitral award passed by a person ineligible to act as an arbitrator cannot be considered as an arbitral award under the provisions of the Act. The relevant portion has been reproduced below -
"8. Clearly, 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 A&C Act. While it is permissible for the parties to agree to waive the ineligibility of an arbitrator, the proviso to Section 12(5) of the A&C Act makes it clear that such an agreement requires to be in writing. In Proddatur Cable TV Digi Services v. Siti Cable Network Limited (2020) 267 DLT 51, the learned Single Judge of this Court, following the decision in TRF Ltd. v. Energo Engineering Projects Ltd. (supra) and Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. (supra), held that unilateral appointment of an arbitrator by a party is impermissible."OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 20/23
(PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024
18. In this respect, Hon'ble High Court of Delhi has been further pleased to consider and lay down the binding law in EFA(COMM) 2/2023 CM APPL. 25636/2023, CM APPL. 25637/2023, CM APPL. 25638/2023, CM APPL. 25639/2023 & CM APPL. 25635/2023, in case titled 'Kotak Mahindra Bank Ltd. Vs. Narendra Kumar Prajapat' vide orders dated 17.05.2023. Hon'ble High Court of Delhi has been pleased to hold that an Award rendered by an Arbitrator, who is ineligible to act as an Arbitrator by virtue of Section 12(5) of the 'Act' is a nullity and, therefore, cannot be enforced. The finding of the Hon'ble High Court of Delhi have been fortified by Hon'ble Apex Court in Special Leave Petition (Civil) Diary No(s). 47322/2023, vide orders dated 12.12.2023.
19. As outlined in various afore-stated judicial pronouncements, an arbitral award passed by a unilaterally appointed arbitrator cannot be considered as an award under the provisions of the Act and consequently, it has to be regarded as non est in the eyes of law. We have also considered the position as provided under Section 12(5) read with Schedule VII of the Act, wherein it is stipulated that such jurisdiction can be sanctified/legalised, if express waiver is made by a written agreement, after the dispute has arisen between the parties. Possibility of waiver has been contemplated but that does not mean that Jurisdiction is not inherently lacking, before such expressed waiver is made. Such waivers should be very strictly OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 21/23 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 construed in terms of its explicitness. (Reliance place on Bharat Broadband Network Limited(Supra). It is matter of record in the present case that the petitioner did not even appear before the Sold Arbitrator, to consent to his appointment or submit to his jurisdiction and as such, has never consented expressly or impliedly to the jurisdiction of Ld. Arbitrator Mr. Sancham Ram, who has passed the impugned ex-parte Arbitral Award dated 15.02.2022.
20. In the present case, the impugned award dated 15.02.2022, was passed by a unilaterally appointed Sole Arbitrator, who was unilaterally appointed by way of notice/letter 22.07.2021, issued by respondent no.1 as Claimant, before the Arbitrator. The very appointment of the Sole Arbitrator suffers from a permanent and indelible mark of bias and prejudice and as per Law, such a unilaterally appointed Arbitrator cannot be deemed to be an unbiased, neutral and independent arbitral tribunal. Therefore, the Sole Arbitrator, as the adjudicating Arbitral Tribunal lacks inherent jurisdiction and competence to adjudicate the disputes in hand, and thus, the impugned award is an unenforceable award and a nullity.
21. In view of the aforesaid reasons and discussions, the impugned Award dated 15.02.2022, which was passed by a dejure ineligible arbitrator, suffers from a permanent and indelible mark of bias and prejudice which cannot be washed away at any stage. The Sole Arbitrator lacked inherent OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 22/23 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 jurisdiction or competence to adjudicate the disputes in hand and therefore, the impugned award passed by him is non-est in the eyes of law and cannot be accorded the privileged status of an award. The impugned arbitral Award dated 15.02.2022 has been passed by Ld. Sole Arbitrator Sh.Sachan Ram, ex-parte against the objector/petitioner, who at no point of time, submitted to the jurisdiction of the Arbitral Tribunal or furnished any express waiver to challenge the ineligibility of the Sole Arbitrator or consented to the adjudication before the Sole Arbitrator.
22. Accordingly, this Court is satisfied that the Award dated 15.02.2022 passed by Ld. Arbitrator is unenforceable, void ab initio and non-est in the eyes of law and cannot be sustained and is therefore, set aside.
Parties to bear their own cost.
Petition stands disposed of accordingly. File be consigned to Record R oom.
Announced in the open Court today on this 1st day of April, 2024 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024 OMP (Comm.) 75/2022 Ravi Prakash Vs. M/s. Kotak Mahindra Bank Limited & Anr. Page 23/23 (PREETI AGRAWAL GUPTA) District Judge (Commercial Court)-01 North-West/Rohini/New Delhi.
01.04.2024